Month: September 2016

President Trump – why it might not be as improbable as you think


This election has always been Hillary Clinton’s to lose

To date, US presidential election campaign spending on traditional formats (e.g.TV, radio, newspapers, billboards) have shown the Clinton camp has used up over $145mn versus the Trump team’s $4.4mn. Clinton even made the remark that “why aren’t I 50-points ahead? You might ask?” Effective use of social media seems to be a factor. The Clinton team should be concerned at the lack of impact. Anything short of a landslide win should be considered a large warning to the DNC.

I am not a fan of Twitter. Let’s get that straight. It is usually a cesspit of vile abuse with little or no content. However, our two US presidential candidates are furious tweeters. Since the results from the primaries for both parties, both Clinton & Trump were around the early 4 million follower mark, the highest among all candidates. Since then, Trump has streaked ahead, making far better use of the platform, garnering over 11.7 million followers versus Clinton’s 8.9mn. We remind readers of our elections piece where we showed the high correlation of Twitter followings to election victories. Of course it isn’t an exact science. If Twitter was all that mattered, then Katy Perry could easily be the first female president.

When we look at other social media sites the pattern is the same. Trump’s Facebook followers number 10.77mn vs 6.06mn for Clinton and Instagram puts the Republican nominee at 2.4mn followers vs 2.1mn for the Democrat nominee.

In short Trump has 5.4x the impact of Clinton on re-tweets (RT) and 4.3x on Likes. On Facebook Trump has 2.5x the impact on shares and 3.4x the reach on Likes.

The first debate is set to kick off this week on Sept 26th (or Sept 27th at 10am in Japan). With Trump likely to have his tail up in the polls and Clinton fighting against a wave of health, credibility and authenticity issues it will be an interesting debate. Perhaps blood sport might be a better way of describing the contest. Trump talks like someone from a bar stool. Clinton will try to remain polished and composed.

It will not be down to what is said but how it is said. Of course Trump is likely to go for the jugular and potentially turn the debate into a trial with defendant Hillary Clinton in the witness box. This will be unlike any presidential debate before. In the past, they have been somewhat Harvard Debating Society meets where eloquence and delivery are the order of the day.

Clinton must project warmth. To date she has struggled to do this effectively. I doubt that she will be able to avoid attacking Trump but the only way to remove wood from his fire is to direct the debate to her ideals and plans to persuade Americans she is the better choice. Targeting The Donald’s ‘incidents’ will detract from what voters want and invite the bully to pick off her numerous issues which she does not need to have raised. The crowd expects it of Trump and when it comes to slinging mud I’m afraid the reality TV man will win such an argument.

Clinton must also avoid making gender an issue in this debate. Americans don’t care. Should she raise it during the meet or afterwards she will only expose herself as desperate.

When reading the mood of Americans Trump has been far more effective and ‘fresh’. Clinton has played her cards very safe which in this election seems a dangerous strategy. Defending a lead was all she thought that was necessary to win but with this gone she has allowed Trump a much easier run to the Oval Office.

Let the fireworks begin.

State income taxes coming under fire


The Rockefeller Institute writes that income tax revenue has fallen in the US and the likelihood is that they have to revise down 2017. Once again all signs of the US economy underachieving.

“[Tax]  information was available and easily retrievable for seventeen states and the data are presented in Table 3 for the months of April 2015 and April 2016. In eleven out of seventeen states, personal income tax collections in April 2016 were below the forecast levels, and in fourteen states they were below the April 2015 levels. The negative April surprises would certainly push the states to revise the forecasts for fiscal 2017 in the coming months…Overall, the average growth rate in sales tax collections is low by historical standards. Many consumers are more cautious in their discretionary spending in the post Great Recession period and have had little wage growth to support spending growth. 

While there were some slight tax rate adjustments among states, none-the-less the prognosis was

“As discussed in previous State Revenue Reports, the median state forecasted a slight slowdown in tax revenue growth in 2016 relative to 2015. We believe the results will be even worse than had been expected when data for the weak first calendar quarter of 2016 and the negative second quarter are reflected.”

Interesting to look at the trend of tax declarations/payments in Table 9. Doesn’t look a happy table.


We should remind ourselves of the massive (unfunded) holes in US State run pension funds. That runs at $8.4 trillion. With a low inflation environment and long term returns looking much harder to achieve, lower tax receipts will only weigh down on the ability of states to be able to shore up the deficits.

Goldman Sachs to cut 30% of Investment Bankers in Asia


Goldman Sachs (GS) has  long been regarded as a leader in the financial services sector. Bloomberg reports that the company is looking to reduce 30% of its Asian Investment Banking (IB) team.  GS’s Return on Equity (ROE) can be seen here. They are 1/3rd of those at the peak in FY2007. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.


Looking at other juggernauts Deutsche Bank is awful on any measure. It has been on a long term slide since the blow up during GFC

DB ROE.png

Even National Australia Bank with its tail up on housing in Australia has not exactly seen ROE improve.


In Japan,  Mitsubishi  UFJ Financial Group has not set the world on fire.


While central banks keep running the line that things are “pleasing”, financial services companies aren’t feeling the love.


What was this White House stat claiming poverty is the lowest it has been for 50 years?

I’ve seen so many boasts from people citing the White House claims that poverty has fallen off a cliff.  The NYC Department of Homeless Services  notes that average daily homeless shelter for families with children has jumped c.60% in the last 5 years to 13,000 comprising 41,000 individuals. Total people in NYC seeking shelter is almost 60,000.

In the past 2 years NY Mayor Bill De Blasio’s FY2016 “Mayor’s Management Report” highlighted a 42% jump in applications for “Emergency Rent Assistance” from New York City families worried their housing might be lost. Over 82,000 people applied vs 58,000 several years ago. Reading this report in more detail some of this rise in those seeking shelter is attributed to domestic violence (DV). I recall similar statistics in Japan. The police in Japan had to make a new category of DV for divorced couples still living with each other because either party couldn’t afford to move out.

The statistics are truly disturbing. According to Eurostat there are 122 million Europeans at risk of poverty. 25% of the population. One-third of Greeks are already there.To put that in context Australia is around 14% and Japan at 16%. The US is reported around 15%. Poverty USA claims that the number of Americans in poverty has not changed for four consecutive years. Poverty USA writes:

“Poverty does not strike all demographics equally. For example, in 2014, 13% of men lived in poverty, and 16% of women lived in poverty. Along the same lines, the poverty rate for married couples in 2014 was only 6%–but the poverty rate for single-parent families with no wife present was up to 16%, and for single-parent families with no husband present 31%.”

I wrote a few months back that even the Dollar General and Dollar Tree discount stores were experiencing troubles. On the Dollar General earnings call the other month management said,

“And when we’re out in stores and we drop prices like we do, I can tell you, I’ve been out in stores in the middle of the aisle and heard customers come up to our store manager in tears and thanking them for being there and thanking them for the prices that we offer in a real convenient nature for her, where she can walk to the store, because she can’t afford anything else. When you hear that, that really brings home where this core customer is.”

Dollar General share price is down 25% in the last month while Dollar Tree is down 19%.

A recent ME Bank survey in Australia found only 46 per cent of households were able to save each month. Just 32 per cent could raise $3000 in an emergency and 50 per cent aren’t confident of meeting their obligations if unemployed for three months.

A recent Federal Reserve survey in the US found only 53 percent of respondents indicate that they could cover a hypothetical emergency expense costing $400 without selling something or borrowing money. Thirty-one percent of respondents report going without some form of medical care in the past year because they could not afford it. So that is 47% who cannot raise $400 in an emergency.

60% of Americans get most of their income from social security. There are 30 million Americans who are receiving some form of disability related payment.

Seems to me poverty is more about the classification than the reality.

Funniest thing I’ve heard all week if it wasn’t so serious

unemp“The FOMC is not a body that suffers from group think” – Fed Chair Janet Yellen. Normally I have to wait to read the FOMC Minutes some 3 weeks after the FOMC meeting to be stunned at the ridiculous language used to cover up the fact they have no idea. I reported last time that the Fed said “The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff’s assessment that both monetary and fiscal policy appeared to be better positioned to offset large positive shocks than adverse ones.”

In the press conference Yellen said “Why didn’t we raise”? It does not reflect a lack of confidence in the economy…let me try to set out again…we are generally pleased with how the US economy is doing… evidence is that the economy is expanding more strongly…we don’t see the economy as overheating now…we continue to progress toward our objectives”.” The last sentence beggars belief. If the FOMC keeps lowering forecasts I would argue the objectives are progressing toward you. That’s right you have to cut forecasts to make it sound as though you have credibility.

If things are so peachy why has the Fed lowered its 2016 and  long term GDP growth target to 1.8%? One reporter sensibly asked “if you’re cutting growth predictions, where is the inflation coming from?”  Yellen suggested that the risk of labour market tightness with a healthy hiring outlook but lower productivity.

I thought the use of the word “overheat” by Yellen several times was mind boggling. If the US economy is at risk of overheating on 0.37% rates and you’ve just cut forecasts to 1.8% long term growth, what does that suggest for a normal operating GDP level? There is no way anyone can take central bankers seriously. The language she used in the press conference was a total fiction.

I updated the following chart on US unemployed persons which shows ominous signs of picking turning points of economic weakness over the last 60+ years. Since May 2016, the number is up over 400,000. It will be interesting to see if the September labour stats due in early October show unemployed rising north of 8mn. We’ll know soon enough.

Gov Kuroda how do you intend to control the yield curve?

Image result for kuroda

The BoJ intends to keep much of the same game in play with the addition of ‘yield curve control’ QE measures which almost sounds like an automotive active safety system. One of my astute former colleagues correctly pointed out that “if we have surrendered the yield curve to the complete control of the BoJ and the BoJ wants to steepen the curve, how can they do this without tightening money supply, given liquidity at the short end of the curve? How is this good for a weak yen? Who is the willing counter party to a manipulator now looking top SELL not BUY to manipulate prices downward? Does this mean the end of fixed income departments?

Once again, market manipulation as being conducted on the scale done by the BoJ would result in the multi-decade sentencing of anyone in the private sector. Although perhaps given Japan’s woeful prosecution of market manipulators (i.e. fines of $500 (yes five hundred dollars only) for insider trading) then perhaps the BoJ does not see its actions as anti-capitalist. My bigger concern remains yet again the refusal to allow the market to function properly. Ploughing more into equity ETFs might seem a helping hand to Mrs Watanabe but she is not out there spending any gains she might get. At the rates the BoJ is buying if this strategy doesn’t work the BoJ will end up part-nationalising listed companies which in turn will fly in the face of PM Abe trying to attract foreign capital to invest in Japan when liquidity is being sucked out of the market.

I did find the comment in the opening remarks of Kuroda’s assessment somewhat overly optimistic for the real economic impacts to reflect it – “More than three years have passed since the Bank introduced QQE in April 2013. In this period, Japan’s economic activity and prices have improved significantly, and Japan’s economy is no longer in deflation.

He goes further to highlight the ‘vision’ which for the most part is theoretical gibber.

“The main transmission channel of QQE would be the reduction in real interest rates. Namely, (1) people’s deflationary mindset would be dispelled and inflation expectations would be raised [this is not happening!] through the Bank’s large-scale monetary easing under its strong and clear commitment to achieving the price stability target of 2 percent. At the same time, (2)downward pressure would be put on nominal interest rates across the entire yield curve through the Bank’s purchases of JGBs. (3) Together, these developments would reduce real interest rates. (4) The decline in real interest rates would lead to an improvement in the output gap. (5) The improvement in the output gap, together with rising inflation expectations, would push up the observed inflation rate. (6) Once people experienced an actual rise in the inflation rate [Japan has coped with near as makes no difference zero inflation for 20 years], they would adapt their inflation expectations, resulting in higher inflation expectations and further reinforcing this process…In addition, it was envisaged that as a result of the Bank’s monetary easing, (7) asset prices such as stock prices [fuelled by artificial ETF buying] as well as the foreign exchange rate [FX is back to the same levels of April 2013 and since NIRP has strengthened 10%] would reflect actual or anticipated improvements in economic activity and prices, thereby improving financial conditions and having a positive impact on economic activity and prices. Finally, it was envisaged that (8) it would work through the portfolio re-balancing effect by increasing investors’ appetite for risky assets [Japanese are traditionally very conservative investors and this is pushing them out of their comfort zone, so much so they’re buying home safes], thereby exerting a positive effect on prices of risky assets and leading to an increase in lending [Japanese banks are hesitant to lend – lending sideways since April 2013].

Toward the end the BoJ acknowledges:

“Given that the decline in deposit rates has been smaller than the decline in lending rates, the decline in lending rates, however, has come at the expense of financial institutions’ lending margins. Therefore, the extent to which a further decline in interest rates translates into a reduction in lending rates will also depend on financial institutions’ lending stance going forward.”

Although I interpret the “Moreover, reflecting financial institutions’ search for positive yield, new developments have been observed in the field of corporate finance such as an increase in the issuance of super-long-term corporate bonds and in funding through long-term subordinated loans” comment to suggest that gullible investors that get sucked into buying super LT corp bonds to get a morsel of yield may get completely thumped if weakening credit conditions for such enterprises (e.g. a Sharp or Toshiba) down the line crater their asset worth given the extended duration.

“In addition, it should be noted that financial institutions can boost their profits by selling assets they hold to realize valuation gains, which tend to increase when interest rates fall and the yield curve flattens.”  I’m sorry but the BoJ promoting this activity as a virtuous circle just shows how Mickey Mouse the amateur levels of desperation at the BoJ are. This is kindergarten level commentary although at least their translators haven’t mastered the Fed’s use of comical language.


“Another issue is that an excessive decline in interest rates — especially at the long and super-long end — lowers the rates of return on insurance and pension products, and increases firms’ pension benefit obligations. The direct impact of this on economic activity as a whole is unlikely to be substantial. However, attention needs to be paid to the possibility that it can cause uncertainty regarding the sustainability of financial functioning in a broader sense, with a negative impact on economic activity through a deterioration in people’s sentiment.”

Perhaps I should ask why the Japanese government will explicitly withdraw ‘public pension’ money from individual bank accounts of those who earn Y3mn from Y3.5mn but are not contributing, largely because they have no faith in the pension system. Some 270,000 people are supposedly guilty of this crime but Although the return profile of Japanese pensions is far more realistic than US public pension funds, the unfunded risks going forward remain.

So what looked promising on the announcement is now being seen for what it is. Poorly thought out strategy. Trying to manipulate a curve where the BoJ might be both seller and buyer…hmmmm

c.50% of Aussies want to ‘skittle’ Muslim immigration & double standards of politically correct candy

It seems that almost half the population in an Essential poll conducted in Australia showed that people would prefer a halt to Muslim immigration. This poll reported that those in favour of banning it included 60 per cent of Coalition voters, 40 per cent of Labor voters and 34 per cent of Greens voters. That a third of Greens voters were in favour of a ban is at odds with its party platform which wants to take on a larger amount. The point  politicians need to wake up to is a growing number are getting fed up with politically correct handling by governments and a shut down of open debate. It also points directly to a growing number of people wanting 18-C reformed.

The most common reasons for wanting a ban were fears over terrorism, a belief that Muslim migrants do not integrate into society and a refusal to share Australian values. The poll was first conducted in early August and then repeated to ensure it was not a rogue. Whatever one’s feelings the results are telling.

Senator Pauline Hanson, leader of the One Nation party, won 600,000 votes at the last election striking a chord with disenchanted voters fed up with ‘political correctness’ and elected officials dancing around the ‘M’ word. Is Australia fundamentally racist or do half the population believe they shouldn’t have to deny their identity to gain acceptance? Do they see big issues with our government forcing asylum seekers to sign codes of conduct making sure they understand that raping women and children is not acceptable? I would imagine that more Australians would like the government to adopt the Swiss approach of ‘integrate to our way of life’

As I have written in the past, there has been a sharp uptick in the right wing parties in Europe. In last weekend’s Berlin election, Angela Merkel’s CDU suffered its worst defeat to alternative parties such as the Alternative for Deutschland (AfD) which also has an anti immigration stance. While Merkel may have taken full responsibility and lamenting over her misguided altruism, voters want action not words. Why is it that Germans are lining up to get permits to carry personal weapons in record numbers. “As of June 2016, there were 402,301 small arms carry permits in the National Weapons Register,” the Interior Ministry said, cited by Die Welt. “This figure is c.50% higher than last year when there were just fewer than 270,000 requests for permits in the first half of 2015.”

Why were people surprised or outraged at Donald Trump Jrs ‘Skittles’ comment? Certainly no difference in stance to the rhetoric of Trump Sr. in discussing ‘harder vetting’ or shock and awe delivery to fellow Deplorables. Regardless of whether one agrees or not with the message delivery it certainly had impact which plays to the Trump call for stronger border control.

While the left jumped all over the comments made by Trump as racist by politicising candy (of all things!) one must ponder why Mars Corp issued a slap down of Trump Jr’s comments while it found it OK in June of this year to put out all white skittles (see below) in honour of LGBT pride week in London.


Skittles wrote, “So this is kind of awkward, but we’re just gonna go ahead and address the rainbow-colored elephant in the room…You have the rainbow … we have the rainbow … and usually that’s just hunky-dory…But this Pride, only one rainbow deserves to be the centre of attention—yours. And we’re not going to be the ones to steal your rainbow thunder, no siree.”

This all too common rash corporate liberalism exposes a double standard among the left.  I note that feminists pushed the cause of M&Ms when talking of men and rape culture. Their line was the same – “you say all men aren’t monsters? Imagine a bowl of M&Ms. 10% are poisoned Go ahead, eat a handful. Not all M&Ms are poison.” Why did Mars not issue a statement denouncing feminists use of M&Ms to politicise rape culture?

Regardless of one’s views on immigration, there is absolutely 100% need for open debate on the topic. Is anyone surprised that the longer governments have swept this elephant in the room under the carpet, the larger the resentment has grown. Perhaps if Mars would allow me to use one of their other brands like ‘Seeds of Change’ to restore ‘goodness from the ground up’ where conversation was organic not genetically modified.