Hugh Hendry: "If China Devalues By 20% The World Is Over, Everything Hits A Wall"
Submitted by Tyler Durden on 03/26/2016 21:27 -0400 ZeroHedge.com Once upon a time Hugh Hendry was one of the world's most prominent financial skeptics, arguing with anyone who would listen that the status quo is doomed and that central planning will never work. Most famously, back in 2010 during a BBC round table discussion with Jeffrey Sachs and Gillian Tett when discussing Europe's crashing experiment with the single currency, he said that we should "purge this system of its rottenness. Let's take on a recession. It's going to be tough, people are gonna lose their jobs. They are going to lose their jobs anyway. We can spread this over 20 years, or we can get rid of it over 3 years" before concluding "I recommend you panic." Ultimately everyone did panic, which led to the single biggest episode of global QE and negative rates ever seen, resulting in ever louder speculation even among the most "serious" people that central bankers are now powerless. But perhaps most notably, Hendry was one of the biggest China bears, certain that the country's massive overcapacity, insolvency and bad debt problems will result in disaster (back then China only had about 200% debt/GDP, it has since risen to over 350%). His Chinese skepticism led to his fund generating a 40% profit by late 2011.And then after a poor two year performance spell, Hendry had a historic burnout and threw in the towel on bearishness, infamously saying he can no longer "look at himself in the mirror": "I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell'. The S&P 500 is up 30% over the past year: I wish I had thought this last year... Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending." He proceeded to buy momentum stocks and 3D printer companies. Fast forward to the present, when countless hedge funds - key among them Kyle Bass' Hayman Capital and Mark Hart's Corriente - have become China megabears, expecting the country's financial collapse and trading it by shorting the Yuan expecting a massive Yuan devaluation.It is here that Hugh Hendry has once again proven contrarian, even if it means agreeing with the dominant textbook meme of the day, namely that China can contain its economic hard landing, and in his most recent interview with RealVision's Raoul Pal, he cautions against a Chinese devaluation saying that "tomorrow we wake up, I mean, I would jump out the hotel window if this was the scenario, but we wake up and China has devalued 20%. The world is over. The world is over." What makes this interview doubly ironic is not just that Hendry is wildly contradicting everything he himself believed in a few short years ago, but disagrees with his interview host himself - recall that one month ago, we showed an excerpt from a Raoul Pal interview in which he previewed "the Big Reset" and laid out how the Kondratieff Winter would unwind, one in which China would play a prominent part. Whether Hendry is right or wrong remains to be seen: for now he has the powerful People's Bank of China at his back which has been especially active recently especially after the PBOC stated recently it intends to crush all hedge funds who have shorted the Yuan even if it means slamming Chinese trade and the economy once again (as a reminder, one of the biggest reasons why China needs a weaker Yuan is not just the stronger dollar to which it is pegged but because its exports have been crashing against all of its trading partners making the need for a weak currency paramount). For now, as we showed just ten days ago, those short the Yuan have swung to wildly profitable to losing money as both the USD has slid and the Yuan has spiked, although both of these trades appear to be reversing now.Needless to say, Hendry disagrees with the China contrarians and believes that the way to fix the Chinese economy is through a stronger currency, even if there is no logical way how that could possibly work when China's debt load is 350% of GDP while its NPLs are over 10% and rising.So, borrowing form a favorite Keynesian trope, one where when the countrfactual to his prevailling - if incorrect - view of the world finally emerges, Hendry is convinced that a 20% devaluation would lead to global devastation; the same way if Paulson did not get Congress to sign off on his three page term sheet that would lead to the "apocalypse." Only unlike Paulson who only hinted at a Mad Max world, for Hendry the alternative to him being right is a very explicit doomsday scenario, as he explains in the following excerpt from his RealVision interview: Tomorrow we wake up and China has devalued 20%, the world is over. The world is over. Euro breaks up. The world is over. The euro breaks up. Everything hits a wall. There's no euro in that scenario. The US economy, I mean everything hits a wall! Everything hits a wall! The dollar strength that you imagined is devastation because you just eliminated dollars. They're a scarce commodity. You've wiped them out. And China is a pariah state. It's a 'Mad Max' movie, right. OK, China gets to be the king in 'Mad Max' world. How appealing is that? There is no world after the tomorrow where China devalues by 20%. There is no world. Yeah, it's looney tunes to believe that, people say, 'oh wow, they needed to catch a break.'Their share of world trade has never been higher. They're facing no pressure, immense terms of trade improvement, and you would destroy world trade. World trade is down 25%. You would probably have passport restrictions, the world is over. And while it is clear on which side of the Yuan Hugh is currently positioned (Hendry's Eclectica is down 2.1% through March 18 and -5.9% YTD) either directly or synthetically, we can't wait to see who is right in the end: China and its central bank (as well as Hugh Hendry) or reason and common sense (as well as some of the smartest hedge funds in the world).
Behind U.S. GDP Data Is Reason for Recession Worry: Weak Profits
Rich Miller RichMiller28 Bloomberg.com Alexandre Tanzi atanzi
Yet beyond the headline number, there is a reason for some concern. Corporate profits plunged 11.5 percent in the fourth quarter from the year-ago period, the biggest drop since a 31 percent collapse at the end of 2008 during the height of the financial crisis. For 2015 as a whole, pretax earnings fell 3.1 percent, the most in seven years, according to the Commerce Department. That’s “bad news,” said Nariman Behravesh, chief economist for IHS Inc. in Lexington, Massachusetts. History shows that when earnings fall, the economy often follows them downward into recession as profit-starved companies cut back on hiring and investment. There are, however, some caveats to such a gloomy conclusion. Last quarter’s numbers were unusually depressed by a $20.8 billion penalty payment by BP Plc to settle claims over the 2010 oil spill in the Gulf of Mexico. Taking that into account, earnings fell about 7.6 percent, according to Bloomberg calculations. That’s still weak but not as bad as the 11.5 percent slump. Behravesh also pointed out that the decline was heavily concentrated in the petroleum and coal industries, where profits plummeted by more 75 percent in 2015 as energy prices collapsed. That makes it less worrying from the point of view of the overall economy. "Greater profits are a growth engine for the economy, but we are looking past this data today as it seems to be related to the big decline in oil," Chris Rupkey, chief financial economist with Bank of Tokyo Mitsubishi UFJ Ltd. in New York, said in an e-mail. Jesse Edgerton, an economist with JPMorgan Chase & Co. in New York, was less sanguine. Yes, the poor earnings outturn was due to energy companies struggling with lower oil prices and manufacturers hit by a strong dollar, he said. "But it also likely reflects the beginnings of a profit-margin squeeze driven by tighter labor markets, rising wages and weak productivity," he added in an e-mail to clients. And that, he suggested, is something to fear. Banks Need Government's Help to Say Yes to Weed, Lawmakers Argue
Elizabeth Dexheimer Bloomberg.com March 24, 2016 — 3:35 PM EDT
A group of lawmakers want to make it easier for banks to just say yes to the booming business for legalized marijuana. Four Democratic U.S. senators from Washington, Colorado and Oregon, asked a group of regulators Thursday to clarify how lenders can help finance the industry and still comply with the law so that companies in states that permit pot sales don’t have to run their businesses solely on cash. “Many marijuana-related businesses are experiencing difficulty accessing financial services and must operate all-cash operations,” Senators Jeff Merkley and Ron Wyden of Oregon, Patty Murray from Washington and Michael Bennet from Colorado wrote in a letter to six U.S. regulators. “Without clearer guidance from all federal regulators to provide certainty in the regulatory environment, most banks and credit unions are still not serving marijuana-related clients." The U.S. government has indicated it wants to encourage banks to lend to marijuana companies and hold their revenues as deposits. The goal is to make it easier to tax sales and keep profits from the fledgling industry away from organized crime. But federal regulators have remained largely silent on the issue amid concerns that banks could run afoul of U.S. laws that prohibit financing of dealers. That’s left lenders dazed and confused over whether they should accept cash from pot businesses. Cash Refused The Financial Crimes Enforcement Network, a Unit of the Treasury Department, has provided instructions to banks on how they can accept marijuana business dollars and still comply with the law. In their letter Thursday, the lawmakers asked the Federal Reserve, Federal Deposit Insurance Corp., Office the Comptroller of the Currency and the National Credit Union Administration to work with FinCEN to issue guidance on how banks can serve the legal pot industry. The agencies have already discussed the issue, the senators’ letter said. Few banks have opened their doors to business people from the cannabis industry, despite aggressive lobbying. Most of the biggest U.S. banks including Citigroup Inc., Wells Fargo & Co., and JPMorgan Chase & Co. have said they won’t provide services to businesses that engage in activity that is illegal under federal law. That’s a problem because the billions of dollars produced from lawful weed sales can’t be monitored by banks for possible illegal activity. State officials also have expressed concern that large stashes of cash in warehouses, businesses and homes could create public safety issues, possibly leading to violent robberies or worse. In their letter, the senators said that the “significant public safety risk” posed by the amount of cash in the pot industry creates “a prime target for robbers and other criminals.” The lawmakers all represent states where marijuana is legal. The Case of the Missing Pension
Tracking down a plan from a former employer can be difficult. Carol Matlack Bloomberg.com As a baby boomer, I joined the labor force when many jobs still came with an old-style pension, the kind that pays a fixed monthly sum in retirement. Although pension plans have been largely phased out in favor of 401(k) and individual retirement accounts, those of us who paid into them are entitled to the benefits we accrued. Getting our hands on the money may not be easy, as I recently learned when I decided to take inventory of my retirement assets. Job-hopping workers, corporate upheaval, and spotty record keeping have left billions of dollars owed to Americans in limbo. “It’s a vast problem that has a huge impact on retirement security,” says Jeanne Medeiros, director of the Pension Action Center, a research group at the University of Massachusetts Boston. She estimates unclaimed pension benefits could total as much as $8 billion annually. When I left a job at National Journal magazine in Washington in 1995, I was offered a choice between staying in the company pension plan or taking a $19,100 lump-sum payment. I opted for the pension, carefully filing away the paperwork I got from HR, which estimated I’d get $436 a month starting at age 65. That doesn’t sound like much, but it would total more than $100,000 if I lived 20 years after retirement. National Journal had been owned by the Times Mirror media group when I worked there, but was sold in 1997. I figured the new owner’s HR department would still have the pension records. It didn’t and had no idea who did. Times Mirror was eventually acquired by the Tribune Co., which split into two companies in 2014. News reports at the time said Tribune had more than $90 million in unfunded pension liabilities. Oh dear. 1,650 Number of 401(k) plans abandoned each year, according to the U.S. Labor Department I tried the Pension Benefit Guaranty Corp., a federal agency that takes over pension plans if they go bankrupt. It’s also a repository for unclaimed benefits owed to people whose former employers have terminated their plans. The PBGC has an online database of some 35,200 people who are collectively owed $351.5 million. I wasn’t in the database—which was frustrating, but also good news, since it meant my pension plan hadn’t gone bust or shut down. I then turned to the Pension Rights Center, a nonprofit that has counseling centers in 30 states to help people with retirement-benefit problems. Bad luck: Neither the District of Columbia, where I had worked, nor Virginia, where I lived at the time, are among the areas it serves. Next stop was the Department of Labor’s Employment Benefits Security Administration, which helps people locate pensions and 401(k) accounts. I filled out a request form on its website. A few weeks later, a representative left a message saying she was still searching. In the meantime, though, I’d had a breakthrough: A former colleague remembered that another co-worker had opted to remain in the old pension plan back in 1997. I located him, and he told me he was now receiving monthly retirement benefits via fund management giant Vanguard. I called Vanguard, provided my Social Security number, and—bingo! Later, I learned that my pension had been folded into a Times Mirror plan after the 1997 sale. Tribune, after acquiring Times Mirror, had kept that plan separate from its troubled pension holdings (what luck!) and hired Vanguard to administer it. A letter apprising me of all these changes was mailed to an address where I hadn’t lived for 17 years. Such situations are “not uncommon,” Emily Farrell, a Vanguard spokeswoman, told me, noting that plan participants “move, marry, change names, etc., and often don’t notify the plan sponsor.” Tracking down an errant 401(k) can be even more challenging, according to John Turner, director of the Pension Policy Center, an advocacy group in Washington. The Labor Department says employers abandon some 1,650 401(k) plans every year. Over the past decade, that’s left in limbo more than $8 billion owed to people who left their accounts behind when they changed jobs. Even when plans remain active, people sometimes forget about their accounts or die without leaving records for heirs. The Labor Department can sometimes help locate missing 401(k) savings, but not always. Unclaimed 401(k) accounts often sit in financial institutions for years and eventually are turned over to state abandoned-property agencies, Turner says. “It’s kind of a black hole.” Turner’s group has urged the government to set up a searchable registry of unclaimed pensions and retirement accounts nationwide, as Britain and Australia have done. One easy way to keep tabs on a pension or 401(k) when you change jobs is to roll the money over into an IRA or your current employer’s 401(k). There’s a downside, though. A study last year by the Center for Retirement Research at Boston College found that annual returns on IRAs averaged only 2.2 percent from 1999 to 2012, compared with 3.1 percent for 401(k)s and 4.7 percent for traditional pension plans. Higher management fees account for at least some of the difference, the study found. The bottom line: Unclaimed U.S. pension benefits may total as much as $8 billion annually. Abandoned 401(k)s leave billions more in limbo. Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash "Gift-Certificate" Money Drop To Young People Submitted by Tyler Durden on 03/23/2016 20:06 -0400 ZeroHedge.com The Swiss, the Finns, and the Ontarians may get their 'Universal Basic Income' but the Japanese are about to turn the Spinal Tap amplifier of extreme monetary experimentation to 11. Sankei reports, with no sourcing, that the Japanese government plans to unleash "vouchers" or "gift certificates" to low-income young people to stimulate the "conspicuous decline" in consumption among young people. The handouts may not be deposited, thus combining helicopter money (inflationary) and fully electronic currency (implicit capital controls and tracking of spending). Since Ben Bernanke reminded the world of the existence of government printing-presses, echoed Milton Friedman's "helicopter drop" solution to fighting deflation, and decried Japan for not being as insane as it could be... it has only been a matter of time before some global central bank decided that the dropping of cash onto the populace was the key to economic recovery. Having blown their wad on QQE (and been left with a quintuple-dip recession) and unleashed NIRP, it appears Japan has reached that limit. As Bloomberg reports, The Japanese government plans to include gift certificates for low-income young people in its fiscal 2016 supplementary budget, Sankei reports, without saying who provided the information. Recipients would be able to use them for daily necessities. The government sees gift certificates as more effective in stimulating consumption than cash handouts, which may be deposited. As Sankei reports (via Google Translate), The government 23 days, as the centerpiece of the 2016 fiscal year supplementary budget to organize because of the economic stimulus, cemented the policy to include the low-income measures for young people. To examine the distribution of vouchers to be devoted to the purchase of such daily necessities. Although the 2015 supplementary budget, which was established in January was the extraordinary benefits pillars of the elderly, because the conspicuous decline in consumption among young people, hopes to work to shore up at the pin point. Low-income measures of the past on the grounds such as "benefit is Oyobi difficult wage hike" (Chief Cabinet Secretary Yoshihide Suga) is for the elderly was the main. However, in January of Family Income and Expenditure Survey (two or more people households), consumption expenditure of 34-year-old following of young people in a significant negative same month of the previous year of 11, 7% decrease, compared to the total household average of 3.1% year on year decline was noticeable even. Government in order to raise the level of personal consumption to be sluggish, the determination and consumption stimulus measures of young people is essential. Rather than the benefits that potentially turn into savings is pointed out, we are considering the distribution of gift certificates. Details, such as low-income earners of interest and business scale is filled from April. According to the Cabinet Office survey, for which the straight-line benefits that were distributed in 2009, many of proportion to turn to the consumer from the elderly entitlements is more of the child-rearing households than the household, this time of the measures expected a certain effect on the consumption raise That's it. Per capita 3 27 fiscal distribute the yen supplementary budget of extraordinary benefits to the elderly of the low-income, objection such as "Why do you favor only the elderly" was out of the ruling and opposition parties. Ahead of the House of Councillors election, there is also aim to appeal to the support measures for young people. And so while some might liken it to EBT cards in the US... it appears this is simply a hidden way to directly hand out free money to those that spend (lower income) and force consumption (non-depositable or savable) and thus... increase inflation... So no need for firms to raise wages after all!??! Well played Abe. One wonders how much these "gift certificates" will trade for on the black market... as we are sure some 'spending' will be disallowed and require the use of cash - no sugary drinks... no Fugu (google it)... no Sumo tournaments... and no BMW X6 And finally here is Charles Hugh-Smith to destroy the idea that this works... In sum, the psychology of punishing the productive and rewarding non-contributors is destructive to everyone. Have proponents forgotten that humans are prone to emotions such as resentment? Resentment goes both ways; the recipients of Basic Income will be getting by, but they won't be able to build capital or better their financial stake. They are in effect Basic Income Serfs. Proponents also believe that the loss of work will free everyone getting a basic income to become an artist, composer, musician, etc. As I noted in "Super-Welfare" Guaranteed Income For All Isn't a Solution--It's Just the New Serfdom, Since meaningful work is the source of positive social roles, Hell is a lack of meaningful work. In the myopic view of the Basic Income proponents, humans are nothing but consumer-bots who chew through the Earth's resources in their limitless quest for more of everything-- what the Keynesian Cargo Cult worships as "demand." Tragically, this blindness to humanity's need for meaning and the elevation of spiritually empty consumerism to a Secular Religion leaves the basic Income crowd incapable of understanding this timeless truth: the only possible result of robbing people of their livelihood is despair. Once meaningful work vanishes, so do positive social roles. This is why guaranteed income for all is just a new version of Socioeconomic Hell. Being paid to do nothing does not provide meaningful work or positive social roles, which are the sources of positive identity, pride, purpose, community and meaning. The petit-bourgeois fantasy of every individual flowering as an artist, musician and creator once freed of work is an abstraction, one born of the expansion of academic enclaves and private wealth-funded dilettantes fluttering from one salon to the next. (Ever notice how many trust-funders have therapists? Would they all need therapists if being freed from work automatically generated happiness and fulfillment?) These are precisely what basic income for all doesn't provide. To the degree that serfdom is political powerlessness and near-zero access to the processes of accumulating productive capital, guaranteed income for all is simply serfdom institutionalized into a Hell devoid of purpose, pride, meaning, community and positive social roles. * * * As we previously detailed, support is growing around the world for such spending to be funded by “People’s QE.” The idea behind “People’s QE” is that central banks would directly fund government spending… and even inject money directly into household bank accounts, if need be. And the idea is catching on. Already the European Central Bank is buying bonds of the European Investment Bank, an E.U. institution that finances infrastructure projects. And the new leader of Britain’s Labor Party, Jeremy Corbyn, is backing a British version of this scheme. That’s the monster coming to towns and villages near you! Call it “overt monetary financing.” Call it “money from helicopters.” Call it “insane.” But it won’t be unpopular. Who will protest when the feds begin handing our money to “mid- and low-income households”? Simply put, The Keynesian Endgame is here... as the only way to avoid secular stagnation (which, for the uninitiated, is just another complicated-sounding, economist buzzword for the more colloquial “everything grinds to a halt”) is for central bankers to call in the Krugman Kraken and go full-Keynes. Rather than buying assets, central banks drop money on the street. Or even better, in a more modern and civilised fashion, credit our bank accounts! That, after all, may be more effective than buying assets, and would not imply the same transfer of wealth as previous or current forms of QE. Indeed, ‘helicopter money’ can be seen as permanent QE, where the central bank commits to making the increase in the monetary base permanent. Again, crediting accounts does not guarantee that money will be spent – in contrast to monetary financing where the newly created cash can be used for fiscal spending. And in many cases, such policy would actually imply fiscal policy, as most central banks cannot conduct helicopter money operations on their own. So again, the thing to realize here is that this has moved well beyond the theoretical and it's not entirely clear that most people understand how completely absurd this has become (and this isn't necessarily a specific critique of SocGen by the way, it's just an honest look at what's going on). At the risk of violating every semblance of capital market analysis decorum, allow us to just say that this is pure, unadulterated insanity. There's not even any humor in it anymore. You cannot simply print a piece of paper, sell it to yourself, and then use the virtual pieces of paper you just printed to buy your piece of paper to stimulate the economy. There's no credibility in that whatsoever, and we don't mean that in the somewhat academic language that everyone is now employing on the way to criticizing the Fed, the ECB, and the BoJ. And it will end only one way... The monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds and drops the money into household bank accounts, the central bank buys the new bonds and promptly buries them in the bank's balance sheet as an asset. The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues. But the downsides of helicopter money are never mentioned, of course. Like QE (i.e. monetary stimulus), fiscal stimulus (helicopter money) will be sold as a temporary measure that quickly become permanent, as the economy will crater the moment it is withdrawn. The temporary relief turns out to be, well, heroin, and the Cold Turkey withdrawal, full-blown depression. |
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