End of an Era

Doug Nolan

Of the diverse strains of inflation, asset inflation is by far the most dangerous. A bout of consumer price inflation would be generally recognized as problematic and rectified through a tightening of monetary conditions. On the other hand, asset price inflation is both celebrated and venerated. There is simply no constituency calling for a tightening of conditions to ward off the deleterious effects of rising asset prices, Bubbles and attendant economic maladjustment. And as we’ve witnessed, the bigger the Bubble the more powerful the constituencies that rationalize, justify and promote Bubble excess.

About one year ago, I was expecting a securities markets sell-off in the event of a Donald Trump election surprise. A Trump presidency would create disruption, upheaval and major uncertainties – political, geopolitical, economic and social. Instead of a fall, the markets experienced a short squeeze and unwind of hedges. Over-liquefied markets and a powerful inflationary bias throughout global securities markets won the day – and the winning runs unabated.

We’ve come a long way since 1992 and James Carville’s “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” New age central banking has pacified bond markets and eradicated the vigilantes. These days it’s the great equities bull market as all-powerful intimidator.

The President admitted his surprise in winning the election. I suspect he and his team were astounded by the post-election market rally. I’ve always held the view that prolonged bull markets foster a portentous concentration of power – not only in the financial markets but within the financial system more generally.

That was certainly the case in the “Roaring Twenties,” just as it was in the late-nineties and throughout the mortgage finance Bubble period. A big market decline would have provided the new President the opportunity to blame the Bubble while moving forward aggressively with his reformist agenda. Instead, a rally ensured that Team Trump would be held captive by the financial markets. As his administration struggled, President Trump could at least point to record stock prices.

I was hoping for reform-minded Kevin Warsh or John Taylor at the helm of the Federal Reserve. But I’ve somewhat warmed up to establishment-favored Jerome Powell, not so much because he will pursue needed changes in monetary management – but because Mr. Powell is likely about the best we could have hoped for in the current market environment. Apparently, the President was close to reappointing market darling chair Yellen. And if Yellen wasn’t dovish enough for the markets, Bill Gross stated his preference for either Paul McCulley or Neel Kashkari. I have McCulley and Kashkari far down the list - just above Ben Bernanke but below Charles Evans and Mark Zuckerberg.

Powell is viewed as the logical choice for continuity and stability at the Fed. He has a diverse background in law, government, the markets (with Carlyle Group), regulation and monetary policy. Powell will be the first Fed chairman without an economics Ph.D. since Paul Volcker. In many ways, it is a much welcomed End of an Era.

Janet Yellen is a widely respected economist – and by all accounts has been an able administrator of the Federal Reserve system. It has been noted that she will be the first Fed chair whose term ended without the experience of a recession. More importantly, she is surely the first leader of our central bank to have enjoyed a full term of uninterrupted extremely loose policy and financial conditions.

I’ll rain on the parade of accolades: The Yellen Fed failed to tighten policy in the face of increasingly conspicuous Bubble excess. Worse even than unforgivable past episodes, the Fed badly missed its timing. Today’s backdrop ensures an easy start to what will be an extremely challenging job for chairman Powell.

I’ve read numerous articles and listened to various commentaries. Leave it to esteemed former Minneapolis Fed President Gary Stern to offer the keenest insight:

Bloomberg’s Tom Keene: “Ellen Zentner at Morgan Stanley writes a detailed note about what we would expect from chairman Powell. She mentions that there’s a mystery here over chairman Powell and core economics, including NAIRU [non-accelerating inflation rate of unemployment]… Does it matter that chairman Powell maybe has a little fuzzy knowledge of NAIRU like mere mortals like me?”

Former Minneapolis Fed President Gary Stern: “No. And, in fact, I might view that as an advantage. Because that framework is frayed at best, it seems to me given our economic performance over the past “X” years – and “X” is not a small number. So, I think some open-mindedness on that framework is a distinct positive. And I think it would be worthwhile for a fair amount of resources to be devoted to a pretty thorough review of some of the critical macroeconomic issues and frameworks of the day, because they have not all served policymakers well; they have not all served commentators well; they have not all served the Street well. And I think it would be a good idea to open some of that up.”

Bloomberg’s Mike McKee: “Do you think we’ve come to the end, maybe, of the Bernanke era of making policy in terms of setting an inflation target at 2% and aiming for that as sort of the reason – the way you conduct policy. Could we see some sort of change?”

Stern: “I think you certainly could. But I can’t read the new chair’s mind – so I don’t know where he stands on that 2% number. To me, that number’s always been sort of an arbitrary number. My nickel on it is that if you’re running a little below your inflation target that’s hardly a big problem. I would once again urge review and maybe modification of that particular target because it’s not clear to me that there’s great virtue in it. There may be a better way to formulate the inflation objective.”

And from the Wall Street Journal: “‘He is remarkably undogmatic,’ says Jeremy Stein, a Harvard University economics professor, Democrat and former Fed governor whose office was adjacent to Mr. Powell’s. ‘He listens more than he talks.’”

With the suggestion of an End of an Era, I’m thinking of 30 years of ideologies dominating the Federal Reserve system. Alan Greenspan was the free-market ideologue that championed market-based finance, only to morph into “The Maestro” cunningly intervening in and manipulating increasingly unstable financial markets. Dr. Bernanke was summoned to the Federal Reserve in 2002 on the back of his radical theories of post-Bubble reflation. The powers that be later embraced Bernanke as Greenspan’s successor. By 2006, it was clear that reflationary measures had created an only more formidable Bubble for “helicopter Ben” to pilot. Janet Yellen, the pleasantly dovish intellectual of all things employment economics, was to ensure continuity in the implementation of the Bernanke Doctrine of radical monetary inflationism.

As Mr. Stern suggested above, it’s now time for a “pretty thorough review of some of the critical macroeconomic issues and frameworks of the day.” Long Overdue. I don’t envy Mr. Powell. His predecessors have left him, in the words of candidate Trump, “one big, fat, ugly Bubble.” Markets are comfortable that Powell will stick with the program of occasional little, harmless baby-step rate increases. Policies that actually tighten financial conditions remain unacceptable indefinitely. And it goes without saying that markets will be ready to throw a tizzy fit if the new chairman dares to even hint of a departure from market-friendly policymaking.

Powell has been referred to as a “loyal ally” of Janet Yellen, which endears him to the markets. He is by all accounts deferential and hard-working. Yet Powell is not an ideologue. He does not champion a doctrine that would have him wedded to specific econometric models or theoretical constructs.

It’s hard for me to believe he has the mindset to fixate on CPI measures slightly below target, while disregarding the markets. The Fed’s slim notion of “price stability” needs broadened and modernized. And I’m hopeful a Powell Fed’s “risk management approach” will focus more on the risks of promoting excess rather than measures to dampen market volatility and incentivize risk-taking. In such a complex world of extraordinary financial and economic developments, it’s hard to believe Powell will get bogged down in a debate on mythical “neutral” and “natural” interest rates. Ditto NAIRU.

So, trying to be constructive here, it’s a start. He may not be the bold reformer so needed at the Federal Reserve, but I’m hoping he’ll capably begin pulling the Fed away from radical inflationism. If he has been a keen observer and good listener, it would be rational to begin the process of extricating the Fed from such a dominant position in the markets. It’s not as if the Bubble is inconspicuous.

Perhaps Jerome Powell is even the type of individual driven to cultivate a sound analytical framework and philosophy – determined to learn, understand and adapt. That would be such a refreshing change from the Era of ideologues.

As someone with significant market experience, he surely recognizes the risks associated with financial excess. He must appreciate the dangers associated with Bubbles and pandering to speculative markets.

A lot will remain unknown until Powell is tested. How quickly does he come to the markets’ defense? Does he quietly abandon Bernanke’s - “the Fed will push back against a tightening of financial conditions” - over-the-top market inducement?

While he has not dissented on an FOMC vote, from his diverse real world experience does he believe the Fed has been too reluctant in returning to traditional monetary management? Will he be a proponent of QE or instead view it with a healthier skepticism than the ideologues? I have no illusions that the Fed is about to eliminate QE from its toolkit. My view holds that, come the next serious de-risking/de-leveraging episode, central bankers will see few alternatives than creating more “money.”

Yet the key issue is how quickly in a crisis does the Powell Fed come to the markets’ rescue? As a pragmatic non-ideologue, he may appreciate the risks of coming too soon. And I have a crazy thought: maybe he even believes in the value of market discipline. By design or, more likely, by default – it’s the right time to move away from academic economists.

Depending on the President’s other Fed nominations, it could be quite a diverse group at the FOMC. Markets are today worry-free, but could chairman Powell be relegated to herding cats? It’s already a divided group – with divisions going much beyond traditional “hawk” and “dove.” Indeed, there are starkly divergent views as to how the world works. For starters, do economies drive the markets – or is it the securities markets these days that govern economic development? To what extent should central banks be dictating financial market behavior? Under what circumstances should central banks employ aggressive monetary stimulus? To what extent has Fed stimulus fueled deficit spending and big government? Should central bankers have complete discretion to rapidly expand central bank Credit?

Lots of momentous questions that somehow seems to matter so little at this juncture. The focus on interest rate policy and deregulation misses the larger issue: The Federal Reserve is soon under the command of a conventional and non-ideological individual with a distinguished career in the public and private sectors. I so hope Mr. Powell proves to be the distinguished statesman this country desperately needs running our central bank.

China Enshrines ‘Xi Jinping Thought,’ Elevating Leader to Mao-Like Status


President Xi Jinping of China, center, speaking on Tuesday during the closing ceremony of the party congress in Beijing. Credit Andy Wong/Associated Press        

BEIJING — China’s Communist Party on Tuesday elevated President Xi Jinping to the same exalted status as the nation’s founding father, Mao Zedong, by writing his name and ideas into the party constitution.
The historic decision, at the end of a weeklong party congress, sent a clear signal to officials throughout China that questioning Mr. Xi and his policies would be ideological heresy.
The decision solidified Mr. Xi’s position as China’s most powerful leader in decades after only five years of leading the country, making it harder for rivals to challenge him and his policies.
While there may be no “Little Red Book” of quotations for mass consumption like in the bygone Mao era, Mr. Xi’s thinking will now infuse every aspect of party ideology in schools, the media and government agencies.
“This is a way of trying to project his historic stature,” said Wu Qiang, a political analyst in Beijing who formerly taught at Tsinghua University. “The congress report and the party constitution revisions both show that Xi wants to be a kind of peer with the past leaders. That doesn’t mean he sees himself as rivaling Mao in importance, but I think it’s intended to give him an ideological status that can’t be challenged, like Mao in that sense.”
Restoring China to greatness is a central message of Mr. Xi’s philosophy. That goal already has guided Mr. Xi’s policies of building up the military, strengthening domestic controls and raising China’s profile in global affairs.

Portraits of Mr. Xi, left, and Mao Zedong at a market in Beijing. Credit Greg Baker/Agence France-Presse — Getty Images        
Approved by the party congress at the Great Hall of the People in Beijing, which meets every five years, the change to the constitution adds a clunky new phrase — “Xi Jinping Thought for the New Era of Socialism With Chinese Special Characteristics” — alongside the hallowed names of Mao and Deng Xiaoping.
While the meaning of those 13 words — 16 Chinese characters — may seem opaque, they are freighted with significance for the future both of the party and of China.
The critical phrase is “new era,” which Mr. Xi has used throughout the congress. He has described Chinese history since 1949 as divided into two eras — the three decades after Mao seized power in a revolution that established a unified People’s Republic and ended nearly a century of civil war and foreign invasions, and the three decades after Deng took power in 1978 and refocused China on developing its economy.
In his report to the congress, Mr. Xi suggested that if Mao made China independent, and Deng made it prosperous, he would make it strong again — propelling the country into its “new era.”
To underline that point, the congress also added a second mention of Mr. Xi’s ideas to the constitution: his call to modernize and strengthen China’s armed forces.
Adding Mr. Xi by name raises him above his two most recent predecessors, the former presidents Hu Jintao and Jiang Zemin: Their ideas are on the list of doctrines, but not their names.
Still, Mr. Xi’s authority is not directly comparable to the almost godlike influence Mao commanded.

Delegates arriving for the closing session of the party congress on Tuesday. Credit Greg Baker/Agence France-Presse — Getty Images        
After Mr. Xi came to power in 2012, he surprised many by how quickly and forcibly he took control. This included putting his imprint on two of China’s most powerful institutions, the party and the military, which he did using a sweeping anticorruption drive.
But both Mao and Deng were founders of the People’s Republic, and hardened revolutionaries whose decades of fighting and self-sacrifice gave them a charisma and authority that Mr. Xi simply cannot replicate.
On the other hand, the Chinese economy, state and military are much more powerful now than they were under Mao, or even under Deng, which gives Mr. Xi far more global influence than his predecessors.

Further signs of Mr. Xi’s political supremacy will be evident on Wednesday when other members of the party’s top leadership, the Politburo Standing Committee, are publicly presented after the party congress has concluded. How many of those members are close allies of Mr. Xi will be another important barometer of his power and could provide insight into a possible successor years from now.
In the past five years, Mr. Xi has assembled his own earthy strain of Communist Party doctrine, overtly hostile to Western liberal ideas and suspicious of the intentions of the United States and other Western powers. Instead, Mr. Xi sees the party as the guardian of both Mao’s revolutionary ideals and nationalist pride rooted in China’s ancient traditions.
The congress finished on Tuesday with several other major steps. Most important, the delegates voted in a new Central Committee, a council of 204 senior central and local officials who usually meet once a year to approve broad policy priorities.
Mr. Wang, 69, was the enforcer in Mr. Xi’s drive to root out corruption and strengthen discipline in the party. He has passed the usual retirement age for the committee, but party insiders said that Mr. Xi might try to keep him in a senior position. His absence from the list means he will likely retire.

The Chinese Communist Party has its own constitution, or charter, which is different from China’s national Constitution. The party’s constitution sets rules and principles for its members. It also lays out the party’s vision of its history, and of how current and past leaders contributed to that heritage.
Changes to this constitution can be made only at the party congress, which usually meets every five years and has been meeting for the past week. Since the congress’s 2,300 delegates are carefully chosen for loyalty, very few oppose changes once they are proposed by the leadership.

After a Tax Crackdown, Apple Found a New Shelter for Its Profits

The tech giant has found a tax haven in the island of Jersey, leaving billions of dollars untouched by the United States, leaked documents reveal.


Tim Cook was angry.

It was May 2013, and Mr. Cook, the chief executive of Apple, appeared before a United States Senate investigative subcommittee. After a lengthy inquiry, it found that the company had avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries that the panel’s chairman called “ghost companies.”

“We pay all the taxes we owe, every single dollar,” Mr. Cook declared at the hearing. “We don’t depend on tax gimmicks,” he went on. “We don’t stash money on some Caribbean island.”

True enough. The island Apple would soon rely on was in the English Channel.

Five months after Mr. Cook’s testimony, Irish officials began to crack down on the tax structure Apple had exploited. So the iPhone maker went hunting for another place to park its profits, newly leaked records show. With help from law firms that specialize in offshore tax shelters, the company canvassed multiple jurisdictions before settling on the small island of Jersey, which typically does not tax corporate income.

Apple has accumulated more than $128 billion in profits offshore, and probably much more, that is untaxed by the United States and hardly touched by any other country. Nearly all of that was generated over the past decade.

Tim Cook, Apple’s chief executive, at a Senate hearing in May 2013 on the company’s tax strategies. Credit Andrew Harrer/Bloomberg, via Getty Images 

The previously undisclosed story of Apple’s search for a new island tax haven and its use of Jersey is among the revelations emerging from a cache of secret corporate records from Appleby, a Bermuda-based law firm that caters to businesses and the wealthy elite.

The records, shared by the International Consortium of Investigative Journalists with The New York Times and other media partners, were obtained by the German newspaper Süddeutsche Zeitung.

The documents reveal how big law firms help clients weave their way through the gaps between different countries’ tax rules. Appleby clients have transferred trademarks, patent rights and other valuable intangible assets into offshore shell companies, avoiding billions of dollars in taxes. The rights to Nike’s Swoosh trademark, Uber’s taxi-hailing app, Allergan’s Botox patents and Facebook’s social media technology have all resided in shell companies that listed as their headquarters Appleby offices in Bermuda and Grand Cayman, the records show.

“U.S. multinational firms are the global grandmasters of tax avoidance schemes that deplete not just U.S. tax collection but the tax collection of most every large economy in the world,” said Edward Kleinbard, a former corporate tax adviser to such companies, now a law professor at the University of Southern California.

Indeed, tax strategies like the ones used by Apple — as well as Amazon, Google, Starbucks and others — cost governments around the world as much as $240 billion a year in lost revenue, according to a 2015 estimate by the Organization for Economic Cooperation and Development. The group is overseeing efforts to change the global rules that permit such maneuvers.
The disclosures come on the heels of last week’s proposals by Republican lawmakers to provide several new tax benefits for multinational companies, including cutting the federal corporate income tax rate from 35 percent to 20 percent. President Trump has said that American businesses are getting a bad deal under current rules.
But the documents show how major American companies find creative ways to avoid paying anything close to 35 percent.
Apple, for example, pays taxes at a small fraction of that rate on its offshore profits, according to calculations by The Times based on the company’s securities filings. Apple reports that nearly 70 percent of its worldwide profits are earned offshore.
An Apple spokesman, Josh Rosenstock, declined to answer most questions about the company’s tax strategy. He did say that Apple had told regulators — in the United States and Ireland and at the European Commission — about the reorganization of its Irish subsidiaries. “The changes we made did not reduce our tax payments in any country,” he said.
Allergan, Facebook, Nike and Uber said they complied with tax regulations around the world, according to prepared statements.
Congressional Republicans are also seeking to impose a 10 percent tax on some of the profits that American businesses say are earned offshore — half the rate they are proposing for profits in the United States. The lawmakers have also proposed another break, permitting multinationals to bring home more than $2.6 trillion stowed offshore at sharply reduced tax rates. Both proposals, critics say, would only create additional incentives for businesses like Apple to shift more profits into island hideaways.
The offices of Appleby, an offshore law firm, in St. Helier, Jersey. The Bermuda-based company has helped Apple reduce its tax burden in the United States. Credit Andrew Testa for The New York Times        
Appleby is a member of the global network of lawyers, accountants and bankers who set up or manage offshore companies and accounts for clients who want to avoid taxes or keep their finances a secret from authorities, business partners or even spouses. The firm did not respond to questions from The Times about its work for Apple or other companies.
Tax authorities have challenged several of the offshore structures maintained by Appleby and Estera, a spinoff of the law firm’s corporate services business. Nike triumphed over the Internal Revenue Service in a fight over back taxes a year ago; a similar dispute between the I.R.S. and Facebook is continuing.
European regulators are trying to force countries including Ireland, Belgium, Luxembourg and the Netherlands to collect back taxes from big companies that relied on offshore arrangements. Apple is being pursued for $14.5 billion in back taxes after European regulators ruled that its old tax structure amounted to illegal state aid from the Irish government.
Apple’s offices in Cork, Ireland. The company is being pursued for $14.5 billion in back taxes after European regulators ruled that its old tax structure amounted to illegal state aid from the Irish government. Credit Andrew Testa for The New York Times        

Seeking ‘the Holy Grail’

Since the mid-1990s, multinationals based in the United States have increasingly shifted profits into offshore tax havens. Indeed, a tiny handful of jurisdictions — mostly Bermuda, Ireland, Luxembourg and the Netherlands — now account for 63 percent of all profits that American multinational companies claim to earn overseas, according to an analysis by Gabriel Zucman, an assistant professor of economics at the University of California, Berkeley. Those destinations hold far less than 1 percent of the world’s population.
Criticism of such profit shifting was largely ignored until government finances around the globe came under pressure in the years following the 2008 financial crisis, when the practice led to government inquiries, tax inspector raids, media scrutiny and promises of reform.
In May 2013, the Senate’s investigative subcommittee released a 142-page report on Apple’s tax avoidance, finding that the company was attributing billions of dollars in profits each year to three Irish subsidiaries that declared “tax residency” nowhere in the world.
Under Irish law, if a company can convince Irish tax authorities that it is “managed and controlled” abroad, it can largely escape Irish income tax. By seeming to run its Irish subsidiaries from its world headquarters in California, Apple ensured that Irish tax residency was avoided.
At the same time, American law dictated that the subsidiaries were only tax residents in the United States if incorporated there. The federal government permits taxes on any income generated by foreign units to be deferred indefinitely, as long as the company says those profits stay offshore.
“Apple has sought the holy grail of tax avoidance: offshore corporations that it argues are not, for tax purposes, resident anywhere in any nation,” then-Senator Carl Levin, Democrat of Michigan, who was the subcommittee chairman, said at the 2013 hearing.
Ireland’s finance minister at the time, Michael Noonan, at first defended his country’s policies:
“I do not want to be the whipping boy for some misunderstanding in a hearing in the U.S. Congress.” Ireland had long pursued business-friendly tax policies, which helped lure jobs to the country, primarily for technology and pharmaceutical companies. Apple now has about 6,000 employees in Ireland, including customer service and administrative jobs.
But by October 2013, in response to growing international pressure, Mr. Noonan announced that Irish companies would have to declare “tax residency” somewhere in the world.
At that time, Apple had accumulated $111 billion in offshore cash, mostly in its Irish subsidiaries. Billions of dollars in new profits poured into them each year. Yet they paid almost no corporate income tax.
Company officials wanted to keep it that way. So Apple sought alternatives to the tax arrangement Ireland would soon shut down. And the officials wanted to be quiet about it.
“For those of you who are not aware Apple are extremely sensitive concerning publicity,” wrote Cameron Adderley, global head of Appleby’s corporate department, in a March 20, 2014, email to other senior partners. He added, “They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”
Baker McKenzie wanted to use a local Appleby office to maintain an offshore arrangement for Apple, its client. For Appleby, Mr. Adderley explained, this potential assignment was “a tremendous opportunity for us to shine on a global basis with Baker McKenzie.”
Baker McKenzie’s San Francisco office emailed a 14-item questionnaire in March 2014 to Appleby’s offices in Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man and Jersey.
“Confirm that an Irish company can conduct management activities (such as board meetings, signing of important contracts) without being subject to taxation in your jurisdiction,” the document requested. Baker McKenzie also asked for assurances that the local political climate would remain friendly: “Are there any developments suggesting that the law may change in an unfavourable way in the foreseeable future?”
(A Baker McKenzie spokesman said, “As a matter of general policy, we do not comment on confidential client matters.”)
Apple decided that its new offshore tax structure should use Appleby’s office in Jersey, which is one of the Channel Islands and has strong links to the British banking system. Jersey makes its own laws and is not subject to most European Union legislation, making it a popular tax haven.

Jersey, the island in the English Channel where Apple has found a new tax haven. Credit Andrew Testa for The New York Times

The ‘Double Irish’

But the plan to use Jersey faced a potential snag: In mid-2014, again under pressure from other governments, Irish ministers explored ending a tax shelter known as the “double Irish,” used by scores of companies, including the Appleby clients Allergan and Facebook, as well as Google, LinkedIn and other businesses.
The double Irish allows companies to collect profits through one Irish subsidiary that employs people in Ireland, then route those profits to an Irish mailbox subsidiary that is a tax resident of an offshore haven like Bermuda, Grand Cayman or the Isle of Man.
Irish officials explored a ban on Irish companies claiming tax residency in tax havens.

Executives at Allergan — which had used a double Irish for at least a decade, records show — tried to derail the rule change. Terilea Wielenga, then Allergan’s head of tax, was also international president of the Tax Executives Institute, a trade group. She argued to the Irish finance ministry in July 2014 that any such changes should occur slowly.
The campaign seemed to work. “For existing companies, there will be provision for a transition period until the end of 2020,” Mr. Noonan declared in October 2014. The gradual phase-in would apply not just to existing companies but to any new ones created by that December.
This gave Apple just enough time. By the end of the year, Jersey had become the new tax home of the Irish companies Apple Sales International and Apple Operations International.
But a third Apple subsidiary, Apple Operations Europe, instead became resident in Ireland.
Apple would not say why. But tax experts offer one possible reason. While press attention focused on Ireland’s crackdown on the double Irish, officials announced a measure that gave Ireland more appeal: The country expanded its tax deductions for companies that move rights to intellectual property — like patents and trademarks — into Ireland. If an Irish company spent $15 billion buying such rights, even from a fellow subsidiary, it could claim a $1 billion tax deduction each year for 15 years.
Apple declined to say whether it has availed itself of the new benefit.

But J. Richard Harvey, a Villanova law professor and former I.R.S. official who reviewed the Appleby documents, concluded that there was a strong possibility the company moved intellectual property into Ireland to take advantage of the generous tax rules. Based on disclosures in Apple’s American securities filings, he estimated that the transfer was worth about $200 billion.
That would mean that any income that Apple now generates in Ireland could be partially offset by more than $13 billion in tax deductions each year for 15 years.
Apple’s hunt for a tax haven is a familiar tale, said Reuven Avi-Yonah, director of the international tax program at the University of Michigan Law School, who also reviewed the Appleby documents.
“This is how it usually works: You close one tax shelter, and something else opens up,” he said.
“It just goes on endlessly.”

Metals Blastoff About To Happen

Metals Blastoff About To Happen

If you’ve followed our analysis long enough, you’ll understand that we have been bullish yet cautious of this market move.  Our research team at ActiveTradingPartners.com has been warning our members of the potential for a volatile and possibly viscous retracement in the US majors for weeks.  We understand that capital, as a source that requires ROI and degrees of certainty, is moving into US equities at an incredible pace and that the last 8+ months fantastic moves in the US markets are related to expectations of greater economic activities related to President Trump and new policies.  Yet, we also understand that the markets just don’t up straight up forever and that capital, once risk is evident, will find other sources of ROI should the globe or the US become more volatile.  Hence, our position that “Risk” is relatively high at the moment for any unexpected retracements.
Our research team has been focused on primarily four components of the market with regards to factoring in Risk.  Before we get into what these four components are and why we are paying close attention to them, lets take a few minutes to understand the “setup” and what we believe will be the result.
The “Setup” is that bullish trending should likely continue in the US Majors until something dramatic and unexpected derails this move.  Volatile retracements in the range of 2~4% should not be unexpected.  Any move like we’ve seen over the past 8 months where price enters a nearly parabolic uptrend should restore some normalcy with moderate price retracements.  This is the nature of price – it rotates attempting to identify key support and resistance levels.  Global capital is rushing into the US markets as other markets languish and the new Trump presidency offers a glimmering opportunity for capital to gain ROI within the US.  This is why, we believe, the US markets have moved so strongly over the past 8+ months.
Now that we understand the “Setup”, lets review the current market environment.  Given the recent news of political turmoil in DC and the foreign news of a faster Brexit, China’s potential slowing and variances in global economies that were not expected, we have been paying attention to those four key components trying to identify early signs of weakness or rotation to alert our members.  What are they?
Why these components?  We’ve selected these components because they translate to core components of the US and global economies as well as key indicators of consumer spending and consumption.  The Metals and Transportation sectors show us how fear and greed are playing out in the markets (wheras Transportation typically leads the markets by 2~4 months as an indication of economic demand and freight activities).  The metals markets are the clearest signs of fear entering the markets as prices climb.
Technology and Healthcare are two key components of the US and global economy as they drive a very large portion of the US economic activity and nearly everything related to retail, commerce and/or transactional economics is in some way related to Technology or Healthcare.
Now, onto the charts…
In the past, we have been warning of a massive move higher in the metals that we’ve been following and waiting for.  Our prediction is based on a number of factors; Elliot Wave Anlaysis, Technical Analysis, Fibonacci Analysis and much more.  We’ve included a few recent charts to show you how and why we believe this move higher is Gold and Silver will coincide with a broader general market retracement in the US majors (and possibly include the global markets).
You will likely see from this Gold Daily Fibonacci Price Modeling chart that the recent price rotation in Gold has setup a nearly perfect double bottom as well as a recent bullish price trigger as price moved above the GREEN LINE level.  This move is setting up to allow a price advance back to near $1350 with key support currently being near $1260.  This current rotation on the Daily chart is indicating that price could find some resistance near $1310 as it moves higher.


This Weekly Gold Fibonacci Price Modeling chart shows a very interesting price setup.  Current, we do not see the bullish trigger on this chart as we do on the Daily chart.  We do see support near $1260 being identified and we also see upside targets of $1420, $1460 & $1525 being identified.  These are all contingent on Gold moving higher above $1300 to generate a bullish Fibonacci price trigger.
Should the Daily price swing/trigger continue higher, this Weekly trigger could happen within the next few trading days.  So pay attention.


Silver is on the move as well.  This Daily Silver Fibonacci Modeling Price chart is similar to the Gold Daily chart, yet it clearly shows the recent move, today, in Silver that generated a strong BUY trigger with support near $16.25 and targets near $17.75, $18.45 & $18.60.  As long as Silver stays above the $16.25~16.40 level, it should attempt to expand higher over the next few weeks/months.


This Weekly Silver Fibonacci Price Modeling chart provides a larger view of what to expect with Silver.  The current move is rather contained in comparison to the other price activity on this chart.  Yet, take a look at the expansion ranges to the upside and the fact that today price action confirmed the upside (BUY) trigger.  The upside targets are $19.50, $20.25 & 21.50.


Should the metals run higher to near these projected target levels, then we can assume that the US majors will find some resistance and trail off a bit with moderate volatility.  The Transportation index has begun to rollover a bit and the Biotech/Healthcare sector has been under pressure for a little over two weeks.
We believe this move in the metals markets will continue to solidify over the next few weeks before any explosive moves really begin.  So, if you are involved in the markets or like to trade the metals, you should visit ActiveTradingPartners.com to check out our most recent analysis and triggers.  We’ll continue to advise our clients with regards to these setups and extended moves and we urge you to take advantage of our specialized price modeling systems.

To Manage Expectations, Central Banks Need Social Media Savvy


LONDON – As global economic growth gathers pace, with the International Monetary Fund reporting that all of the G20 countries are now in an expansion phase, we are at last entering a process of normalization of interest rates and monetary policy. That shift has been a long time coming, and in 2008 few would have forecast that the impact of the financial crisis that erupted that year would be so durable.

It is fair to say that policy normalization is proceeding at different speeds in different places.

The US Federal Reserve is furthest ahead, having already lifted rates twice, while in the Eurozone and Japan, normalization is more anticipated than experienced. But the general direction of change is clear.

In the Fed’s “Semiannual Monetary Policy Report to the Congress,” Fed Chair Janet Yellen forecast “gradual increases in the federal funds rate.” At the same time, the Fed is already reducing its holdings of US Treasury bills and mortgage bonds. In other words, so-called quantitative easing (QE) is being replaced in the US by QT, or quantitative tightening.

The European Central Bank has been less clear about its intentions, but has sounded notably more optimistic about growth in the eurozone, noting that all the job losses associated with the crisis have now been offset. A tapering of eurozone QE is now widely expected. For the Bank of England (BoE), Governor Mark Carney has emphasized the need to raise rates in the near future, given that UK inflation is well above target.

But it is clear that central bankers are nervous about moving rapidly, and are worried about the potential impact of policy tightening on financial markets. They are right to be anxious.

Interest rates have been ultra-low for a long time. The last upward move in London was a decade ago. For most of today’s inhabitants of bank trading floors, that is ancient history.

So one can sense that the monetary authorities are very concerned to prepare the ground for their next moves. They are persuaded that influencing expectations is critical. If markets expect a move, some of the needed adjustments will take place in advance, reducing the potential cost of change.

Central bankers have done a decent job of managing market expectations, certainly in the United States. There cannot be many people in the financial sector who will be surprised if the Fed raises rates again this year.

Preparing opinion for a move is more complicated in the United Kingdom. The voting system used by the BoE’s Monetary Policy Committee makes it harder for the governor to know when a majority for tightening will emerge, and some members’ views have been oscillating in recent months. Still, Carney has been doing his best to drop heavy hints about his own intentions.

But although financial markets may be prepared, can we say the same of individuals, households, and small businesses? Consumer debt remains high in many places, and certainly in the UK there are few signs that the prospect of higher interest rates is dissuading consumers from taking on more debt.

There is clearly a risk that consumers may react more sharply to rate increases when they eventually occur.

Of course, central banks do not normally speak directly to consumers. They must rely on their messages being passed through several hands, including broadcasters and personal finance journalists, before they reach the high street. The BoE has made some recent efforts to address consumers, but its direct reach is inevitably modest.

And there is evidence that communications by central banks are not well suited to the consumer market. In an intriguing recent speech, Andy Haldane, the BoE’s chief economist, marshals survey evidence on how well central banks are understood by the populations they are trying to influence. Researchers have looked at the reading level required to understand central banks’ publications, and at the percentage of the population that reads at that level.

The results are alarming. While about 70% of the population can understand a campaign speech by Donald Trump, and 60% can grasp the significance of the lyrics of an Elvis Presley song, only 2% have the reading ability necessary to understand the minutes of the Federal Open Market Committee.

Now one might reasonably say that no one should expect Joe or Joanna Blow to spend their Saturday evenings reading FOMC minutes. But only slightly more than 20% can understand what the mainstream press writes about monetary policy.

And this is a problem not only for the Fed. The minutes of the BoE’s Monetary Policy Committee are somewhat more demotic in style, but not much more. The Campaign for Plain English, a lobbying group, has described the Bank’s statements as “worthless, impenetrable waffle.” There are no comparable statistics or verdicts for the ECB, but I would be surprised if the results were any different.

The results are a disappointment to central bankers, who, to their credit, have been enhancing their communications in recent years. Not so long ago, a BoE governor took pride in clouding decisions in decent obscurity. In the last 20 years, that curmudgeonly attitude has vanished.

But, as Haldane concludes, further effort is needed.

People get their news in different ways nowadays, and central banks, he says, “must ensure they reach the parts of society they previously have not reached, using media they have not previously used, conversing as much as convincing.” Trump has shown that he can do it, albeit often with deleterious results. The Fed chair appointed early next year, whether Yellen or a new nominee, should consider following the communications trail Trump has blazed.

Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is Chairman of the Royal Bank of Scotland. He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry.

Are You Infuriated Yet?

By: Chris Martenson

More and more, I'm encountering people who are simply infuriated with how our "leaders" are running (or to put it more accurately, ruining) things right now. And I share that fury.

It’s perfectly normal human response to be infuriated when an outside agent hurts you, especially if the pain seems unnecessary, illogical or random.

Imagine if your neighbor enjoyed setting off loud explosives at all hours of the day and night.

Or if he had a habit of tailgating and brake-checking you every time he saw your car on the road. You’d been well within your rights to be infuriated.

Or to use a much more common example from the real world : When your politicians repeatedly pass laws that hurt you in favor of large corporations -- that, too, is infuriating.

Especially if those actions run directly counter to their campaign promises.

There’s a lot of be infuriated about in the world today, so go ahead and embrace your rage. By doing so, you’ll be in a better mindset to understand things like Brexit, Catalonia, and Trump, each of which is a reflection of the fury of your fellow citizens, who are finally waking up to the fact that they've been victims for too long.

An easy prediction to make is that this simmering anger of the populace is going to start boiling over more violently in the coming years. Welcome to the Age of Fury.

'Over The Top' Dumb

Do you ever get the sense that, as a society, we're being dangerously reckless? Perhaps so dumb that we might not recover from the repercussions of our stupidity for many generations, if ever?

There are economic and financial idiocies in motion that are, by themselves, unsolvable predicaments without a peaceful solution. But when combined with resource depletion and declining net energy, they're positively intractable.

Take for example the hundreds of trillions of dollars-worth of underfunded entitlement and pension promises. Those promises cannot be kept and they cannot be paid. Everybody with a basic comprehension of math can conclude as such.

Yet we continue to operate as if the opposite were true. We comfort ourselves that, somehow, all the promised future payouts will be made in full -- even though the funds are insolvent, their returns are much lower than the actuarial projections require, and payout demand mercilessly rises each year.

Spoiler alert: This isn’t some future disaster lying in wait. It’s unfolding right now.

Take these headlines spanning the past several years:

When it comes to broken retirement promises, the future is now. It will be with us for a very long time.

Why? Because the math simply doesn’t work. It’s broken, it’s been broken for a long time. You can't put too little in the piggy bank at the start, then raid it over time, and still expect to have enough at the end.

And yet we, as a society, have preferred to pretend as if that weren’t the case. Which, it turns out, was a terrible “strategy.”

But if you think that's bad, you’re going to positively hate this chart:

S&P 500 chart

The pension liabilities now blowing up are contained within the thin green smear in the middle of this chart. Think on the nation's inability to handle that single crisis, and now reflect on how overwhelmed it's going to be by the far larger predicaments that lie elsewhere on the chart.

The Infuriating Plunder-fest That Is Health Care

The Medicare liabilities (the orange and largest band on the above chart) are immense, and will only become more so as our largest demographic, the baby boomers, further ages. But they become especially infuriating when seen in the larger context of the racketeering that drives the health care system in the United States.

Instead of doing anything constructive about the high number of IOUs building up within Medicare, Washington DC politicians are sidestepping the most obvious elements that contribute the most to the problem. Enormously wasteful, the “healthcare” system is entirely out of control and spiraling deeper into an abyss that threatens to literally destroy the most productive segment of the US social structure: the middle and upper middle classes.

That should be a topic of serious discussion in the halls of power. But none is being had.

Literally each day brings worse news on the skyrocketing costs of healthcare. But, as with most topics,  the media mostly focuses on the symptoms (prices) rather than the causes of the issue.

The real culprits here are the insurance cartel and a hospital system that has the most unfair, incomprehensible, and inhumane billing process ever devised. One easy to grasp feature of both the insurance companies and conspire to pay the executives far more than they actually deserve or are truly worth.
Health care premiums for 2018 set to go up by as much as 50 percent

Several states have announced rates for health insurance premiums on the Obamacare exchanges for 2018. Topping the list is Georgia, with rates that are 57 percent higher than last year, while Florida said some premiums will be 45 percent higher. 
Among the reasons for these increases is the uncertainty about the future of the Affordable Care Act. President Donald Trump has vowed to repeal and replace the health care law, which was passed under his predecessor President Barack Obama. 
Insurers are raising premiums in the face of repeated threats from President Trump to stop funding so-called cost-sharing reductions, payments to insurers that cover out-of-pocket costs for some low-income consumers. Trump previously referred to these payments as “bailouts” for insurance companies and threatened to stop making the payments so as to “let Obamacare implode”.

That’s the story the health insurers are going with: they have to raise rates because they're uncertain whether they will get AS MUCH LOOT under the new rules being considered as they did under the utterly disastrous Obamacare provisions.

How much loot are we talking about? Look at this chart of the stock price of United Healthcare (UNH) since the passage of the Affordable Care Act (aka Obamacare):

S&P 500 chart

If this chart showing massive near-4x gains in just 5 years, coupled with your steep annual premium increases, doesn’t infuriate you, you are just not getting it.

Even if your employer pays for your health care (somewhat obscuring the true impact of premium increases), the cost to you is fewer and lower pay increases, as well as steady yearly reductions in covered services along with higher co-pays and deductible amounts.

Still not infuriated? Ok, maybe this will do the trick. Here how much executive compensation at the major insurers was last year:

S&P 500 chart

The average family health care insurance premium in 2016 was $18,764, meaning that Mark Bertolini from Aetna alone required 100% of the premiums from more than 2,200 families just to pay him in 2016. Of course, the “C-suite” of these health care insurers are loaded with other high-paid parasites who are just as busy gouging the young and old alike.

This is a complete travesty and joke. Congress and the Senate, sitting on their deservedly low approval ratings, pretend they cannot do anything about it. Too complicated they say. Bullshit I say. Go after the obscene pay packages and profits of the insurance industry as a first matter of business. Then make it a crime for hospitals to bill people differently for the exact same services.

That’s a no-brainer. Can you imagine if your mechanic had a secret pricing formula for every customer that was, literally, based on their maximum ability to pay? Nobody would stand for it, it’s disgusting that we tolerate this when it comes to something as vital and necessary as our health and even lives.

Fury, not tolerance, is what's needed now.

The future has arrived. The pension losses are here and just getting started and the future will have a lot more of those sorts of broken promises.

Conclusion (to Part 1)

The health care insurance crisis has been with us for 20 years or so now and Obamacare just put some extra accelerant on that fire, which is now consuming middle class households by the tens of thousands.

Both the pension and health care crises are infuriating and self-inflicted wounds. We could have avoided them by making wiser choices in the past. We didn't. We could limit their damage by making better choices today. We almost assuredly won't.

Current conversations and proposals are thinly disguised sleight-of-hand movements whose purpose is to deflect attention from the thefts underway. Anybody who studies the system and its math comes to the same conclusion: the corporations have all the power and they are misusing it for private gain.

Why there aren’t more politicians willing to call a spade a spade and actually protect their constituents is a real mystery. But the next wave of populist candidates certainly won’t be.

People are sick and tired of being asked to give more and more while corporations and wealthy elites keep taking more and more.

It’s simply infuriating.

But that’s not the worst of it. The mistakes we are making right now in terms of energy policy and ecological destruction are far more dangerous to your personal health, liberty and future prospects than a simple market crash.

In Part 2: It's Time For Action, we uncover the hidden downside risks in today's financial markets and explain how, as destructive as a coming market crash will be, the longer-term damage to society and risks to your well-being are rooted in the potential breakdown of the systems we depend on to live.

As with pensions and health care, we are pursuing similar dangerously misguided policies in our farming & food systems, extraction of industrial resources, and ecological management -- to name just a few. 

There's an appropriate time for fury. And that time is now -- provided we use the anger to spur us into constructive action. Get your fury on.

The Crisis in Spain: Why Are Markets So Calm?

Catalonia’s bid for independence has held Spanish assets back rather than being outright damaging

By Richard Barley

Performance of stock indexes

Earlier in 2017, investors were obsessed with political risk in Europe. Today, Spain faces a profound constitutional crisis over the push for independence in Catalonia, yet markets don’t seem particularly bothered. Can that be right?

The Spanish standoff differs from recent bouts of eurozone political stress that passed swiftly.

Spanish Prime Minister Mariano Rajoy has asked for the power to remove the Catalan government and call fresh elections. Catalan separatists have called for civil disobedience in response to the prospect of control from Madrid. No quick resolution appears imminent.

    Mariano Rajoy in parliament in Madrid on Wednesday. Photo: moya/epa-efe/rex/shutterstock/EPA/Shutterstock      

However, the worst that can be said for markets is that Spanish stocks are lagging a strong rally. The Euro Stoxx index has gained 5% since the start of September, while the IBEX 35 is down 1%. The yield spread between Spanish and German 10-year bond yields has remained steady, at just under 1.2 percentage points, while the euro has barely reacted at all.

What explains this? Importantly, the Spanish constitutional clash isn’t about Europe or the euro; that limits any wider fallout, particularly for the currency. Growth across the continent is strong and Spain has been particularly impressive, growing at a 3% annualized pace, which gives comfort to investors. While Catalonia accounts for close to one-fifth of the Spanish economy, the effects of the Spanish crisis haven’t shown up in economic data yet. The purchasing managers’ indexes due early in November should be watched for any sign the economy is taking a hit.

As for the bond market, investors’ attention is probably mainly on the European Central Bank meeting this week, where policy makers are expected to scale back the pace of bond purchases while extending them into 2018. Spain’s relatively higher yields, plus the ECB purchases, make the country’s bonds hard to pass up.

More broadly, investors have learned in 2017 that it has paid to remain invested despite political risk in Europe. That may not be the right strategy because Spain’s protracted crisis differs from scheduled elections in the Netherlands and France, where the risks were easier to assess.

While it isn’t easy to see how Madrid and Catalonia can resolve their differences, neither is it clear what the path would be for Catalonia to achieve independence—something that would likely cause severe economic disruption. For now, that tension limits movements both up and down in markets. But with Spain in uncharted constitutional waters, bonds and stocks of other eurozone countries may offer safer harbors.