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Why Interest Rates Don’t Need To Rise Much To Cause Recessions Now

Authored by Jesse Colombo via RealInvestmentAdvice.com, As the probability of a U.S. recession in the next year grows rapidly (it may be as high as 64%), many bullish economists and financial commentators are unsurprisingly downplaying this risk. One of their main arguments is that interest rates have not been hiked aggressively enough to tip the economy over into a recession. While it is true that U.S. interest rates are still very low by historic standards, the reality is that rates do not have to rise anywhere near as high as they did in the past to cause recessions due to America’s debt load that has grown dramatically over the past several decades. Since the early-1980s, total U.S. debt – both public and private – has been growing at a faster rate than the underlying economy, as measured by the nominal GDP: As a result of debt growing faster than our underlying economy, America’s debt as a percent of GDP soared from just over 150% in the early-1980s to approximately 350% in recent years. This higher debt burden is the reason why our economy simply cannot handle interest rates as high as they were before 2008. Particularly worrisome is the fact that U.S. federal debt is at a record of over 100% of the GDP (vs. 62% before the Great Recession), which will make it a much greater challenge to keep the economy afloat in the coming...

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2 Year Auction Unexpectedly Strong Just As Powell Pours Cold Water On Treasuries

In the chaos over Powell’s unexpectedly less dovish comments which hit the tape at exactly 1pm, when sent stocks lower, and the dollar and bond yields sharply higher, the primary market had no time to react as it had already submitted its indications for today’s $40 billion 2 Year auction when Powell suddenly pulled the rug from under the bond market, sending 2Y yields higher and yet since there was solid demand for the auction before Powell’s commentary, the sale of 2Y bonds was a smashing success, stopping at a high yield of 1.695%, 1bp inside the 1.705% When Issued, the 6th consecutive 2Y auction that did not tail. This was the lowest 2Y yield since October 2017, and 43bps below May’s 2.2125%. The bid to cover came in at 2.576, modestly lower than May’s 2.745, if just above the 2.54 six auction average. Finally, the internals were unremarkable with foreign buyers, i.e. Indirects taking 48.5% up from 46.6% last month, and on top of the 47.9% average. And with Directs taking down 24.2%, well above the 17.7% average, Dealers were tstuck with 27.3%, modestly above May’s 26.2 but only the second lowest print of 2019. Overall, a very strong auction which could have had a far different outcome if Powell’s prepared remarks had hit just an hour...

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Silence From White House As Russia Again Parks A Military Plane In Venezuela

Though US external pressures on the Maduro regime in Caracas appear to have calmed for the moment, with President Trump reportedly “bored” with pursuing regime change in a complicated political climate that’s “low-hanging fruit” for American foreign policy goals, continued Russian military involvement there could again spark ratcheting tensions.  On Monday a large Russian air force transport plane touched down in Caracas (specifically an Ilyushin IL-62), as first noticed by the monitoring website Flight Radar 24, and now confirmed by Russia’s Deputy Foreign Minister Sergei Ryabkov on Tuesday, according to the Interfax news agency. Ryabkov described the deployment’s purpose as to service Russian military equipment already in the country, as reported by Reuters.  Russian military transport plane in Caracas. Image source: Manaure Quintero/Reuters Just three months ago a similar Russian air force plane arrival resulted in condemnations out of the White House. At that time Trump said that “Russia has to get out” amid US efforts to back opposition leader Juan Guaido. And John Bolton went further in essentially invoking the 19th century Monroe doctrine, saying at the time: “We strongly caution actors external to the Western Hemisphere against deploying military assets to Venezuela, or elsewhere in the Hemisphere, with the intent of establishing or expanding military operations” comments which came in late March . Given Trump’s latest expressed desire to get out of the regime change business in Venezuela, will Monday’s Russian jet landing in Caracas be...

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Can AI Save The Nuclear Industry?

Authored by Haley Zaremba via OilPrice.com, Attitudes about nuclear energy are changing, with pundits on both sides of the aisle touting its benefits for extremely efficient and relatively clean energy. Despite an ever more positive public opinion, the nuclear industry in the United States, the largest in the world, is currently experiencing a downturn, even going so far as to need government subsidies to keep afloat. In fact, at present the fastest growing sector of the nuclear industry is profiting not off of growth, but off of the nuclear sector’s slow death in the United States. According to reporting by Bloomberg, “the fastest growing part of the nuclear industry in the U.S. involves a small but expanding group of companies that specialize in tearing reactors down faster and cheaper than ever before.” this statement begins the article appropriately entitled “Fastest-Growing Nuclear Business Is Tearing Down U.S. Plants“. Tearing down old nuclear reactors is no easy feat, however. Not only is it historically extremely expensive, it’s also highly hazardous. Even in nuclear plants in good condition, it’s a job that requires the utmost level of care and a ton of specialized gear in order to protect workers from radioactive materials. “Those who do handle radioactive material must first don protective suits that are inherently cumbersome and are further encumbered by the air hoses needed to allow the wearer to breathe,” a report from the Economist details. “Even...

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Stocks Extend Losses After Bullard, Powell Comments

Update: Fed Chair Powell is speaking now and is less than his recently dovish self. Signaling that they will “monitor,” Powell added that “damage arises when policy bends to political interests” seemingly signaling a more hawkish bias than the market’s greed requires… *  *  * St.Louis Fed President Jim Bullard – and uber-dove – has apparently decide to distance himself from going ‘full-Kashkari’ by noting while “it seems like a good time for an insurance rate-cut,” the situation “doesn’t call for 50bps.” *BULLARD: SITUATION DOESN’T CALL FOR 50 BASIS POINT RATE CUT@neelkashkari to Trump: “fire this traitor and make me Fed emperor: I got you NIRP next month” — zerohedge (@zerohedge) June 25, 2019 Unfortunately the market needs moar (40% odds priced in of a 50bps cut)… And so stocks tumbled to show their disapproval Don’t worry though, Bullard assures the American public that “he has no immediate concerns about asset bubbles” unlike Kaplan. Treasury yields spiked… As did the dollar… And the dollar’s gain was gold’s loss… Will The Fed fold even...

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They’re Baaack: Cerberus Revives HELOC-Backed Bonds That Went ‘Extinct’ After The Crisis

A generation of Wall Street analysts and traders has come of age without many of the esoteric, mortgage-backed bonds and ‘synthetic’ derivatives that nearly destroyed the global economy in the run-up to the financial crisis. But as more financial firms cast about for products that will help pad their revenues as the Fed prepares to embark on its next rate-cutting cycle, products like these synthetic CDOs are being reintroduced as “safer” iterations of their pre-crisis cousins. In the latest example of this troubling trend, WSJ’s Ben Eisen reported Monday that Cerberus is bringing back bonds entirely backed by home equity lines of credit (or HELOCs) – just in time for a refinancing boom that many expect will be triggered by tumbling mortgage rates. HELOC-backed bonds disappeared in the aftermath of the crisis as issuance dried up, even as some brazen investors reaped massive profits by scooping up the extant bonds for pennies on the dollar. Yet, this troubling legacy didn’t stop four ratings agencies (including Fitch Ratings) from granting Cerberus’s $174 million issue a triple-A rating, indicating that they are among the safest investments available. “There has been some caution from issuers” about introducing new types of mortgage bonds, said Grant Bailey, the head of residential mortgage-backed securities at Fitch. One fund manager described the what’s-old-is-new-again mortgage-backed issues as a “creative” way of taking advantage of a housing market...

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Is Elon Musk Gaslighting America?

Authored by Robert Scheer via TruthDig.com, Introduction by Natasha Hakimi Zapata, Tesla, from the get-go, has sold itself as a green dream in our era of rapidly-worsening climate change. But there’s a lot about the electric car company that’s more nightmarish than many of its fans or even the California government, which heavily subsidizes Tesla’s operations with hundreds of millions of dollars in tax exemptions and other incentives, would like to admit. Will Evans, an award-winning journalist with the Center for Investigative Reporting, published a hard-hitting series about Tesla’s flagrant labor violations, exposing Elon Musk’s purportedly progressive business for what it truly is: a green mirage. In the series, Evans reports on the clash between the manufacturing elements of the company and the management that operates like a tech startup, and how this contradiction has created often dangerous conditions for Tesla factory workers. Rather than address these very real issues, however, Musk and his company have chosen to brush them off and hide reports of injuries in order to maintain the illusion its customers buy into when they purchase their luxurious Tesla cars. “We started looking into Tesla because we were hearing that there was safety problems there, people getting hurt,” Evans tells Truthdig Editor in Chief Robert Scheer in the latest installment of “Scheer Intelligence.” “It has this great reputation for being this futuristic, forward-thinking, world-saving company that’s going to bring sustainable energy...

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America’s Adversaries Are Buying Gold Like A Nuke Is Going Off Tomorrow

Having tested $1300 numerous times over the past few years, gold has broken dramatically higher in the last month, hitting 6-year highs as President Trump rhetoric around the world raises tensions and increases the odds of WWIII. The surge in the precious metal has accompanied a collapse in bond yields around the world and a record level of negative-yielding debt… And while Gold volatility is soaring… Demand remains abundant, as Goldman details in its latest note, raising its outlook for gold, countries with “geopolitical tensions with the US” are buying everything: Central bank demand is gaining momentum and we now expect 2019 purchases to reach 750 tonnes vs 650 tonnes last year. Visible gold purchases YTD are running at 211 tonnes until April vs 117 tonnes over the same period last year (see Exhibit 11). Importantly, China just raised its gold purchasing pace from 10 tonnes per month to 15 tonnes for April and May as it aims to diversify its reserve holdings.  With the Fed and ECB now both likely easing monetary policy, more CBs may decide to add gold to their portfolios as they did between 2008 and 2012 (see Exhibit 12). Also, just recently, trade tensions between India and the US have begun to escalate as India retaliated with tariffs on US goods in response to US steel tariffs. Rising tensions with the US often create upside potential to a country’s...

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South Bend Police Call County for Backup After Increased Violence

After six shootings late Saturday night and early Sunday morning, the South Bend police department called in St. Joseph County officers for assistance. The increased violence occurred the same weekend that Mayor Pete Buttigieg held a contentious town hall addressing a June 16 police shooting. SBPD were first called in to respond to a mass shooting at Kelly’s Pub early Sunday morning. Ten people were injured, and one was killed. After the shooting, so many people showed up at South Bend’s Memorial Hospital to check in on the injured that the hospital went on lock down. Police were called in to manage the crowd. At the same time, a number of police officers were called in all over South Bend to respond to five other shootings, including one, where a witness said the shooter was targeting police. “Basically every resource we had was busy,” police spokesman Ken Garcia told the South Bend Tribune. St. Joseph’s County sheriff Bill Redman told the Tribune that the two departments often try to help each other out. “This isn’t something new, we will always try to assist one another,” Redman said. “South Bend was spread thin so they asked us for assistance.” After the weekend, Redman released a statement urging residents to stop the violence. “I strongly encourage the citizens of St. Joseph county to continue meeting peacefully and voice their concerns peacefully and...

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WaPo: Biden’s Had ‘An Explosion of Wealth’ Since Leaving White House

New reporting from the Washington Post details how former vice president Biden has earned millions of dollars since leaving the White House in what the Post described as “an explosion of wealth.”  Biden’s newfound wealth since leaving public office has mostly come from paid speeches, some of which earned him as much as $200,000, and book deals. The book deal for his 2017 memoir Promise Me, Dad was reportedly worth $8 million and covered three books from Biden and his wife, of which two have been published.  The former vice president’s campaign said he has given fewer than 50 paid speeches in the years since serving alongside President Obama but declined to give further details to the Post about how much he made from these speeches. Four contracts unearthed by the Post show Biden making between $150,000 to $200,000 per speaking appearance. According to the Post, Biden requests the same meal of “angel hair pomodoro, a caprese salad, topped off with raspberry sorbet with biscotti,” before delivering his paid speeches. Hosts were asked to have the meal prepared 30 minutes ahead of Biden’s arrival at the speaking venue. Additional requests from the Biden team included a fully stocked beverage selection of bottled water, Coke Zero, Regular Coke, Orange Gatorade and black coffee as well as a full-length mirror and portable steamer.  During his 36-year career in the Senate, Biden consistently referred to...

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