Wednesday, August 23, 2017

BREAKING: FTC Approves Amazon's Acquisition of Whole Foods

This is a developing story. Return to this post for updates.

UPDATE 1

Following a vote earlier today where Whole Foods shareholders approved Amazon’s takeover of the grocery chain, the FTC has approved the acquisition.

UPDATE 2

Bruce Hoffman, the Acting Director of the Federal Trade Commission’s Bureau of Competition, issued this statement on the Commission’s decision not to further pursue an investigation of Amazon.com, Inc.’s acquisition of Whole Foods Market Inc.:
The FTC conducted an investigation of this proposed acquisition to determine whether it substantially lessened competition under Section 7 of the Clayton Act, or constituted an unfair method of competition under Section 5 of the FTC Act. Based on our investigation we have decided not to pursue this matter further. Of course, the FTC always has the ability to investigate anticompetitive conduct should such action be warranted.
UPDATE 3

Is this more evidence that President Trump is more bark than bite? Several times Trump has called out Amazon founder Jeff Bezos and Amazon in comments and on Twitter. But in the end, things went smoothly for the Amazon acquisition in the White House Era of Trump.

   -RW

EPSTEIN: Trump’s Flawed Protectionism

By Richard A. Epstein

In the midst of the din over Charlottesville, let’s not overlook the Trump administration’s controversial stance on free trade. This smoldering problem has risen to the surface in the delicate negotiations that the United States now is undertaking with China over the status of American intellectual property rights, and with Mexico and Canada over the North American Free Trade Agreement. Before looking at the particulars of these two disputes, it is instructive to set out the intellectual case for free trade, which Trump has consistently misunderstood.

The basic insight here is that ordinary contracts between private parties are not neutral; they produce gains for each party. If I swap my horse for your cow, it is tempting, but wrong, to say that no value has been added for the parties because we have the same horse and cow after the transaction that we had before it. So why worry, the argument goes, if the trade does not take place? This facile argument ignores that these transactions are costly to complete. Why would two parties waste money to organize a trade from which neither side has gained? Even this simple trade is a positive-sum game that produces for each side a net advantage that exceeds the costs of putting the deal together. I could desperately need a cow for milk or breeding, and you might need the horse to pull a plow. The trade allows both of us to get greater value by the more efficient deployment of existing resources. That short-term advantage has long-term effects, by letting me breed horses while you breed cows.

But there is a catch. In general, bartering is inefficient because it is rare that any random pair has the goods that the other side wants in just the right amount. But introduce money, so that the sale of each animal no longer depends on the purchase of the other, and the gains from trade become ever more salient.

What applies to two individual traders can be easily generalized in two ways. The first is that trade makes sense no matter how many parties join together in a voluntary transaction. So long as each party subjectively values what it receives more than what it sells, the deal will create a social improvement for all the parties to it. Even better, the gains to the contracting parties open up opportunities for outsiders, a positive externality that it is all too easy to overlook. The second is that gains from trade among multiple parties also arise in the international arena, so that the reduction of tariffs and other import or export barriers will increase trade from which all nations will benefit.

It is true that free trade breeds competition and leads new innovative firms to displace old ones. But that is as much true in domestic markets as it is in foreign ones. Yet no one thinks that

Read the rest here.

BANG Wall Street Banks Warn Downturn Is Coming

HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle, reports Bloomberg.

These banks have things about half right. I wrote this in the EPJ Daily Alert four weeks ago:

TAKE PROFITS
Given the dip in money supply growth that occurred last week, (SEE: ALERT: Signifcant Drop in Money Supply Growth), the possibility that we will get hit  pretty hard later this summer/early Fall with a significant downswing in the US stock markets has increased.

Thus, I am advising that profits be taken in 3 positions. 2 in the EPJ Model Portfolio and one in the Risk Tolerant Aggressive Recommendations.

And I do mean profits, since all three positions are at all-time record highs.

But I also wrote this in that same ALERT:
At this time, I do not expect a downturn in the stock market to develop into a full-blown recession. Thus, when panic is at its peak, I am likely to be advising to spend some of the portfolio cash hoard to add to positions.
To get my full analysis of what is developing there are four ways to subscribe to the EPJ Daily Alert, CLICK HERE for details.

Note: Past spectacular forecasts do not mean future spectacular forecasts.

Mutual Funds Mark Down Uber Investments by Up to 15%

Chief of US money pumping, Janet Yellen.
Four mutual-fund companies have marked down their investments in Uber Technologies Inc. by as much as 15%, reports The Wall Street Journal.

Vanguard Group, Principal and Hartford Funds all marked down their shares by 15% to $41.46 a share for the quarter ended June 30, according to the fund companies’ latest disclosure documents. T. Rowe Price Group Inc.cut the estimated price of its Uber shares by about 12% to $42.70 for the same period,.

Uber’s shares don’t trade publicly, so the mutual-fund companies that hold them must estimate the shares’ worth each quarter. Seven mutual-fund companies had mostly maintained a $48.77 share price since the fourth quarter of 2015, when Uber first sold its shares to investors at that price, according to WSJ.

Uber lost more than $3 billion last year and $708 million in the first quarter, according to WSJ.

You can't absorb these type losses unless the Federal Reserve is pumping an awful lot of new money, which they are.

Uber still had about $7 billion in cash that it has raised thanks to the Fed fast flowing spigot but WSJ reports they are in the market looking for more money.

   -RW

Euro Hits Eight-Year High Against Pound



Overnight,  the euro hit its strongest level against the pound sterling in eight years to 92 pence.

The euro has climbed more than 10 percent from a low for the year of 83 pence back in April, and has gained 31 percent since a late 2015 decline to 70 pence.

Meanwhile, the U.S. dollar has also been in a steady decline on foreign exchange markets since January.

The WSJ Dollar Index, which measures the dollar against the currencies of major trading partners, is down about 8% since the beginning of the year, including a more than 2% drop over the past month.

Its decline has been especially pronounced against the euro,  declining by more than 11%---the decline this year worse than the decline by sterling against the euro.

It is a race to the bottom for all these currencies with the dollar and sterling taking lead positions.

This is not going to end any time soon. Buy gold.

   -RW

Trump During Speech in Arizona Hints That Government May Have to Shut Down



It appears that President Donald Trump is set for war on many economic fronts.

During a speech Tuesday night in Phoenix, Arizona before a crowd of rabid supporters, Trump hinted that the government may have to shut down if funds aren't approved as part of a debt ceiling bill to build a wall along the southern US border with Mexico.

The President also stated that it will be difficult to negotiate a "fair" North American trade deal and that NAFTA may have to be canceled.

The Goldman Sach crew. Goldman CEO Lloyd Blankfein, Trump economic adviser the former Goldmanite Gary Cohn and Treasury Secretay Steve Mnuchin also a former Goldmanite  (graphic via FT).
Of course, both these Trump policy initiatives are anti-free market and it is questionable how much support he will have for them now that his policy staff has been purged of anti-free trade economic nationalists. Goldman Sachs people are in charge of economic policy. They are good on trade but as crony as you can get.

David Stockman, who is one of the best DC observers,  makes the point that I have also been making:
[T]he nation will now be ruled by a Goldman Sachs Regency and a team of three generals—Kelly, McMasters and Mattis...
 Stockman is also good in explaining how the crony advice will be pushed on Trump:
What we mean is that during the upcoming battles over the crucial economic issues of the debt ceiling increase, tax reform and the ObamaCare coverage/premium crisis, Trump will be getting the worst advice imaginable. That is, these lifelong Democrats will push the Donald into attempting to make “bipartisan” deals with the Chuckles Schumer and Nancy Pelosi that will blow the tenuous GOP majorities to smitherns, and do so in the name of status quo statism.

Right out of the Box after Labor Day the destructive game plan of the Goldman Regency will show up in thundering battles over a “clean” debt ceiling. The mainstream pundits make this sound easy-pezee with the notion that Ryan and McConnell need only line up a modest number of Democrats to supplement their own rank and file GOP votes to enact a debt ceiling increase. Such purported fiscal virtue would permit Uncle Sam to borrow all the money he needs to pay his bills and protect the sacred credit rating of the US Treasury.

Except it doesn’t work that way. If the Dems cooperate at all, it will be only on the basis of an onerous quid pro quo that requires Trump to give up the Mexican Wall, tax cuts for the wealthy, his proposed deep domestic spending cuts and also to fund the insurance company bailouts that are needed to forestall drastic premium increases and coverage cancellations during the 2018 insurance (and election) year.

To be sure, the Democrats are clever enough to demand this kind of quid pro quo as a side deal rather than as an explicit rider to the debt ceiling bill, but it would have the same effect if attempted. Namely, the Freedom Caucus and the vast majority of conservative leaning congressional Republicans would jump ship, thereby setting up a replay of the Boehner Betrayal: To wit, passage of a debt ceiling bill with an overwhelming Dem majority and only a corporal’s guard of Republicans.


   -RW

Tuesday, August 22, 2017

The Chinese Economy's Fatal Flaws

By William Hongsong Wang


Dr. Per Bylund’s recently published article poignantly states one of the core problems in the Chinese economy and its the state-manipulated Keynesian foundation. I do agree with his opinion. And if we dig deeper into the exact situation of Chinese economy, we will find that it’s a typical failing of the Keynesian, cronyist system.
By using the perspective of Austrian business cycle theory, lets take a look at China’s real estate industry, which is suffering more and more painfully from artificial credit issued by China’s central bank, the People’s Bank of China (PBC). During the 2008 global economic crisis, China’s central government issued the famous RMB 4 Trillion Stimulus Package Plan (equaling to $586 billion). Since 2009, the Chinese real estate economy has already suffered from three small economic cycles. As it is becoming more difficult for real estate companies to live on artificial prosperity, the duration of every business cycle has become shorter than the previous one. We also see more and more ghost cities because of the economic boom in every sub-economic cycle. There were at least 12 ghost cities founded in 2013, and the number of them jumped to at least 50 in 2017! Bankruptcy is happening more frequently among Chinese real estate enterprises. Since 2016, at least three real estate companies — with a combined debt of at least RMB 763 million — have gone bankrupt. The story of bankruptcy is continuing, with one of the biggest real-estate-driven enterprises, Wanda Group, facing financing problems. If Wanda no longer has access to cheap debt, it might not be able to refinance or roll over all its debt again. If Wanda has to face bankruptcy, it could possibly accelerate an end of the the current Chinese boom. 
The data from the Chinese local governments is also not optimistic; their debt levels have reached almost RMB 25 trillion (US$ 4 trillion) at the end of 2014. In 2015, even the PBC admitted in one of its annual reports saying that China’s financial system is facing higher instability and uncertainty.
The above evidence is not a surprise. All these are the consequence of artificial bank credit created by central banking and central planning. In China, the loans are easy to get from the State Owned Enterprises (SOEs) or the businessmen who are the friends of the politicians in the Communist Party. China’s real estate industry is also the ally of the state and only the people who are friends of those in authority can participate in housing programs. 
Besides the SOE economic system, what we should worry more about is how the Keynesian and crony system hurts small and private businesses in China, who are driving the economy of this country. Compared with the SOEs, and the businessmen who are the close allies of some influential politicians, it is harder for ordinary entrepreneurs who are running small businesses to get loans. Moreover, the recent market squeeze makes it harder for Chinese small business to survive. These entrepreneurs are not only facing an unfriendly bank credit situation, but also the threat of having to bribe the government to circumvent the massive scale of governmental economic regulations.
Consider the story of a small business boss Li Lang, who is a typical Kirznerian alert businessman in China. Several years ago, he observed a shortage of moving companies in the Southwest Chinese town of Chengdu. He started his business to serve the local people. The business is not easy, not only because it requires hard work, but Li also must bribe and maintain good relations with the local politicians to let them “protect” his business and help him introduce some business opportunities. According to Li, if the local bigwigs in the crony system had already discovered the opportunity of earning a fortune by managing a moving company, it wouldn’t have been possible for him to enter the business. Though now that he has earned a lot of money, he still has to carefully maintain the relationship with the politicians to "protect" his business. His is not an isolated case. In China, the less connections you have with the cronyist system, the less business opportunity you have. And even if you become successful in your business, be careful, the state has eyes on your wealth.
Though we know that the private sector is driving the Chinese economy and has improved the living standard of many Chinese individuals despite state economic manipulation, we still have to emphasize that the nature of the Chinese economic model is dominated by Keynesianism and cronyism. Otherwise, the false prosperity would make us misread what is happening in China.

William Wang is a PhD candidate in economics at the Complutense University of Madrid, Spain.

The above originally appeared at Mises.org.

Oh Boy, Mnuchin Has a Wild One; Nouveau-Elitist Trophy Wife Who Tags Along

So it turns out that the wife of Treasury Secretary Steve Mnuchin, Louise Linton, traveled to Kentucky with him on Monday when he toured Fort Knox.

She posted on Instagram a picture of herself getting off an official government plane in Kentucky and tagged the pic: Hermes and Valentino. Apparently, clothes and/or accessories she was wearing.


This prompted a visitor to her page to call her out for the tags, which sent Linton into nouveau-elitist attack mode.

The Washington Post has a play-by-play of what went down:
“Did you think this was a personal trip?!” Linton wrote on her Instagram page, responding to the person who had written “glad we could pay for your little getaway.”

Linton continued in her response to the critic: “Adorable! Do you think the US govt paid for our honeymoon or personal travel?! Lololol. Have you given more to the economy than me and my husband? Either as an individual earner in taxes OR in self sacrifice to your country? I’m pretty sure we paid more taxes toward our day ‘trip’ than you did. Pretty sure the amount we sacrifice per year is a lot more than you’d be willing to sacrifice if the choice was yours.”

Linton added, “You’re adorably out of touch … Thanks for the passive aggressive nasty comment. Your kids look very cute. Your life looks cute.”

The fashion companies Linton “tagged” in her Instagram post were Herm├Ęs, Roland Mouret, Tom Ford and Valentino.

Mnuchin and Linton have been married for two months....

Treasury Department spokesman said Monday’s flight was cleared by appropriate government channels, and that the Mnuchins covered the cost of Linton’s travel. The spokesman added that Linton did not receive any financial compensation for mentioning the fashion brands that she tagged in her Instagram post.
WaPo also notes:
 Typically, Treasury secretaries only fly government planes when they go on international trips. They usually fly on domestic carriers when they are traveling inside the country...
Linton is a Scottish actress and has raised eyebrows within the White House for accompanying Mnuchin to congressional hearings and on other trips that spouses don’t often take.
   -RW

What the Hell is This?: Mnuchin Tweets on Fort Knox Gold

Fort Knox
U.S. Treasury Secretary Steven Mnuchin, along with Kentucky Senator Mitch McConnell,  paid a rare official visit to Fort Knox on Monday and then tweeted out :


 “I assume the gold is still there,” he quipped to a Chamber of Commerce audience in Louisville, Kentucky, 40 miles north of the Fort before the visit. “It would really be quite a movie if we walked in and there was no gold.”

“We have approximately $200 billion of gold at Fort Knox,” said Mnuchin. “The last time anybody went in to see the gold, other than the Fort Knox people, was in 1974 when there was a congressional visit. And the last time it was counted was actually in 1953.”

The big question here is why did Mnuchin visit now and why did he state the gold hasn't been counted since 1953? Why does he want to bring focus on the fact that there has been no physical count of the gold in decades? I am trying to figure the PR angle.

The carefully scripted life of a top US administration official does not happen by accident---especially the Treasury Secretary.

Does he want to head off a call for Fort Knox gold to be audited or has the US secretly bought back gold that it might have been sold or gold has been returned that might have in the past been
leased out, so that they are now ready for an audit?

Is the Treasury expecting a major run up in the gold price and the Treasury wants to powerfully assert that they have huge reserves?

According to McConnell, who is a guy you can't believe a word he says, stated that the idea to visit Fort Knox "just kind of came up as a result of a casual conversation.”

The Treasury reports that the government has 147 million ounces of gold stored there.

“All I will say is that it is freakishly well secured,” Kentucky Governor Matt Bevin, who also tagged along, said. “The gold is safe.”

I would bet a 10-ounce bar of gold that we will see, within the next six months, some news event that puts this visit into much better perspective.

  -RW

Monday, August 21, 2017

Your Brain on Chocolate

By Robert H. Shmerling, MD, Faculty Editor, Harvard Health Publications

Did you know that places where chocolate consumption is highest have the most Nobel Prize recipients? It’s true, at least according to a 2012 study published in the New England Journal of Medicine. Of course, that could be a coincidence. But is it possible that intelligence or other measures of high brain function are actually improved by the consumption of chocolate? A new review summarizes the evidence and concludes with a resounding “maybe.”

Keeping your brain healthy

When it comes to preserving and improving brain function, let’s face it: we need all the help we can get. With age, diseases that cause dementia, such as stroke, Alzheimer’s disease, and Parkinson’s disease, become more common. And since we have an aging population, predictions are that dementia will become much more common in the near future. Yet despite decades of research, there are no highly effective treatments for dementia.

As for preventive measures, the best recommendations are those your doctor would make anyway, such as regular exercise, choosing a healthy diet, maintaining a normal blood pressure, not smoking, and drinking only in moderation. “Brain exercise” (such as challenging math problems or word games) and a variety of supplements are unproven for long-term preservation of brain function or prevention of cognitive decline. While some studies suggest that antioxidants, fish oil, stimulants such as caffeine, or other specific foods may help improve brain function or prevent dementia, these benefits are hard to prove and studies have been inconclusive at best.

What’s the scoop on chocolate and the brain?

A new review published in the May 2017 edition of Frontiers in Nutrition analyzed the evidence to date that flavanols (found in dark chocolate and cocoa, among other foods) may benefit human brain function. Flavanols are a form of flavonoids, plant-based substances that have anti-inflammatory and antioxidant effects. Here’s a sample of the findings:

Read the rest here.

WOW, Paul Krugman on a 'Nation of Takers'



This is as rare as a total eclipse. Krugman writes truth on taxes and also handouts:
[T]he overall picture is that at the end of the Obama years taxation of the rich was pretty much back where it was pre-Reagan:
Menawhile, there were harsh cuts to some social programs — Clinton ended welfare as we knew it — but expansions of others. One simple metric: Medicaid enrollees as a percent of the nonelderly population, via the CDC:


I’m not saying that the “nation of takers” stuff, a vast population living off the dole and voting to tax their betters, is at all right. But it is true that a welfare state supported by progressive taxation has been much more robust than the year-by-year political narrative might lead you to think.
  -RW