- This Is What Happens To Gold When Citizens Lose Faith In Fiat Currency
It appears, first slowly and now quickly, the world is realizing that Alan Greenspan was right after all: "Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it."
As Nick Laird exposes, gold prices are running away in the weakest countries first…
- Oil Didn't Wreck Venezuela's Economy… Socialism Did
Authored by Pascal-Emmanuel Gobry, originally posted at The Week,
Venezuela's economy is collapsing. The country has topped Bloomberg's "Economic Misery Index," which takes into account several economic measures, for two years. Runaway inflation and high unemployment are plaguing the country.
The country's government is taking emergency measures, including increasing the price of gas (which is still among the cheapest in the world) and devaluing the currency to tackle runaway inflation.
If you read much of the commentary, people blame the country's economic woes on the low oil price. It is true that Venezuela's economy is highly sensitive to the oil price, because it is a significant part of the economy. The oil and gas sector accounts for around 25 percent of the country's entire gross domestic product. Venezuela's oil also has high sulfur content, which makes it more expensive to refine, and makes Venezuela's economy more sensitive to oil price drops.
But while the oil price drop may have been a proximate cause, and an aggravating factor, Venezuela's economic woes predate the current oil price drop by many years, and were going on even while the oil price was high, under President Hugo Chavez. The culprit is clear and obvious: The problem is Venezuela's authoritarian socialism.
The country has had food shortages for many years, because many foodstuffs are price-controlled. If there's one thing all economists agree on, it's that price controls lead to rationing. And yet, the government insists shortages are due to greedy hoarders. President Nicolás Maduro has recently taken over a supermarket chain, arguing that it was hoarding. The currency crisis also means that food imports are prohibitively expensive, and capital and exchange controls mean there is often no way to produce the money to buy things even when they are available. Venezuela shows us a sight familiar to those who experienced Soviet Communism — long lines to buy food — in an oil-rich country.
Under Chavez, Venezuela nationalized a swathe of industries, including oil projects, and instituted a 50 percent windfall tax on oil profits, driving away oil companies. Sometimes the government just seized them. The government nationalized agriculture projects and major agricultural companies. It has also nationalized several banks and shut down others. It also took over the cement sector and the country's biggest telecommunications company, as well as utility companies.
Transparency International ranks Venezuela in the top 20 of the world's most corrupt countries. According to a Gallup poll, 75 percent of Venezuelans believe corruption is rampant at every level of the government. If you were a business owner in a country where the government is seizing companies left and right, you might believe a bribe is the only way to keep your living. Caracas is the murder capital of the world.
President Maduro recently arrested the mayor of Caracas, a virulent opponent of the regime, on charges of fomenting a coup d'état. TV channels and other media hostile to the regime are frequently harassed, or even shut down. None of these things are due to low oil prices. Instead, they are due to misguided government policies.
And, for conservatives, it's a useful reminder. Socialism is what produces bread lines in an oil-rich country. In developed countries, economic debates often focus on narrow questions, such as raising the minimum wage, where it's possible for reasonable people to disagree. This leads to an impression that the relative merits of free enterprise and big government policies can be in the eye of the beholder.
To a certain extent this is true. Or, at any rate, different economic policies affect individual countries differently. Make no mistake: A free enterprise system requires an important role for government. But while unleashed capitalism can have unseemly side effects, no policy produces the kind of sheer economic devastation that authoritarian socialism does. Sadly, Venezuela gives us yet another example.
- Jeb Bush Drops Out Of US Presidential Race
With yet another resounding defat under his belt, Jeb Bush has announced his decision to "suspend" his campaign for the Republican Presidentoal nomination.
- *JEB BUSH DROPS OUT OF U.S. PRESIDENTIAL RACE
As The New York Times reports,
Jeb Bush suspended his presidential campaign on Saturday, ending a quest for the White House that started with a war chest of $100 million, a famous name and a promise of political civility, but ended with a humbling recognition: in 2016, none of it mattered.
No single candidacy this year fell so monumentally short of its original expectations. It began with an aura of inevitability that masked deep problems, from Mr. Bush himself, a clunky candidate in a field of gifted performers, to the rightward drift of the Republican Party since Mr. Bush’s time as a consensus conservative in Florida.
Mr. Bush’s campaign had rested on a set of assumptions that, one by one, turned out to be flatly incorrect: that the Republican primaries would turn on a record of accomplishment in government; that Mr. Bush’s cerebral and reserved style would be an asset; and that a country wary of dynasties would evaluate this member of the Bush family on his own merits.
“We’ve had enough Bushes” his mother, Barbara Bush, observed, prophetically, before her son had announced his candidacy last summer.
We wonder if another Tweet to his mom is in order…
Sorry Mom
— Jeb Bush (@JebBush) September 17, 2015
Having finished 6th in Feb. 1 Iowa caucuses, 4th in Feb. 9 N.H. primary; and running in back of pack in early returns in today’s S.C. primary (under 10%), Bush says he’s proud of campaign he’s run…
“The people of Iowa, New Hampshire and South Carolina have spoken, and I really respect their decision so tonight I am suspending my campaign,” Jeb Bush says in S.C.
“Despite what you might have heard, ideas matter, policy matters,” Bush says
- Mapping Russia's Syrian Air Campaign: February Strikes At A Glance
Russia and Iran are on a roll in Syria.
Just two months ago, it appeared as though Moscow was indeed set to get bogged down in the conflict as the Russian Defense Ministry’s daily airstrike video dump seemed to be at odds with a lack of concrete results on the ground.
Then, suddenly, Hezbollah had surrounded Aleppo. To be sure, the offensive was telegraphed months in advance (we previewed the assault in October). But the public generally failed to put the pieces together when it came to adding up reports of incremental advances by Assad-allied forces in northwestern Syria. As it turns out, months of hard fought gains proved sustainable and now, the rebels find themselves trapped in Aleppo, where they’ll stage a last stand that’s virtually sure to fail thanks in no small part to Russia’s scorched earth airstrikes and Hezbollah’s expertise in waging asymmetric, urban warfare.
Moscow has taken criticism from the Western media for continuing to strike rebel positions on the heels of a tenuous agreement to implement a “cessation of hostilities.” From the outset, Russia made it clear that the deal didn’t include “the terrorists” and since everyone fighting Assad is a “terrorist” in Russia’s eyes, the bombing runs have continued unabated.
Moscow is also coordinating airstrikes with the Kurds and because Putin, unlike Obama, isn’t obliged to pander to Ankara, the YPG have managed to advance quickly west of the Euphrates and are now set to close the Azaz corridor, the last supply line from Turkey to the rebels in Aleppo. Turkey has responded by shelling YPG positions and by demanding the US recognize the group as a “terrorist” element. In short, it’s just a matter of time before the Turks send in the ground troops. Without an intervention by Ankara and Riyadh, the rebellion will fail and the YPG will effectively establish a proto-state on Turkey’s southern border.
It’s against that backdrop that we bring you the following map which documents Russia’s air campaign as it unfolded in February. There’s also some additional color from ISW, whose assessment is largely accurate if colored by a kind of Russophobic bias.
From ISW:
Russia also has ratcheted up its military power in Syria since the agreement, with the deployment of the advanced Tu-214R intelligence, surveillance, and reconnaissance (ISR) aircraft to the Bassel al-Assad International Airport on February 15. The Tu-214R will likely work in coordination with the new Russian Su-35S warplanes to conduct quick and accurate precision strikes. Its deployment is another indication that Russia and the regime continue to pursue a military solution to the conflict in Syria.
Russian-enabled Kurdish advances have applied additional pressure against opposition forces already strained by recent regime advances northwest of Aleppo City. Kurdish forces cleared over 10 kilometers of opposition-held terrain north of the city, seizing the town of Tel Rifaat, the Menagh Airbase, and at least five other villages from the armed opposition from February 6 – 16 with the assistance of Russian airstrikes. Given recent gains, Kurdish forces are positioned to seize the opposition stronghold of Mare’a located along the frontline with ISIS. Kurdish forces are also positioned to seize the town of Azaz located 10 kilometers south of Turkish border. Russian air support for Kurdish forces further escalates tensions with Turkey, which has responded to recent Kurdish gains by shelling recently seized villages adjacent to Azaz.
- The Absurd Notion Of "Transitory" Is Dead
Submitted by Jeffrey Snider via Alhambra Investment Partners,
When Janet Yellen testified to Congress last week, she was as usual careful with her words. Alan Greenspan once called it “mumbling with incoherence” but there is very little left to rambling in Yellen’s predicament. Where Greenspan was once the “maestro” and Bernanke the “hero” Yellen is stuck holding the bag, and I think she knows it. In truth, there isn’t the faintest difference between any of them, which is exactly the problem and her source of frustration. The Fed is in grave danger of being unquestionably revealed for the backward, incompetent institution it always was.
As to the recent stumble, it makes for the most uncomfortable juxtaposition between what the Fed did in December and what the economy and markets have continued to do since mid-year last year. To continue on in that contradiction leaves her no choice but to blame again “overseas.”
“Financial conditions in the United States have recently become less supportive of growth,” she told the House Financial Services Committee. “These developments, if they prove persistent, could weigh on the outlook for economic activity.”
She meant that convulsions in the stock markets could harm the economy…
Ms. Yellen argued on Wednesday that the rest of the world was to blame. She said the crucial question confronting the Fed was whether the domestic economy is strong enough to keep growing modestly even as the global economy struggles.
As always, it has to be “overseas” because the BLS says so.
Ms. Yellen highlighted the “solid improvement” of the United States labor market. The unemployment rate fell to 4.9 percent in January from 5.7 percent a year ago, while the economy added an average of 222,000 jobs a month. Wages also rose more quickly.
Whether she actually believes the BLS figures or not is another question altogether. If this is still part of the “best jobs market in decades”, where is all the spending? Not only was the Christmas shopping season atrocious, the first estimates for 2016 were even more so. While seasonal adjustments “saved” the retail sales report for January, actual store receipts bury them by agreeing with the unadjusted version.
Excluding the drug stores, the Thomson Reuters Same Store Sales Index registered a -1.0% comp for January, beating its flat final estimate.
Including the Drug Store sector, SSS drops to a -1.1% comp, missing its final flat estimate. 75% of retailers missed their SSS estimate…The blizzard in January kept shoppers at home instead of the shopping mall that weekend. As a result, holiday clearance has not been selling well. As inventory piles up, retailers missed their SSS estimates and blamed the weather and a weak consumer spending environment.
In last year’s “unexpected” snows of January, the SSSI gained slightly, while in the Polar Vortex of 2014 the SSSI grew by nearly 4%. From +3.8% to +0.6% to -1.1% all in the frozen confines of three straight bracing January’s leaves out any “residual seasonality” and permits only an all-too-well-defined trajectory. Yellen claims the problem is overseas but, as I write constantly, everyone overseas is pointing right back at US consumers and US “demand.”
It sure looks like a sustained period of contraction (above) and surely “unusual” weakness. Whether or not any economist wants to admit the slightest hint of recession doesn’t really matter, retailers themselves are already filling in that commentary. Walmart missed big, forecasting no sales growth in 2016 instead of 3% to 4% in its past guidance, while Nordstrom set back further the economic narrative with heavy discounting and inventory.
Analysts considered the best-in-class department store a casualty of the overall sluggish retail environment, particularly as it pertained to discounting across the sector.
Even as the high-end store held the line on storewide promotions, its commitment to matching other stores’ prices contributed to a 1.8 percent dent in its gross margin — a hit that was exacerbated by its need to mark down merchandise to clear inventory.
Paired with a conservative outlook for 2016, Nordstrom’s second-straight quarter of disappointing results reignited investor concern that its exposure to the high-end consumer could translate into softness this year, particularly as the stock market continues to fluctuate.
But perhaps more importantly, its discount Rack stores — which have fueled much of the company’s revenue growth over the past few years — posted their third same-store sales decline for the year.
High end, low end, the store chain suffered at all ends even though the unemployment rate suggests to orthodox economists the economy is so very close to booming. This disconnect is not even much of one, since the only indication of that kind of possibility, the one that sustains Yellen in public, is increasingly isolated; bringing to mind closer and closer only logical fallacy. Even if it were just retailers, that might be enough of a recession hint, but it is far beyond “just” retailers or the 12% manufacturing economy.
Corporate America is in the thick of the “worst quarter for profits growth” in the past five years.
In Q4 2015, blended earnings have seen an overall decrease of 3.6 percent and will likely bottom out at 4.2 percent. If earnings continue on their downward trajectory, it will be the first time the S&P 500 has seen three consecutive quarters of year-over-year declines in earnings since Q3 2009.
Prospects are not likely to improve anytime soon, with 381 S&P 500 companies, about 87 percent of the index, having already released earnings updates. The remaining companies (mostly retailers and utility companies) will report updates over February and early March.
With retailers yet to report, perhaps -4.2% might actually prove quite optimistic. Whatever ultimately the case, three straight quarters of negative earnings is a particularly difficult digression and, as much as economists want to rest all that upon just the dollar, it is, in fact, much, much more serious than earnings. Giving EPS problems the “rising dollar” makes it sound artificial, as if it is just number translations on reported ledgers. What actual businesses are finding, however, is quite real and more so disturbing in just a recession sort of way.
In 2015, equity investors looking for yield suffered death by 394 cuts.
Last year, the number of dividend reductions far surpassed 2008, according to Bespoke Investment Group, citing data from Standard & Poor’s.
The ratcheting down of payouts to shareholders is a function of weak commodity prices, sluggish growth dampening corporate profits, and a tightening of credit conditions.
How is that last paragraph immediately above any different from one? The fact that dividends are being dropped on a widespread basis is an open invitation to just that potential. There is a very real cash problem here, front to back, against which the FOMC and economists place the BLS’s various and sundry imputations and statistical models? The amount of corroborative evidence is overwhelming against them, including “overseas” which, again, easily traces back to the sudden and sustained drop in actual consumer activity no matter how low the unemployment drops.
If it looks like a recession from so many different angles, chances are very good that it is. It is so consistent that even the stock market has finally awoken. The problem, the real problem, is as Nordstrom’s struggles suggest with inventory – it is only beginning. And that point is echoed in “tightening of credit conditions” which haven’t truly tightened in any relatively meaningful way yet. The OECD, for one, is right to be suddenly alarmed, though, as usual, it would have been far more helpful and relevant last year instead of further fostering the absurd notion of “transitory.” Like Bernanke was in his turn, Yellen will be the last to admit it. Sadly for her, she can’t eat the unemployment rate.
- A Photo Journey Through The Baltimore Ghetto
Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),
A Different World
BALTIMORE – We left the fantasy island of modern finance today. We had to take our pick-up truck in for repairs. The dealers all seem to be in East Baltimore… or east of Baltimore… so we drove out of Mulberry Street to Pulaski Highway and finally over to Merritt Boulevard.
Just three blocks east of our office, in the Mt. Vernon district, a different world begins. The first indication of it is the old stone prison at the bottom of the hill, first commissioned in 1801. For more than 200 years, Baltimore’s jail has been a disgrace to the city and its correctional efforts. Overcrowded. Filthy. Degenerate.
The forbidding Baltimore detention center
Photo credit: Lloyd Fox / MCT / Landov
The critical reports go back almost to the day it was built. Back then, as many as half the prisoners were there for failing to pay their debts. (Today, a similar percentage is there for drug crimes. How times have changed! Now, you can stiff your creditors all you want. But watch out. Don’t take drugs. IT’S THE LAW.) But the most recent scandal must top them all…
Looking into the Baltimore Jail’s courtyard from above …
Photo credit: Weyman Swagger / Baltimore Sun
In the 1970s, Baltimore began employing women to police the men in the prison. Then, in 2013, the U.S. Attorney’s Office indicted 44 people, including 27 employees of the prison… and some inmates, too… on charges including racketeering, conspiracy, drugs, and money laundering. But the crème de la crème of the indictment concerned Mr. Tavon White, prisoner and ringleader of the Black Guerrilla Family.
First, he earned, while a prisoner, as much as $16,000 a month from drugs and contraband. Second, it turns out that, since 2009, he had also fathered five children with four of the female guards – two of whom had his name tattooed on their bodies. Mr. White was convicted and sentenced to another 15 years in the can.
Gang leader Tavon White fathered five children with four female guards in the Baltimore City Jail …
Image via miseeharris.com
Boarded Up
Once past the prison, we found blocks of public housing – three-story brick buildings with air conditioners sticking out of windows and trash blowing down the alleys. A boarded-up brick house. A boarded-up stucco house. A boarded-up slipform-stone house. The Pillar of Truth Apostolic Church. Ray’s Liquors. Jane’s Liquors. Pam’s Wine and Spirits. Johns Hopkins Hospital. Bail Bonds 24 Hours. More boarded-up houses.
Boarded-up row houses in East Baltimore – there are an estimated 16,000 abandoned houses in the city
Photo credit: Eric Parker
Convenience Mart. Sister Beth’s Palm Reading. Heating Repairs. Mufflers. A Moslem community center. More boarded-up houses. Sally’s Show Bar. Everyday Painting Company (in a house that badly needed painting). Blacks. Hispanics. Burger King. McDonald’s. Kentucky Fried Chicken. Dot’s Sandwiches and Subs. Kae Won Fu Asia Carry Out. Used cars… no credit… bad credit… no problem; $795 Down and You Have a Ride.
Whiskey River, apparently closed. Discount Shades and Blinds. Sudsville, 24-hour laundry. Pompeiian Olive Oil. Tombstones and monuments. “Pray for Baltimore,” said a billboard. “Vote for Catherine Pugh,” said a large sign. “Where will your next meal come from? Call 211…” More boarded-up row houses, these with porches.
Boarded-up shop fronts in Baltimore…
Photo credit: Edwin J. Torres
We took the road toward Dundalk. More auto dealers. Rundown bars. White men in pick-up trucks. The Poplar Restaurant. Central Masonry Supplies. A liquor store with a purple door. Subs. A huge lot full of white delivery vans. Trucking companies. Strip malls. Auto painting. Bay Concrete. Plumbing Distributor. Chesapeake Pets. Dundalk Liquors.
Now the brick-and-form stone disappeared. There were individual houses, wood frame with siding or shingles. White. Boxy. Built in the 1940 or 1950s. Thousands of them. The cars in the driveways are recent, but the houses are the same as when they were built. Cheap. Simple. Small.
Another Baltimore ghetto view …
Photo credit: PurpleHaze1100
These suburbs were built when Baltimore’s industries were running hot. The GM assembly plant. Beth Steel’s Sparrow’s Point furnace. Domino Sugar. McCormick Spice. Ordinary working stiffs earned decent wages and lived well.
But here we are a half a century later… and ordinary working stiffs are in the same houses… earning the same wages (roughly) as they did in the 1970s. Judging from the polls and presidential primary results, they’re not too happy about it.
A city official visiting the recently closed squalid detention center
- Prominent Democrat Official To Bernie Sanders: "Go F–k Yourself"
For those who still believe that only the GOP establishment has lost its nerve with its fringe frontrunner of a candidate, here is proof that when it comes to Bernie Sanders’ surprisingly strong performance to date, the Democrat party is just as unhinged that Hillary Clinton’s primary campaign, which was supposed to be smooth sailing, has been anything but.
As the Hill reports, a former deputy executive director of the Democratic Congressional Campaign Committee (DCCC) on Friday lashed out at presidential hopeful Bernie Sanders in a post on Medium titled “Go fuck yourself, Bernie.”
The post was in response to Sanders implying that rival Hillary Clinton was praising President Obama in order to “win support from the African American community where the President is enormously popular.“
English, who is black and who was profiled two years ago by Politico, was not happy: “It’s not just Black people that love Obama. The President is ‘enormously popular’ among all Democrats. Welcome to the Party,” former DCCC official Brandon English wrote in his post.
“Do you have any idea how belittling it is to reduce Obama to the President that the Blacks like?” English noted that both Sanders and Clinton have been attempting to curry favor among black voters.
Well, if so, it has not been working for Sanders as the following data confirms:
In 5 majority black precincts, Clinton has an 84 to 4 delegate lead over Sanders.
— Nate Cohn (@Nate_Cohn) February 20, 2016
Facts aside, English decided to go to town with his ad hominem attack: “In a world of voting rights abuses and gerrymandered districts where Black voters are constantly disenfranchised, it’s nice to have someone speak directly to our needs for a few months every 4 years,” he said.
Toward the end of his piece, English did soften his criticism: “So do I actually mean it when I say Go F— Yourself, Bernie? No. Everyone’s allowed to have a bad day,” he wrote. “Everyone makes mistakes when every word is captured on tape. If Bernie wins the nomination, I’ll be knocking on doors for him in Cleveland. “But for today, and for that comment, and for anyone that tries to diminish Obama’s presidency to ‘He’s popular with black people,’ Go Fuck Yourself.”
His full post below:
Go Fuck Yourself, Bernie: Obama isn’t just the President of Black people.
In @BET interview, Sanders accuses Clinton of cozying up to Obama in order to win African-American votes: pic.twitter.com/x9O4dmvnKI
— Liz Kreutz (@ABCLiz) February 18, 2016
1. It’s not just Black people that love Obama. The President is “enormously popular” among all Democrats. Welcome to the Party.
2. Do you have any idea how belittling it is to reduce Obama to the President that the Blacks like?
3. Aren’t you the one that got shouted down by Black Lives Matter protesters at Netroots Nation, canceled all your meetings in a huff, talked to your advisors and then suddenly realized you needed to start parroting Black Lives Matter catchphrases in all of your speeches?
4. Have both you and Hillary been putting out policies to “win support from the African-American community”? Yeah. And you know what? That’s a GOOD thing. In a world of voting rights abuses and gerrymandered districts where Black voters are constantly disenfranchised, it’s nice to have someone speak directly to our needs for a few months every 4 years.
5. When politicians suck up to minority groups, its called pandering. When politicians suck up to white people, it’s called campaigning.
* * *
So do I actually mean it when I say Go Fuck Yourself, Bernie? No. Everyone’s allowed to have a bad day. Everyone makes mistakes when every word is captured on tape. If Bernie wins the nomination, I’ll be knocking on doors for him in Cleveland.
But for today, and for that comment, and for anyone that tries to diminish Obama’s presidency to “He’s popular with black people,” Go Fuck Yourself.
- Caught On Tape: Ukraine Nationalists Trash Offices Of Russian Banks; Police Refuse To Intervene
Two years after the US State Department, and specifically Victoria Nuland, hand-picked Ukraine’s next government in the aftermath of the Euromaidan riots which led to a coup and the ouster of then president Yanukovich and the appointment of a US puppet government led by the increasingly unpopular Arseniy Yatseniuk, tens of thousands of people in the Ukrainian capital came to various observances of the “Day of the Heavenly Hundred”. a term which refers to those who died during the months of protests in Kiev that culminated with President Viktor Yanukovych fleeing.
Things promptly devolved, however, when hundreds of people decided to commemorate some of Ukraine’s most violent days with even more violence. The video below shows some of the scuffles which broke out early in the day.
While a civil war rages in the country’s Eastern Donbass region, demonstrators threw rocks through windows at the offices of Alfa Bank and Sberbank and damaged furniture and equipment inside. Protesters also vandalized the offices of the holding company of Ukraine’s richest man, Rinat Akhmetov. Police did not intervene according to AP.
The latest bout of anger comes amid a political crisis with the resignation of several reform-oriented politicians earlier this month who alleged continued corruption in the top echelons of the Ukrainian government. A no-confidence vote against the country’s prime minister failed to pass this week as the governing coalition frayed.
At the forefront of today’s violence were members of Ukraine’s radical nationalist organizations. They vehemently reject any concessions to the east and are angered by authorities’ failure to address Ukraine’s endemic corruption. Akhmetov, whose wealth springs from mining and steel in the east, is a target of their anger.
“We need to have a third Maidan,” said Nikolai Kokhanovsky, a leader of the Organization of Ukrainian Nationalists, using the common term of the protests of 2014 and those of the 2004 Orange Revolution. New protests would “sweep away this corrupt government and pro-Russian oligarchs who have betrayed our revolution of dignity.”
“Russia and the oligarchs are guilty for life in Ukraine becoming worse and worse,” said 21-year-old protester Ruslan Tymchuk, who was dressed in camouflage and wielding a bat.
Actually Ukraine was doing relatively well until a CIA-led effort to destabilize the country in late 2013 succeeded, and culminated with the violent coup of February 2014. It has been downhill ever since, but for an angry, hungry and cold population, logic is often times futile.
And so, with the anger quickly rising to the surface, violence broke out against the symbol of what conventional wisdom sees as the reason behind Ukraine’s sad state: Russia and specifically its bank branches.
As a result, Ukrainian nationalist radicals wrecked the offices of Russian companies Sberbank and Alfa-Bank in Kiev and accused the Russian banks of “financial occupation of Ukraine,” throwing rocks and other foreign objects at the buildings and shattering their windows.
As noted above, the police refused to intervene while Russian assets were being trashed. They did prevent the mob from setting the Sberbank office doors on fire, but the attackers managed to get inside the Alfa-Bank office. They trashed the furniture and glass partition walls inside the bank, shouting nationalist slogans, including: “Glory to Ukraine! Glory to heroes!”
Members of the volunteer battalions which participated in Kiev’s military campaign in East Ukraine, activists from the far-right Ukrainian Insurgent Army (UPA), and other radical groups were also among those responsible for the violence RT reports.
According to LifeNews, Ukrainian security forces have not made a single arrest in connection with the attacks on the Russian banks.
Later on Saturday, several dozen camouflaged man arrived at Maidan Square (also known as Independence Square) in central Kiev, which was the venue for the 2014 protest. They identified themselves as representatives of the “revolutionary right forces staff” and read out a manifesto in which they demanded the resignation of the government, the reversal of the Minsk peace agreements, and the release of unspecified political prisoners.
More troubling for the ruling US-puppet regime is that two years after the Maidan riots, Ukraine’s nationalists have now openly turned against the government: the demonstrators also called for an indefinite protest on the Maidan, proclaiming that “we won’t leave until this criminal regime leave,” RIA-Novosti reported, a regime which they themselves helped created two years ago.
For now the fury of the nationalists is focused on the banks, initially those belonging to Russia. We wonder how soon until similar violence against bankers in a world whose interlinked economies are promptly deteriorating, becomes a daily event.
Here is a video of today’s attack:
And here is a clip of the office of eastern Ukrainian oligarch, Renat Akhmetov, ransacked on the same day.
- Why According To One Bank, Massive Central Bank Intervention Is Imminent
Any time the relative performance of global financials to US Treasuries has stumbled as far as it has, as shown in the chart below, it has meant one thing – a major central bank intervention was imminent.
At least that’s the interpretation of BofA’s Michael Hartnett, who shows that in order to provide the kick for the bounce in this all too important “deflationary leading indicator”, central banks engaged in major unorthodox easing episodes, whether QE1-3, or the ECB’s QE.
Why intervene now? Here are the problems according to Hartnett:
- Problem 1: US economy in “bad Goldilocks”, i.e. US economy not hot/strong enough to lift global GDP & EPS; but not cold/bad enough to induce global coordinated response
- Problem 2: global policy-maker rhetoric in recent days shows “coordinated innocence” not stimulus, all blaming global economy for weak domestic economies (“Overseas factors are to blame”…Japan PM Abe; “drag on U.S. economy from greater-than-expected-slowdown in China & other EM economies“…FOMC minutes; “increasing concerns about the prospects for the global economy”…ECB Draghi; “the change in China’s growth rate can be attributed in part to weak performance of the global economy”…PBoC)
Problem 2 is static, meant for media propaganda and jawboning; it can easily be removed once the global economy takes the next leg lower. Which incidentally would also resolve the gating factor of Problem 1 – as we have said for months, the Fed and its central bank peers need the political cover to launch more stimulus.
And in a reflexive world, where the “economy is the market”, this means just one thing – a big leg lower in stocks is the necessary and sufficient condition to once again push stocks higher, as policy failure is internalized, and global risk reprises from square 1.
This is Bank of America’s summary, warning that unless a major policy intervention is enacted, the market will then sell off to the next support level, below the 1,812 which has proven so stable since August.
Stabilization of “4C’s” (China, Commodities, Credit, Consumer) allowed SPX 1800 to hold/bounce to 1950-2000; weak policy stimulus in coming weeks could end rally/risk fresh declines to induce growth-boosting policy accord.
Here is a summary of the near-term events which stocks are betting on do not disappoint: G20 Shanghai (February 26-27); ECB (March 10), BoJ (March 15) & FOMC (March 16).
And as documented previously, the one main near-term event Hartnett is focusing on is the Shanghai meeting next weekend. Recall:
We remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations (currently heading sharply south – Chart 1) and credit conditions.
In other words, Hartnett expects a “Shanghai Accord” to be unveiled next weekend, one where like the Plaza Accord three decades earlier, the Yuan will be massively depreciated, which ironically would halt all piecemeal Yuan devaluation on expectation of future devaluation (as it will have already happened), and reset global monetary policy stability if only for a few more months.
Said otherwise, if next weekend the G-20 disappoints and unveils nothing, the next big leg down in the selloff will have arrived.
How likely is such a major intervention? Keep an eye on the recently surging price of Bitcoin for the answer, and also Vancouver real estate, of course.
- Silver Linings: Keynesian Central Banking Is Heading For A Massive Repudiation
Submitted by David Stockman via Contra Corner blog,
For several years now the small coterie of Keynesian academics and apparatchiks who have seized nearly absolute financial power through the Fed’s printing presses have justified the lunacy of unending ZIRP and massive QE on the grounds that there is too little inflation. The bureaucrats at the IMF even invented a lame-brained catch-phrase, calling the purported scourge of money which retains most of its value “lowflation”.
This whole consumer inflation targeting gambit, of course, is an inherently preposterous notion because there is not a scrap of evidence that 2% consumer inflation is better for rising living standards and societal wealth gains than is 0.2%. And there is much history and economic logic that points in exactly the opposite direction.
Between 1870 and 1913 in the United States, for example, real national income grew at 3.5% per year——the highest gain for any 43 year period in history. Yet the average inflation rate during that long period of capitalist prosperity was less than 0.0%. That was real “lowflation”, and it was a blessing for the average worker, not a scourge.
But this week the BLS itself let out a screaming, never mind! The core CPI for the 12 months ended in January rose by 2.21% and that’s actually a tad higher than the 1.98% annual average since the year 2000.
Please forgive the spurious accuracy of reporting the BLS’ noise-ridden, dubiously constructed CPI to the second decimal point, but it’s meant to underscore a crucial truth. Namely, there ain’t no inflation deficiency problem and never has been!
The whole 2% inflation mantra is just a smokescreen to justify the massive daily intrusion in financial markets by a power-obsessed claque of monetary central planners. They just made it up and then rode it to ever increasing dominance over the financial system—-even though as recently as 15 years ago the 2% inflation theory was unknown outside a small circle of neo-Keynesian academic scribblers led by Ben Bernanke.
In fact, the whole cockamamie theory was explained in an obscure book called “Inflation Targeting” issued in November 1998 by Bernanke and two other academic power grabbers: Frederic Mishkin, who later was appointed to the Fed and became a principle proponent of the Wall Street bailouts in 2008; and Adam Posen, an academic (well)stuffed shirt who peddled the same nonsense at the Bank of England and has been an incessant voice urging the BOJ to print more and still more money.
You can look it up. The book stands at #2,503,823 on Amazon’s sales ranking!
Yet inflation targeting is now accepted as gospel by the financial press, and it’s not hard to understand why. Wall Street loves it because it justifies massive liquidity injections, free carry trade money and wealth effects based stock market goosing by the central bank. So the lazy journalists who feed the street with so-called financial news just xerox the mantra and pass it along unexamined, as in this gem out of Dow Jones MarketWatch:
Although too much inflation is viewed as dangerous for the economy, Fed officials think that a 2% inflation rate is best for the economy to grow……..Inflation has been trending below that target for the past four years. Low inflation is a signal of weak demand in the economy and raises fears of actual decline in prices or deflation, which can damage an economy, especially one with high debt burdens like the United States.
Let’s see. During the past year US consumption spending for health care rose by 5%, outlays at restaurants and bars were up by 9%, while spending for gasoline and other energy products was down by 22%. This was Mr. Market at work—–millions of households reallocating their spending in response to relative price changes. It had nothing to do with a macroeconomic abstraction called “weak demand”.
Actually, the medical care component of the CPI rose 3.3% last year, housing and shelter were up by 3.2%, while gasoline prices were down by 7.3%. It all added up to a 2.21% annual change in the overall index by the sheer coincidence of BLS’s arbitrary weightings of the components; it had nothing to do with the pace of total consumption expenditures or any other proxy for “aggregate demand”. And especially it was not due to an excess of a really primitive, nay stupid, metric the Keynesians call the “output gap”.
So the MarketWatch “senior economics reporter” who filed this piece, one Greg Robb, was writing gibberish and apparently didn’t even know it. Yet without this herd-like transmission of the narrative, the Fed’s ridiculous monthly deliberations about 25 basis points or not on the federal funds rate would be seen for the farce it actually is.
This chronic pretense of fine-tuning the money market to the second decimal point (i.e. 0.38% versus 0.12%) is purportedly all about delivering what the Fed judges to be just the right amount of “accommodation” to the macroeconomy to achieve its inflation and unemployment targets. Yet even scant attention to the internals of the various consumer inflation indices makes it obvious that the “lowflation” proposition cited by MarketWatch (“inflation has been trending below that (2%) target for the past four years”) is a modern version of counting angels on the head of a pin.
That is, it is a pointless exercise in spurious accuracy that has nothing to do with improving the real world; it was only a ritual to justify the existence and power of the catholic priesthood then, and the monetary politburo today.
The chart below provides the trend in four versions of consumer inflation since the year 2000. The two CPI-based versions embody what is called a fixed weight deflator because in theory the weighting of the various components remain unchanged for long periods of time. In that sense, it is an attempt to measure the changing price of a representative basket of goods and services over time as it would be experienced by an individual consumer or household.
By contrast, the two personal consumption expenditure (PCE) indices are chain-type deflators, meaning that their component weightings are constantly adjusted based on the changing mix of aggregate consumption spending. Thus, if the proverbial shift from beef to chicken occurs because beef gets too expensive, the PCE deflators reflect more weighting for chicken and less for beef; and if things got really so desperate that everyone was forced to eat only spam and no steak or chicken at all, the PCE would get fully spammed.
That is, the weight of chicken and steak would fall to zero and spam would take their weightings instead. Needless to say, a household forced to consume 100% spam because the relative price of chicken and steak had soared out of reach would doubtless not be impressed with the news that there hadn’t been much chain-weighted inflation during the reporting period!
In fact, the PCE indices are an academic device to deflate the actual nominal spending of the aggregate economy to a constant dollar measure over time. To that extent, continuous reweighting makes sense because the economy’s mix of spending does change over time.
In short, the PCE deflators are for economic measuring and modeling and the CPIs for approximating the change in the cost of living faced by average households. And that’s why the social security and other annual COLAs are based on the CPI.
So here’s the thing. In today’s massively integrated global economy, cost and price impulses are constantly transmitted through relatively open markets for goods and services and through the capital and money flows which finance real activity. In that open global economy, 25 basis points on the New York money market rate, or even 250 basis points, has precious little to do with the rate of change in two conceptually different and equally crude measures of the U.S. general price level, especially when measured to the second decimal place.
The price of furniture and basketball shoes has everything to do with how much untapped labor remains in the Chinese rice paddies and virtually nothing to do with the monthly adjustments on the money market dials being fiddled with in the Eccles Building. Likewise, the price of financial services has more to do with the marginal cost of outsourced labor in Bangalore or the transaction cost reduction owing to the shift from plastic cards to smartphones than anything done by the FOMC.
Once upon of time in your grandfather’s economy of the 1950s, when the US economy dominated the world, there may have been a loose steering gear linkage between the Fed’s policy rate and the US consumer inflation rate. That’s because the policy rate could still cause incremental household and business borrowing and spending in an era before Peak Debt. Under those conditions, spending could temporarily get ahead of production and capacity, thereby enabling the general price level to accelerate owing to “excess demand”.
Those days are long gone. The US economy’s leakage into the global economy is massive and the private sector is stranded at Peak Debt. The money market rates pegged and administered by the Fed, therefore, have virtually nothing to do with short and medium term rates of change in the consumer price indices.
Accordingly, there is no reason at all for the Fed to target the inflation rate, let alone to two-decimal point variations around 2.00%. If anything, it should request that Congress repeal its so-called price stability mandate on the grounds that it no longer has any tools capable of making a difference. Once at Peak Debt, the central bank in effect has already printed itself out of a job.
But short of that honest solution it surely has no justification whatsoever for preferring the PCE to the CPI, and especially for hopping and skipping between a focus on inflation excluding food and energy when it is convenient and the full price index when it is not. Such as now.
During the year ending in January 2016, the annual inflation rate was 1.15% on the PCE deflator, 1.34% on the CPI, 1.36% on the PCE deflator less food and energy and 2.21% on the CPI less food and energy. Until global commodity inflation started pouring in, the Fed always preferred the ex-food and energy versions, meaning that at the present time we are talking about 40 basis points of variation around a average of 1.80% inflation between the fixed weight and chain-type measures.
Call it a double sham because the Fed cannot possibly steer the US economy in isolation toward 1.80% inflation; nor does it have any reason to side with the chain-type index as opposed to the CPI. Indeed, I was a member of Congress when Humphrey-Hawkins was enacted, proudly voted no, and am absolutely certain that the practical politicians who supported its mandates were thinking about stable prices from a household cost of living point of view, not from a GDP reporting and modeling perspective.
Not only that, but any one with an occasionally functioning brain can see that the full inflation indices at 1.15% and 1.34%, as between the year-over year PCE and CPI, are down in that range only temporarily. That’s due to the one-time plunge in oil and other commodity prices and the pass-through effect on goods and services down the production chain.
And that great global deflation wave, ironically, is due to the past money printing excess of the Fed and its global convoy of central banks, whose massive fiat credit emissions caused an unsustainable boom in energy and materials demand and capacity investment throughout the global economy. It has absolutely nothing to do with the 1,2 or 4 baby step increases in the federal funds rate this year or the lack thereof during the past 84 months.
At the end of the day, 2% inflation targeting is an astoundingly transparent ruse being used to justify what amounts to an economic coup d’ etat by an unelected gang of monetary central planners. During the last 15 years, the annual rate of consumer price change has been 1.70% on the PCE deflator less food and energy; 1.83% on the PCE; 1.98% on the CPI less food and energy; and 2.15% on the CPI.
In the scheme of things, these minor difference over time are trivial. Likewise, the difference between the 15 year average annual change for any of these inflation indices and the magic 2.00% is also trivial. And most importantly, virtually none of the trend rate of change in any of these consumer price index variations was attributable to the Fed’s micro-management and radical repression of money market interest rates since Greenspan went all in with money printing in December 2000.
Inflation targeting has been a giant cover story for a monumental power grab. But as we shall see in the next section, the academics who grabbed the power had no idea what they were doing in the financial markets that they have now saturated with financial time bombs.
When these FEDs (financial explosive devices) erupt in the months and years ahead, the central bankers will face a day of reckoning. And they will surely be found wanting. The immense social damage from the imploding bubbles dead ahead will be squarely on them.
In an open $80 trillion global economy and era of Peak Debt, central bank interest rate pegging and repression and massive QE, too, function almost entirely in the financial markets, not the real economy. Their primary impact is to falsify financial asset prices, risk premiums, yield curves, credit spreads, time discounts and risk/reward ratios throughout the entire trading complex in financial instruments.
They also stimulate rampant gambling in place of capital allocation owing to the fact that the kind of massive central bank intrusion in interest rate and bond markets now being practices under ZIRP, NIRP and QEs destroys honest price discovery and the key ingredients of financial market self-discipline and stability. To wit, central bank policy makes downside insurance too cheap and shorting the market too expensive. Two-way markets give way to one-way momentum trading that eventually metastasizes into financial bloat and bubbles, which sooner or later collapse into a heap of loss and waste.
Needless to say, there is no evidence that our monetary politburo spends its time studying the baleful impacts where its policies actually have efficacy. That is, the degree to which it causes risk spreads to flatten, cheapens the cost of put options, shifts volatility skews, enables the spread of risky structured finance products, represses the cost of repo financing or weakens bond market covenants (e.g. cov lite indentures) to name a tiny few.
Stated differently, the overwhelming share of Fed policy emissions never leave the canyons of Wall Street. The above impacts and countless more are what these intrusions do all day and night. Yet Simple Janet apparently spends the same studying her labor market dashboards.
They are irrelevant! ZIRP and QE never get there. They just deform, distort, degrade and destroy free financial markets, turning them into casinos of crony capitalist corruption.
And that brings us to the nascent crime of NIRP. Mainly what is going on in the eurozone, Switzerland, Sweden and Japan is crypto-NIRP or the imposition on negative rates on the excess cash reserves of commercial banks who are eligible to deposit at their respective central banks. But that maneuver is only squeezing bank interest margins and causing a run on banking sector stocks.
Likewise, this crypto-NIRP has driven upwards of $7 trillion of worldwide sovereign debt into negative yields at market prices, and the emphasis is on the latter. Bond yields on German debt up to 10 years are now negative because speculators are front running the ECB and other central banks.
That is, they are playing for price appreciation. For crying out loud, it is not a case of the world’s bond managers, benighted as many of them are, saying I’ll have some more of that tasty negative yield!
In short, the central bankers of the world are driving the lemmings on one last run toward the sea. Yet this fantastically dangerous experiment is doing nothing for the real economies of a world staggering under unpayable debt and massive excesses of production capacity, infrastructure assets and working inventories. Instead, it is just feeding the mother of all bond bubbles.
At length, the central bankers will go for the real thing—-NIRP in the neighborhoods were people actually live and try to save a nest egg. To be sure, a pipe smoking economist is liable to say that there is no appreciable difference between positive 30 basis points and negative 30 basis points on a CD.
Yes there is. The negative sign will be the great political inflection point. The negative sign will be the flashing neon lights announcing that the government is confiscating the people’s savings and wealth.
So when they actually try to go to NIRP in the neighborhoods, the central banks will be signing their political death warrants. That day can come none too soon.
- "Everyday American" Pleads With Hillary To Release Transcripts "So We Can Trust You Again"
At the MSNBC-moderated Democratic presidential town hall in Las Vegas, Nevada, Hillary Clinton was asked by an "everyday American" why she will not release video or transcript of her private speeches to Wall Street banks…
He begins by asking…
"As a realtor here in Nevada I know how important the economy is to our great nation.
As a Democratic candidate who has delivered speeches to the largest U.S. financial institutions in exchange for hundreds of thousands of dollars in speaking fees, why are you hesitant to release transcript or audio/video recordings of those meetings to be transparent with the American people regarding the promises and assurances that you have made to the big banks?" the man asked Clinton.
To which she responded – in rote manner…
"I was the candidate who went to Wall Street before the crash. I was the candidate who went to them and said you are wrecking our economy. What you are doing with mortgages is going to bring us down.
I now have the most effective and comprehensive plan to deal with the threats that Wall Street poses, and I go further than Senator Sanders does because I want to go through after all the other bank bad actors.
The bad actors like hedge funds, the bad actors like AIG, the insurance company. Like Countrywide mortgage. I take a backseat to nobody in being very clear about what I will do to make sure Wall Street never crashes main street again. And, that you can count on."
To which the man pled…
"Secretary Clinton, I do respect you very much. In fact, only a decade ago I was a very big supporter of yourself and your husband… How can we trust that this isn't just more political rhetoric? Please just release those transcripts so that we know exactly where you stand."
How indeed…
It seems people are losing faith…
- Ahead Of Boris Johnson's Key Sunday Night Announcement, Here Is What British Politicians Think Of The Referendum
In the aftermath of another inverse-whirlwind session in Brussels which has set the date of the UK’s EU referendum for June 23, below are comments on the vote from British political and business leaders, courtesy of Reuters:
DAVID CAMERON, BRITISH PRIME MINISTER
“I do not love Brussels. I love Britain. I am the first to say that there are still many ways in which Europe needs to improve – and that the task of reforming Europe does not end with today’s agreement.
“That is not the question in this referendum. The question is will we be safer, stronger and better off working together in a reformed Europe or out on our own.
“Let me be clear. Leaving Europe would threaten our economic and our national security.”
GEORGE OSBORNE, CHANCELLOR
“We are stronger, and safer and better off in the EU and the alternative is a big leap in the dark with all the risks that that involves.
“We get the best of both worlds, we get access to the single market for our businesses, so that creates jobs, but we don’t have the costs of the euro zone, we have the security of being in the EU but we are not signed up to ever closer union, we end the something for nothing culture when it comes to benefits from migrants – these are big wins.”
PHILIP HAMMOND, FOREIGN SECRETARY
“Reforming the EU does not end with this deal. UK must lead on further reform.
“EU reform deal tilts the balance firmly in favour of the UK remaining in. We’re stronger, safer, better off in (the) EU on these terms than out.”
JEREMY CORBYN, LEADER OF THE OPPOSITION LABOUR PARTY
“Despite the fanfare, the deal that David Cameron has made in Brussels on Britain’s relationship with the EU is a sideshow.
“His priorities in these negotiations have been to appease his opponents in the Conservative Party. He has done nothing to promote secure jobs, protect our steel industry, or stop the spread of low pay and the undercutting of wages in Britain.
“We will be campaigning to keep Britain in Europe in the coming referendum, regardless of David Cameron’s tinkering, because it brings investment, jobs and protection for British workers and consumers.”
MICHAEL GOVE, JUSTICE MINISTER
“It pains me to have to disagree with the Prime Minister on any issue. My instinct is to support him through good times and bad. But I cannot duck the choice which the Prime Minister has given every one of us.
“I believe our country would be freer, fairer and better off outside the EU.
“I don’t want to take anything away from the Prime Minister’s dedicated efforts to get a better deal for Britain. He has negotiated with courage and tenacity. But I think Britain would be stronger outside the EU.”
ALEX SALMOND, FORMER NATIONALIST LEADER OF SCOTLAND
“I think the referendum across the UK is on a knife-edge, it will depend entirely on how it’s argued. I don’t rate the deal that Cameron has done in Brussels, I think it’s about marginal issues.
“If we were dragged out against our will by the votes of a much larger English (electorate), then the pressure for another independence referendum in Scotland would be irresistible and I think very rapid.”
THERESA MAY, HOME SECRETARY
“The EU is far from perfect, and no one should be in any doubt that this deal must be part of an ongoing process of change and reform – crucial if it is to succeed in a changing world.
“But in my view – for reasons of security, protection against crime and terrorism, trade with Europe, and access to markets around the world – it is in the national interest to remain a member of the European Union.”
NICOLA STURGEON, LEADER OF THE SCOTTISH NATIONAL PARTY
“Across the UK the polls suggest this campaign is on a knife-edge and that’s why I think it’s important for the in-campaign to be positive.
“If we get into the situation, where Scotland votes to stay in, the rest of the UK votes to come out, then people in Scotland will have big questions they will want to look at again about whether Scotland should be independent.”
ARLENE FOSTER, LEADER OF THE DEMOCRATIC UNIONIST PARTY, NORTHERN IRELAND
“In our view we see nothing in this deal that changes our outlook. Therefore we will on balance recommend a vote to leave the EU.”
JOHN LONGWORTH, DIRECTOR GENERAL, BRITISH CHAMBERS OF COMMERCE
“Businesses across Britain will be relieved that the horse-trading between Westminster and Brussels is now concluded, and that the hard work of recent months could potentially deliver some benefits for the UK.
“(But) the deal falls well short of the business expectations we set out nearly a year ago.”
Finally, here is perhaps the biggest Euroskeptic of all:
NIGEL FARAGE, HEAD OF UK INDEPENDENCE PARTY
“This is a truly pathetic deal. Let’s leave the EU, control our borders, run our own country and stop handing 55 million pounds every day to Brussels.”
But perhaps the most important soundbite is the one which has yet to come: that from London mayor Boris Johnson, whose opinion may sway the vote one way or another in four months. The Telegraph reports that “David Cameron is mounting a last-ditch effort to woo Boris Johnson to back his campaign to stay in the European Union, by drawing up plans for a new constitutional settlement that puts the sovereignty of British institutions beyond doubt.”
The newspaper adds that Downing Street is now nervously awaiting the verdict of the mayor of London, who, the Observer understands, intends to make a statement on Sunday night on which side he will back. If both Gove and Johnson, two of the best communicators in Tory ranks, side with the Out campaign, many MPs believe the prime minister will face an uphill struggle to convince voters that their best interests lay in remaining inside the EU.
Sources close to Johnson said he remained “genuinely torn” and that he would “chew over” what the prime minister has to say when Cameron appears on the BBC’s Andrew Marr Show on Sunday, before issuing some form of statement this evening. He will then spell out the reasons for his decision in his column for the Daily Telegraph on Monday.
If Johnson refuses to back Cameron, the Friday afternoon spike in the GBP may be very promptly undone.
- An Alarm Goes Off Threatening The "Strong U.S. Jobs" Myth: Withheld Income Taxes Are Stalling
Of all the indicators that the Fed has presented to justify its rate hike mentality and to validate that the US economy remains on a growth path despite clear recessionary signals from both the manufacturing sector and the dramatic tightening in financial conditions in recent months, Yellen’s preferred metric also happens to be the most lagging one: nonfarm payrolls and the unemployment rate, both of which supposedly signal the collapsing slack in the labor market and a jump in wages that has been “just around the corner” for years.
The problem is that when shifting away from lagging indicators of the labor market, to coincident ones, a starkly different picture emerges. The best example of this is when looking at the growth of federal income and employment tax withholdings, the broadest and most timely read on the health of the job market, which as Jed Graham writes, “has been sinking at an alarming rate.”
While for most of 2015, tax withholdings rose at a rate of 5% or more from a year ago, on the back of job growth and gains in wages, commissions and other incentive pay, in recent months there has been a substantial dropoff in this key indicator.
As shown in the chart below, revenue inflows to the Treasury Department steadily slowed through the fall, bringing the annual growth rate down to just below 4% by the start of 2016. That’s when growth seemingly collapsed — to just 1.8% over the past five-plus weeks, from Jan. 11 through Feb. 16.
The problem with the jobs report is that it relies on statistically interpolated, and seasonally adjusted data from the Bureau of Labor Statistics, which not only has a significant revisionist history aspect being materially revised after a given period, but is also subject to clear political bias and huge “birth/death” assumptions, which correlate the growth in labor with the net creation of new U.S. businesses despite clear indications over the past several years that there should be no net additions as a result of collapsing “dynamism” as the Brookings institute itself calculated some time ago and as we chronicled in August of 2014 in “4 Million Fewer Jobs: How The BLS Massively Overestimated US Job Creation“
On the other hand, the official Treasury tax-receipt data — which don’t come with a margin of error and aren’t subject to revision — are obviously at odds with the much more upbeat numbers reported by the Labor Department. January’s year-over-year payroll increase of 2.665 million, or 1.9%, along with a 2.5% gain in average hourly earnings should yield something in the neighborhood of 4.5% year-over-year growth in tax withholdings — or more than double the actual growth rate in recent weeks.
And yet over the past 10 full weeks, starting Dec. 7, tax withholdings have grown just 3.1% from a year ago. While December and January data can be influenced by the size and timing of year-end bonuses, the pronounced weakness has been sustained for long enough to rule that out as the principal cause.
As Graham notes, “companies that were already facing a tough earnings environment, thanks to a stronger dollar and lackluster economic growth, have seemingly pushed the pause button on hiring amid the financial market tumult that greeted the new year.“
It is not just the Treasury tax receipt data that is a major concern: as we previously reported, according to Challenger there was a total of 75,114 layoff notices in January, up 42% from January 2015, and the highest January total since 2009 as Wal-Mart, Macy’s and Yahoo joined oil services firms Halliburton and Schlumberger in workforce restructurings. Wal-Mart on Thursday reported declining earnings and weaker-than-expected same-store sales.
In fact, it appears that the only place where the strong jobs myth persists is in official government data, and it’s not only in the payrolls report: after rising to 294,000 in the January 16 week, new jobless claims have steadily fallen to 262,000. The four-week average fell 8,000 to 273,250 last week.
Graham further notes that “the benign data are hard to square with a stalling out of growth in federal income and employment taxes, unless the weaker receipts are more related to slower hiring, fewer hours of work and less incentive pay, than to layoffs.”
The slower pace of year-over-year gains in tax withholdings has pointed to a significantly slower pace of hiring since September, says TrimTabs Investment Research, which estimates that 820,000 jobs were added from September to January. By contrast, the Labor Department estimates 1.137 million new jobs over that span, or nearly 40% more.
“The deceleration really started back last autumn,” said TrimTabs CEO David Santschi.
Which means that it is likely only a matter of time before either the BLS admits the truth, or the official data turn significantly south.
This also leads to the question whether the Fed have been looking at the wrong jobs data when it decided to raise rates in December for the first time in nearly a decade?
A partial admission was made in the January FOMC statement when the Fed said that “information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year“
However, as noted up top, employment is one of the most lagging indicators, while tax withholdings are a coincident one, and traditionally signal job weakness before the official employment data catch up.
Will this be one of those occasions?
The answer will depend on whether the Fed wants to admit policy error and halt the rate hike process, perhaps with a view to unleashing more stimulus and even the increasingly more discussed “helicopter money.”
Or perhaps the Bureau of Labor Statistics will merely take its cue from Australia which months after reporting stellar jobs data, admitted that the 6 and 8-sigma outlier October and November job additions were cooked and the result of “technical issues.”
Will the failure of the US recovery likewise be chalked up to a “technical problem”? If so, it is very much unclear just what the market’s reaction will be to a government whose data credibility is now the same as China’s, even if it means far more stimulus in the near future.
- This Crash Will Be Bigger Than 2008 – Here's Why
Bert Dohmen, founder of Dohmen Capital Research, is uber-bearish and believes that it is time for investors to panic (before everyone else does) given a potential collapse of the stock market greater than what we saw in 2008.
Here's what he had to say on Thursday's podcast:
"Over a year ago we said that we are now in a transition year from a bull market to a bear market and from a growing economy to a recession—and this could be a very deep recession…
…now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, 'Is it too late to panic?' Because…the advice given by so many analysts is 'Don't panic, don't sell, don't panic.' And I say, 'Yes, panic!' And it's not too late to panic. Panicking at the right time can save you a lot of money…
I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at $5 or less. Okay, just put that into your portfolio and see if you should be selling some stocks…
We hear other analysts say, 'Oh, this is nothing like 2008' and I agree with that, but I say that because I think it's going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs…they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that's how it started.
Now, look at what we have currently. We have every major economic zone in the world in financial trouble. You have Japan with a debt-to-GDP ratio of 280%. You have China at 300% debt-to-GDP. China has over $34 trillion of debt and the banking system is flooded with bad loans. The best estimate—and this was two years ago I wrote a book called The Coming China Crisis—and I said the best estimate is that they have $11 trillion of bad loans in the banking system. $11 trillion is the annual GDP of China—this is huge!
You have Europe, you have Latin America in trouble, you have Russia in big trouble, you have Saudi Arabia even thinking about doing an IPO on their big oil company in order to make up for the shortfall of oil revenues. You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one."
Given your outlook, how long do you think this will take to unfold?
"Well, from 1929 to the bottom in 1933 it took four years—probably a little bit less—so that's probably the duration but, you know, you can't forecast those things because the central banks learned something the last time around. They learned how to bail things out, they learned how to change the laws and...they've changed a lot of laws in the meantime. For example, if a bank goes under it's no longer the government that goes to bail it out—they just confiscate the depositors money. If you have a savings account at a bank that goes out of business, they will take part of your savings account to bail the bank out because they now have an interpretation that bank deposits—money that you put in a bank—you actually become an unsecured creditor…
That is the current intrepretation in the West—in Europe and in the United States. It's called a 'bail-in'. So this time around there are a lot of gimmicks that they can use. They've exhausted quantitative easing—it just doesn't work…and now the whole world is going to negative interest rates. In Europe already they have over 30% of the government bonds at zero interest rates or below so if you buy a government bond you are paying for the privelege of owning that bond, of lending the government money. The Federal Reserve just put out a note saying that banks should prepare for negative interest rates…
The world has never seen this and there is no one that knows the eventual consequences of this… This is desperation! The central banks have run out of ammunition and tools…all they have now is just talk.”
Given the risks outlined above and throughout the interview, Bert is quite bullish on US Treasury bonds and thinks we may be seeing a major turn in gold.
- Live Coverage Of Nevada Caucus, South Carolina Primary: Hillary Declared First Winner
Update 2: with Nevada now decided, attention shifts to South Carolina where the polls close at 7pm Eastern. Here are some observations of what matters to the local voters per exit polls:
#SCPrimary exit poll – angry with federal government: pic.twitter.com/xXdV1xxrtk
— Fox News (@FoxNews) February 20, 2016
#SCPrimary exit poll – Top Issue – Terrorism: pic.twitter.com/cc7e6Bgumt
— Fox News (@FoxNews) February 20, 2016
#SCPrimary exit poll – Top Issue – Best candidate to handle Supreme Court nominations: pic.twitter.com/UUxkbV0678
— Fox News (@FoxNews) February 20, 2016
Update: moments ago first Fox News, and shortly thereafter NBC, AP and other major US news networks, projected Hillary Clinton would be the winner of the Democratic Nevada Caucus.
We now await the closing of the SC polls where most likely a similar fate awaits Donald Trump.
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Live coverage of the Nevada caucus and South Carolina primary
Iowa went to Hillary and Ted Cruz. New Hampshire to Bernie and The Donald. Now, all eyes are on Nevada and South Carolina, where the Democrats and Republicans (respectively) will find out today who voters think deserves the keys to The White House.
In Nevada, Clinton is hoping a push to attack Sanders’ immigration record will carry the Latino vote while the former First Lady has also sought to portray the Vermont senators’ proposals as pipe dreams, especially given the fractious environment on Capitol Hill.
As CNN notes, Clinton began to organize six months ahead of Sanders and “a loss, or even another close finish with Sanders in Nevada, would further chip away at the aura of invincibility that once surrounded her path to the nomination.” Not helping Clinton’s cause with Latino voters is the fact that Sanders’ father was a Polish immigrant, a fact he’s been keen on highlighting in his campaign’s latest TV spots.”While I understand that there are people who have differences of opinion with me on immigration reform, there is no justification, no reason, to resort to bigotry and xenophobia when we are talking about Mexicans or we are talking about Muslims,” Sanders told a crowd at at the Democratic dinner at the Tropicana Hotel on the Las Vegas Strip. “People can disagree about immigration reform, but in the year 2016, we will not allow the Trumps and others to divide us up and appeal to racism, which has done this country so much harm for so many years,” he added.
In South Carolina, most polls show Trump holds a commanding lead over the rest of the GOP field and in typically brazen fashion, the frontrunner for the Republican nomination closed out his pitch to voters with a flourish on Friday, suggesting that Muslims should be executed with bullets dipped in pig’s blood and promising to bring back waterboarding which he says is “minimal, minimal, minimal” torture.
“It’s bizzare,” Marco Rubio said on Saturday of Trump’s pig’s blood story. “That’s not what the United States is all about.”
But incredulous as Trump’s GOP rivals are at his meteoric rise to the top of the polls, he’s clearly saying quite a few things that resonate with the electorate – at least for now. “A Trump victory in South Carolina on Saturday would send new shockwaves through the Republican establishment and possibly augur another strong showing for the front-runner in Southern states with a similar ideological profile on Super Tuesday, March 1,” CNN remarks. “Despite an aberration in 2012, when the state’s Republican voters went for Newt Gingrich, the South Carolina primary has historically been a barometer of party opinion, going for the eventual nominee in every other presidential primary since 1980.”
In other words, if South Carolina goes to Trump, the rest of the field may just be “schlonged.” Indeed, a victory in the state would all but prove that Trump is invincible. His lead has held up even after he called George W. Bush a liar last weekend (that’s not generally something you want to be doing in South Carolina) and in a testament to just how strong the Trump juggernaut has become, the billionaire even went head to head with God himself when the Pope criticized his stance on immigration.
The bottom line: after Saturday, we will know whether the so-called “protest” candidates are set to bring about a political revolution in America, or whether the entrenched political establishment “empire” is set to “strike back” – as it were.
Here’s PredictWise’s latest read on South Carolina via Bloomberg:
Going into Saturday, Sanders and Clinton were running neck and neck but early results show Sanders pulling ahead.
Stay tuned for ongoing coverage and updates throughout the night.
- For Hillary, It's Deja Boom All Over Again
Many in the markets have seen the worrying analog of 2008 stocks to the current malaise, but for Hillary Clinton, there is a much more horrific deja vu-ness about the collapse in her 'lead' over Bernie…
Real Clear Politics compiles a running average of the polls that come in for 2016, just as it did in 2008.
As The Washington Post reports,
About five months before the New Hampshire primary (which was a month earlier in 2008), Clinton's lead was at about 15.
This cycle, that was a big plunge; in 2008, it was pretty much where she'd been. Then the lead in each cycle grew a bit, putting her back up into the 20-point range with about three months out. Then, quick drops, usually after voting happened. In 2008, the giant plunge came right after Iowa.
On Feb. 20, 2008, Clinton was already trailing Barack Obama, as she would permanently. This week, we saw a major poll for the first time putting Bernie Sanders in the lead.
It's different this time, though… right.
- Even The Fed Is Flashing A Recession Warning
After The Cleveland Fed's warning of "significant stress" in the financial markets, we find none other than Dovish-hawk Jim Bullard's St.Louis Fed growing increasingly fearful of the "r" word.
The last two times, financial stress was this "significant," The Fed unleashed QE1 and Operation Twist…
And now, as Mises Institute's Mark Thornton notes, this little known chart (below) is the St. Louis Fed's attempt to anticipate a recession in the US economy.
The latest reading from last November is higher than all but 3 months (in the last 50 years) when a recession did not immediately proceed.
As you can see by the chart, there were false starts in early 1978 and 1979 prior to the recessions of 1980 and 1981/82. As well as a false start in September of 2005.
We will see if this time is different…
According to the Fed's website (FRED):
Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales.
Given the broadness of the data used to create this indicator, we can't help but wonder – if the "recession risk" was this high in November, why did The Fed hike rates in December?
- EIA Oil Report Analysis Feb. 20, 2016 (Video)
By EconMatters
Demand Economics are working, but Supply Economics are not working properly right now to reduce overall supply in a meaningful way. OPEC needs to get serious and start cutting production, and not freezing production at record levels of production. Shale Players need to go out of business in a major way the next three months as U.S. Oil production is still too damn high right now given the price dynamics in the market.
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- Broad Market Index Testing Broken "Must Hold" Level
The broad NYSE Composite stock market index is testing the level we deemed “must hold” – that broke in January.
Back on January 8, we posted a chart illustrating that the broad NYSE Composite was at a “must hold” level, in our view. Signifying the confluence of 3 major post-2009 bull market Fibonacci Retracement lines, we considered the area around 9600 to be critical for the NYSE to hold. Specifically, these lines lay in the vicinity:
- The 23.6% Fibonacci Retracement of the 2009-2015 rally
- The 38.2% Fibonacci Retracement of the 2011-2015 rally, and
- The 61.8% Fibonacci Retracement of the rally from the early 2013 breakout level to the 2015 high
And while our analysis identified significant potential support, there were 2 things that suggested to us that, sooner or later, that “must hold” level would fail to hold. First, the NYSE had tested that level already in August and September, holding successfully. That event had likely “softened” up the potential support at the 9600 level.
Secondly, earlier in the week, on January 6, we witnessed what we considered to be a key day in the market as a number of major indices suffered consequential breakdowns. The levels broken by those indices were similar in nature to the one being tested by the NYSE. Thus, we concluded “we would not be surprised to see the level hold again, temporarily…before eventually failing as other indices are doing.” Well, the NYSE’s attempt to hold lasted a whole 3 days before the 9600 area broke.
We identified the next major potential downside support level to be around 8575, which was another 10% of risk below there. The NYSE got as low as 8938 – in about 3 days –, a drop of nearly 7%, before bouncing on January 20. In late January, the NYSE rallied back up to test the “must hold” 9600 level, failing in its attempt. After testing the January low again last week, the index is back to test the 9600 level again.
The reaction of this broad market index at this level could be key for the stock market as a whole. In our view, the market is likely in the early stages of a cyclical bear market. However, in the intermediate-term, should the NYSE (and similar indices) find success in overcoming their respective “must hold” levels which they broke in early January, it could buy them some time, and upside, in the immediate-term.
If the NYSE successfully reclaims the 9600 area, we could see another possible 7% of upside in the index over the intermediate-term prior to a potential new leg down. Of course, if the index fails here, that 8575 area remains at risk. This will be a development that we’ll be monitoring closely for tactical investment guidance in the near-term.
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More from Dana Lyons, JLFMI and My401kPro.
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