Today’s News December 30, 2015

• China Suspends Foreign Banks' FX Trading As Offshore Yuan Spread Signals Massive Outflows

  For the first time since the August collapse, Offshore Yuan is trading over 1000 pips weaker (relative to the USDollar) than onshore Yuan, signalling outflows are once again escalating. Following the chaos in HIBOR money-markets, Offshore Yuan has crashed to 6.5970 (below August spike lows) to the weakest since Dec 2010. On the heels of this recent divergence between on- and off-shore Yuan, China has suspended some foreign banks from FX trading, we suppose to try and stem the capital outflows.

   

  Offshore Yuan has crashed to 5-year lows against the USDollar…

  

   

  And blown over 1000pips weaker than onshore Yuan…

  

   

  Sending signals that outflows are starting to accelerate since The IMF gave China permission to devalue its currency….

  

   

  Perhaps that is why Reuters reports that:

  China’s PBOC said to temporarily suspend some FX business for several foreign banks until end-March, Reuters reporter Umesh Desai says on Twitter, citing unidentified people.

  Time for a significant crackdown on the supposedly free-floating currency of The IMF’s choice or another significant devaluation is coming soon.
  

  

  

  

  

  

• Sweden's First Month Of 'Islamic Multiculturalism' – Rapes, Acquittals, & Severed Heads

  Submitted by Ingrid Carlqvist via The Gatestone Institute,

  • Some 30 Muslim men thought that the woman was in violation of Islamic sharia law, by being in Sweden unaccompanied by a man. They thought that she should therefore be raped and her teenage son killed.

  • Sometime during the night, the victim was awakened by the Iraqi as he raped her. The woman managed to break free and locate a train attendant. At first, the woman did not want to call the police. "She felt sorry for him [the rapist] … and was afraid he would be deported back to Iraq."

  • Two Swedish citizens were convicted by a Gothenburg Court of joining an Islamist terror group in Syria and murdering two captives. Video evidence showed one victim being beheaded. "Every night when I have gone to bed, I have seen a head hanging in the air." – Court Chairman Ralf G. Larsson.

  • One week after Sweden raised its terror alert level to the highest ever, the police raised another alarm — saying their weapons are simply not good enough to prevent a potential terror attack.

  November 4: The Swedish Immigration Service sent out a press release, saying that it had hired close to a thousand additional employees since June. The Immigration Service now has over 7,000 employees, including hourly workers and consultants — double the 3,350 employees who worked there in 2012. Most of the new recruits work with the legal processing of asylum applications, but the units dealing with receiving migrants and filing their initial applications have also expanded considerably. As if the record influx of migrants this autumn were not crushing enough, the Immigration Service also had trouble retaining its staff. Employees complain about being badly treated: they are always expected to be on call, and possibly even work Christmas Eve.

  November 4: Bobel Barqasho, a 31-year-old Syrian, was sentenced by Sweden's Supreme Court to 14 years in prison. Before his case reached the Supreme Court, Barqasho had been sentenced by a lower court to 9 years in prison, then acquitted by the Court of Appeals. In February 2013, Barqasho threw his wife off a sixth-floor balcony. Against all odds, the woman survived the 13-meter (about 43 feet) fall, but was badly injured. When she woke up after five weeks in a coma, her head was held together by a helmet, her face felt loose, and her teeth were gone. In the Court of Appeals, the defense managed to plant reasonable doubt about the man's guilt by claiming the woman was depressed and had jumped of her own free will] so the Court of Appeals set him free. By the time the Supreme Court pronounced its sentence of 14 years, Barqasho had disappeared. He is now being sought by Interpol.

  November 6: The Grönkulla School in Alvesta closed after reports of a rape at the facility spread on social media. A Somali boy had apparently been sexually harassing a 12-year-old girl for some time. On October 17, he allegedly took his attentions a step farther, pulled the girl behind a bush and raped her. The girl's father had been unsuccessful in trying to get the school to address the problem earlier, but even after the reported rape, the school's management did not act. The boy was allowed to continue going to the school – just on a schedule different from the girl's. Her distraught parents told the news website Fria Tider: "We are being spat on because we are Swedish." In protest against the school's management, many parents, viewing the school as having sided with the perpetrator, moved their children to other schools.

  November 9: Social commentator and whistleblower Merit Wager revealed on her blog that administrators at the Immigration Service had all been ordered to "accept the claim that an applicant is a child, if he does not look as if he is over 40." A staggering 32,180 "unaccompanied refugee children" had arrived during 2015 by December 1 — since then another 1,130 have come — and the government finally decided to take action. If its proposition is approved by Parliament, everyone who looks adult-aged will be forced to go through a medical age-determination procedure. One of the reasons Sweden stopped doing these in the first place, was that pediatricians refused to take part in them. They said the procedures were "unreliable."

  November 10: A 28-year-old Iraqi man was prosecuted for raping a woman on a night train between Finland and Sweden. The man had originally planned to seek asylum in Finland, but had found the living conditions there too harsh. He had therefore taken a train back to Sweden. In a couchette (sleeping car where men and women are together), the rapist and two other asylum seekers met one of the many Swedish women whose hearts go out to "new arrivals." The woman bought sandwiches for the men; they drank vodka. When two of the men started groping the woman, she told them to stop, yet chose to lie down and go to sleep. Sometime during the night, she was awakened by the Iraqi as he raped her. The woman managed to break free and locate a train attendant. To the attendant's surprise, the woman did not immediately want to press charges. The court documents state: "The train attendant asked if he should call the police. At first, the woman did not want him to do so, because she did not want to put N.N., an asylum seeker, in a tough spot. She felt sorry for him… and was afraid he would be deported back to Iraq."

  The man was given a sentence of one year in prison, payment of 85,000 kronor (about $10,000) in damages, and deportation — but will be allowed to come back to Sweden after five years.

  November 10: An Algerian and a Syrian asylum seeker were indicted for raping a Swedish woman in Strängnäs. The men, 39-year-old from Algeria and 31-year-old from Syria, met the woman in a bar one night in August. When the woman left, one of the men followed her, pulled her to the ground, and assaulted her. Afterwards, the woman kept walking, and ran into two other men — the Syrian and another unidentified man — and was raped again. The Syrian reportedly also spit her in face and said, "I'm going to f–k you, little Swedish girl." The men, who lived at the same asylum house, denied knowing each other when questioned by the police. The verdict was announced on December 1. Rapist number one was sentenced to 2.5 years in prison, 117,000 kronor (about $14,000) in damages, and deportation to Algeria. Rapist number two was convicted of aggravated rape and sentenced to four years in prison. He cannot be deported, however, because "there are currently hindrances towards enforcing deportations to Syria." He was also ordered to pay the woman 167,000 kronor (about $20,000) in damages.

  November 13: A trial began against eight Eritrean men, between the ages of 19 and 26, who according to the District Court, "crudely and ruthlessly" gang-raped a 45-year-old woman. She had been waiting in a stairwell for a friend when the men invited her into an apartment. Inside, she was thrown on the floor, held down, beaten and brutally raped. When questioned by the police, she said, "It felt as if there were hands and fingers everyplace. Fingers penetrated me, vaginally, anally. It hurt very much. I could feel the fingernails." She said she could also hear the Eritreans laughing and speaking in their own language while they raped her. "They seemed to be enjoying themselves," she said.

  When two of the men started fighting over who should rape her next, she tried to flee, but one of the men hit her over the head; she fell unconscious. After coming to, she escaped out a window and was able to reach a neighbor.

  The District Court of Falun established that several men had taken part in the attack, but the District Attorney was unable to prove who had done what. Therefore, only one man was convicted of aggravated rape, and sentenced to five years in prison. The others were sentenced to only 10 months in prison for helping to conceal a serious criminal offense. After serving their time, the men will be allowed to stay in Sweden.

  November 14: The Swedish Security Service, Säpo, warned again of Muslim terrorists hiding among migrants. The number of individuals listed as potential security threats has tripled this year, and includes several hundred who may be ready to carry out "Paris-style" attacks. As the Immigration Service has a huge backlog in trying to register all 150,000 asylum seekers who have come to Sweden so far in 2015, there are probably also many migrants that would be considered potential security threats.

  November 14: Sweden's Foreign Minister, Margot Wallström, made yet another strange statement with diplomatic consequences. The day after the Paris attacks, in an interview with Swedish Public Television, Wallström was asked, "How worried are you about the radicalization of young people in Sweden who choose to fight for ISIS?" Wallström replied:

  "Yes, of course we have a reason to be worried not only here in Sweden but around the world, because there are so many who are being radicalized. Here again, you come back to situations like that in the Middle East, where not least the Palestinians see that there isn't any future for us [the Palestinians], we either have to accept a desperate situation or resort to violence."

  Two days later, the Swedish ambassador to Israel, Carl Magnus Nesser, was called to a meeting at the Israeli Foreign Ministry. Its spokesman, Emmanuel Nahshon, later told Reuters, "The Swedish Foreign Minister's statements are appallingly impudent… [She] demonstrates genuine hostility when she points to a connection of any kind between the terror attacks in Paris and the complex situation between Israel and the Palestinians."

  In a formal statement, the Swedish Foreign Ministry denied that Margot Wallström's remark had connected the Paris attacks with the Israeli-Palestinian conflict. A Swedish Conservative (Moderaterna) Member of Parliament, Hanif Bali, sarcastically tweeted that it seemed the Foreign Minister is suffering from an "obvious case of Israel-Tourette's."

  November 18: The Authority for Civil Protection and Contingency Planning (MSB) warned that the asylum situation was not only "very strained," but that things keep getting worse — and that in some parts of Sweden, the authorities can only function until the end of December. Meanwhile, the Immigration Service calculated that another 13,000 beds are needed in so-called evacuation accommodations. "The problem cannot be fully solved even if the Armed Forces help provide more housing or if the MSB could arrange more tent accommodations," the authority wrote.

  The massive influx of asylum seekers has also led to native Swedes "being crowded out of the health care and social services systems," according to the MSB. "It [the MSB] is so busy handling unaccompanied children and asylum seekers, that there simply is not enough time to tend to the everyday functions, such as healthcare and social services," said Alexandra Nordlander, Chief of Operative Analysis at the MSB, to the daily tabloid, Aftonbladet.

  November 19: A fire broke out at Lundsbrunn Spa, a few weeks after plans were announced to convert the historic building into the biggest asylum-seekers' home in Sweden. According to the police, the fire was not an arson, but started in a wood-pellet stove.

  Many hotels and spas have transforming themselves into asylum-seekers' housing, in order to profit from lucrative deals offered by the Immigration Service. Lundsbrunn Spa, near a mineral spring, dates back to 1890; in 1817, a hospital was established on the grounds. The nearby village is home to fewer than 1,000 people, so when Lundsbrunn Spa decided to accept an offer from the Immigration Service, the village faced a doubling of its population. The owners of Lundsbrunn wrote on the Spa's website that they see the transformation from spa to asylum-seekers' home as a temporary measure.

  November 20: Norwegian businessman Petter Stordalen, the billionaire owner of Nordic Choice Hotels, announced that the chain's many properties in Scandinavia and the Baltic states would no longer serve their guests sausage and bacon for breakfast. The breakfast buffet of the Nordic Choice's Clarion Hotel Post in Gothenburg was named earlier this year the best hotel breakfast in the world by the British newspaper, The Mirror. But apparently, this award did not matter. The cause for the hotel's decision was cited as "health reasons." The internet, however, was soon abuzz with speculation that the real reason was adaptation to Islamic dietary laws (halal). One week later, Stordalen backtracked. The reaction from hotel guests had been too strong. Many people vented their anger over the withheld bacon on Stordalen's Facebook page. Stordalen commented: "The guests have spoken. Comfort Hotels are bringing back bacon."

  November 23: Hassan Mostafa Al-Mandlawi, 32, and Al Amin Sultan, 30, were indicted in the Gothenburg Municipal Court, suspected of having traveled to Syria in 2013 and murdering at least two people there. The charge was terrorist crimes, (alternatively crimes against international law) and murder. Chief Prosecutor Agnetha Hilding Qvarnström, of the National Unit for Security Cases, said: "The act [was] committed with the intent to harm the state of Syria and intimidate the people, thus the classification: terrorist crimes. The hard part is to clarify fully whether these men have been part of an armed group, and acted within the frames of the armed conflict, or not."

  The accused men came to Sweden, one from Iraq and one from Syria, as children, but grew up in Sweden and are Swedish citizens. They traveled to Syria in 2013, and joined one of the many Islamist terror groups there. According to the prosecution, they murdered two captured workers in an industrial area of Aleppo by slitting their throats. The prosecutor wrote that, "Al-Mandlawi and Sultan have both expressed delight at the deeds."

  During the trial, films of the executions were shown, but both men still denied having committed the crimes. Those present in court agreed that the films were among the most disturbing ever displayed in a Swedish court. First, they show a man having his throat slit, the blood gushing before he dies. Then, the other victim's head is severed from his body, and the killer holds up the severed head to loud cheers from the others. The court's chairman, Ralf G. Larsson, told the news agency, TT: "Every night when I have gone to bed, I have seen a head hanging in the air."

  The verdict was announced December 14: Both men were convicted of terrorist crimes and sentenced to life in prison. The verdict will be appealed, the defense lawyers said.

  Two Swedish citizens were convicted by a Gothenburg Court of joining an Islamist terror group in Syria and murdering two captives. Video evidence (left) showed one victim being beheaded. When asked if she is worried about the radicalization of young people in Sweden who choose to fight for ISIS, Sweden's Foreign Minister, Margot Wallström (right), blamed Israel's treatment of Palestinians.

  November 25: The municipality of Ängelholm proudly announced that it had managed to hire a world-famous star to sing at the 500-year anniversary of the city of Ängelholm. Mezzo-soprano Susanne Resmark, of La Scala in Milan and the Metropolitan Opera House in New York, would now, for the first time, sing in her hometown. The denizens of Ängelholm would get to enjoy the Resmark, considered by many one of the best Mezzo-sopranos, in a free performance. Two days later, however, the local paper, Helsingborgs Dagblad, ran a story on how Resmark had posted on her Facebook page comments critical of Islam. This apparently sent representatives of the municipality into a panic; they cancelled the star's performance. The journalist behind the story, Jan Andersson, admitted in an interview with Dispatch International that the paper's reporters had gone over Resmark's statements with a microscope, in an effort to force the municipality to cancel her appearance. "We did a damn fine job!" Andersson said.

  November 27: One week after Sweden raised its terror alert level to the highest ever in the country (four on a five-point scale), the police raised another alarm — saying their weapons are simply not good enough to prevent a potential terror attack. "We are sent out without adequate weapons, only a nine millimeter service pistol. We are also told that there may not be enough protective vests and ballistic helmets. It feels like being sent out on a lion hunt with a pea-shooter and a jumpsuit made out of zebra meat," wrote a police officer called "Christian," in an internal incident report reviewed by the news agency, Siren.

  His colleague, "Niklas," wrote that he had to patrol, without a protective helmet, a location considered at risk of terror attacks, because none of the available helmets fit his head: "Without the right equipment, and with inadequate training in tactics and shooting, we still had to work as live targets without any kind of chance to defend ourselves or our [locations] against a potential attack."

  The police say they want to be able to use more powerful weapons, such as the HK MP5, a submachine gun that is popular with law enforcement agencies around the world. Few, however, have had the required training for it. Also, the existing MP5s are kept at police stations — not in patrol cars. Martin Lundin, of the Department of National Operations, conceded there was some merit to the criticism: "We will probably need more people who are able to handle that weapon in the future."

  November 28: A large mob at an asylum house in Nora tried to break into a room where a woman had barricaded herself along with her son. Some 30 Muslim men apparently thought the woman was in violation of Islamic sharia law, by being in Sweden unaccompanied by a man. They thought that she should therefore be raped and her teenage son killed. Asylum house staff called the police, who averted the plan.

  

  

  

  

  

• Paul Craig Roberts: Why World War III Is On The Horizon

  Authored by Paul Craig Roberts,

  The collapse of the Soviet Union in 1991 gave birth to a dangerous American ideology called neoconservativism. The Soviet Union had served as a constraint on US unilateral action. With the removal of this constraint on Washington, neoconservatives declared their agenda of US world hegemony. America was now the “sole superpower,” the “unipower,” that could act without restraint anywhere in the world.

  The Washington Post neoconservative journalist Charles Krauthammer summed up the “new reality” as follows:

  “We have overwheming global power. We are history’s designated custodians of the international system. When the Soviet Union fell, something new was born, something utterly new–a unipolar world dominated by a single superpower unchecked by any rival and with decisive reach in every corner of the globe. This is a stagering new development in history, not seen since the fall of Rome. Even Rome was no model for what America is today.”

  The staggering unipolar power that history has given to Washington has to be protected at all costs. In 1992 top Pentagon official Undersecretary Paul Wolfowitz penned the Wolfowitz Doctrine, which became the basis for Washington’s foreign policy.

  The Wolfowitz Doctrine states that the “first objective” of American foreign and military policy is “to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat [to US unilateral action] on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.” (A “hostile power” is a country sufficiently strong to have a foreign policy independent from Washington’s.)

  The unilateral assertion of American power began in ernest during the Clinton regime with the interventions in Yugoslavia, Serbia, Kosovo, and the no-fly zone imposed on Iraq. In 1997 the neoconservatives penned their “Project for a New American Century.” In 1998, three years prior to 9/11, the neoconservatives sent a letter to President Clinton calling for regime change in Iraq and “the removal of Saddam Hussein from power.” Neoconservatives set out their program for removing seven governments in five years. 

  The events of September 11, 2001, are regarded by informed people as “the new Pearl harbor” that the neoconservatives said was necessary in order to begin their wars of conquest in the Middle East. Paul O’Neil, President George W. Bush’s first Treasury Secretary, has stated pubicly that the agenda of President Bush’s first meeting with his cabinet was the invasion of Iraq. This invasion was planned prior to 9/11.

  Since 9/11 Washington has destroyed in whole or part eight countries and now confronts Russia both in Syria and Ukraine.

  Russia cannot allow a jihadist Caliphate to be established in an area comprising Syria/Iraq, because it would be a base for exporting destabilization into Muslim parts of the Russian Federation. Henry Kissinger himself has stated this fact, and it is clear enough to any person with a brain. However, the power-crazed fanatical neoconservatives, who have controlled the Clinton, Bush, and Obama regimes, are so absorbed in their own hubris and arrogance that they are prepared to push Russia to the point of having their Turkish puppet shoot down a Russian airplane and to overthrow the democratically-elected government in Ukraine that was on good terms with Russia, substituting in its place an American puppet government.

  With this background, we can understand that the dangerous situation facing the world is the product of the neoconservative’s arrogant policy of US world hegemony. The failures of judgment and the dangers in the Syrian and Ukrainian conflicts are themselves the consequences of the neoconservative ideology.

  To perpetuate American hegemony, the neoconservatives threw away the guarantees that Washington gave Gorbachev that NATO would not move one inch to the East. The neoconservatives pulled the US out of the ABM Treaty, which specified that neither the US nor Russia would develop and deploy anti-ballistic missiles. The neoconservatives re-wrote US war doctrine and elevated nuclear weapons from their role as a retaliatory force to a pre-emptive first strike force. The neoconservatives began putting ABM bases on Russia’s borders, claiming that the bases were for the purpose of protecting Europe from non-existent Iranian nuclear ICBMs.

  Russia and Russia’s president, Vladimir Putin, have been demonized by neoconservatives and their puppets in the US government and media. For example, Hillary Clinton, a candidate for the Democratic nomination for president, declared Putin to be “the new Hitler.” A former CIA official called for Putin’s assassination. Presidential candidates in both parties are competing in terms of who can be the most aggressive toward Russia and the most insulting toward Russia’s president.

  The effect has been to destroy the trust between nuclear powers. The Russian government has learned that Washington does not respect Washington’s own laws, much less international law, and that Washington cannot be trusted to keep any agreement. This lack of trust, together with the aggression toward Russia spewing from Washington and the presstitute media and echoing in the idiotic European capitals, has established the ground for nuclear war. As NATO (essentially the US) has no prospect of defeating Russia in conventional war, much less defeating an alliance of Russia and China, war will be nuclear.

  To avoid war, Putin is non-provocative and low-key in his responses to Western provocations. Putin’s responsible behavior, however, is misinterpreted by neoconervatives as a sign of weakness and fear. The neoconservatives tell President Obama to keep the pressure on Russia, and Russia will give in. However, Putin has made it clear that Russia will not give in. Putin has sent this message on many occasions. For example, on September 28, 2015, at the 70th anniversary of the United Nations, Putin said that Russia can no longer tolerate the state of affairs in the world. Two days later Putin took command of the war against ISIS in Syria.

  The European governments, especially Germany and the UK, are complicit in the move toward nuclear war. These two American vassal states enable Washington’s reckless aggression toward Russia by repeating Washington’s propaganda and supporting Washington’s sanctions and interventions against other countries. As long as Europe remains nothing but an extension of Washington, the prospect of Armegeddon will continue to rise.

  At this point in time, nuclear war can only be avoided in two ways. One way is for Russia and China to surrender and accept Washington’s hegemony. The other way is for an independent leader in Germany, the UK, or France to rise to office and withdraw from NATO. That would begin a stampede to leave NATO, which is Washington’s prime tool for causing conflict with Russia and, thereby, is the most dangerous force on earth to every European country and to the entire world. If NATO continues to exist, NATO together with the neoconservative ideology of American hegemony will make nuclear war inevitable.

  

  

  

  

  

• How The U.S. Dollar Spread Across The World

  The U.S. dollar is currently accepted as the world’s reserve currency, but it hasn't always been this way. Reserve currencies change depending on macroeconomic trends: typically, the reserve currency belongs to the world’s most stable and influential economy. 

  As HowMuch.net notes, the U.S. dollar has been the official reserve currency since the end of World War II, when the world’s powers agreed to implement the Bretton Woods System, officially setting the U.S. dollar as the anchor currency that could be exchanged at a fixed rate for gold.

  In 1971, the U.S. ended the dollar's linkage to gold and it became free floating (fiat currency), but it continued to be used a reserve currency by many countries.

   

  The world’s dominant currency seems to change about every 100 years: Portugal held the dominant currency during the 15th and 16th centuries; Spain during the 16th and 17th centuries; Netherlands during the 17th and 18th; France during the 18th and start of the 19th; Britain during the 19th and beginning of the 20th; and the U.S. since about 1929. But the idea of a true reserve currency did not emerge until the 1860s, when Britain and most industrialized nations created central banks and treasuries, and tied their currency to the value of gold.

  The U.S. dollar's reserve currency status gives Americans and the U.S. government easier access to low-cost borrowing and also lowers the cost of imports, since there is no need to convert U.S. currency. The stability of the U.S. dollar tends to have the effect of increasing its value relative to other currencies. This actually hurts U.S. exporters because their goods and services are more expensive than competing goods and services in other countries.

  How long will the U.S. dollar persist as the global reserve currency?

  And what could possibly replace it?

  When the pound sterling was the dominant currency, more than half of all world trade was invoiced in pound sterling; British banks were expanding and Britain was the number one foreign investor in the world. But eventually, other countries started to put up tariffs and protectionist policies and the pound sterling lost its dominance. As for the U.S., it is no longer the biggest foreign investor (China is) and instead of being the largest exporter of goods and services, it has the largest amount of debt in the world. Nevertheless, the U.S. economy remains relatively stable, and the dollar's share in foreign exchange trades has actually risen slightly since the financial crisis.

  The most important determinants of reserve currency status are the size, stability, and liquidity of financial markets. At this point in time, The U.S.’ capital markets are a lot bigger and more liquid than China’s. Although the Chinese government is working on developing its financial markets, progress is slow and the yuan is not yet fully convertible. Moreover, the government frequently intervenes in the Chinese market — now known first and foremost for its instability.

  It's hard to imagine the Chinese yuan becoming the dominant reserve currency anytime soon. Some see the recent establishment of the Asian Infrastructure Investment Bank as a signal of the end of the US and the IMF’s economic dominance. But what is more likely is that the U.S. dollar will decline in prominence as other currencies, like the yuan and the euro, become more widely circulated.

  No doubt, China's influence on the global economy is growing. But the U.S. remains a stable place to invest, and holds a lot of influence over the global economy. We’re likely to witness a more diverse set of reserve currencies and a gradual movement away from the U.S. dollar. The truth is, though, that no one really knows what will happen to the dollar's reserve currency status 10 to 20 years from now.

  What do you think? Will the Chinese yuan overtake the dollar as the world’s dominant reserve currency? What will be the effect on the US economy?

  

  

  

  

  

• In Latest NSA Spying Scandal, World Learns Obama Lied Again; Congress Furious it Was Spied On

  In January 2014, during the scandalous aftermath of Edward Snowden’s NSA snooping revelations, one which revealed the US had been spying on its closest allies for years, Obama banned U.S. eavesdropping on leaders of close friends and allies and promised he would begin reining in the vast collection of Americans’ phone data in a series of limited reforms.

  Below are the key highlights from his January 17, 2014 speech:

  Our capabilities help protect not only our nation, but our friends and our allies, as well.  But our efforts will only be effective if ordinary citizens in other countries have confidence that the United States respects their privacy, too.  And the leaders of our close friends and allies deserve to know that if I want to know what they think about an issue, I’ll pick up the phone and call them, rather than turning to surveillance.  In other words, just as we balance security and privacy at home, our global leadership demands that we balance our security requirements against our need to maintain the trust and cooperation among people and leaders around the world.

   

  The bottom line is that people around the world, regardless of their nationality, should know that the United States is not spying on ordinary people who don’t threaten our national security, and that we take their privacy concerns into account in our policies and procedures.  This applies to foreign leaders as well.

  The president lied, and the privacy concerns of “people around the world” have clearly never once been taken into account in Obama’s policies and procedures.

  Just three days prior, on January 14 2014, Vermont Senator and current Democratic presidential candidate, Bernie Sanders had written an email to then NSA Chief Keith Alexander asking if the NSA has or is currently spying “on members of Congress or other American elected officials.” The letter went on to define spying as including “gathering metadata on calls made from official or personal phones, content from websites visited or emails sent, or collecting any other data from a third party not made available to the general public in the regular course of business.”

  The response: the National Security Agency’s director, responding to questions from independent Sen. Bernie Sanders of Vermont, says the government is not spying on Congress…. “Nothing NSA does can fairly be characterized as ‘spying on members of Congress or other American elected officials.” Alexander wrote in the letter, dated Friday and released Tuesday.

  The former NSA head also lied.

  We know this because in the latest WSJ report on the NSA’s spying scandal from this evening, we find that even though Obama announced two years he would curtail eavesdropping on friendly heads of state, the spying continues and “behind the scenes, the White House decided to keep certain allies under close watch. Topping the list was Israeli Prime Minister Benjamin Netanyahu.”

  The spying, or rather counterespionage, was in order to facilitate the US-Iran nuclear negotiations and deal which took place this summer over Netanyahu’s firm objection to scuttle any lifting of the Iran embargo (an embargo which Iran had skirted for years by importing billions of dollars worth of gold from Turkey via Dubai).

  That in itself would not be quite so scandalous considering the frosty diplomatic relations between the two nations in recent years, if it didn’t also involve the direct and indirect spying by the NSA and the executive branch, on members of Congress.

  The National Security Agency’s targeting of Israeli leaders and officials also swept up the contents of some of their private conversations with U.S. lawmakers and American-Jewish groups. That raised fears—an “Oh-s— moment,” one senior U.S. official said—that the executive branch would be accused of spying on Congress.

   

  White House officials believed the intercepted information could be valuable to counter Mr. Netanyahu’s campaign. They also recognized that asking for it was politically risky. So, wary of a paper trail stemming from a request, the White House let the NSA decide what to share and what to withhold, officials said. “We didn’t say, ‘Do it,’ ” a senior U.S. official said. “We didn’t say, ‘Don’t do it.’ ”

   

  * * *

   

  The NSA reports allowed administration officials to peer inside Israeli efforts to turn Congress against the deal. Mr. Dermer was described as coaching unnamed U.S. organizations—which officials could tell from the context were Jewish-American groups—on lines of argument to use with lawmakers, and Israeli officials were reported pressing lawmakers to oppose the deal.

  Which explains why for the past two years the Obama administration, which knew this moment was inevitable, has been maintaining an attitude of abject incompetence, claiming it had no idea anything like this happened. In fact, as the Bezos Post reported in late 2013, “Obama didn’t know about surveillance of U.S.-allied world leaders until summer” of 2013. That too was a lie. Quote the WSJ:

  After Mr. Obama’s 2008 presidential election, U.S. intelligence officials gave his national-security team a one-page questionnaire on priorities. Included on the form was a box directing intelligence agencies to focus on “leadership intentions,” a category that relies on electronic spying to monitor world leaders. The NSA was so proficient at monitoring heads of state that it was common for the agency to deliver a visiting leader’s talking points to the president in advance. “Who’s going to look at that box and say, ‘No, I don’t want to know what world leaders are saying,’ ” a former Obama administration official said.

  There is much more in the full WSJ article, but here are the salient points: Obama lied, again, and despite profuse promises that the NSA’s espionage machinery would be limited, nothing changed. It is safe to assume that nothing has changed to this day despite further lies from the administration to the contrary.

  One thing that is different this time, however, from all previous administration lies is that now Congress may have no choice but to retaliate against the executive branch’s illegal snooping. Ironically, none other than Former Chairman House Intelligence Committee, Pete Hoekstra, a person who had been most vocal in his support of the NSA’s spying on the American people, is most appalled as his recent tweet reveals.

  NSA and Obama officials need to be investigated and prosecuted if any truth to WSJ reports. NSA loses all credibility. Scary.

  — Pete Hoekstra (@petehoekstra) December 30, 2015

  As for the official White House National Security Council, the response is “no comment”:

  “We are not going to comment on any specific alleged intelligence activities,” says @NSCPress in response to @wsj report on surveillance.

  — Mark Knoller (@markknoller) December 30, 2015

  This may well be because Obama was on the golf course in Hawaii when the WSJ article hit.

  Finally, while all of the above is at this point largely expected if anything, what is surprising is that as the WSJ notes, among the “allies” excluded from the protected list, were “Recep Tayyip Erdogan, president of NATO ally Turkey, which allowed the NSA to spy on their communications at the discretion of top officials.”

  In other words the Obama administration has been fully aware Turkey has been providing not only training, weapons and supplies to ISIS, it is also Turkey, and especially people from Erdogan’s own family, who served as the source of financial support for the CIA-created Islamic State, whose only purpose from the beginning was to topple Bashar al Assad.

  Actually scratch that: did we say “surprising”? We meant precisely the opposite.

  

  

  

  

  

• The "Perks" Of Being An ISIS Jihadist

  As we discussed at length late last month when we took an in-depth look at the Islamic State propaganda machine, the group makes a concerted effort to portray life in the “caliphate” as entirely different in character from the public’s perception of what life might be like under Sharia law. 

  In short, ISIS is keen on showing that every city under its control hasn’t been reduced to a smoldering pile of rubble where civilians are either under constant bombardment from the sky or else at the mercy of a gang of barbarians who would just as soon execute you as look at you. In any given month, for instance, you can expect around 40% of the propaganda that emanates from the group to focus on civilian life. Here’s a representative screengrab:

  This is part and parcel of the group’s effort to make it appear as though “the state is doing well,” to quote Bakr al-Baghdadi’s most recent audio message to the world.

  In the same vein, it’s equally if not far more important for the group to make an attractive marketing pitch to potential fighters. After all, waging jihad is in many cases a one way ticket to the afterlife and when the promise of 72 virgins upon martyrdom isn’t enough, the group needs to offer some perks for soldiers that are still alive. A set of “top secret” documents allegedly recovered by US commandos in a May raid has given the world some insight into how ISIS divides its “war spoils”. Even before Reuters began to analyze and release the documents, FT took a look at how Islamic State derives revenue outside of trafficking in stolen crude. What they found was an intricate taxation system (although we doubt it’s as convoluted as the US tax code). While taxes now make up as much as half of the group’s revenue, ISIS “first relied on confiscations for income, looting banks, military bases and the homes of Iraqi officials.”  

  “In each wilaya, or province, Isis set up and continues to operate a so-called ‘war spoils’ office that calculates the dollar value of loot and pays a fifth of it to the militants who ran the raid,” FT wrote earlier this month, adding that “non-military goods are sold at local ‘loot markets’ where Isis members are allowed to buy at half price.”

  So, there you go. In addition to receiving a salary and a constant stream of weapons courtesy of regional Sunni benefactors, and on top of being allowed to live in a perpetual state of dark, bacchanalian revelry, Islamic State soldiers also recieve 20% of the “loot” in captured territory and belong to a kind of militant Sam’s Club which guarantees a 50% discount on a variety of fun items.

  What kind of items you ask? Well, as the following helpful graphic shows, motorbikes can be had for under $100, while LCD TVs are available for just $72.

  

  “You could buy anything: doors for a house, refrigerators, washing machines, cars, cows, furniture,” one shopkeeper who works near the market in Salihiyeh, a village on the Syrian-Iraqi border told FT. “All of that is pure profit [for ISIS].”

  So that’s a quick glipse at some of the perks of fighting for the preservation of the caliphate. For anyone considering life as a soldier in Bakr al-Baghdadi’s army however, it’s important to remember that there are some drawbacks. Like being pursued to the ends of the earth by a certain ornery KGB agent…

  

  

  

  

  

• Guest Post: Is The West Disintegrating?

  Submitted by Patrick Buchanan via Buchanan.org,

  On Jan. 1, 2002, the day that euro coins and banknotes entered into circulation, my column, “Say Goodbye to the Mother Continent,” contained this pessimistic prognosis:

  “This European superstate will not endure, but break apart on the barrier reef of nationalism. For when the hard times come, patriots will recapture control of their national destinies from Brussels bureaucrats to whom no one will ever give loyalty or love.”

  The column described what was already happening.

  “Europe is dying. There is not a single nation in all of Europe with a birth rate sufficient to keep its population alive, except Muslim Albania. In 17 European nations, there are already more burials than births, more coffins than cradles.

   

  “Between 2000 and 2050, Asia, Africa and Latin America will add 3 billion to 4 billion people — 30 to 40 new Mexicos! — as Europe loses the equal of the entire population of Belgium, Holland, Denmark, Norway, Sweden and Germany.

   

  “By 2050, the median age in Europe will be 50, nine years older than the oldest nation on earth today, Japan. One in 10 Europeans will be over 80. And who will take care of these scores of millions of elderly, before the Dutch doctors arrive at the nursing home?

   

  “Immigrants is the answer, immigrants already pouring into Europe in the hundreds of thousands annually from the Middle East and Africa, changing the character of the Old Continent. Just as Europe once invaded and colonized Asia, Africa and the Near East, the once-subject peoples are coming to colonize the mother countries. And as the Christian churches of Europe empty out, the mosques are going up.

   

  “Yet, even as great nations like France, Germany, Italy and Spain grow weary of the strain of staying independent, sovereign and free, the sub-nations within are struggling to be born again. In Scotland, Wales, Ulster, Corsica, the Basque country and northern Italy are secessionist movements not unlike those that broke up Czechoslovakia, Yugoslavia and the Soviet Union into [24] independent nations.”

  What was predicted, 14 years ago, has come to pass.

  Migrants into Germany from the Middle and Near East reached 1 million in 2015. EU bribes to the Turks to keep Muslim migrants from crossing over to the Greek islands, thence into the Balkans and Central Europe, are unlikely to stop the flood.

  My prediction that European “patriots will recapture control of their national destinies,” looks even more probable today.

  Prime Minister David Cameron, who almost lost a referendum on Scottish secession, is demanding a return of British sovereignty from the EU sufficient to satisfy his countrymen, who have been promised a vote on whether to abandon the European Union altogether.

  Marine Le Pen’s anti-EU National Front ran first in the first round of the 2015 French elections.
  Many Europeans believe she will make it into the final round of the next presidential election in 2017.

  Anti-immigrant, right-wing parties are making strides all across Europe, as the EU is bedeviled by a host of crises.

  Europe’s open borders that facilitate free trade also assure freedom of travel to homegrown terrorists.

  Mass migration into the EU is causing member nations to put up checkpoints and close borders. The Schengen Agreement on the free movement of goods and people is being ignored or openly violated.

  The economic and cultural clash between a rich northern Europe and a less affluent south — Greece, Italy, Spain, Portugal — manifest in the bad blood between Athens and Berlin, endures.

  Northern Europeans grow weary of repeated bailouts of a south that chafes at constant northern demands for greater austerity.

  Then there is the surge of sub-nationalism, as in Scotland, Catalonia, Flanders, and Veneto, where peoples seek to disconnect from distant capitals that no longer speak for them, and reconnect with languages, traditions and cultures that give more meaning to their lives than the economics-uber-alles ideology of Frau Angela Merkel.

  Moreover, the migrants entering Europe, predominantly Islamic and Third World, are not assimilating as did the European and largely Christian immigrants to America of a century ago.

  The enclaves of Asians in Britain, Africans and Arabs around Paris, and Turks in and around Berlin seem to be British, French and German in name only. And some of their children are now heeding the call to jihad against the Crusaders invading Muslim lands.

  The movement toward deeper European integration appears to have halted, and gone into reverse, as the EU seems to be unraveling along ideological, national, tribal and historic lines.

  If these trends continue, and they seem to have accelerated in 2015, the idea of a United States of Europe dies, and with it the EU.

  And this raises a question about the most successful economic and political union in history – the USA.

  How does an increasingly multiracial, multiethnic, multilingual, multicultural United States avoid the fate to which Europe appears to be headed, when there is no identifiable racial or ethnic majority here in 2042?

  Are our own political and racial divisions disappearing, or do they, too, seem to be deepening?

  

  

  

  

  

• With Stock At 15-Year Low, Freeport Co-Founder Walks Away With $80 Million Golden Parachute

  “He is the last of the old-time wildcatters,” Mike Madden, managing partner of private-equity firm BlackEagle Partners LLC says of departing Freeport-McMoRan executive chairman James R. Moffett, who is stepping down after falling commodity prices helped push the company’s shares to their lowest levels of the 21st century. 

  

  Late in August, Carl Icahn disclosed an 8.5% stake in Freeport shortly after the company unveiled plans to cut 2016 capex by nearly a third, slash about 10% of its American workforce (around 1,500 jobs) and rein in production. Earlier in the month, Freeport cut its oil-and-gas capex plans for 2016 and 2017 by $900 million. Then, in December, the company said it would suspend its dividend and cut capex further.

  Like other firms in the space, Freeport has been forced to trim the proverbial fat as depressed demand from China and the global deflationary supply glut have driven commodity prices into the ground (no pun intended). 

  After Icahn’s disclosure, Freeport said it “maintains an open dialogue with shareholders and welcomes constructive input toward our common goal of enhancing shareholder value.” 

  The problem for Icahn and others, is that shareholder value has been systematically destroyed rather than “enhanced.”

  “Moffett’s last big gamble as head of the world’s largest copper miner was a $1.2 billion wrong-way bet six miles beneath the Louisiana coastline [where] he in 2007 staked much of the company’s future on an obscure cluster of gas-soaked rocks, hidden beneath coastal oil fields, that had been discarded by bigger operators including Exxon Mobil Corp.” Bloomberg wrote on Monday. “After seven years of drilling, Freeport suspended work on fields with names like Davy Jones and Blackbeard in January.”

  Some of the problems stem from the 2013 acquisition of McMoRan Exploration Co. and Plains Exploration & Production. Those deals cost more than $9 billion, and came ahead of a truly epic downturn in crude. “Freeport paid $2.1 billion for McMoRan, an oil-and-gas company it had separated from in the 1990s, and $6.9 billion for Plains, a Houston-based rival,” WSJ recalls. “The deals in part were a bet that oil prices would remain high, but as the acquisitions quickly soured, Freeport shareholders alleged conflicts of interest led the firm to pay too much for the deals.”

  As WSJ goes on to note, the combined entity saw its debt rise fivefold to $20 billion.

  From the latest quarterly:

  

  And from Q3 2012’s 10-Q:

  

  Ultimately, Freeport ended up paying nearly $140 million to shareholders to settle the dispute over the deals. 

  Given the high debt burden, the company is now “depending on asset sales or a potential restructuring to avoid more extensive cost-cutting, CLSA’s David Lipschitz, says. 

  Moffett, who according to The Australian, does a legendary Elvis impression,  co-founded McMoRan Oil & Gas 46 years ago and helped orchestrate the merger with Freeport Minerals Co. T. Boone Pickens calls him “the best Gulf Coast geologist that I’ve ever known.” 

  When Carl Icahn succeeded in grabbing two board seats in October, he said he was set to discuss “capital expenditures, executive compensation practices and capital structure as well as curtailment of the issuer’s high-cost production operations.” 

  And while Icahn may ultimately get his way when it comes to capex cuts and the scaling back of uneconomic businesses, it looks as though executive compensation is one fight the billionaire will lose – or at least as it relates to Moffett who is departing with a glorious golden parachute that ultimately sums to around $80 million. Here’s WSJ again:

  He will receive $16.1 million in severance pay as well as $63.3 million in other retirement benefits that have accrued over his decades with the company, according to securities filings. His departure also locks in options for about 1.2 million Freeport shares that are currently worthless given the company’s low stock price; those shares could become valuable again should the stock rise significantly before they expire, according to one filing.

  And here’s Bloomberg: 

  Life after Freeport-McMoRan Inc. will have its benefits for outgoing chairman James “Jim Bob” Moffett: namely, a payout that could reach $83.3 million plus $1.5 million in annual consulting fees.

   

  The $83.3 million potential payout was calculated with 562,000 performance based restricted stock units and performance units. The value of the units could fall, lowering the end payout, or Freeport could raise or lower the number of shares Moffett receives based on his performance.

   

  Moffett also had 5.5 million stock options, none of which has value until Freeport’s shares reach at least $18.98. The shares closed at $6.85 on Monday.

  So apparently, this is Moffett’s reward for helping to create the conditions that left the company unprepared for the current downturn. We wonder if, considering the following chart, a majority of shareholders support the $83 million package:

   

  We close with one last quote WSJ, paraphrasing Moffett (who was known in the industry as “Jim Bob”):

  On one occasion, he told shareholders worried about the prospects of a gas well that they needed only to “Trust Jim Bob.”

  

  

  

  

  

• Iran Fires Rockets 1,500 Yards Away From A US Aircraft Carrier

  As we recently reported, the US aircraft carrier USS Harry S Truman had made its way through The Mediterranean Sea, launchiung airstrikes on Syria and Iraq on its way. While the proximity of so many vessels, fighter jets, coasts, friends, enemies, and frenemies was always precarious, NBC News reports that the carrier came within 1500 yards of an Iranian rocket fired in a live-fire exercise in the Straits of Hormuz last week. US officials said this was "unnecessarily provocative and unsafe" from Obama's nuclear-deal partners.

   

  

   

  As NBC News reports, as the Truman was transiting the strait, which connects the Arabian Sea and the Persian Gulf, Iranian Revolutionary Guards conducted a live-fire exercise right near the U.S. carrier Saturday, officials said.

  A U.S. military official said an Iranian navy fast and short attack craft began conducting a live-fire exercise at the same time the carrier was nearing the end of the strait, firing off several unguided rockets. A French frigate, the U.S. destroyer USS Buckley and other commercial traffic were also in the area.

   

  The official said the U.S. ships were in the "internationally recognized maritime traffic lane" at the time, not in any territorial waters, when the Iranian navy announced over maritime radio that it was about to conduct a live-fire exercise and asked other vessels to remain clear.

   

  After the warning, the rockets were fired from a position about 1,500 yards off the carrier's starboard side and in a direction away from passing coalition and commercial ships and the traffic lane, the official said. The rockets were not fired at the Truman and other ships, only near them.

   

  While the official said the Iranians were "clearly not" targeting ships, the action was "unnecessarily provocative and unsafe."

   

  There were no direct communications between US and Iranian navies.

   

  Coalition forces continued transiting without any further incident, the official said, adding that the Truman is now in the Gulf and launching aircraft in support of Operation Inherent Resolve.

  *  *  *
  Just a good job that Iran is such a good 'partner' in the nuclear accord?

  This seemed appropriate given the timing and circumstances…

  

  

  

  

  

  

• The Rising Threats To Our Health

  Submitted by Charles Hugh-Smith via PeakProsperity.com,

  Though evidence of a looming global healthcare crisis is plainly visible, few seem to realize the consequences will be catastrophic to individuals, households and national economies.

  Here is a list—by no means exhaustive—of major health issues threatening hundreds of millions of people globally.

  Air & Water Pollution

  Photos such as these provide graphic evidence that air and water pollution are serious health hazards in many developing nations around the world:

  

  Source: Kyodo News

  

  Source: Independent.co.uk

  The statistics are equally horrendous: roughly 40% of all deaths in Pakistan result from polluted drinking water, 500 million people in China lack clean drinking water, and in India, 90% of human waste flows untreated into rivers.

  Though the winter smog in Chinese cities is infamous, many other Asian nations suffer from equally poor or even worse air quality:

  

  The health consequences of severe air pollution are many, and a rising number of deaths are attributable to air pollution:

  

  (Sources)

  Air and water pollution do not stop at borders, and so severe pollution in developing economies has become a health issue in neighboring developed economies as well.

  Ageing Populations

  As populations age, health costs rise while the working-age population that must support higher healthcare expenses declines, burdening the middle-aged workers who must support the elderly and the young. Caring for a rapidly expanding population of elderly retirees burdens governments and economies as well as households: as income is taxed to pay for care, there is less money available for other programs and investing in future productivity.

  We all know why healthcare costs rise as the population of elderly retirees grows: chronic non-communicable diseases go hand in hand with age. The costs of treating these lifestyle/ageing diseases (metabolic syndrome, heart disease, high blood pressure, etc.) soar as the population and incidence of these diseases both rise.

  A recent Standard & Poor’s study, Global Aging 2010: An Irreversible Truth, warns that “no other force is likely to shape the future of national economic health, public finances, and policymaking as the irreversible rate at which the world's population is aging… The cost of caring for [the elderly] will profoundly affect growth prospects and dominate public finance policy debates worldwide.” (Source)

  

  Globally, elderly populations are rising even in developing nations.

  

  Smoking

  Over 1 billion people smoke cigarettes globally, with some 350 million smokers residing in China. Over one million deaths per year in China are attributed to smoking, but some estimates project this number rising to 3.5 million annually.

  Add together air pollution and smoking, and the health consequences become even more severe. (Sources: https://en.wikipedia.org/wiki/Smoking_in_China,  http://content.time.com/time/world/article/0,8599,2043775,00.html)

  Metabolic Syndrome (Diabesity/Obesity) and Diabetes

  The scale of the global epidemic of obesity, metabolic syndrome (also known as diabesity or pre-diabetes) and diabetes are truly staggering: 100 million diabetics and 500 million pre-diabetics in China, 80 million diabetics and hundreds of millions more pre-diabetics in India, and another 100 million diabetics in the developed world. (Sources: Diabetes Is a Major Public-Health Crisis in China, No Answers in Sight for India’s Diabetes Crisis, The Global Diabetes Epidemic)

  This epidemic will overwhelm a global healthcare system that is already struggling to provide care for an aging population.

  

  The consequences of diabetes include higher mortality among those under the age of 60, with major consequences in productivity and time lost to illness:

  

  What is particularly striking is the disconnect between statistics that claim low obesity rates in developing countries such as India and China and soaring rates of diabetes in these same countries:

  

  Meanwhile, other sources have published estimates of overweight/obesity in China that parallel data from developed nations with equivalent rates of diabetes.

  

  Clearly, the factors linked to metabolic syndrome—diets rich in refined foods, sugar, and unhealthy fats, a lack of exercise, etc.—are on the rise in developing nations, regardless of the supposed rate of obesity (generally defined as a body mass index (BMI) of over 30) and being overweight  (generally defined as a BMI of over 25).

  Competition for Resources

  Though few connect global health with the rising human population, common sense suggests that the global competition for resources and the rising costs of providing basics such as clean water and air, and energy and food security, will pressure global health for purely financial reasons: if national incomes are increasingly devoted to expenditures such as military forces, energy and food security,  interest due on sovereign debt, etc., relatively fewer resources will be available to fund healthcare for the rising numbers of elderly retirees and the enormous populations suffering from chronic diseases that require constant monitoring and treatment.

  

  Many people look to technology to solve these inter-related problems. Perhaps miraculous advances in biochemistry will solve all these global health crises. But a cautious skepticism is in order, for all sorts of wondrous but costly technologies that work in the lab and small-scale experiments fail to scale, i.e. become cheap enough and reliable enough to spread quickly around the world.

  Advanced technologies require vast quantities of capital, expertise and energy to spread throughout the global economy. The necessary capital and resources are precisely what will be in short supply as demands on tax revenues and social safety nets skyrocket.

  The Good News: We Have Agency In This Story

  Despite these concerning global trends, health is determined at the individual level. Each one of us has the ability to improve our own personal health situation — starting right now.

  In Part 2: Putting Our Health Into Our Own Hands, we explore what we can do, as individuals and households, in response to the trends discussed above. As discussed in Chris' and Adam's recent book Prosper!, one of the most important components of true wealth is Living Capital — the most essential component of which is our own bodies. Prioritizing our investments there gives us the best foundation upon which to pursue all of our other future goals.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

  

  

  

  

  

• Why Energy Investors Are Hoping Saudi Arabia And Iran's Oil Price Forecasts Are Dead Wrong

  Yesterday, when Saudi Arabia revealed its “draconian” 2016 budget, boosting gasoline prices by 40%, while trimming welfare programs after forecasting a collapse in oil revenue (even while allocating the biggest part of government spending in next year’s budget to defense and security) Bloomberg reported that “the kingdom’s 2016 budget is probably based on crude prices of about $29 a barrel, according Riyadh-based Jadwa Investment Co.”

  Shortly thereafter Iran’s Petroleum Minister Bijan Zangeneh said that the Iran 2016-2017 budget assumes an average oil price of $40 dollars per barrel. “There have been efforts to suggest in the budget the closest and most possible price for oil, though the market is usually in fluctuations,” Zangeneh was quoted as saying by the local IRNA news agency.

  The reality is that nobody knows where oil prices will be in the coming year, especially if the supply glut persists, something which prompted BMO to warn that unless there are dramatic changes in the supply picture, oil prices could collapse as low as $20 in the short-term. “Fundamentally there is simply too much oil” the Canadian bank summarized simply.

  But now that price expectations have been significantly reset lower to account for an OPEC which will likely continue to exceed its 30 million barrel per day target, one group’s implied oil price estimate stands out: that of energy investors.

  Here is what BMO says is the oil price discount into current equity valuation.

  At current prices we estimate that valuations for the oil and gas group reflect an implied Brent crude oil price in the range of $65-70/bbl while natural gas leveraged companies reflect a Henry Hub natural gas price in the range of $3.00/Mcf.

  We have shown before that this is a problem for energy stock valuations which, while not as extreme as they have been in recent months, still discount energy earnings doubling over the near term with a 26x forward P/E, nearly double the recent historical average.

  

   

  As the company-level chart further shows, not a single company’s valuation is “fair” at current oil prices. In fact, should oil persists below $40, every single company in BMO’s universe is overvalued.

  

  In discussing the future of energy company valuations, BMO adds that “while these generally represent attractive levels compared to our longer-term commodity price expectations we see a higher likelihood of weaker crude oil prices over the next six months which would take valuations lower.“

  So why are energy multiples so persistently high? The answer is simple: equity investors are basing their investment thesis on the oil price corrections of 1998-1999 and 2008-2009, when likewise, multiples spiked only to retrace, following a rise in oil prices. BMO next explains how current equity valuations compare to prior downturns:

  Based on the oil price corrections in 1998-99 and 2008-09, it appears that consensus estimates and valuation multiples have not fully adjusted, which suggests valuations could be overstated. Chart 37 illustrates the tight relationship between consensus earnings estimates and oil prices over the 1994-2000 period. As you would expect, consensus earnings multiples adjusted to compensate for sharp changes in oil prices, expanding during falling oil prices and shrinking during rising oil prices.

   

  

   

  Consensus earnings and P/E multiples largely followed a similar pattern over the 2005-2011 period and oil price correction in 2008-09.

   

  

  The bank’s conclusion: “as shown in Chart 41, consensus earnings are being rapidly adjusted for the sharp reduction in current oil prices and future  expectations while valuation multiples have expanded. To us this suggests that there is downside to group valuations.”

  

  What the above – and recent analyses on the topic – suggests is that, paradoxically, the best outcome for energy equity investors is for there to be a sharp, sudden spike lower in oil prices, one which would result in a shock to the system, and quickly take out the most inefficient corporate and sovereign operators, in the process removing much of the dreaded supply overhang.

  Alternatively, the worst case is the continued slow burn in oil prices lower, which will achieve the same outcome however over a far more stretched-out time frame, while punishing even the best run oil producers whose liquidity (or FX) reserves will be vastly more depleted by the time the mass defaults take place. Over that time, both earnings and multiples will collapse and the result will be a far more extended energy price bear market, together with the now daily sharp “this time it’s the bottom” short squeezes.

  And the biggest irony, the longer stock prices remain elevated, the longer even the more troubled companies can stay solvent by selling first bonds, then when that market shuts down, selling equity to other naive investors, perpetuating the cash bleed until finally in a Lehman-like event, there is a dramatic repricing of all asset classes. The only difference is that when Lehamn filed, it was the bonds that went from nearly par to 8 cents overnight. With energy companies it will be the equity tranche that has an identical repricing.

  

  

  

  

  

• The Big Short's Michael Burry Warns "The Little Guy Will Pay" For The Next Crisis

  We are sure, just as many of the so-called "smartest men in the room" ignored him last time, so every status-quo-maintaining, asset-gathering, commission-taker will be quick to dissonantly shrug off Michael Burry's (the economic soothsayer from Michael Lewis' book "The Big Short") warnings this time.

  As NYMag.com reports, in an email, which readers of the book will recognize as his preferred method of communication, the real-life head of Scion Asset Management answered some of questions about the state of the financial system, his ominous-sounding water trade, and what, if anything, we can feel hopeful about…

  The movie portrays all of you as kind of swashbuckling heroes in some ways, but McKay suggested to me that you were very troubled by what happened. Is that the case?

  I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, "I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this." As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.

  Were you surprised no one went to jail?

  I am shocked that executives at some of the worst lenders were not punished for what they did. But this is the nature of these things. The ones running the machine did not get punished after the dot-com bubble either — all those VCs and dot-com executives still live in their mansions lining the 280 corridor on the San Francisco peninsula. The little guy will pay for it — the small investor, the borrower. Which is why the little guy needs to be warned to be more diligent and to be more suspicious of society’s sanctioned suits offering free money. It will always be seductive, but that’s the devil that wants your soul.

  When I spoke to some of the other real-life characters from The Big Short, I was surprised to hear that they thought that financial reform was pretty effective and that the system was much safer. Michael Lewis disagreed. In your opinion, did the crash result in any positive changes? 

  Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity.

  How do you think all of this affected people's perception of the System, in general?

  The postcrisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no such thing as free money. That is just basic personal responsibility and common sense. The enablers for this crisis were varied, and it starts not with the bank but with decisions by individuals to borrow to finance a better life, and that is one very loaded decision. This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later. Yet so few took responsibility for having any part in it, and the reason is simple: All these people found others to blame, and to that extent, an unhelpful narrative was created. Whether it’s the one percent or hedge funds or Wall Street, I do not think society is well served by failing to encourage every last American to look within. This crisis truly took a village, and most of the villagers themselves are not without some personal responsibility for the circumstances in which they found themselves. We should be teaching our kids to be better citizens through personal responsibility, not by the example of blame.

  Where do we stand now, economically?

  Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.

  What makes you most nervous about the future?

  Debt. The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me.

  The last line of the movie, printed on a placard, is “Michael Burry is focusing all of his trading on one commodity: Water.” It sounds very ominous. Can you describe this position to me?

  Fundamentally, I started looking at investments in water about 15 years ago. Fresh, clean water cannot be taken for granted. And it is not — water is political, and litigious. Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of investment — which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A bottle of wine takes over 400 bottles of water to produce — the water embedded in food is what I found interesting.

  What, if anything, makes you hopeful about the future?

  Innovation, especially in America, is continuing at a breakneck pace, even in areas facing substantial political or regulatory headwinds. The advances in health care in particular are breathtaking — so many selfless souls are working to advance science, and this is heartening. Long-term, this is good for humans in general. Americans have so much natural entrepreneurial drive. The caveat is that it is technology that should be a tool making lives better in the real world, and in line with the American spirit of getting better and better at something, whether it’s curing cancer or creating a better taxi service. I am less impressed with the market values assigned to technology that enhances distraction. We don’t want Orwell’s world, but we don’t want Huxley’s world either.

  *  *  *

  His prescient warning from many years ago remains just as crucial (perhaps even more so)…

  "In this age of infinite distraction… when the entitled elect themselves, the party accelerates, and the brutal hangover is inevitable."

  

  

  

  

  

• Proof that U.S. Is Directly Supporting ISIS?

  An Iraqi commander claims that the U.S. secretly evacuated top ISIS commanders from Ramadi, Iraq:

  The Express Tribune – associated with the International New York Times – reported in January:

  Yousaf al Salafi – allegedly the Pakistan commander of Islamic State (IS) or Daish – has confessed during investigations that he has been receiving funds through the United States.

   

  ***

   

  “During the investigations, Yousaf al Salafi revealed that he was getting funding – routed through America – to run the organisation in Pakistan and recruit young people to fight in Syria,” a source privy to the investigations revealed to Daily Express on the condition of anonymity.

  Is it true that the U.S. is directly supporting ISIS?

  I co-wrote a just-published book to answer that question.

  

  

  

  

• The Russian Economy Is Cracking, "Social Unrest" Coming In "A Few Months", Official Warns

  As you might have noticed over the past several days, the Russian ruble is in a veritable tailspin. The inexorable decline in crude has pressured the currency as have expectations of an uptick in year-end budget spending. 

  The ruble fell to a record low against the dollar on Monday and depending on crude’s trajectory, could well fall further in the new year. 2015 will likely mark the third annual decline for the currency which is under pressure not only from low oil prices, but from biting economic sanctions tied to Moscow’s alleged role in Ukraine. 

  

  “The wish to hedge potential risks from geopolitics and commodities may well push the ruble to 75,” Evgeny Koshelev, an analyst at Rosbank PJSC in Moscow, told Bloomberg by e-mail this week. “It will be interesting to see if there’s a reaction from the central bank, government and households to this weakening.”

  Yes, it will be “interesting”, especially if crude slides even further. Here are Goldman’s projections based on three different prices for oil:

  • At an oil price of US$35/bbl, we think the Ruble will be around Rub72 or close to current levels. Under that scenario we think inflation could be around 6% at end 2016.
  • At an oil price of US$30/bbl, we think the Ruble will depreciate to about Rub77 or 10% below current levels and end-year inflation in 2016 could be up to 6.7%.
  • At an oil price of US$25/bbl, the Ruble is likely to depreciate to the mid-80s and inflation is more likely to be up to 8% in December 2016.

  While Goldman is fairly optimistic about what the future holds for the Russian economy – which, you’re reminded, is in the midst of its deepest recession since 2009 – the Central Bank of Russia isn’t so sure. In fact, according to the bank’s “risk scenario,” oil prices could hover around US$35/bbl in 2016 while GDP could contract by 5% or more and inflation might be stuck at 7-9%.

  Russia’s 2016 budget assumes oil prices at $50/bbl. If that proves correct, Moscow will run a deficit of about 3%. However, as Citi noted earlier this month, “a $10bbl decline in oil prices worsens the fiscal position by about 0.7% of GDP.”

  

  As Citi goes on to point out, the deterioration in the fiscal position “already incorporates the secondary positive effect of the weaker currency.” In other words, the widening budget deficit associated with falling crude prices takes into account the effect a concomitantly weaker ruble has on RUB-denominated oil revenues.

  

  So, combining this with the CRB’s risk scenario as outlined above, we’re to understand that with oil at $35/bbl, Russia’s projected deficit jumps 23% to 3.7% of GDP which will itself decline 5% from a year earlier while inflation runs at between 7-9%. 

  If, however, oil were to fall to $30/bbl, the situation worsens materially. Here’s Citi again: 

  A fall of the oil prices to $30bbl will thus widen the fiscal deficit to 4.4% of GDP. Given that the 2016 budget is based on an oil price of $50bbl, this implies that the fiscal position may deteriorate to -4.4% (-3.0% -2 times 0.7%) of GDP at oil of $30bbl.This is a significant fiscal gap that would be the second largest over the last 20 years (largest deficit of 6.0% of GDP was recorded in 2009).

  The fiscal outlook is further darkened by the trials and travails of Vnesheconombank (VEB), the troubled state bank that’s been crippled by economic sanctions and is laboring under more than $15 billion in foreign currency debt (which is of course a disaster given the ruble’s slide). As Bloomberg reports, VEB may need a massive state bailout that could end up costing upwards of $18 billion. Here’s more:

  VEB got its start under Soviet founder Vladimir Lenin as a bank to finance foreign trade. Putin overhauled it in 2007. Flush with cash from high oil prices, he pumped 180 billion rubles (worth about $7.3 billion at the time) in to boost capital and took over at chairman of the board a year later.

   

  When the global financial crisis struck in 2008, VEB became Putin’s main tool for managing the shock. It got 1.25 trillion rubles (worth about $50 billion at the time) from the government and central bank to shore up the plunging stock market, help failing banks and bail out tycoons who were facing the loss of their companies to foreign creditors.

   

  By the end of 2009, its balance sheet had more than tripled from before Putin’s overhaul began.

   

  

   

  Behind the facade of western-style accounting and international credit ratings, the bank’s decisions were often driven more by politics than business, officials now admit.

   

  “The bank, because of its status, took on certain tasks that can at times hurt its balance sheet,” VEB chief Vladimir Dmitriev said Dec. 22. “We’re talking about the so-called special projects.” Neither VEB nor a Kremlin spokesman responded to requests for comment for this article.

   

  Starting in 2009, VEB spent $8 billion to finance deals allowing unnamed Russian investors to buy up steel plants in eastern Ukraine and keep them running

   

  The legacy of the 2014 Sochi Winter Olympics, which at about $50 billion were the most expensive such games ever, is another big burden on VEB [which ended up] taking control of more than 200 billion rubles of money-losing hotels, ski resorts and other projects.

   

  

   

  The takeaway here is that much like the Novo Banco and Banif bailouts are set to add several percentage points to Portugal’s deficit, Moscow may be forced to foot the bill for VEB. “Losses on the bank’s huge catalog of Kremlin-mandated projects could reach 1.2 trillion rubles, according to the Finance Ministry, or nearly half the expected budget deficit for next year. VEB faces $7.3 billion in debt repayments over the next few years and effectively has only one source of significant funding — the state,” Bloomberg continues, citing government officials.  

  Speaking of the Finance Ministry, former FinMin Alexei Kudrin – who unceremoniously quit in 2011 after a famous spat with then President Dmitry Medvedev – warns that the situation in the economy “isn’t very good.” According to comments Kudrin made to Interfax, inflation in 2016 will be ~150bps above the official 6.4% forecast and with oil prices below budgeted level of $50/bbl, Russia may witness significant reduction of government expenses in several industries, or tax increases. What would Kudrin do to ameliorate the situation you ask? Well, we may be about to find out because now, he looks set to return to the government to assist in pulling Russia out of recession. 

  “Former Russian Finance Minister and investor favorite Alexei Kudrin is in talks with Vladimir Putin and other top officials about returning to a senior post to help deal with worsening economic troubles,” Bloomberg reported earlier today, citing unnamed officials. “Kudrin has met privately with the Russian president and Prime Minister Dmitry Medvedev as recently as last week to discuss the plans, though no formal offer has yet been made.”

  “Markets will like Kudrin’s return to government as they will assume this means serious fiscal consolidation and some significant and much-needed structural reform — if Putin lets him take on the ‘power vertical,'” Tim Ash, head of emerging-market strategy at Nomura in London said. 

  As is the case in a number of emerging markets, the worry is that eventually, the public will become fed up with rapidly deteriorating economic circumstances even if, as is the case with Russia, part of the blame can be placed with outside antagonistic forces. On that note, we’ll close with one last quote from Bloomberg: 

  Speaking on condition of anonymity, one senior government official warned earlier this month that the government has only a few months before worsening economic conditions begin to fuel social unrest.

  

  

  

  

  

• Asia's Largest Commodity Trader Was Just Downgraded To Junk: Collateral Calls Next?

  Even before Glencore made a dramatic appearance on the world’s distressed commodity trader stage in late August, Zero Hedge readers were familiar with its Asian cousin, Noble Group, also known as Asia’s largest commodity trader, a name we covered in our August 18 report “Noble Group’s Kurtosis Awakening Moment For The Commodity Markets.”

  Back then we said that “we expect a big announcement of S&P on Noble Group later this week” as a result of the ongoing deterioration in the company’s fundamentals as well as various market-traded securities, notably its stocks and default swaps. As a reminder, in mid-August, Noble’s CDS was trading just around 700 bps.

  

   

  The rating agencies were late, but at long last, S&P did what we expected it would months later, on November 23, when it finally “placed its ‘BBB-‘ long-term corporate credit rating on Hong Kong-based supply-chain management service provider Noble Group Ltd. and the  ‘BBB-‘ issue rating on the company’s senior unsecured notes on CreditWatch with negative implications.” It added that:

  The CreditWatch action reflects our view that Noble’s liquidity and financial leverage have weakened and breached levels that we consider appropriate for the current rating. However, management’s commitment to raise new capital could support the company’s credit profile.

   

  Noble’s liquidity deteriorated in the third quarter of 2015 following a 27% decline in the company’s net available readily marketable inventory to US$1.48 billion as of September 2015 from US$2.0 billion in June 2015. The deterioration was largely related to the fall in commodities prices. The company’s available and undrawn committed credit lines fell almost 50% during the period to about US$1 billion. The company’s cash sources are less than 1.5x cash uses as of September 2015, below the threshold for a “strong” liquidity assessment.

  Then moments ago, Moody’s which likewise put Noble on downgrade review a month and a half ago on November 16, decided there is no further need for ratings foreplay, and without a reason to keep beating around the bush, proceeded to downgrade Nobel from investment grade (baa3) to junk, or Ba1, justifying its decision by saying that it “expects that Noble’s ability to gain consistent access to the bond markets will remain constrained. This challenge is unusual for investment grade entities and the sporadic nature of its access is a characteristic that is more consistent with that of Ba-rated entities.”

  Here is what else it said:

  Moody’s downgrades Noble Group to Ba1; outlook negative

  • Moody’s Investors Service has downgraded Noble Group Limited’s senior unsecured bond ratings to Ba1 from Baa3 and the provisional rating on its senior unsecured MTN program to (P)Ba1 from (P)Baa3.
  • At the same time, Moody’s has assigned a Ba1 corporate family rating to Noble and has therefore withdrawn the company’s issuer rating.
  • The rating actions conclude Moody’s review for downgrade initiated on 16 November 2015.

  RATINGS RATIONALE

   

  “The downgrade of Noble’s ratings reflects Moody’s concerns over the company’s liquidity,” says Joe Morrison, a Moody’s Vice President and Senior Credit Officer.

   

  The Ba1 ratings also reflect low levels of profitability and consistent negative free cash flow from core operating activities, which exclude proceeds from asset sales.

   

  “The downgrade also reflects the uncertainty as to whether or not these factors can be improved sustainably and materially, given our expectations of a prolonged commodity downcycle, and the consequent negative sentiment impacting Noble and commodity traders in general,” adds Morrison.

   

  Moody’s notes that the global commodity downturn has become severer over the last one to two months and believes these negative conditions might erode Noble’s access to funding and could therefore challenge its profitability, prompting Moody’s to conclude the rating review.

   

  Moody’s also notes the announced sale of its remaining 49% stake in Noble Agri Limited (unrated). The expected receipt of $750 million from the sale will improve Noble’s liquidity profile and adjusted net debt/EBITDA to about 3.2x in 2015.

   

  However, Noble’s liquidity position remains constrained, despite the company’s well-developed plans to further improve the situation in the coming months.

   

  Overall, Moody’s views that Noble could continue to face pressure to move more of its bank funding to a secured platform, if it faces challenges to access unsecured debt funding.

   

  Moody’s also expects that Noble’s ability to gain consistent access to the bond markets will remain constrained. This challenge is unusual for investment grade entities and the sporadic nature of its access is a characteristic that is more consistent with that of Ba-rated entities.

   

  Moody’s understands that Noble plans to engage in further capital raising activities and aims to improve its operations such as to lower operating expenses, lower working capital utilization, and strengthen cash flow generation.

  If it achieves such aims, the company will exhibit an improved liquidity profile that supports its Ba1 ratings. Its leverage metrics should also improve and therefore provide further support to its Ba1 ratings.

  Moody’s “understands” Noble plans to deleverage… but doesn’t really believes it: the punchline: “The outlook for the ratings is negative.”

  The negative ratings outlook reflects the execution risk associated with Noble’s plan to improve its liquidity position, as well as the uncertainty arising from the commodity price environment, and the impact that increasingly lower commodity prices globally will have on companies with exposure to commodities.

   

  Noble’s ratings are likely to be downgraded if its liquidity position does not show a meaningful improvement, or its leverage rises, such that its adjusted net debt/EBITDA registers in excess of 4.5x and retained cash flow/net debt trends below 20% on a sustained basis.

   

  Noble Group Limited is the largest global physical commodities supply chain manager in Asia by revenue. Its diversified activities across the supply chain include the sourcing, storage, processing, transportation, and distribution of over 20 commodity products.

   

  Headquartered in Hong Kong, Noble Group Limited operates offices in 60 locations globally, and employs 1,900 staff.

  And now we wait and see what if any collateral demands the company’s thousands in counterparties will make over the coming hours. The market, however, does not have that luxury: as of today, Noble’s CDS is at 1,600 in running spread, widening by 900 bps since we first brought our readers’ attention to the name, and a 77% implied probability of default.

  

   

  We expect there is even more downside to the company’s risk profile if the downgrade to Junk leads to a spike in margin calls, which leads to a toxic liquidity spiral, as the company is forced to liquidate even more assets at firesale prices just to satisfy counterparties, further exacerbating its solvency and leverage profile, ultimately leaving management with no choice but to advise its creditors it will be unable to satisfy its debt obligations.

  Finally, since Noble is not a Chinese company, it is very unlikely that any government will come to its rescue when the inevitable push comes to shove, unless miraculously, somehow commodity prices stage a dramatic rebound over the next 3 months.

  

  

  

  

  

• This May Be The Greatest "Explanation" Ever For Cooking The Company's Books

  According to its website, Beijing-based China Animal Healthcare “is a leading animal drug manufacturer focusing on the manufacture, sale and distribution of compound chemical drugs (comprising powdered drugs and injection drugs) and biological drugs (comprising Mandatory Vaccines and non-Mandatory Vaccines) for poultry and livestock in the PRC.”

  It adds that “as a value-added service, we provide technical and support services such as farming techniques and methodologies and impart knowledge relating to animal health and treatment of animal diseases to both select retailers who meet their sales target and retailers with sales potential.”

  It almost certainly does none of that; instead the company is merely the latest run off the mill Chinese corporate fraud, although this one is truly hilarious.

  More to the point, the publicly traded, or rather not publicly traded company, has had its shares – which quadrupled from mid 2013 to late 2014 – suspended since March 30, pending the release of its still-undisclosed financial results for 2014.

  

   

  To those hoping for a lift to the stock trading suspension, or a presentation of the financial results, we have bad news: both will never happen.

  As the WSJ reports, in September accounting firm Deloitte Touche Tohmatsu resigned as its auditor, saying the firm alleged misconduct by a China Animal Healthcare employee and that the two firms disagreed on bank balances.

  Then in October, the company announced that local authorities in Hebei province revoked some of its production permits and manufacturing certificates over local safety and environmental concerns. They also asked that the company relocate some facilities away from residential areas.

  In short: the company’s business and fraudulent operations were in freefall, the management team is likely facing arrest or worse, and as such the opportunity cost to come up with absolutely ridiculous stories to justify what will emerge as corporate fraud, is low.

  So low in fact, that the result was nothing short of today’s, if not this year’s, most entertaining story of corporate fraud and may enter the history books as the most ridiculous official explanation for why it was cooking its financials.

  The “explanation”, as it turns out, would make even the IRS’ Lois Lerner blush.

  Fast forward to Monday when, as @WallStCynic points out, China Animal Healthcare said in a statement to the Hong Kong stock exchange that a truck loaded with four years’ worth of its original financial documents was on its way to Beijing. However, while the truck driver was taking a lunch break, the truck was stolen. One week later the truck was found… but the four years of financial documents were gone.

  

  A driver sits in his truck in Hebei province, China. Bloomberg News

  “The possibility of finding the Lost Documents is not high,” the company said in the filing, conveniently adding that local police told them such thefts were common in Qingyuan.

  And that’s how the only set of the company’s “original financial documents” disappeared forever.

  * * *

  That was the summary. The details, as laid out in the full filing, have to be read ideally in as deadpan a voice as possible, to be believed. The full excerpt from the linked filing follows:
  

  The board (the “Board”) of directors (the “Directors”) of the Company wishes to inform the shareholders of the Company (the “Shareholders”) that on 4 December 2015, a truck of the Group (the “Truck”) loaded with, among other things, all original financial documents of the Group for the four financial years ended 31 December 2014 and for the current year (the “Lost Documents”) were stolen in the Qingyuan District of Baoding City, Hubei Province, China while the truck driver was taking a lunch break on his journey to transport the Lost Documents back to the Group’s head office in Beijing (the “Incident”).

   

  The Lost Documents were originally stored in the Group’s office in Shijiazhuang, being the document storage centre of the Group. On 3 December, the Group made arrangements to transport the Lost Documents back to the Group’s head office in Beijing for collation in order to facilitate, among other things, the Forensic Investigation. At around noon of the same day, the Truck broke down and was towed to a car repair garage in Qingyuan District for repair. On 4 December at around 11:30 a.m., the driver of the Truck picked up the Truck from the garage after repair and went for lunch at a nearby restaurant. The Truck driver discovered after lunch that the Truck was stolen.

   

  Immediately after the Incident took place, the Group made a report to the local public security bureau and sent staff to search for the Truck in the direction the Truck had gone according to the road monitoring system of the local public security bureau. Given the gravity of the Incident, the Group convened a meeting on 5 December 2015 with the driver of the Truck and other relevant personnel of the Group to inquire further into the Incident, as well as set up a special investigation group (the “SIG”) accountable to the Board which is headed by Mr. Li Jun, an executive Director, to (i) investigate into the Incident, (ii) maintain close contact with the local public security bureau to search for the Truck, and (iii) confirm the list of Lost Documents and follow up on this matter.

   

  Based on the findings of the investigation by the SIG, no suspicious person has been identified in the Incident. According to the local public security bureau, thefts such as the Incident are common occurrence in the Qingyuan District.

   

  On 12 December 2015, the Company was notified by the local public security bureau that the Truck was found but not the Lost Documents. As at the date of this announcement, although the possibility of finding the Lost Documents is not high, the Group has nonetheless deployed all possible resources in search of the Lost Documents. Since the occurrence of the Incident, the finance team of the Group has been actively inquiring from different sources to retrieve as many copies of the Lost Documents as possible in order to minimise the impact of the Lost Documents. At the same time, the management of the Company has communicated to the Forensic Accountant on the Lost Documents, so as to minimize the impact on their work. Further investigation by the SIG of the Incident is currently in progress. The Company will publish further announcement(s) to update the Shareholders when there is further development on the Incident.

  We eagerly await comparable the-truck-with-all-the-financial-documents-was-stolen excuses (the “excuse”) to emerge in the US, once the stock market tide finally goes out.

  

  

  

  

  

• Santelli Thanks Plunge Protection Team As Bond Bloodbath Sparks Buying Frenzy In Stocks & Commodities

  No volume, no problem…Buy stocks with both hands and feet…

   

  Leaving Rick Santelli almost speechless: "I don't know how they do it? Plunge Protection Team? Abenomics? Japanese buying futures? No matter what The Dow will not be allowed to end the year in the red…"

   

  Stocks melted up to their post-FOMC highs… Small Caps and Nasdaq leading…

  

   

  Dow futures straight line 300 point magic levitation…

  

   

  S&P back into the green for 2015, Dow remains down 0.6% YTD.

  And confirming that there is no policy error at all… stocks are green and bonds are red post-FOMC…

  

   

  Lifting Nasdaq, S&P, and Dow just into the green for December…

  

   

  Led by a double-short- squeeze…

  

   

  AAPL ripped higher despite ugly news from its suppliers…

  

   

  Treasuries were a total bloodbath…

  

   

  Today saw 2s10s break down to 8 year flats and then 2s30s explode higher intraday…

  

   

  And the crucial 5Y yield surged back to 1.80 – the line in the sand for the last 7 years…

  

   

  And while HY bonds rallied, IG bonds were dumped…

  

   

  FX markets were very active today…once again USD buying into the EU close and being dumped after…

  

   

  As the disconnect between JPY carry and stocks continues to grow unsustainably…

  

   

  Commodities were very mixed with 'growthy' copper and crude ripping as PMs were flat…

  

   

  WTI crude jumped back to $38 ahead of this evening's API data…

  

   

  And then there is rice… which surged over 7% in the last few days – the biggest move since April 2008…

  

   

  Charts: Bloomberg

  

  

  

  

• California Politicians Could Soon Be Forced To Wear Logos Of Top Corporate Donors

  Submitted by Carey Wedler via TheAntiMedia.org,

  Popular memes calling for politicians to wear the logos of their corporate sponsors have circulated the internet for years, but the suggestion may soon be a reality for California legislators. In the next week, a potential ballot measure, submitted to the Office of the Attorney General in October, is expected to receive title and summary for the 2016 election, meaning its advocates will be able to collect signatures in order to secure its official place on the ballot. The proposed law would require legislators and candidates to sport the emblems of groups that donate money to their campaigns.

  As the advocacy group that launched the measure, California is Not for Sale, muses:

  “Imagine this: a California Senator is speaking on the floor and proposes a bill he just drafted that will give oil companies huge tax advantages. Now imagine if on his jacket, he was wearing Chevron, Shell, and BP logos – some of his top ten contributors. Our law will bring this under-the-table-corruption to the surface and expose these politicians who take political contributions in exchange for favors for what they really are: corrupt.”

  The ballot’s sponsor, John Cox, is an entrepreneur from San Diego and long-time advocate of reforming the California legislature, which is rife with scandal and corruption. The legislature has been plagued with multiple ethics violations and hearings, and last year, members of the governing body flew to Maui to meet with corporate executives and union bosses, who funded the trip by funneling funds through a non-profit organization. The Los Angeles Times reported on the doublespeak-inspired “Independent Voter Project,” which sponsored the event:

  “The group gets its money from about 24 entities, many putting up at least $7,500. They include Occidental Petroleum Corp., the Western State Petroleum Assn., Eli Lilly, the Altria tobacco firm, the California Cable and Telecommunications Assn., the state prison guards union and the California Distributors Assn., which represents distributors of tobacco and other products.”

  This ongoing political climate in Sacramento, California’s capital, has inspired Cox’s activism for years. Before launching the logo initiative, Cox promoted the idea of electing more legislators to provide more direct representation to California’s large voting population. Whereas New Hampshire has one representative for every 4,000 voters, California has one for about every 483,000. Considering most voters are opposed to adding more legislators, however, Cox developed California is Not for Sale.

  At the end of August, the group organized a protest outside the state capitol building, setting up life-size cutouts of over 121 state legislators, including Governor Jerry Brown. They were all decorated with their corporate donors’ logos, from 7-11 to AT&T and Walmart. The demonstration was well-received, drawing significant attention from passersby and the lawmakers themselves.

  At the end of October, Cox officially submitted a request to add the measure to the 2016 ballot. In addition to requiring lawmakers to wear the logos of their top ten contributors every time they appear in the legislature, the proposed measure would also require political candidates to disclose their top ten donors in political advertisements.

  After filing the petition, Cox said, “It’s a corrupt system and it’s got to change,” adding that “[i]f they don’t take any money, they won’t have to wear any stickers.” He explained the goal was not to embarrass lawmakers or attack corporations, unions, and collective bargaining, but rather, to raise awareness about big money’s influence in politics. “I think many of them, most of them, are probably good people. But they’re caught in a corrupt system,” he said.

  The group announced late Sunday it is “preparing to receive title and summary in the next week and will then begin collecting signatures across California.” They must receive 365,000 signatures to secure a spot on the 2016 ballot, and are confident they will meet the requirement. As Ryan Smith, a coordinator for California is Not for Sale, told Anti-Media, “We’ve received a tremendous amount of support from the community so far. People love this idea. Their entire lives they have felt helpless and abused by politicians; our measure puts the power back in their hands.”

  Unsurprisingly, the initiative has drawn mixed reviews from lawmakers. Smith said the organization has received angry emails from some legislators demanding the group stop using life-size cutouts of their image. Senator Marty Block told San Diego’s local ABC affiliate that he “supports reasonable measures to provide more transparency to our legislative process,” but did not explicitly endorse the measure.

  Though assembly member Rocky Chavez acknowledged the legislature needs more transparency, he argued that “[t]o have everyone decked out like race car drivers would be a circus element which wouldn’t really benefit the public.” Instead, he suggested requiring candidates and legislators to list their top ten donors on their websites, though this would likely mean far less exposure than displaying them on the floor of the legislature.

  Asked about Chavez’s claim the proposed law would create a “circus element,” Smith responded, “You know what’s a circus? That politicians can openly take money from corporations and unions and have no accountability afterwards. It’s a complete joke. If Mr. Chavez doesn’t like this, I have a brilliant solution for him: stop taking money. Problem solved, circus avoided!”

  Either way, one thing is clear: as Cox said, “These people are not going to change it on their own.” As California is Not for Sale’s website asserts, “Big money in politics has gone too far. Average citizens don’t have a voice and it’s time that changes. By highlighting big money in politics, we can raise awareness around this issue and give citizens the voice they deserve.” Smith says the proposed ballot measure is only the first of several steps the group will launch over the coming years, “all with the goal of ending political corruption in our country.”

  To get involved with the measure, visit http://www.californiaisnotforsale.com

  

  

  

  

  

• WTI Slides After API Reports Surprisingly Large Inventory Build

  Following last week's huge 5.9mm draw (as entirely expected this time of year given window-dressing) expectations were for a 2.5mm barrel draw this week from DOE. However, API reported a major surprise 2.9mm barrel build, bring December's total to just 1.7mm drawdown (against a 5.5mm average draw in December). This is massively worse than expected given the seasonals (along with a 923k build at Cushing) and while WTI has oscillated up and down around $38 since the API/DOE build 2 weeks ago, it is fading on this data.

   

  

   

  Sending WTI prices lower off $38 resistance…

  

   

  Do not forget – December ALWAYS see notably drawdowns as firms lighten up inventories on their balance sheet ahead of year-end to reduce tax burdens…

  

   

  And judging from history, as Bloomberg notes, it should resume as soon as the festive season is over: Stocks have built by 3.2 million barrels on average in January since 1921.

   

  Charts: Bloomberg

  

  

  

  

  

Digest powered by RSS Digest