• Chinese Interbank Lending Freezes; Government Bond Trading Halted After Massive PBOC Liquidity Drain

  Earlier today, we were surprised to note that having aggressively drained liquidity from the interbank funding market, on the first trading day of 2017, the PBOC not only fixed the Yuan well lower (sy 6.9498 vs 6.9370 on the last day of 2016, even if this was well stronger than the Offshore Yuan), but the People’s Bank of China withdrew even more liquidity. It did that by injecting CNY20 billion via 7-day reverse repos and another CNY20 billion via 14-day reverse repos in its open-market operations Tuesday, according to traders, while continuing to skip 28-day reverse repos.

  The move resulted in a net drain of CNY155 billion for the day, and followed a substantial drain of a net CNY245 billion last week – the first removal of liquidity in three weeks. We promptly followed up with a warning:

  PBOC drains a net CNY155 billion for the day. Keep an eye on overnight SHIBOR/ HIBOR/ Repo

  — zerohedge (@zerohedge) January 3, 2017

  Just over an hour later, it appears our warning was warranted, because according to the latest daily fixing of the Treasury Market Association, as a result of the PBOC’s massive liquidity drain which soaked up a nearly a third of a trillion Yuan in the past two weeks, the interbank market is freezing again as follows:

  • 1-month yuan interbank rate in Hong Kong rises 1.16ppts to 13.01%,
  • 3-month CNH Hibor +89bps to 10.02%;

  

  Most importantly, the overnight CNH Hibor rate soared 4.95% to 17.76%, the highest since September, andconfirming of yet another daily freeze in interbank lending simply so that the PBOC can punish all those who are still short the Yuan. 

  

  The good news: at least the UCDCNH tumbled by as much as 200 pips on the session. The bad news, it is unclear how much more of this daily volatile punishment Chinese and Hong Kong banks can take.

  But wait, because the interbank freeze was not all, and in a repeat of two weeks ago when China’s halted the trading of its government bond future, the Shanghai Stock Exchange announced that Shanghai halted trading of the 3.99% government bond due May 2065 after “abnormal fluctuations.”  It was not exactly clear what that particular phrase meant aside from “aggressive selling” as per the chart below.

  

  According to a statement, trading was set to resume at 11:06 am after being halted at 10:36am, but not before the exchange called on investors to “remain rational and reminded them of trading risks.” In other words, please don’t sell, especially when the central bank just yanked a near record amount of liquidity from the market.

  

  

• Why Donald Trump Is Spot-On About The Russians And The Election

  Submitted by John Reed Stark via LinkedIn.com,

  President-elect Donald Trump has recently questioned: 1) President Obama's finger pointing at the Russians for election-related cyberattacks; and 2) the current media and pundit frenzy alleging a Russian cyber-strike targeting Secretary Hillary Clinton in order to assure a Trump presidency. President-elect Trump plans to press U.S. intelligence agencies to defend their conclusions, stating,

  “I know a lot about hacking. And hacking is a very hard thing to prove. So it could be somebody else. And I also know things that other people don’t know, and so they cannot be sure of the situation.”

  Having worked since 1995 as a first-responder to cyber-attacks, including serving 11 years as Chief of the SEC's Office of Internet Enforcement, I whole-heartedly agree with President-elect Trump. His skepticism is not only appropriate and warranted — it's spot-on.

  Official U.S. Statements About Russian Hacking of U.S. Election

  Despite countless inflammatory headlines about Russian election hacking, there exist only two official U.S. statements specifically addressing the facts of recent election-related hacking incidents. The first is the October 7, 2016 Joint Statement from the Department of Homeland Security and Office of the Director of National Intelligence on Election Security (the "Joint Statement"). The second is the December 29, 2016 Joint Analysis Report of the Department of Homeland Security and the Federal Bureau of Investigation, entitled, "GRIZZLY STEPPE – Russian Malicious Cyber Activity" (the "JAR").

  Both government statements are curt, vague, opaque and miles away from being concrete — and both also beg far more questions than answers.

  The Joint Statement

  The Joint Statement adopts a cautionary approach to any sort of attribution or motive behind who "directed the recent compromises of e-mails from U.S. persons and institutions, including from US political organizations." The Joint Statement states that the hacks:

  “. . . are consistent with the methods and motivations of Russian-directed efforts. These thefts and disclosures are intended to interfere with the US election process. Such activity is not new to Moscow — the Russians have used similar tactics and techniques across Europe and Eurasia, for example, to influence public opinion there. We believe, based on the scope and sensitivity of these efforts, that only Russia’s senior-most officials could have authorized these activities.” 

  Announcing that we think the hacks “are consistent with the methods and motivations of Russian-directed efforts” falls far short of a legitimate prosecutorial conclusion based upon actual evidence of Russian culpability and attribution. The Joint Statement's authors are clearly hedging their bets, which is exactly what any reasonable cyber-investigator would do under the circumstances.

  After all, attributing disparate attack vectors to the same culprit is always speculative. The entire virtual criminal design could all be a ruse, where one country’s cyber gang coopts the techniques of another country’s cyber gang, to confuse or disassemble.

  Moreover, even in its most favorable light, the Joint Statement does not support the conclusion that the Russians were trying to help Trump and hurt Hillary — as opposed to just doing what most hackers do i.e. rummaging voraciously and randomly through whatever data they can access, and leaving it to their patrons to determine what is, and is not, of use. 

  Interfering with the election process is only one of many possible motives behind cyber-attacks. Financial crime, insider trading, intellectual property thievery, trade secret pilfering, extortion, ransomware, governmental disruption, market manipulation (just to name a few) are all potential goals at the outset of a hack.

  Cyber-attackers invade systems and networks, frantically grab every data-file they can and then continue mounting their virtual crime sprees wherever that stolen data may lead them — disrupting organizations, causing damage and wreaking havoc all along the way. Make no mistake — the 21st Century hacker's mantra is to shoot first and ask questions later.

  The JAR

  Though more than half of the JAR is just a list of suggested preventive cybersecurity measures, the JAR is still an important report and a critical resource for any analysis of the Russian election rigging allegations — both for what it does say and for what it doesn't say. Here is a play-by-play of its deconstruction:

  1. Attribution. The JAR is the first official government statement attributing certain politically-related malicious cyber activity to specific countries or threat actors, specifically, "to Russian government and civilian intelligent agencies."
  2. The DNC Cyber-Attacks. The cyber-attacks upon the Democratic National Committee ("DNC") apparently began with a 2015 cyber-attack upon the U.S. government. This is typical of cyber-attacks — where the sole goal/motive is data exfiltration, leaving it until afterwards to determine how to take advantage of, or profit from, that exfiltrated data. Specifically, the JAR notes that in the summer of 2015, what looks like a Russian spear-phishing campaign targeting over 1,000 recipients, including U.S. government employees. Apparently, at least a few of these spear-phishing attacks hit pay dirt and in the course of that campaign, somehow "successfully compromised a "U.S. Political Party." (The JAR does not identify the "Political Party" to be the DNC.)
  3. Multiple Attacks Continue." The JAR describes a second attack upon the same "U.S. Political Party," which occurred in the Spring of 2015 and states that, "Actors likely associated with [Russia] are continuing to engage in spear-phishing campaigns, including one launched as recently as November 2016, just days after the U.S. election."
  4. APT Attacks. The JAR acknowledges the lengthy history of state-sponsored Advanced Persistent Threat or so-called APT attacks against every type of U.S. entity, including a range of foreign governments initiating "spear-phishing campaigns targeting government organizations, critical infrastructure entities, think tanks, universities, political organizations, and corporations." Given certain common indicators of compromise identified by the DHS and FBI, the JAR concludes that the perpetrators of the hacks upon the "U.S. Political Party" employed the same modus operandi used by purported Russian groups that have "historically targeted government organizations, think tanks, universities, and corporations around the world."
  5. The Leaks of Exfiltrated Emails and Other Data. The JAR ambiguously and blithely states that, "The U.S. Government assesses that information was leaked to the press and publicly disclosed." The JAR (whether clumsily or intentionally) employs the passive voice to describe the leak — and does not state who leaked the information; how the information was leaked; or any other inculpatory details.
  6. The Podesta Emails. The JAR does not address or infer that the attacks upon the "U.S. Political Party" were perpetrated by the same attackers who somehow obtained the emails of Clinton campaign head John Podesta. In fact, the JAR makes no specific mention of the Podesta hacks.
  7. Trump Over Clinton. Like the Joint Statement, the JAR provides no evidence and makes no mention of any plot, effort or other scheme to steal the election from Hillary Clinton and favor Donald Trump. Rather, the JAR cites only the usual over-arching objective behind most state-sponsored APT attacks i.e. to disrupt and/or damage U.S. institutions and organizations.

  Cybersecurity Experts Disagree (Often)

  Like medical experts who disagree about a diagnosis or treatment, Cybersecurity experts are notorious for disagreeing about attribution conclusions gleaned from digital forensic remnants, residue, fragments and artifacts.

  For instance, the firm investigating the DNC cyber-attacks, CrowdStrike, a highly reputable and well-respected data breach response firm, believes that "Fancy Bear," a hacking group with purported ties to the Russian government, likely orchestrated the DNC hack — and therefore the DNC hack was orchestrated by the Russians.

  Like most digital forensic experts, CrowdStrike seems to have based its conclusions upon technological correlations and shared modus operandi of hacker techniques, a common investigative method employed by digital forensic investigators to identify online intruders. Along those lines, on December 22, 2017, the Washington Post reported that:

  The firm CrowdStrike linked malware used in the DNC intrusion to malware used to hack and track an Android phone app used by the Ukrainian army in its battle against pro-Russia separatists in eastern Ukraine from late 2014 through 2016.

  CrowdStrike found that a variant of the Fancy Bear malware that was used to penetrate the DNC’s network in April 2016 was also used to hack an Android app developed by the Ukrainian army to help artillery troops more efficiently train their antiquated howitzers on targets.

  The Washington Post reports further details about Fancy Bear:

  While CrowdStrike, which was hired by the DNC to investigate the intrusions and whose findings are described in a new report, had always suspected that one of the two hacker groups that struck the DNC was the GRU, Russia’s military intelligence agency, it had only medium confidence. Now, said CrowdStrike co-founder Dmitri Alperovitch, “we have high confidence” it was a unit of the GRU. CrowdStrike had dubbed that unit “Fancy Bear.”

  However, other cybersecurity experts would disagree with CrowdStrike. Security researcher Jeffrey Carr recently pointed out that a 2014 FireEye report on Fancy Bear, which links Fancy Bear to the Russian government, has significant credibility issues:

  'To my surprise, the report’s authors declared that they deliberately excluded evidence that didn’t support their judgment that the Russian government was responsible for [Fancy Bear’s] activities:

  '[Fancy Bear] has targeted a variety of organizations that fall outside of the three themes we highlighted above. However, we are not profiling all of [Fancy Bear’s] targets with the same detail because they are not particularly indicative of a specific sponsor’s interests.” (emphasis added)

  That is the very definition of confirmation bias. Had FireEye published a detailed picture of Fancy Bear’s activities including all of their known targets, other theories regarding this group could have emerged; for example, that the malware developers and the operators of that malware were not the same or even necessarily affiliated.

  The notion that [Fancy Bear] has a narrow focus on U.S. political targets is also undermined in a SecureWorks research paper, which shows that the [Fancy Bear] hackers have a wide variety of interests: 10 percent of their targets are nongovernment organizations, 22 percent are journalists, 4 percent are aerospace researchers, and 8 percent are within the “government's supply chain.” SecureWorks concludes that only 8 percent of Fancy Bear’s targets are “government personnel” of any nationality.

  According to Carr, “it’s an old assumption going back years to when any attack against a non-financial target was attributed to a state actor.” Without that premise, the only logical conclusion is that some email accounts at the DNC appear to have been broken into by someone, and perhaps they speak Russian. Left ignored is the mammoth difference between Russians and Russia.

  Some experts even go so far as to pit themselves directly against the JAR. Take famed data security pioneer John McAfee, the developer of the first commercial antivirus program. McAfee has been a major player in the cybersecurity industry for the past 50 years and does not believe that the Russians were behind the hacks on the DNC, John Podesta’s emails and the Hillary Clinton presidential campaign.

  McAfee notes that the JAR contains an appendix that lists hundreds of IP addresses that were supposedly “used by Russian civilian and military intelligence services,” but notes that,

  "While some of those IP addresses are from Russia, the majority are from all over the world, which means that the hackers constantly faked their location . . . if it looks like the Russians did it, then I can guarantee you it was not the Russians . . . [The JAR] is a fallacy . . . hackers can fake their location, their language, and any markers that could lead back to them. Any hacker who had the skills to hack into the DNC would also be able to hide their tracks . . ."

  The entire election hacking activities could also be some sort of "false flag" operation by someone else with extremely deep pockets and a political agenda. Along these lines, McAfee derides recent investigative techniques behind conclusions of Russian attribution, stating:

  "If I was the Chinese and I wanted to make it look like the Russians did it, I would use Russian language within the code, I would use Russian techniques of breaking into the organization . . . in the end, there simply is no way to assign a source for any attack.”

  Meanwhile, WikiLeaks' founder Julian Assange has insisted that the Russian government is not the source of the Podesta and DNC e-mails, implying that the source is instead a disgruntled DNC or other Democratic operative. 

  Fancy Bear, What will You Wear

  What does the public know for certain about Fancy Bear, or any of its other dozen names assigned by researchers such as APT 28, Tsar Team, Sofacy, Strontium and Pawn Storm? Not much.

  Despite being one of the most reported-on groups of active hackers, there is very little any researcher can say with absolute certainty about Fancy Bear. No one knows, for instance, how many hackers are working regularly within Fancy Bear, or how they organize their hacking squads. No one even knows if Fancy Bear is based in one city or scattered in various locations across Russia or the world. They don’t even know what they call themselves.

  No confirmed Fancy Bear hacker has ever actually gotten caught. Fancy Bear has evolved into a modern-day bogeyman — powerful and ubiquitous, nowhere and everywhere.

  A Quick Review of Reported Digital Forensic Evidence (in Plain English)

  Some of the cited circumstantial digital evidence relating to the DNC hacks while important and useful, also raises some fairly obvious caveats and questions, including:

  • The attacker or attackers registered a deliberately misspelled domain name used for email phishing attacks against DNC employees, connected to an IP address associated with Fancy Bear. (But aren't misspelled domains a cornerstone of phishing attacks all over the world?);
  • The actual clock times of the phishing schemes correlated with "business hours" in Russia and St. Petersburg time zones. (But couldn't Russian hackers just as easily orchestrate their schemes from a different time zone or digitally forge time-stamps? Also, don't hackers notoriously work at all hours of the day and night from any location they prefer?);
  • Malware found on the DNC computers was programmed to communicate with an IP address associated with Fancy Bear. (But would a sophisticated state sponsor of cyber-attacks be so incompetent as to use an IP address tracing back to their homeland?);
  • The DCLeaks.com domain was registered by a person using the same email service as the person who registered a misspelled domain used to send phishing emails to DNC employees. (But are the poor spelling habits of foreign spies truly evidence of their culpability and motive?);
  • Based on some sort of linguistic analysis, experts believe that Guccifer 2.0, the purported Romanian hacker who loudly and boldly claimed responsibility for the DNC hacks, was actually a Russian agent, posing as a Romanian in order to cover up Russian's own hack and spread disinformation. (But other experts disagree, including M.J. Connolly, a professor of Slavic and Eastern European linguistics at Boston College, who says that many of Guccifer 2.0’s language traits are not Russian and that Guccifer 2.0 was more likely Moldovan. Whatever the origins of Guccifer 2.0, isn't this evidence better suited for a Robert Ludlum spy novel or bad episode of The Americans, rather than a bona-fide government intelligence conclusion?)
  • The code in malware and tools of the DNC hacks appears to have been regularly and professionally updated and maintained while utilizing a sophisticated platform, suggesting a Russian operation funded to provide long-term data espionage and information warfare capabilities. (But isn't it common practice for hacking coders to update their software and tool kits as defenses change i.e. isn't that a prerequisite for all kinds of successful hacking?)
  • Metadata in a file leaked by “Guccifer 2.0″ shows it was modified by a user called, “Felix Edmundovich,” a reference to the founder of a Soviet-era secret police force. Another document contained Cyrillic metadata indicating it had been edited on a document with Russian language settings. (But is this how a sophisticated government spy ring behaves — sloppily leaving behind blatant, inculpatory evidence in plain view?);
  • Spear-phishing, the original hacking method used against the DNC, is the same method Fancy Bear uses to initiate its hacking operations. (But spear-phishing is used in some form by just about every hacking group, because it is proven to be the most effective way to inject malware on to a network in order to obtain command and control capabilities.)
  • Some of the phishing emails were sent using Yandex, a Moscow-based webmail provider, which indicates Russian involvement. (But Yandex is the Russian equivalent of Google — is its use in the DNC hack truly that compelling?); and
  • A bit.ly link believed to have been used by Fancy Bear in the past was also used in the spear-phishing scheme that purportedly tricked John Podesta into giving up his Gmail password. (But does Fancy Bear own some sort of criminal patent on their malware, so other hackers cannot ever use their tools and techniques?)

  Final Thoughts

  It is now widely accepted that despite government claims to the contrary: 1) Saddam Hussein was never building weapons of mass destruction (as initially asserted by the Bush Administration); and 2) the Benghazi embassy attack was not because of a YouTube video (as initially asserted by the Obama administration). Whether based upon sophisticated guesswork, concrete intelligence sources or a little of both, experts in each U.S. administration simply got it wrong.  

  Let's also not be naive. Recalibrating raw intelligence data for political purposes has always been tempting for Republicans and Democrats alike. Even if made entirely in good faith, political and ideological motives undoubtedly lurked in the shadows of the WMD and Benghazi intelligence findings.

  In the end, the Obama administration may be right about the Russians cyber-attack of election-related organizations. Russian-sponsored cyber-terrorism and data thievery is a major global problem — and has been for years. Indeed, legions of soldiers from countries across the globe, including Russian cyber-troops, wake up each morning with the sole objective to break into American computer systems and steal data.

  But for the time being, given the inherent subjectivity of intelligence regarding cyber-attacks and the differing interpretations of malware reverse engineering and other circumstantial digital evidence, a healthy dose of skepticism about Russian attribution still makes sense.

  As to whether the Russians somehow cyber-hijacked the election from Hillary Clinton to prop up Donald Trump — that is a completely different story. There is not a scintilla of official government evidence to support such an outrageous claim. It is a wholly unsubstantiated theory and my take is that mere skepticism is not enough. Flat out rejection may be in order.

  Under any circumstance, President-elect Donald Trump is quite right to engage in his own de novo review of government intelligence analytics regarding Russian hacking. It is what Americans expect every Commander-in-Chief to do before making major foreign policy decisions and escalating military tensions. In fact, President-elect Trump's approach is not only smart, courageous, logical and scientific — it is above all else, highly presidential.

  

  

• 2017 Stock Market Predictions: Trump Slump in January for Stocks

  This article by David Haggith was first published on The Great Recession Blog:

  

  I begin my 2017 stock market predictions with a recap of last year’s predictions. In an article back in 2015 titled “The Epocalypse: What Will D-Day Look Like?” I predicted the Fed would raise rates on December 16th, 2015, and the US stock market would crash immediately. Counterintuitively, I said it would crash by shooting upward for a few days; then it would round off, and then, in a short time, it would plunge off a cliff. (In all not a pattern you’d likely find anyone else predicting.)

  I said the stock market would crash by going up because everyone would look around after the long-dreaded day of the Fed’s first rate hike and see that the sky didn’t fall. That would turn them all smarmy and euphoric over how right they were about the recovery and about the bull market. That would, in turn, give rise to their hopes of a bull market forever and never ceasing. However, parties lead to hangovers. Once you recover from the hangover, reality sets in. That’s when they would begin to panic as they looked around, saw all the bottles and underwear and said, “Oh, my gosh, what did we do last night?”

   

  How my 2015/2016 stock market predictions did

   

  That is EXACTLY what happened (perhaps even including the underwear). January became the worst opening month in stock-market history. Now, to be fair, I also said that globally 2016 would turn into the “Year of the Epocalypse,” and it didn’t. (More on that in my next article of 2017 economic predictions, but you have to admit it was one darn weird year, which I think was only the warm-up act for this year.) However, as part of the economic apocalypse I predicted for 2016, I described the following blowup:

   

  Movement from bond funds to stocks will accelerate the bond implosion, wiping out billions in paper wealth on the high-yield bond side. Unfortunately for the market bulls, such mega-bond crashes almost always lead directly into stock-market crashes.

   

  The bond implosion took a lot longer to begin last year than I thought, but it finally got up to speed after Trump’s election, from which point it wiped out more than $13 billion from US bond funds (over $60 billion lost for the whole year) and surprising $1 trillion from all global bond markets (if CNBC’s numbers are right):

   

  ‘Trump Thump’ whacks bond market for $1 trillion loss

  Donald Trump’s stunning victory for the White House may mark the long-awaited end to the more than 30-year-old bull run in bonds…. A two-day thumping wiped out more than $1 trillion across global bond markets…. “We’ve had a sentiment shift in the bond market. People have already started reallocating out of bonds and into stocks, said Jeffrey Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital, which has more than $106 billion in assets. (CNBC)

   

  As I predicted last year, 2016 would be the year when billions would flow out of US bond funds and into stocks because “the money needs somewhere soft to land.” As I mentioned a week or so ago, the Trump rally has less to do with enthusiasm over the Trump plan and more to do with near-panic in the bond market sending a lot of bond money into stocks.

  If this flight from bond funds does become an complete bursting of the bond bubble, that is ultimately going to hurt everything, including stocks; so it is not the salvation of the stock market, other than temporarily.

  Many were not certain the Fed would raise rates on December 16, 2015, but I was because the Fed would have lost too much public confidence if it did not. It had been telegraphing its first interest increase all year long plus half of the year before that. To not raise interest at all during 2015 would have been a disaster. By revealing the Fed had no faith in its recovery, it would have deflated the Fed’s whole hope balloon, filled with nothing but hot air anyway.

  It was easy for me to see the stock market would fall at the end of 2015 and into 2016 because the first interest-rate increase in years would change the sick dynamic in the market where bad news was good news because it always resulted in hope of more Fed free (or cheap-and-easy) money. With QE ended and interest rates starting to rise, bad news would finally start to become just bad news … and there was a lot more bad news in the pipeline than good.

  It was also easy to see that pent-up emotions would burst into euphoria once we made it past the long-dreaded day of the first increase, and it was easy to see there was no underlying strength in the economy and no new plan for the economy, so no reason for the stock market to rise, other than that euphoria. Thus, fall it did. No surprise here.

   

  My 2017 stock market predictions: The Trump slump

   

  This year is not as easy. Things are much more complicated now. Trumphoria has run even higher than last year’s “irrational exuberance” (as Greenspan termed it), but it comes with a new plan that is vastly different than all preceding years, which could give some serious temporary economic boost. (It doesn’t resolve ANY of our underlying economic problems, though, and it makes the biggest of those problems (national debt) far worse; but it has also too much mojo to be ignored.) It is an enormous tax plan, and an economic change like that always creates a lot of money movement. So, there will be many shells in this game moving in many directions, making it harder to see where the peanut ends up (if the peanut you’re trying to watch is 2017 stock market predictions).

  Partially due to the Trump plan, the Dow Jones Industrial Average saw one of its fastest rates of rise in history during the weeks that followed Trump’s victory at the polls. The victory was a great surprise to many, but I had been saying on my blog that, if anyone had closet voters that the pollsters couldn’t see, it would certainly be Trump; so, I wouldn’t be surprised by a Trump victory. I was, however, as surprised as anyone by the Trump stock-market rally. I hadn’t predicted the stock market would immediately crash after the election, but I certainly didn’t expect it to soar because I figured Fed support for the market would wane.

  Prior to the Fed’s rate increase this December, which everyone else was as certain of this year as I was, I predicted the opposite effect from last year’s first hike. I said the Federal Reserve’s interest increase would be irrelevant, and it was! The stock market paid little attention this time because bond interest had already been rising, and it didn’t rise any faster after the rate increase. Mortgage rates had already been rising, too. In short, the markets were already pushing interest up faster than anything the Fed is doing anyway.

  If anything, this indicates the Fed is losing its grip on interest rates as market forces overwhelm them. The Fed could, of course, re-establish that grip with another massive stimulus program, but that is something they are loath to do. They have no desire to show their recovery has failed by scrambling to save it. They have no interest in helping Trump who has only badmouthed them (deservedly). If their recover is going to fail, they’d probably rather it fails at the start of Trump’s watch to cast a hex over everything he does. Besides, the interest hikes they have wanted to make but couldn’t are now an easy rise for them, which is why they’ve comfortably slated extra increases this year because they are just pricing into what the market is already doing.

   

  How easily can euphoria give way to a 2017 stock market crash?

   

  In my recent article, “Irrational Exuberance in US Stock Market Grasps at 20K for Dow,” I described how the Trump rally looks like exactly the kind of euphoric rise that is typically seen before a major stock market crash — rapid rate of rise fueled by emotions (joy/relief among Trump supporters), premised only on speculative hopes (a Trump plan that faces numerous obstacles before becoming reality) while having no basis in economic improvements or corporate earnings, stocks already being at a very heady CAPE (Cyclicly Adjusted Price-Earnings) ratio, the economy statistically overdue for a recession, and the fact that the Dow, in particular, was grasping for an extremely high milestone of 20K. Like the irrational rallies just before major crashes in recent history, it also came with a huge increase in trading volume, meaning a lot more people were suddenly jumping in to trade. A record-setting rally in the face of all that has “irrational exuberance” written all over it.

  But the one thing that made the Trump rally fit the irrational exuberance that precedes a major stock market crash more than any other factor was the fact that almost no one was predicting this bull run would end. (At first; a few are now.) Consumer confidence hit an all-time high, too. So, optimism suddenly burst like fireworks everywhere but it’s all in the same old muddy economy. Nothing has actually changed yet. Obama is even still president.

  When the stock market soars with no evidence of fear, that’s when it is most vulnerable to a crash because markets only crash big when almost no one sees the crash coming. (If they saw it coming, they wouldn’t be running up the slope like lemmings in lock step.) The absence of fear creates surprise when the market turns, and surprise can easily become panic. It’s a manic-depressive kind of cycle.

  One other thing I pointed out in that article was that pushing up to or even through a major milestone along any index doesn’t mean anything bullish. Many times in history, the market has fainted as it neared a major milestone and settled back down, not to reach toward that milestone again for many years. When the market has passed a milestone, it has sometimes continued a month or two and then crashed. Sometimes it keeps climbing.

  So, the stock market could well faint away before it hits 20,000, not to return to such heights for years to come (as has happened many times), or it could gather up some more steam and push right past — making everyone think the bull is charging on — only to get dizzy in the new rarified atmosphere and fall dead away. Although there are many reasons laid out here for thinking the stock market will come down in January, I have only one reason for thinking it will. Ironically, that is Trump’s own plan, which caused it to soar in the first place.

  If there is one thing that holds true for rapid rallies, it’s the huge desire to sell the top and realize some profit from the easy-money gains of recent weeks. The market has clearly rounded off from its rise and even slipped downward like a roller coaster cresting the first big hill. So, there is a hint that investors are about to do some profit taking, but a hint in the form of the market catching its breath doesn’t bear a conclusion by itself, especially this time of year. The market always tends to cool from Christmas week through the New Year as people disengage and go spend time with families and on vacations. Tomorrow the investors get back to “work.”

  And tomorrow (Tuesday, January 3, 2017) means everything. One very important thing changes for the market on Tuesday morning: We enter the trading year in which Donald Trump promises a maximum capital-gains tax cut on short-term investments. (Taxes on assets like stocks held less than a year.) That’s the kind of holdings a big speculative trader is going to have. If you were a big speculative trader who benefited hugely from buying stocks during the Trump rally, would you sell some of your stocks in late December to pocket the profit, or would you wait a few days so that you could realize an instant and rather substantial tax savings, too? I don’t think I need to answer that for you.

  So, ironically Trump’s infrastructure spending plan caused the rally before the plan has even been presented to congress, but Trump’s tax plan could be the rally’s undoing before that plan is sent to congress.

   

  Other factors that could let the hot air out of the Trump stock market rally

   

  • Any benefit from infrastructure spending is far down the road because of how long it takes to plan and approve projects.
  • Trump and his cabinet members have already started backing away from the infrastructure stimulus plan, saying it will not happen until the end of his term. It is not their top priority.
  • We already saw Obama’s “shovel-ready” plan fail to gain any enthusiasm among municipalities, counties and states and the federal government, so it failed.
  • It’s time to get real. You can promise anything, but then there is congress. Trump has lined up a solid wall of enemies among the Democrats, but he also faces many Republican defectors who openly stated they would not only vote with the Dems in the election but would vote for one of the worst Democratic candidates ever fielded, rather than vote for Trump. Do you think these Pubs would be so brazen about voting with the Dems for Hillary and then hesitate to side with them on the house or senate floors? Getting a majority may be hard for Trump may be hard, and he doesn’t have a solid mandate because he lost the popular vote by a large amount.
  • In the very least, the reality that gets approved in congress is always a compromise from the promise.
  • The plan is so big, were it to happen, it would drive up the cost of its own financing like a forest fire creates its own wind. That means it will drive up the cost of the entire existing national debt, which has to be regularly refinanced. And that means the real cost in interest for the government will be astronomical because of what the federal government will have to pay on the entire debt, not just on the plan
  • President Obama’s scorched-earth policies seem intent upon creating as much global chaos as he can before Trump takes over.

   

  Will the stock market crash in 2017?

   

  That it will slump in January, I’m fairly sure — not certain but fairly sure. I am not certain that will be an immediate plunge on Tuesday, but I think profit taking and numerous other concerns will take over before the inauguration.

  As I say, Obama is doing so many chaotic things right now that he looks like he’s losing his mind in a temper tantrum. Protests may become riots leading up to and especially during the inauguration as desperate people continue to do everything they can to thwart Trump’s election. The entire world is descending into chaos due to outlandish immigration polices, old wars and new wars and, in the US, due to rage over Trump’s victory. All of these things will make the market uneasy as they grow in intensity, which they appear likely to do.

  Trump, on the other hand, has promised massive tax changes, which will certainly move money all over the place, particularly back into the US. A lot of that may go into stocks, especially repatriated corporate savings and anticipated corporate income-tax savings. (Where there are people selling to take profits there have to be buyers, so selling doesn’t necessarily drive the price of stocks down; if there are enough new buyers jumping in to take up the offerings.)

  All this movement of money will increase the velocity of money in many directions and should heat up the economy as intended, but increasing the velocity of trillions of fiat dollars that have been parked in stocks and bonds for years is a kind of event we’ve never seen. Some say it will create huge inflation as it moves that money into the Main-Street economy. On the other hand, the wipe out of stocks and bonds if the bond market crashes first could evaporate so much fiat money back out of the monetary system that we see hyper deflation.

  So, I think a stock market slump at the start of the year is fairly sure because some profit taking is bound to happen, and many investors are likely to take pause with so much happening to wait and see how Trump’s plans start to shape up in congress before running things up any higher. This market may slouch toward its fall. A 2017 stock market crash (maybe at the start of the year but probably not) seems likely because the stock market enters 2017 looking like a jinga puzzle balancing on one stick at the bottom of the stack; but Trump is also standing over it like a levitating magician with invisible strings of hope descending from his fingers to hold the pieces up; and a lot of other falling things like bonds may choose stocks as their last resort.

  So, I have no idea how so many major countervailing forces will play out in the short term; i.e., which will hit first or hardest. What I am sure of is one very chaotic year that makes 2016 look like an opening act because the forces that oppose Trump are not going to retreat, and similar anti-establishment forces in other countries aren’t going to either. In the US, the forces opposed to Trump are greater in size (raw vote count) than the forces that put him in power, so they are also not going to retreat. When the winning side has the least actual supporters, you can probably expect a pretty fierce and weird battle from the opposition.

  It would take a miracle from a power higher than Donald Trump to keep all of that from breaking up, and God hasn’t told me if he’s going to intervene. What I see is spreading chaos throughout the world with no one who can pull it together. I was certainly right about growing chaos last year, and this year looks as though the global breakup will continue to spread like fracture lines on a frozen pond under the weight of a fighting crowd. The US stock market is only one of those lines while more and more crowds are coming onto the ice to enter the fray. The ice could break up cataclysmically as the weight increases all over the pond and plunge everyone into the ice water, or it may only break here and there, a few at a time. The only certain thing is growing chaos.

  If you have to be out on the ice, stand near the shore, and bring ropes.

   

  Read also: Irrational Exuberance in US Stock Market Grasps at 20K for Dow

  

• Assange To Hannity: "Our Source Is Not The Russian Government"

  It won’t be the first time Julian Assange was interviewed and asked whether the source of the hacked DNC and Podesta emails was Russia; however, it will be the first time everyone pays attention to his answer. Recall that the first such interview of Assange – when the question of who had sourced Wikileaks with the hacked emails came up – took place exactly two months ago, on November 3. Back then, in an interview televized by RT, John Pilger explicitly asked Asange where the emails in question had come from.

  Assange’s response was straightforward: “The Clinton camp has been able to project a neo-McCarthyist hysteria that Russia is responsible for everything. Hillary Clinton has stated multiple times, falsely, that 17 US intelligence agencies had assessed that Russia was the source of our publications. That’s false – we can say that the Russian government is not the source.”

  That particular interview took place when Trump has losing badly in the polls, and as such few people paid attention: after all, what difference did it make who had leaked the Podesta emails: Hillary Clinton was assured to win (with a 90%+ probability according to the NYT and other “non-fake news” outlets).

  Needless to say, the issue of Russian hacking has since come back with a vengeance, and culminated last week with Obama expelling 35 Russian diplomats in the greatest diplomatic escalation between the US and Russia in decades; an action which took place based on a flimsy 13-page DHS/FBI report which demonstrated that anyone could have hacked the DNC emails if only they spent a few dollars to purchase a piece of Ukranian PHP malware.

  Which is why many more will pay attention to Assange’s next interview with Sean Hannity, which will air Tuesday on Fox News. According to a Fox News release, the two will discuss Russian hacking, the 2016 presidential election, and both the Obama and upcoming Trump administrations. It will air at 10 p.m. on Jan. 3, with additional portions of the interview airing throughout the week. As Variety adds, The interview will mark Assange’s first face-to-face cable news appearance. It is not, however, the first time he’s spoken publicly to Hannity. Most recently, in December, Assange called into Hannity’s radio show, in which the host gushed to Assange that “you’ve done us a favor” in exposing gaps in U.S. cybersecurity.

  And while what Assange would say was rather predictable, as he would simply reiterate what he has said previously, courtesy of Real Clear Politics, we have an advance glimpse into the punchline, to wit:

  HANNITY: Can you say to the American people, unequivocally, that you did not get this information about the DNC, John Podesta’s emails, can you tell the American people 1,000 percent that you did not get it from Russia or anybody associated with Russia?

   

  ASSANGE: Yes. We can say, we have said, repeatedly that over the last two months that our source is not the Russian government and it is not a state party… Obama is trying to say that President-elect Trump is not a legitimate President.

  When asked if  WikiLeaks changed the outcome of the election, Assange replied “Who knows, it’s impossible to tell” but, he added, “if it did, the accusation is that the true statements of Hillary Clinton and her campaign manager, John Podesta, and the DNC head Debbie Wasserman Schultz, their true statements is what changed the election.”

  Which is correct, however admitting as much would shift the blame away from the “Russians” and back to the failures of the Clinton campaign and the shortcoming of the Democrats, and the whole point of this scapegoating campaign is precisely the opposite.

  As the Hill adds, Assange said there’s an “obvious” reason the Obama administration has focused on Russia’s alleged role in Democratic hacks leading up to Donald Trump’s electoral win.

  “They’re trying to delegitimize the Trump administration as it goes into the White House.”

  He then added that “our publications had wide uptake by the American people, they’re all true,” Assange continued. “But that’s not the allegation that’s being presented by the Obama White House.”

  However, as we said previously, since at the end of the day it is Assange’s word – unless Wikileaks does actually reveal its source, which would be professional suicide – against the word of Obama and 17 agenices who back him up, despite still having provided no actual evidence in the ongoing, and quite bizarre attempt to force a deterioration of US-Russian relations in the final days of the Obama administration, just so Trump can inherit a complete diplomatic mess and make closer relations with Putin more complicated, this latest interview with Assange will likewise resolve absolutely nothing.

  

  

• Syrian Refugee Arrested After Seeking €180,000 From ISIS To Drive Truck Bombs Into European Crowds

  Two weeks after a Tunisian man, Anis Amri, whose German asylum request had been rejected, rammed a truck into a Berlin Christmas market and was later shot dead by Italian police, the German state prosuector’s office said on Monday that a Syrian migrant who arrived in Germany two years ago was arrested on suspicion of seeking money from the Islamic State, to drive truck bombs into crowds.

  Saarbruecken prosecutor Christoph Rebmann said the 38-year-old Syrian was detained on Saturday in his apartment in Germany’s Saarland State, and an arrest warrant was issued on Sunday on suspicion that he was trying to raise 180,000 euros ($189,000) to fund an attack. Rebmann said the man, whom he did not name, was suspected of seeking the money from Islamic State in Syria to buy trucks and load 400-500 kg (880-1,100 pounds) of explosives into each of them. “He is suspected of … requesting 180,000 euros from a contact person in Syria on his cell phone from Saarbruecken in December, 2016 so that he could acquire vehicles to pack with explosives and drive them into a crowd,” Rebmann said.  It was not clear if the Islamic State in Syria, which has been facing a severe liquidity shortage since its oil operation was virtually eliminated by Putin, had that kind of spare change.

  
  The truck which ploughed into a crowded Christmas market in Berlin, on
  December 19, 2016.

  According to a separate statement by Saarland police, the Syrian suspect asked for the ISIS money to finance an “unspecified terrorist attack” in “Germany, France, Belgium and the Netherlands.” 

  Saarland Deputy Police Commissioner Hugo Muller said that the Syrian man planned to repaint the vehicles as police cars. “In his respective communications with contacts linked to IS, he [the suspect] offered or suggested to repaint cars to make them look similar to police cars, load them with explosives, position them in a crowd of people and then detonate them,” Muller said.

  The Prosecutor’s office announced that the suspicion of plotting a terrorist attack are based on a chat in the online messenger Telegram, which was found in the telephone of the suspect during a search of his house. “So far the investigation has found no evidence that the suspect had already prepared [booby trapped] cars to carry out the attacks,” authorities noted though. The man admitted to making contact with the Islamic State, but has denied he had any plans to stage an attack.

  “He said he wanted the money from ISIS to support his family back in Syria,” Rebmann told Reuters, adding that the Syrian had said he wanted to fool the jihadist group into sending him the money.

  The Syrian came to Germany on Dec. 5, 2014, just before a wave of more than 1.1 million asylum-seekers arrived from the Middle East, Africa and Asia in 2015. He was given permission to stay in Germany on Jan. 12, 2015, and originates from the Syrian is from the city of Raqqa, the Islamic State’s de factor capital. According to Reuters, the prosecutor’s office in Saarbruecken, near the French border, had been alerted to his activities by the BKA federal crime office.

  Suggesting a shift in Germany’s “Open Door”approach to refugees, Interior Minister Thomas de Maiziere said that failed asylum seekers who are regarded as a danger should be detained until they can be deported. He made the suggestion in a guest column in Tuesday’s edition of the Frankfurter Allgemeine newspaper.

  Both he and Merkel have plenty of reasons for concern: political analysts, conservative allies and diplomats have said a major terrorist attack in the coming months could damage Merkel’s hopes of winning a fourth term in September’s election. The far-right Alternative for Germany (AfD) party has blamed her policies for the Dec. 19 Berlin attack as well as previous terrorist attacks on German soil.

  

  

• A Biased 2017 Forecast, Part 2

  Submitted by Jim Quinn via The Burning Platform blog,

  In Part One of this article I discussed the failure of our brains to think rationally due to our biases and the relentless propaganda flogged by our Deep State ruling class. Viewing the future through the looking glass of the Fourth Turning keeps you focused on the three catalysts which will drive all events in 2017 and beyond. I’ve addressed my 2017 Debt forecast in Part One. Now I will make some guesses about what might happen in 2017 related to Civic Decay and Global Disorder.

  Civic Decay Forecast

  “Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.” – Daniel Kahneman, Thinking, Fast and Slow

  

  The presidential election and its aftermath tell you everything you need to know about the level of civic decay overtaking this country. The country is as divided as it was after the election of Abraham Lincoln in 1860. There is virtually no common ground between liberals and conservatives. The pure hatred and contempt between the winners and losers in the recent election does not bode well for the country over the next four to eight years.

  The social fabric of the country has been torn asunder. The Clinton supporters believe anyone not on their side is deplorable, racist, misogynist, and fans of Hitler. Trump supporters believe anyone not on their side is low IQ, Muslim loving, deceitful, math challenged, and fans of a criminal. The gulf between the two sides is unbridgeable.

  Barack Obama, the well-dressed, polished, articulate, empty suit, who has occupied the White House for the last eight years serving as the front man for the Deep State, has done more to destroy race relations and sense of community than any president in history. His divisive rhetoric and actions over the last eight years created the atmosphere for the acrimonious election and the violent protests that followed.

  His failure to quell the Soros funded Black Lives Matter terrorist organization has resulted in the slaughter of police across the country. Meanwhile, his hometown of Chicago has seen 800 homicides and over 4,400 shootings in 2016 – with over 90% blacks killing blacks. His legacy is one of complete and utter failure, but his hubris knows no bounds, and he actually believes his eight year reign of error was a resounding success. Facts be damned.

  

  “A person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise.” – Daniel Kahneman, Thinking, Fast and Slow

  Obama fears his legacy will go up in flames. When you govern through executive orders, bypassing Congress, and flaunting the Constitution, your actions can be overturned with the stroke of a pen. When your crowning achievement – Obamacare – is derided by virtually everyone in the country as an epic failure and will be repealed and replaced in short order, you realize your entire presidency was a sham and a national disgrace.

  Obama is flailing about in his final weeks desperately trying to keep the attention focused upon him. He is gambling with the lives of his countrymen by doing everything in his power to provoke World War III with Russia and to inflame the Middle East with his UN engineered snub of Israel. Obama doesn’t like to lose and he is acting like a churlish spoiled brat as his time runs out. He has become a laughingstock around the world. He will fan the flames of discontent in this country until he is ushered out of the White House.

  Here are a few suppositions about what will happen next:

  • Obama trying to sow discord between the U.S. and Russia will fail, as Trump and Putin will meet and find common ground in the Middle East, the Ukraine, and Turkey. Republican neo-cons like McCain and Graham will be outraged. Liberal warmongers who once protested Bush’s wars will also be outraged. The mainstream media will continue to try and fan the flames of war.
  • Before leaving office Obama will poke a final stick in the eye of Trump and his supporters by pardoning Hillary Clinton for all possible wrongdoing. This will infuriate the right. Trump will do everything in his power to investigate the Clinton foundation and any issues which could incriminate Bill, Holder, Lynch or Obama. The peaceful transition of power has not been observed by the left, so all bets are off once Trump takes office.
  • Well-funded (by Soros) domestic agitators, including BLM and various femi-nazi groups, will attempt to disrupt the inauguration ceremonies. There will be violence, conflicts with Trump supporters, and police confrontations. This will further widen the divide in this country. The left have proven to be those who promote violence and will continue to do so. If they venture outside of their urban safe zones, they will be met with a white heavily armed populace.
  • The left wing mainstream media will not be deterred in their efforts to bring down the Trump presidency. They will fire away on a daily basis as their ratings drop lower and lower. Their railing against “fake news” has backfired, driving more people to alternative media sites where they will not be inundated with Deep State approved propaganda. The press will do their utmost to agitate the masses, creating and promoting conflict. Trump will continue to bypass and scorn the media outlets by taking his message directly to the people.
  • Building the wall, shutting off the immigration pipeline of Muslim refugees, defunding sanctuary cities, and fully supporting local police across the country will trigger snowflakes, BLM terrorists, illegal immigrants, and various Soros funded radical groups to stage violent protests in the liberal urban enclaves. They are waiting for their next high profile police shooting to pounce. The civil chaos and violent protests will increase as the year progresses.
  • Whoever Trump nominates as his Supreme Court justice will face enormous scrutiny. The left wing media will stop at nothing to destroy the nominee. The hearings in Congress will be nasty, rude, and vitriolic. The animosity between the opposing sides will reach epic proportions. Both sides know the Supreme Court is of vital importance to the future course of the country.
  • With Obama failing to fade into the sunset and his enormous ego and arrogance spurring him to agitate the left wingers, there will be no de-intensifying of the rhetoric between the right and the left. As we’ve seen, the left are the proponents of violence as their chief weapon. An attempt on the life of Trump is a distinct possibility in his first year in office. A successful or unsuccessful attempt would have far reaching consequences that could lead to civil chaos.

  Global Disorder Forecast

  “We focus on our goal, anchor on our plan, and neglect relevant base rates, exposing ourselves to the planning fallacy. We focus on what we want to do and can do, neglecting the plans and skills of others. Both in explaining the past and in predicting the future, we focus on the causal role of skill and neglect the role of luck. We are therefore prone to an illusion of control. We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.” – Daniel Kahneman, Thinking, Fast and Slow

  

  The level of global disorder hasn’t been this high since the 1930s. There are dozens of potential flash points capable of producing a cascading crisis which could blow up the world. The highly touted establishment mantra of globalization has produced an interconnected web of trillions in global debt, with one quadrillion dollars of indecipherable derivatives layered on top, all dependent upon the sustenance of insolvent mega-banks and bankrupt nation states. The only thing keeping this global Ponzi scheme alive is the unfounded belief in the brilliance of central bankers and corrupt politicians.

  The detonator for these interwoven financial weapons of mass destruction is rising global interest rates. The global financial system will be blown sky high by a sustained high volume sovereign bond selloff. The bond market is always the canary in the coal mine. Bonds will sell-off before stocks and real estate. Bond markets have begun to sell-off in a relatively orderly manner over the last three months, with long term Treasuries falling 13%. Bill Gross recently described the growing risk:

  “Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day.”

  Will that day happen in 2017? No one knows for sure, but the probability is much higher than biased “experts” believe. The substantial concentration of cognitive biases clouding the judgement of the supposed wise men ruling the world has blinded them to the tragic consequences of what happens when the mother of all bubbles explodes like a supernova.

  The complacency of those in charge and the trusting masses will eventually be dealt a death blow when the high frequency trading computers run amuck and wipe out trillions of faux paper wealth in a matter of minutes. The powers that be will declare no one could have seen it coming, when in actuality anyone with a basic understanding of math could have seen it coming from a mile away. Most have chosen to remain blind to reality, because dealing with it is too painful to consider.

  “We can be blind to the obvious, and we are also blind to our blindness.” – Daniel Kahneman, Thinking, Fast and Slow

  Let’s get to a few prognostications regarding global events in 2017:

  • Obama, in a despicable act of trying to fence Trump in, has introduced further sanctions against Russia and Putin based upon no solid evidence other than the opinions of the same people who were sure there were WMD in Iraq. The MSM and the neo-con faction of his party are all on Obama’s side. I expect Trump to override Obama’s childish display of antagonism, while showing the neo-cons there is a new sheriff in town, by developing a working relationship with Putin and lowering the tensions between the two countries.
  • Trump and Putin will come to an agreement regarding keeping Assad in power in Syria while turning both nations’ attention to obliterating ISIS and the so called “moderate” Al Qaeda terrorists in the Middle East. General Mattis and Trump’s team of rational thinkers will develop a feasible plan to destroy ISIS once and for all. Safe zones will jointly be created in Syria and Iraq by the U.S. and Russia to stem the tide of refugees pouring into the EU and U.S.
  • The U.S. dependency on Saudi oil will continue to decrease, further reducing their influence on U.S. policy in the Middle East. Saudi failure in Syria, Yemen and keeping Iran contained will lead to further discontent in the kingdom. Financial woes, declining oil output and religious tensions will fray the fabric of their insular society and lead to a religious uprising and civil war.
  • Turkey has been pushed into the Russian sphere of influence by U.S. meddling. The country is falling apart. A civil war on par with the Syrian conflict is likely to breakout. Russia would likely support the dictator Erdogan against rebel forces supported by NATO. Religious and sectarian violence will tear the country apart and create further tensions between Russia and the U.S.
  • Israel will pre-emptively take action either covertly or overtly to damage the Iranian nuclear program without informing the U.S. of its actions in advance. This will be supported by the neo-con factions in the U.S. government, but will strain relations between Netanyahu and Trump.
  • The crackpot efforts at demonetization by Modi in India will destroy the Indian economy and cause societal upheaval among his 1.25 billion mostly poor citizens. With the eighth largest economy on the planet imploding, the economic reverberations across Southeast Asia will be enormous, possibly being the trigger for the next step down in this ongoing global recession. India’s weakness could spur their enemy Pakistan to take aggressive border actions which could lead to military conflict.
  • With the fourth largest economy in the world in near permanent recession for the last twenty years, Japan’s debt to GDP ratio of 230% portends financial collapse. In the midst of a demographic implosion, with negative interest rates, and a central bank buying all the newly issued debt and billions in stocks, Japan is a bug seeking a windshield. When this Ponzi economy crashes, the worldwide impact will be significant. If Japan doesn’t trigger the global eruption, it will be a major contributor as the detonation spreads around the world.
  • China continues to steadily devalue the yuan against the USD and has eliminated all the gains since 2010. At the same time they have reduced their foreign reserves by over 20% since mid-2014. China’s third largest economy in the world is slowing rapidly as more bad debt builds up in their system. They have a real estate bubble that makes the U.S. bubble seem like a pimple on the ass of a fly. A trade war initiated by Donald Trump would be the pin bursting the Chinese debt bubble. The situation could intensify into a bond selloff and panic. If derivative positions of over-leveraged or poorly-hedged globally systemic banks begin to unravel, cascading losses could lead to a vicious cycle and a tragic outcome.
  • Potential military conflict between China and Japan/U.S. over the islands in the South China Sea ramps up by the day. No one wants a war, but all it would take is a careless stupid act by a low level military officer to create a crisis. China is already bent out of shape by Trump acknowledging the existence of Taiwan. China is still essentially a dictatorship. The country is racked by corruption. An economic collapse could be met with distracting the public through a military adventure against Taiwan. These scenarios are unlikely in 2017, but not out of the question.
  • The most likely and potentially most dire event which could affect the world in 2017 is the disintegration of the EU. Greece is still a basket case. Italy is on the brink. The EU area economy barely registers positive after years of negative interest rates and debt issuance. Unemployment rates, excluding Germany, range between 10% and 25%. Brexit and Trump’s victory portend a further shift to the right in the EU. The right wing party will win the French presidency. Merkel will be defeated in the upcoming elections. France and Italy are likely to have a referendum on leaving the EU. The departure of either will end the failed experiment. The insolvent Italian, French and German banks, specifically Deutsche Bank, will collapse in an EU disintegration scenario.
  • The influx of Muslims into Europe is destroying their culture and leading to violence, terrorism, bloodshed, and now retribution. The left wingers have made a dreadful mistake in allowing hordes of Muslims to invade their countries. Their already fraying social welfare states are now completely bankrupt and citizens are afraid to go into the streets for fear of being attacked by members of the religion of peace. With the right gaining power in France, Germany and Italy, the blowback against Muslims will be violent and bloody. European cities will be rocked with violence throughout 2017.

  “Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.”  – Daniel Kahneman, Thinking, Fast and Slow

  

  I think it is pretty obvious my pessimism bias may have skewed my predictions for 2017. I’ve been pessimistic for the last eight years and the stock market is up 200%. I try to assess the world from a logical fact based frame of mind, but for the last eight years the world has been kept afloat by a combination of debt, delusions and denial.

  The Deep State propaganda machine has convinced the masses we are living in normal times, despite the fact the Fed printed $3.5 trillion out of thin air and handed it to the criminal Wall Street banks, interest rates have been kept at or near zero for eight years, revelations from Snowden that we truly live in a surveillance state far exceeding Orwell’s dystopian vision, the national debt doubling to $20 trillion, proof that all financial markets are rigged, undeclared wars being waged across the globe, and a reality TV star defeating a criminal to be president of the United States. Sounds pretty normal to me.

  My confidence level in my predictions is quite low. But, if one or two of the low probability events comes to fruition, the financial and/or human devastation will make 2008 look like a walk in the park. I don’t have an agenda in putting forth these predictions. I’m not selling anything or hawking stocks, bonds, or gold. I don’t tout myself as an expert like the over-confident, arrogant pricks on CNBC, CNN, MSNBC, or FOX. I’m just trying to understand what is happening in this crazy universe. We live in an uncertain world. I believe an unbiased appreciation of uncertainty is the cornerstone of rationality and reason. Not acknowledging the role of luck or chance in the course of human events is setting you up for a fall.

  Our countries, central banks, financial complex, military industrial complex, sick care complex, global mega-corporations, and government bureaucracies are ruled by men whose hubris, arrogance, greed and hunger for power has warped our world, producing unfathomable ill-gotten profits for the financial class who can abuse justice with impunity while the average man is bullied, pillaged and abused with disregard.

  These well dressed, highly educated, sophisticated, soulless barbarians hide their evil deeds behind the trappings of culture, but they are revealed by their grotesque schemes, murderous policies, and war profits soaked in blood. When they lose control of this global Ponzi scheme, I hope they pay the ultimate price for their traitorous deeds. Will it happen in 2017? I don’t know. But it will happen before this Fourth Turning climaxes.

  “The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe – The Fourth Turning

  

  

• Dramatic Time-Lapse Video Captures Arrival Of Beijing Smog Cloud

  The following dramatic time-lapse video, shows a wall of toxic smog rolling into Beijing over a 20-minute period collapsed into a 10 second video; it gives a glimpse of the pollution problem in China’s capital city. Chas Pope, a British engineering consultant working in Beijing, shot the video.

  An air-quality index released by China’s municipal environmental protection bureau, which measures potentially hazardous particles in the air, hit 482 on Sunday, almost touching the 500 mark where the scale tops out, and far beyond the point deemed hazardous to health, according to the South China Morning Post.

  “Everyone should avoid all physical activity outdoors,” a warning accompanying the reading warns. “People with heart or lung disease, older adults, and children should remain indoors and keep activity levels low.”

  As a result of the heavy smog to hit much of northern China on Sunday, hundreds of flights were canceled and highways shut, disrupting the first day of the New Year holiday. The latest smog incident to hit Beijing, and which forced local authorities to extend an “orange alert” – the second highest level for air pollution until Jan. 4 – followed a similar hazardous smog alert in mid-December, leading authorities to order hundreds of factories to close and to restrict motorists to cut emissions.

  The latest bout of air pollution began on Friday and is expected to persist until Thursday, although it will ease slightly on Monday, the last day of the New Year holiday according to ABC.

  In Beijing, 126 flights were canceled at the city’s main airport and all buses from there to neighboring cities suspended, state news agency Xinhua said.

  Average concentrations of small breathable particles known as PM2.5 were higher than 500 micrograms per cubic meter in Beijing – 50 times higher than World Health Organization recommendations.

  In Tianjin, Beijing’s next door metropolis, the smog was not as serious but visibility much worse, with more than 300 flights canceled at Tianjin airport and conditions not expected to improve in the near term, the city government said. Xinhua said highways into and out of the city were also closed.

  In Shijiazhuang, the capital of Hebei province that surrounds most of Beijing, about two dozen flights were canceled and eight flights diverted to other airports because of the smog, the People’s Daily said on its website.

  A total of 24 Chinese cities have issued red alerts for the current round of pollution, which mandate measures like limiting car usage and closing factories, while 21 have issued orange alerts, including Beijing and Tianjin.

  As Reuters notes, Pollution alerts are common in northern China, especially during winter when energy demand, much of it met by coal, soars. The country’s northern provinces mostly rely on the burning of hundreds of millions of tonnes of coal each year for heating during northern China’s bitterly cold winters.

  China began a “war on pollution” in 2014 amid concerns its heavy industrial past was tarnishing its global reputation and holding back its future development, but it has struggled to effectively tackle the problem.

  Unfortunately for China’s residents, the “war” is lost every time Chinese production goes into overdrive, forcing the government to order manufacturing to halt output, leading to an economic slowdown, and forcing a sharp restart several weeks to months later, usually as a result of more trillions in credit injections, which then send the credit impulse propagating around the globe.

  In other words, the global economy is now held hostage by the level of toxic particullate matter in northern China: any time this goes off the chart, manufacturing in China is halted, leading to significant downstream effects around the entire world.

  

  

• Yuan Dumps, Bitcoin Jumps As China Researchers Suggest "One-Off Devaluation" & Capital Controls

  As we have detailed numerous times recently, the recent move in Bitcoin has been strongly suggesting increasing fears of capital controls and/or expectations of a looming (and quite notable) devaluation of the Yuan against the US Dollar. Tonight saw China's largest nationalist tabloid suggesting that China should consider one-off yuan devaluation to keep the currency stable at equilibrium level. Offshore Yuan is tumbling – to new record lows.

  As we noted earlier, a quick look at the uncanny correlation between the decline in the Yuan and the rise in the bitcoin, confirms that the digital currency has indeed been largely used to evade capital controls. 

  

  Based on this chart alone, the recent surge in Bitcoin would imply that a substantial devaluation of the yuan is looming. That, or even more aggressive capital controls.

  And tonight, researchers with State Information Center led by Zhu Baoliang wrote in an article published on Shanghai Securities News, that China should consider one-off yuan devaluation to keep the currency stable at equilibrium level and suggest capital controls and as well as what seems like a reference to "virtual currency"…

  …the effect of monetary policy continues to weaken. After repeatedly cut interest rates, lowering after registration, our short futures money market interest rates have dropped to about 2.2%, in the history of a relatively low level. Money supply growth rate far exceeds the rate of economic growth, social capital is abundant. But because of the lack of investment opportunities, more funds through the state-owned enterprises and financing platform to invest in less efficient infrastructure, or real estate, or idle in the virtual economy. Capital continues to off real to the virtual, will breed all kinds of asset bubbles, a huge impact on financial stability. At the same time, state-owned enterprises, financing platforms, real estate and other sectors and industries a large number of financing, but also pushed up the financing costs of financial markets, private enterprises and small and medium-sized enterprises to reduce the financing cost is not large, thus out of private investment.

   

  …

   

  It is suggested that the total social financing and broad money growth should be about 12%, and maintain a reasonable and reasonable liquidity scale. The second is to further improve the RMB exchange rate market-oriented level, and enhance the flexibility of the RMB exchange rate, or even a one-time devaluation of the renminbi, so as to maintain the stability of the RMB in the equilibrium level.

   

  At the same time, the proper control of foreign exchange outflow, the state-owned enterprises in overseas real estate, antiques, teams and other non-substantive, non-technical M & A activities to be strictly limited. Third, closely tracking study American influence elected president's economic policies on China, the foreign exchange market volatility and prevent cross-border capital outflows triggered massive financial risk domestic bond market, the real estate market.

  And for now the reaction is offshore Yuan selling to record lows…

  

   

  And Bitcoin (in China) surging very close to record highs…

  

   

  7,588 Yuan per Bitcoin in the record high and volume in this most recent surge is dramatically higher. But as we noted earlier, for those buying into bitcoin here on the momentum, most of which originates in China, we urge readers to be cautious as by now the PBOC has certainly noticed that the digital currency remains one of the final, and most successful, means of bypassing capital controls in China. Should Beijing mandate that bitcoin no longer be a means to illegally transfer capital offshore, there is risk of a dramatic, and sharp, drop in its price.

  

  

• Edward Snowden Trashed In Absurd WSJ Op-Ed

  Submitted by Mike Shedlock via MishTalk.com,

  Edward Jay Epstein has an op-ed in the Wall Street journal promoting his new book “How America Lost Its Secrets: Edward Snowden, the Man and the Theft”.

  Epstein discusses the Fable of Edward Snowden

  At the forefront of Epstein’s claims is the fact that Snowden lied. “As he seeks a pardon, the NSA thief has told multiple lies about what he stole and his dealings with Russian intelligence,” says Epstein.

  

  Of all the lies that Edward Snowden has told since his massive theft of secrets from the National Security Agency and his journey to Russia via Hong Kong in 2013, none is more provocative than the claim that he never intended to engage in espionage, and was only a “whistleblower” seeking to expose the overreach of NSA’s information gathering. With the clock ticking on Mr. Snowden’s chance of a pardon, now is a good time to review what we have learned about his real mission.

   

  Mr. Snowden’s theft of America’s most closely guarded communication secrets occurred in May 2013, according to the criminal complaint filed against him by federal prosecutors the following month. At the time Mr. Snowden was a 29-year-old technologist working as an analyst-in-training for the consulting firm of Booz Allen Hamilton at the regional base of the National Security Agency (NSA) in Oahu, Hawaii. On May 20, only some six weeks after his job there began, he failed to show up for work, emailing his supervisor that he was at the hospital being tested for epilepsy.

   

  This excuse was untrue. Mr. Snowden was not even in Hawaii. He was in Hong Kong. He had flown there with a cache of secret data that he had stolen from the NSA.

  Well la-de-friggin da. The idiocy of those opening paragraphs is obvious to the world.

  What was Snowden supposed to say? “Hey guys I am not coming into work because I stole documents and I am meeting up with Greenwald?”

  So of course Snowden lied… he had to lie.

  It was not the quantity of Mr. Snowden’s theft but the quality that was most telling. Mr. Snowden’s theft put documents at risk that could reveal the NSA’s Level 3 tool kit—a reference to documents containing the NSA’s most-important sources and methods. Since the agency was created in 1952, Russia and other adversary nations had been trying to penetrate its Level-3 secrets without great success.

   

  Yet it was precisely these secrets that Mr. Snowden changed jobs to steal. In an interview in Hong Kong’s South China Morning Post on June 15, 2013, he said he sought to work on a Booz Allen contract at the CIA, even at a cut in pay, because it gave him access to secret lists of computers that the NSA was tapping into around the world.

  Snowden figured out the NSA was involved in illegal activity and he wanted to investigate the depth of it. He succeeded. Congratulations to Snowden for a job well done.

  In October 2014, he told the editor of the Nation, “I’m in exile. My government revoked my passport intentionally to leave me exiled” and “chose to keep me in Russia.” According to Mr. Snowden, the U.S. government accomplished this entrapment by suspending his passport while he was in midair after he departed Hong Kong on June 23, thus forcing him into the hands of President Vladimir Putin’s regime.

   

  None of this is true. The State Department invalidated Mr. Snowden’s passport while he was still in Hong Kong, not after he left for Moscow on June 23. The “Consul General-Hong Kong confirmed that Hong Kong authorities were notified that Mr. Snowden’s passport was revoked June 22,” according to the State Department’s senior watch officer, as reported by ABC news on June 23, 2013.

  Mercy! His passport was invalidated on June 22, not June 23. Call out the national guard. It’s treason I say.

  To provide a smokescreen for Mr. Snowden’s escape from Hong Kong, WikiLeaks (an organization that the Obama administration asserted to be a tool of Russian intelligence after the hacking of Democratic Party leaders’ email in 2016) booked a dozen or more diversionary flight reservations to other destinations for Mr. Snowden.

  Oh yes, let’s drag Obama’s stupidity into the discussion. The only thing Epstein failed to deliver was nonsense from the Washington Post. Perhaps it’s in the book.

  Nowhere did Epstein make the case Snowden was anything more than a whistle-blower.

  His op-ed is so ridiculous, one can dismiss the book as the work of a misguided fool who fails to understand what the US constitution is all about.

  @ggreenwald @snowden Edward Snowden is a genuine US hero. It's fake-patriot, book-writing fools like Epstein the US really has to fear.

  — Mike Mish Shedlock (@MishGEA) January 2, 2017

  

  

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