Today’s News November 26, 2015

• Meet The Man Who Funds ISIS: Bilal Erdogan, The Son Of Turkey's President

  Russia’s Sergey Lavrov is not one foreign minister known to mince his words. Just earlier today, 24 hours after a Russian plane was brought down by the country whose president three years ago said “a short-term border violation can never be a pretext for an attack”, had this to say: “We have serious doubts this was an unintended incident and believe this is a planned provocation” by Turkey.

  But even that was tame compared to what Lavrov said to his Turkish counterparty Mevlut Cavusoglu earlier today during a phone call between the two (Lavrov who was supposed to travel to Turkey has since canceled such plans).

  As Sputnik transcribes, according to a press release from Russia’s Ministry of Foreign Affairs, Lavrov pointed out that, “by shooting down a Russian plane on a counter-terrorist mission of the Russian Aerospace Force in Syria, and one that did not violate Turkey’s airspace, the Turkish government has in effect sided with ISIS.“

  It was in this context when Lavrov added that “Turkey’s actions appear premeditated, planned, and undertaken with a specific objective.“

  More importantly, Lavrov pointed to Turkey’s role in the propping up the terror network through the oil trade. Per the Russian statement:

  “The Russian Minister reminded his counterpart about Turkey’s involvement in the ISIS’ illegal trade in oil, which is transported via the area where the Russian plane was shot down, and about the terrorist infrastructure, arms and munitions depots and control centers that are also located there.”

  Others reaffirmed Lavrov’s stance, such as retired French General Dominique Trinquand, who said that “Turkey is either not fighting ISIL at all or very little, and does not interfere with different types of smuggling that takes place on its border, be it oil, phosphate, cotton or people,” he said.

  The reason we find this line of questioning fascinating is that just last week in the aftermath of the French terror attack but long before the Turkish downing of the Russian jet, we wrote about “The Most Important Question About ISIS That Nobody Is Asking” in which we asked who is the one “breaching every known law of funding terrorism when buying ISIS crude, almost certainly with the tacit approval by various “western alliance” governments, and why is it that these governments have allowed said middleman to continue funding ISIS for as long as it has?“

  Precisely one week later, in even more tragic circumstances, suddenly everyone is asking this question.

  And while we patiently dig to find who the on and offshore “commodity trading” middleman are, who cart away ISIS oil to European and other international markets in exchange for hundreds of millions of dollars, one name keeps popping up as the primary culprit of regional demand for the Islamic State’s “terrorist oil” – that of Turkish president Recep Erdo?an’s son: Bilal Erdo?an.

  His very brief bio:

  Necmettin Bilal Erdo?an, commonly known as Bilal Erdo?an (born 23 April 1980) is the third child of Recep Tayyip Erdo?an, the current President of Turkey.

   

  After graduating from Kartal Imam Hatip High School in 1999, Bilal Erdogan moved to the US for undergraduate education. He also earned a Masters Degree in John F. Kennedy School of Government at Harvard University in 2004. After graduation, he served in the World Bank as intern for a while. He returned Turkey in 2006 and started to his business life. Bilal Erdogan is one of the three equal shareholders of “BMZ Group Denizcilik ve ?n?aat Sanayi Anonim ?irketi“, a marine transportation corporation.

  Here is a recent picture of Bilal, shown in a photo from a Turkish 2014 article, which “asked why his ships are now in Syria”:

  

  In the next few days, we will present a full breakdown of Bilal’s various business ventures, starting with his BMZ Group which is the name implicated most often in the smuggling of illegal Iraqi and Islamic State through to the western supply chain, but for now here is a brief, if very disturbing snapshot, of both father and son Erdogan by F. William Engdahl, one which should make everyone ask whether the son of Turkey’s president (and thus, the father) is the silent mastermind who has been responsible for converting millions of barrels of Syrian Oil into hundreds of millions of dollars of Islamic State revenue.

  By F. William Engdahl, posted originally in New Eastern Outlook:

  Erdogan’s Dirth Dangerous ISIS Games

  More and more details are coming to light revealing that the Islamic State in Iraq and Syria, variously known as ISIS, IS or Daesh, is being fed and kept alive by Recep Tayyip Erdo?an, the Turkish President and by his Turkish intelligence service, including MIT, the Turkish CIA. Turkey, as a result of Erdo?an’s pursuit of what some call a Neo-Ottoman Empire fantasies that stretch all the way to China, Syria and Iraq, threatens not only to destroy Turkey but much of the Middle East if he continues on his present path.

  In October 2014 US Vice President Joe Biden told a Harvard gathering that Erdo?an’s regime was backing ISIS with “hundreds of millions of dollars and thousands of tons of weapons…” Biden later apologized clearly for tactical reasons to get Erdo?an’s permission to use Turkey’s Incirlik Air Base for airstrikes against ISIS in Syria, but the dimensions of Erdo?an’s backing for ISIS since revealed is far, far more than Biden hinted.

  ISIS militants were trained by US, Israeli and now it emerges, by Turkish special forces at secret bases in Konya Province inside the Turkish border to Syria, over the past three years. Erdo?an’s involvement in ISIS goes much deeper. At a time when Washington, Saudi Arabia and even Qatar appear to have cut off their support for ISIS, they remaining amazingly durable. The reason appears to be the scale of the backing from Erdo?an and his fellow neo-Ottoman Sunni Islam Prime Minister, Ahmet Davuto?lu.

  Nice Family Business

  The prime source of money feeding ISIS these days is sale of Iraqi oil from the Mosul region oilfields where they maintain a stronghold. The son of Erdo?an it seems is the man who makes the export sales of ISIS-controlled oil possible.

  Bilal Erdo?an owns several maritime companies. He has allegedly signed contracts with European operating companies to carry Iraqi stolen oil to different Asian countries. The Turkish government buys Iraqi plundered oil which is being produced from the Iraqi seized oil wells. Bilal Erdo?an’s maritime companies own special wharfs in Beirut and Ceyhan ports that are transporting ISIS’ smuggled crude oil in Japan-bound oil tankers.

  Gürsel Tekin vice-president of the Turkish Republican Peoples’ Party, CHP, declared in a recent Turkish media interview, “President Erdo?an claims that according to international transportation conventions there is no legal infraction concerning Bilal’s illicit activities and his son is doing an ordinary business with the registered Japanese companies, but in fact Bilal Erdo?an is up to his neck in complicity with terrorism, but as long as his father holds office he will be immune from any judicial prosecution.” Tekin adds that Bilal’s maritime company doing the oil trades for ISIS, BMZ Ltd, is “a family business and president Erdo?an’s close relatives hold shares in BMZ and they misused public funds and took illicit loans from Turkish banks.”

  In addition to son Bilal’s illegal and lucrative oil trading for ISIS, Sümeyye Erdo?an, the daughter of the Turkish President apparently runs a secret hospital camp inside Turkey just over the Syrian border where Turkish army trucks daily being in scores of wounded ISIS Jihadists to be patched up and sent back to wage the bloody Jihad in Syria, according to the testimony of a nurse who was recruited to work there until it was discovered she was a member of the Alawite branch of Islam, the same as Syrian President Bashar al-Assad who Erdo?an seems hell-bent on toppling.

  Turkish citizen Ramazan Ba?ol, captured this month by Kurdish People’s Defence Units,YPG, as he attempted to join ISIS from Konya province, told his captors that said he was sent to ISIS by the ‘?smail A?a Sect,’ a strict Turkish Islam sect reported to be tied to Recep Erdo?an. Ba?ol said the sect recruits members and provides logistic support to the radical Islamist organization. He added that the Sect gives jihad training in neighborhoods of Konya and sends those trained here to join ISIS gangs in Syria.

  According to French geopolitical analyst, Thierry Meyssan, Recep Erdo?an “organised the pillage of Syria, dismantled all the factories in Aleppo, the economic capital, and stole the machine-tools. Similarly, he organised the theft of archeological treasures and set up an international market in Antioch…with the help of General Benoît Puga, Chief of Staff for the Elysée, he organised a false-flag operation intended to provoke the launching of a war by the Atlantic Alliance – the chemical bombing of la Ghoutta in Damascus, in August 2013. “

  Meyssan claims that the Syria strategy of Erdo?an was initially secretly developed in coordination with former French Foreign Minister Alain Juppé and Erdo?an’s then Foreign Minister Ahmet Davuto?lu, in 2011, after Juppe won a hesitant Erdo?an to the idea of supporting the attack on traditional Turkish ally Syria in return for a promise of French support for Turkish membership in the EU. France later backed out, leaving Erdo?an to continue the Syrian bloodbath largely on his own using ISIS.

  Gen. John R. Allen, an opponent of Obama’s Iran peace strategy, now US diplomatic envoy coordinating the coalition against the Islamic State, exceeded his authorized role after meeting with Erdo?an and “promised to create a “no-fly zone” ninety miles wide, over Syrian territory, along the whole border with Turkey, supposedly intended to help Syrian refugees fleeing from their government, but in reality to apply the “Juppé-Wright plan”. The Turkish Prime Minister, Ahmet Davuto?lu, revealed US support for the project on the TV channel A Haber by launching a bombing raid against the PKK.” Meyssan adds.

  There are never winners in war and Erdo?an’s war against Syria’s Assad demonstrates that in bold. Turkey and the world deserve better. Ahmet Davuto?lu’s famous “Zero Problems With Neighbors” foreign policy has been turned into massive problems with all neighbors due to the foolish ambitions of Erdo?an and his gang. 

  

  

  

  

  

• The True Meaning Of Thanksgiving

  Submitted by Richard Ebeiling via EpicTimes.com,

  This time of the year, whether in good economic times or bad, is when Americans gather with their families and friends and enjoy a Thanksgiving meal together. It marks a remembrance of those early Pilgrim Fathers who crossed the uncharted ocean from Europe to make a new start in Plymouth, Massachusetts. What is less appreciated is that Thanksgiving also is a celebration of the birth of free enterprise in America.

  The English Puritans, who left Great Britain and sailed across the Atlantic on the Mayflower in 1620, were not only escaping from religious persecution in their homeland. They also wanted to turn their back on what they viewed as the materialistic and greedy corruption of the Old World.

  Plymouth Colony Planned as Collectivist Utopia

  In the New World, they wanted to erect a New Jerusalem that would not only be religiously devout, but be built on a new foundation of communal sharing and social altruism. Their goal was the communism of Plato’s “Republic,” in which all would work and share in common, knowing neither private property nor self-interested acquisitiveness.

  What resulted is recorded in the diary of Governor William Bradford, the head of the colony. The colonists collectively cleared and worked the land, but they brought forth neither the bountiful harvest they hoped for, nor did it create a spirit of shared and cheerful brotherhood.

  The less industrious members of the colony came late to their work in the fields, and were slow and easy in their labors. Knowing that they and their families were to receive an equal share of whatever the group produced, they saw little reason to be more diligent in their efforts. The harder working among the colonists became resentful that their efforts would be redistributed to the more malingering members of the colony. Soon they, too, were coming late to work and were less energetic in the fields.

  

  Collective Work Equaled Individual Resentment

  As Governor Bradford of the Plymouth Colony explained in his old English (though with the spelling modernized):

  “For the young men that were able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. then he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignant and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc. they deemed it a kind of slavery, neither could husbands brook it.”

  Because of the disincentives and resentments that spread among the population, crops were sparse and the rationed equal shares from the collective harvest were not enough to ward off starvation and death. Two years of communism in practice had left alive only a fraction of the original number of the Plymouth colonists.

  Private Property as Incentive to Industry

  Realizing that another season like those that had just passed would mean the extinction of the entire community, the elders of the colony decided to try something radically different: the introduction of private property rights and the right of the individual families to keep the fruits of their own labor.

  As Governor Bradford put it:

  “And so assigned to every family a parcel of land, according to the proportion of their number for that end . . . This had a very good success; for it made all hands very industrious, so as much more corn was planted then otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little-ones with them to set corn, which before would a ledge weakness, and inability; whom to have compelled would have been thought great tyranny and oppression.”

  The Plymouth Colony experienced a great bounty of food. Private ownership meant that there was now a close link between work and reward. Industry became the order of the day as the men and women in each family went to the fields on their separate private farms. When the harvest time came, not only did many families produce enough for their own needs, but also they had surpluses that they could freely exchange with their neighbors for mutual benefit and improvement.

  In Governor Bradford’s words:

  “By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And the effect of their planting was well seen, for all had, one way or other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others, so as any general want or famine hath not been amongst them since to this day.”

  

  Rejecting Collectivism for Individualism

  Hard experience had taught the Plymouth colonists the fallacy and error in the ideas that since the time of the ancient Greeks had promised paradise through collectivism rather than individualism. As Governor Bradford expressed it:

  “The experience that was had in this common course and condition, tried sundry years, and that amongst the Godly and sober men, may well convince of the vanity and conceit of Plato’s and other ancients; — that the taking away of property, and bringing into a common wealth, would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort.”

  Was this realization that communism was incompatible with human nature and the prosperity of humanity to be despaired or be a cause for guilt? Not in Governor Bradford’s eyes. It was simply a matter of accepting that altruism and collectivism were inconsistent with the nature of man, and that human institutions should reflect the reality of man’s nature if he is to prosper. Said Governor Bradford:

  “Let none object this is man’s corruption, and nothing to the curse itself. I answer, seeing all men have this corruption in them, God in his wisdom saw another course fitter for them.”

  The desire to “spread the wealth” and for government to plan and regulate people’s lives is as old as the utopian fantasy in Plato’s “Republic.” The Pilgrim Fathers tried and soon realized its bankruptcy and failure as a way for men to live together in society.

  They, instead, accepted man as he is: hardworking, productive, and innovative when allowed the liberty to follow his own interests in improving his own circumstances and that of his family. And even more, out of his industry result the quantities of useful goods that enable men to trade to their mutual benefit.

  

   

  Giving Thanks for the Triumph of Freedom

  In the wilderness of the New World, the Plymouth Pilgrims had progressed from the false dream of communism to the sound realism of capitalism. At a time of economic uncertainty and growing political paternalism, it is worthwhile recalling this beginning of the American experiment and experience with freedom.

  This is the lesson of the First Thanksgiving. This year, when we, Americans sit around our dining table with family and friends, we should also remember that what we are really celebrating is the birth of free men and free enterprise in that New World of America.

  The true meaning of Thanksgiving, in other words, is the triumph of Capitalism over the failure of Collectivism in all its forms.

  

  

  

  

  

• If "Everything's Awesome" Why Did Aussie CapEx Just Collapse By The Most In Its 30 Year History

  Day after day, the 'stability' in the stock "markets" (specifically in AsiaPac) is posited as 'proof' that China is 'fixed', the worst is over in EMs, The Fed can raise rates, and massive monetray policy manipulation of market signals had no mal-investment consequences. Well all of that utter crap just got obliterated as China's right-hand-man in the credit-fueled commodity boom bust – Australia – just saw its business capital expenditure collapse 20% YoY – the biggest drop ever, accelerating the crash in business spending to 11 quarters. As Goldman warns, this exposes significant downside risk to any forecast for GDP recovery in 2016.

  Recovery? Spin this into recovery!!

  

   

  As Goldman Sach details,

  For consecutive quarters, Australia’s private capex report was weaker than expected across the board – highlighting the risk of an outright contraction in domestic demand in 3Q2015 and a disappointing recovery in growth through 2016. In particular, we note a -9.2%qoq decline in capex in the quarter (BBG consensus: -2.9%qoq), and further sequential deterioration in the FY16 investment intentions component of the report. As it stands, the data speak to an ~-20% contraction in capex in FY16 which – even assuming better capex trends outside of this survey – appears completely at odds with the ~-7% decline in investment forecast by the broader consensus (Consensus Economics). Today’s data highlight that domestic demand likely contracted outright in 3Q2015 and the downside risk to the RBA’s forecast recovery in GDP to a +3.0%yoy pace by end-2016. If growth continues to fall short of expectations as we fear, the prospect of RBA rate cuts remains a very real one.

  Private capital expenditure, Septquarter: -9.2% qoq, -20.0% yoy (Bloomberg consensus: -2.9% qoq, GS: -4.0% qoq);

  By Component:

  • Machinery & equipment (MEI): -8.2% qoq, -12.7%yoy
  • Building & structures (B&S): -9.8% qoq, -23.6% yoy

  Private capital expenditure,2015-16Intentions (4thestimate): -19.7% (down from -18.8% 3rd estimate)

  By industry:

  • Mining sector: -30.6% (from -29.1% previously)
  • Manufacturing: -9.8% (from -8.8% previously)
  • 'Other': -8.5% (from -8.1% previously)

      
  Main Points:
      
  1. Today’s capex report was weaker than expected across the board, with weaker implications for both investment in 3Q2015 and the outlook through FY16 as a whole. Looking specifically at the historical data , the headline -9.2%qoq decline in private capex was a far larger contraction than expected (GS: -4.0%qoq; BBG consensus: -2.9%qoq), with weakness equally spread across the building & structures (-9.8%qoq) and machinery & equipment (-8.2%qoq) components. It is this fall in the latter that has the most relevance for next Wednesday’s 3Q2015 National Accounts and – alongside yesterday’s weak construction data – is a stark reminder that the unwind of Australia’s mining investment boom presents a profound headwind to overall growth.

  2. Looking at the investment intentions data, the read-though was also to the weaker side. To be clear, on face value, the “raw” estimate for FY16 spending increased by ~$4.6bn to $120.4bn compared with the third estimate for FY16. There are several important caveats to this apparent improvement however:

  1. Firstly, compared with the fourth estimate for capex spending for FY15, the raw $120.4 number implies a 20.9% fall.
  2. Secondly, as there is typically a tendency to initially under-estimate in the survey process and therefore almost always a very strong increase in capex estimates at this point in the survey, it is important to adjust the raw numbers using realization ratios. Using long-run realization ratios, for example, has markedly weaker implications – we note that compared with the third estimate for FY16 (-18.8%), the fourth estimate suggests capex will fall by an even larger -19.7% in FY16. In context, there has now been a sequential deterioration in the FY16 capex outlook over each of the past four estimates, with this deterioration broad-based across the “other selected industries” (-8.5%) and mining sectors (-30.6%).
  3. Finally, putting the ~20% decline in FY16 capex suggested by today’s data in context, we note that markedly more modest declines in broader business investment are currently baked into the forecasts of consensus (~-7.0%), Treasury (-7%) and ourselves (GS: -11.5%). To be fair, the capex survey does not incorporate trends in public spending in health and education – however, fiscal constraints and relevant leading indicators all suggest that the outlook in these sectors is subdued at best. All things considered, this survey appears completely at odds with the relatively modest contraction in investment many are forecasting. For our part, we remain the most bearish in the market on the investment cycle and see the risks to our own forecast as skewed to the downside (For full details on our relatively cautious views on the investment outlook, please see: Detail – Australia and New Zealand Economic Analyst: Ongoing risks to Australian Investment: A Regional Perspective, 17/8/2015).

       
  3Q2015 GDP estimate:Ahead of next Wednesday’s National Accounts, today’s weaker-than-expected capex numbers require a -20bp reduction in our 3Q2015 GDP tracking estimate to +0.8%qoq. On face value at least, this is still a relatively solid expansion in activity, but today’s update highlights that the headline increase is masking markedly weaker underlying trends. Specifically, with net exports adding ~1.4pts to GDP in the quarter, domestic demand looks on track for an outright contraction.

  We will revisit our estimate on receipt of the remaining partial data on Monday (profits & inventories) and Tuesday (trade and public demand) next week.

  Monetary Policy:

  Reflecting on the implications of the composition of 3Q2015 GDP for monetary policy, we note that such a large (in part weather-related) boost to growth from net exports is likely unsustainable, yet severe headwinds from the mining capex cycle are expected to remain in place for some time. Indeed, on the RBA’s own forecasts, the adjustment in mining capex is only half complete, with ~3% of GDP worth of mining capex to fall out of the growth equation over the coming years. With the tailwinds from the housing construction cycle starting to fade, population growth slowing and public demand constrained by Australia’s public finances – it is hard to find a sustainable offset to the capex headwind elsewhere in the economy. While it is true that LNG export volumes will ramp-up over time, the trend has been towards project delays and the shipments will be delivered into a very weak price environment in any case.

  Overall, we remain concerned about the growth outlook in Australia. Notwithstanding, a reported improvement in surveyed business conditions, there is nothing in today’s update to comfort the RBA that this is translating to anything concrete on the investment front. In turn, we see material downside risks to the RBA’s forecast reacceleration in GDP growth to a +3.0%yoy rate by the end of 2016. To the degree growth continues to fall short of the RBA’s expectations, the prospect of further easing will remain on the table.

   

  Charts: Bloomberg

  

  

  

  

  

• The Future Of Cannabis

  The recreational cannabis industry is changing fast, and the last few years have been a blur for investors observing the space.

  More people today believe that cannabis should be legal than ever before, and famed investors like Peter Thiel have already made giant bets on the future of recreational cannabis.

  Here’s five facts you need to know on the fast-moving industry:

  1. Recreational cannabis is already legal in four states and D.C. It is also available for medical purposes in 20 other states, as well as Canada. Viridian Capital Advisors, which provides research to the cannabis sector, estimates between 6 to 13 states will legalize recreational usage by end of 2016.
  2. Legal cannabis was a $700 million industry in Colorado last year. In 2014, Colorado retailers sold $386 million of medical cannabis and $313 million for recreational purposes. The two segments of the market generated $63 million in tax revenue, with an additional $13 million collected in licenses and fees.
  3. Stocks in the sector have boomed over the last two years. The Viridian Cannabis Index, which covers 60 publicly traded cannabis companies in the United States and Canada, was up 77.5% in 2013, 38.4% in 2014, and 23.6% in 2015 Q1.
  4. Total legal cannabis sales have sailed in recent years With $1.6 billion in sales in 2013, it is expected to increase to $3.5 billion in 2018, which is good for an expected 17% compound annual growth rate.
  5. Nearly half of U.S. states and all of Canada now have access to medical cannabis. That includes 23 states (148.6 million people), 1 district (0.7 million people) and Canada (35.2 million people). That’s 52% of the entire population of the United States and Canada.

  

   

  The landscape of the cannabis industry is quickly changing. More jurisdictions are turning to legalization of medical and recreational cannabis, and the growth story behind the industry is just beginning for investors.

  Source: Visual Capitalist

  

  

  

  

  

• Russia Says Turkey's Attack On Jet Was "Planned Provocation" As Ankara Moves Tanks Near Syrian Border

  On Tuesday evening, we took a close look at the circumstances surrounding Turkey’s decision to shoot down a Russian Su-24 near the Syrian border. The incident was the most meaningful escalation in the conflict to date and marks the first time a Russian or Soviet plane has been downed by NATO since 1953.

  The pilots ejected, one of whom was shot in his parachute by FSA-affiliated Alwiya al-Ashar militiamen who subsequently celebrated over the body. About an hour later, the FSA’s 1st Coastal Brigade used a US-made TOW to destroy a Russian search and rescue helicopter, killing one Russian marine.

  For his part, Vladimir Putin called Erdogan a backstabber and proceeded to accuse Turkey of flying the black flag of ISIS and funding the Islamic State cause by facilitating the sale of illegal crude. 

  

  Miraculously, there were no further escalations overnight, but as we outlined in detail on Tuesday, something doesn’t add up about the story Ankara is telling. According to a letter Turkey sent to UN Secretary-General Ban Ki-moon and the 15 members of the UN Security Council, the Russian warplane, flying at 19,000 feet, “violated Turkish national airspace to a depth of 1.36 miles and 1.15 miles in length for 17 seconds.” If you do the math on that, it means the Su-24 was basically flying at stall speed. 

  Journalists: Learn to do basic maths. Look at Turkey’s statement to UN: 1.15 miles / 17 seconds x 60 x 60 = 243 miles/hour = 391 km/hour

  — WikiLeaks (@wikileaks) November 24, 2015

  Here’s how we summed up the situation: 

  It’s important not to forget the context here. Ankara is fiercly anti-Assad and in addition to being generally displeased with Russia’s efforts to support the regime, just four days ago, Turkey summoned Russian ambassador Andrey Karlov over the alleged bombing of Turkish villages near the border. 

   

  Of course Russia wasn’t just bombing Turkish civilians for the sheer hell of it. It’s likely Moscow was targeting the very same FSA-affiliated Alwiya al-Ashar militiamen who shot and killed the parachuting Russian pilot. 

   

  In short, it looks like Ankara saw an opportunity to shoot down a Russian jet in retaliation for strikes on Turkish rebel fighters who are operating alongside anti-Assad forces.

  With that in mind, note that on Wednesday, Sergei Lavrov (not known for holding his tongue or even for observing any semblance of diplomatic decorum) accused Ankara of conducting a pre-meditated strike. “We have serious doubts this was an unintended incident and believe this is a planned provocation,” Lavrov said, after a meeting with his Turkish counterpart Mevlut Cavusoglu. Lavrov also said he would back a plan to close the Turkish-Syrian border. “I think this is the right desicion. I hope President Hollande will tell us more about the issue tommorow. We would be ready to consider all measures that needed for this [closing the border]. By closing the border we will basically thwart the terrorist threat in Syria,” he said.

  Russia also said the Syrian army (so, Iran or Hezbollah) had retrieved the second pilot who is now “alive and well.” Here’s how French ambassador Alexandre Orlov summed up the situation in an interview with Europe 1 radio: “One on board was wounded when he parachuted down and killed in a savage way on the ground by the jihadists in the area. The other managed to escape and, according to the latest information, has been picked up by the Syrian army and should be going back to the Russian air force base.”

  Note the difference in the way Russia and the US describes the FSA. For the US, they are a “moderate opposition group,” for the Russians, they are “jihadists.” Considering they are allied with al-Qaeda, and judging from the gruesome videos released by the group on Tuesday, you’d be forgiven if you’re inclined to go with Moscow’s characterization.

  Meanwhile, Russia is set to deploy the S-400s. “Russia also said Wednesday it would take new measures in Syria to protect its aircraft, deploying powerful S-400 anti-air missile systems, which have a range of nearly 250 miles, to Russia’s Khmeimim airbase in northwestern Syria,” WaPo reports, adding that “the airbase is located a little under 20 miles from the Turkish border, and has the potential to create headaches for Turkish and other aircraft in a U.S.-led coalition that are carrying out a separate airstrike campaign in Syria.”

  These are of course the same S-400s which the Western media claimed were already at Latakia earlier this month – a contention Russia denied at the time. Whether or not they were there is now immaterial – they’ll be operational from this point on. As a reminder, here’s what the systems look like:

  

  What seems clear (as noted above and as discussed at length on Tuesday), is that Turkey is keen on protecting Alwiya al-Ashar and other anti-Assad forces operating near the Turkish border. Indeed, Sergei Lavrov said as much in a press briefing on Wednesday. “[The] question arises whether Turkey is defending Syria area to protect rebel infrastructure,” Lavrov said at a press briefing in Moscow on Wednesday.

  Indeed, Ankara looks to be stepping up its military presence near the area where the Russian plane was shot down. “Turkey has moved 20 tanks from west of country to southern province of Gaziantep, bordering Syria, and increased number of F-16s flying patrols along border to 18 as of yesterday,” state-run Anadolu Agency said today. Here’s a visual that shows you where Gaziantep is in relation to Aleppo and to the Su-24 crash site:

  

  The logical next question to ask here is how prepared Turkey is to defend FSA positions because it’s only a matter of time before the IRGC and Hezbollah invade these areas on the ground and when that happens, you can expect Ankara to cry genocide against Syria’s Turkmen miniority. What comes after that is anyone’s guess. 

  In the meantime, Lavrov says Russia “is not going to war against Turkey,” but remember what we said last month when Turkey shot down a Russian drone: “For now, it appears as though The Kremlin is going to take this one in stride, but that may be “strike one” so to speak, meaning NATO might have one or two more pot shots it can take before Erdogan gets a slightly less “neighborly” call from Moscow.”

  Tuesday was strike two.  

  

  

  

  

• Guest Post: Why Is The US Hanging Turkey Out To Dry?

  Authored by Andrew Korybko via OrientalReview.com,

  Turkey’s shooting down of the Russian anti-ISIL aircraft was an unprecedentedly direct aggression against Moscow that trumps even the tense and hostile militarism of the Old Cold War era. The world stands on edge in the immediate aftermath of this attack, with tabloid-esque commentators warning that the beginning of World War III awaits. President Putin, for his part, has been much more measured in responding to the incident, but still couldn’t contain his shock at having received this “stab in the back delivered by accomplices of the terrorists.”

  The question now comes down to how Russia will respond to what happened, but perhaps even more important for observers to ponder is why the US is unofficially distancing itself from its ally’s aggression. Despite both NATO and Obama giving full backing to Turkey’s fateful decision, Reuters has quoted an anonymous American military official that purposely leaked that the Russian plane was downed while over Syrian airspace, basing the assessment on heat signature detection. This raises questions about why the US is playing both sides of the fence – on one hand, publicly supporting Turkey, while on the other, strategically releasing information that conflicts with Turkey’s official depiction of events.

  The Setup:

  This dichotomy is suggestive of a Machiavellian plan whereby the US manipulates both Turkey and Russia into behaving according to what it has already forecast as their most likely responses, knowing full well that these could be guided into supporting grander American strategic interests. For starters, the US likely intimated to Erdogan that not only does he have the ‘legal’ right to shoot down any Russian aircraft he chooses, but that the US would actually prefer for him to take this course of action sooner than later. This is reminiscently similar to how the US put Sakkashvili up to bombing Tskhinval and invading South Ossetia – it may not have directly issued an official, on-paper order for this to occur, but it left no ambiguity as to how it wanted its proxy to act in each situation.

  According To Plan:

  For the most part, this explains the public pronouncements of NATO and the US’ support for Turkey’s actions, and it also goes a long way in soothing Erdogan’s nerves and reassuring him that he did the right thing. The predicted aftereffect of the plane’s downing was an immediate deterioration of Russian-Turkish relations, with the full consequences potentially affecting the diplomatic, military, economic, and energy spheres. Foreign Minister Sergei Lavrov cancelled his upcoming trip to Turkey and advised Russian tourists to refrain from visiting the country due to the terrorism level being similar to Egypt’s. Prime Minister Dmitry Medvedev has spoken about the possibility of barring Turkish companies from the Russian market and cancelling planned nuclear and gas projects with the country.

   

  

  All of these prospective actions are fully justifiable and grounded in the self-respect that Russia feels in not aiding what has proven itself to be a militantly hostile state no matter the economic stakes involved, but at the same time, one can’t help but wonder whether this is exactly what the US wanted. There’s no doubt that Russia would react this way, as even a cursory glance of its potential ‘response toolkit’ indicates that these are the most likely to be taken amidst any deterioration of relations. Therefore, it can’t be discounted that the US put Erdogan up to shooting down the Russian jet precisely to provoke the predictable Russian response in threatening to cancel its forthcoming energy projects with Turkey, the core of the strategic partnership between the two. If this is the case, and it certainly seems likely, then it shows exactly how far the US is willing to go to make sure that Russian energy (and subsequently, all of the soft power and multipolar advantages that come with it) doesn’t enter the Balkans through the Turkish Stream megaproject, likely because it understands the transformative impact that this would eventually have on the entire region.

  The Curveball:

  Thus far, everything seems reasonable and well within the realm of predictability, but the curveball comes with the Reuters revelation that an unnamed American military source is essentially saying that the Russian position is justified. Unexpectedly, it now seems as though the US is also playing to Russia’s side to an extent, and this raises questions about what it really wants. After all, it’s been proven beyond any doubt that American-supplied TOW anti-tank missiles were used to down the Russian rescue helicopter that attempted to retrieve the two pilots. With this indisputable evidence of indirect American aggression against Russia, it certainly is a curious fact that the US establishment would purposely leak a statement saying that the Turkey downed the Russian plane in Syrian airspace, and basically take Russia’s side on this behind the scenes.

  Playing The Kurdish Card:

  Explaining this diplomatic twist requires knowledge about the popular response that Russian citizens and global supporters worldwide are requesting to Turkey’s aggression. They quite reasonably propose that Russia intensify its arms shipments to anti-ISIL Kurdish fighters, with the wink-and-a-nod approval that some of them would be siphoned off to the PKK and be used against the Turkish military. This is an effective and pragmatic plan, and in reality, it actually doesn’t even require a policy shift from Moscow because support is already being rendered to some Kurdish groups as part of their joint cooperation in the anti-ISIL struggle. The Kurdish Insurgency hasn’t gone away since Erdogan unwittingly unearthed it this summer as an electioneering tool, and the fact that it’s still going strong even after the elections has scared him so much that he might have been the one who ordered the recent assassination attempt against pro-Kurdish HDP co-chairman Selahattin Demirtas. Thus, if Russia chooses to inflict an asymmetrical response to Turkey by beefing up its indirect support for the PKK and other Turkish-based anti-government Kurds or disrupting Blue Stream gas supplies in order to provoke an intensified rebellion, then it could certainly inflict a heavy amount of strategic damage to Erdogan and increase the likelihood either of a military coup in Turkey (explained more in detail as part of a different article accessible here) and/or the creation of an independent Kurdistan.

  That being said, the US has traditionally been the out-of-regional power that has the greatest interest in Kurdistan, seeing the possible state as a ‘geopolitical Israel’ from which it can simultaneously exert influence on the rump portions of Turkey, Iran, Iraq, and Syria. The strategic trajectory of a theorized Kurdish state has been complicated by the anti-ISIL campaign, however, since many Kurds have shown themselves to be pragmatic in cooperating with Russia and Iran against this shared threat. The positive multipolar cooperation that each of these countries has engaged in with the Kurds challenges the US’ planned hegemony over them and their territory, and it thus means that any forthcoming independent Kurdish political entity could theoretically go either towards the multipolar or the unipolar camps. At this point in time, and given all of the dynamic military and diplomatic developments of the past couple of months, the loyalty of a future Kurdish state (no matter if its boundaries are confined only to present-day Turkey and/or Iraq) is totally up for grabs, and it’s impossible to accurately forecast which way it will go.

  

  Kurdish women’ ‘Peshmerga’ batallions cause horror among ISIS gangs in Syria.

  The strategic ambiguity that this entails means a few things to the US and Russia. For the US, it indicates that the time is now for it to bunker down and support Kurdistan’s independence before it loses the strategic initiative to Russia, which might be moving in this direction (whether formally or informally) out of grand geopolitical spite for Turkey. Moscow, as was just mentioned, seems inclined to hit Ankara where it hurts most, and that’s through supporting the Kurdish Insurgency in one way or another. However, it’s not yet known how far this would go, and whether Russia would pursue this strategy as a form of short-term vengeance or if it would resolutely go as far in recognizing Kurdish Independence if it could ever be de-facto actualized. Of course, Russia wouldn’t do anything that could endanger the territorial integrity of its Syrian, Iraqi, and Iranian allies, but if the Turkish-based Kurds contained their ambitions solely within the borders of Russia’s historical rival, then it might be able to rectify itself with this reality, especially if they even refrain from legal independence and instead seek a sort of broadly de-facto independent federative or autonomous status within a unified Turkey (which could only realistically be brought about by an intensified insurgency and/or a coup in Ankara).

  Joining Hands For Kurdistan:

  Having explained all of this, it’s now clear that a remarkable convergence of strategic interests has developed between the US and Russia focusing on Turkish-administered Kurdistan. Understanding the changing calculations that Russia may now be having towards this topic as a response to Turkey’s aggression against it, one can’t necessarily preclude the possibility that the Reuters leak was actually a strategic overture to Russia. Washington might be sending a signal that it wants to speak to Moscow about ways to cooperate in this regard, knowing that each of them possibly have an interest now in seeing the proto-state rise to the fore of the global arena. A shared understanding has likely developed by now that a New Cold War competition for Kurdistan’s loyalty could be fought after the entity is legally formalized (whether as an independent state or a de-facto independent sub-state entity modeled off of the Kurdish Regional Government in Iraq), and that the two Great Powers need to put aside some of their differences in joining hands to see this happen first.

  Such a strong signal could have been discretely and secretly communicated to Russia via secure diplomatic and intelligence channels, but the reason it was so publicly broadcast via Reuters, the global newswire service, is because the US also wants to send a signal to Turkey as well. Despite taking its side on the matter before the global eye, the US is also “stabbing its ally in the back”, to channel President Putin, by purposely leaking the information that the Russian jet was shot down over Syrian airspace. It’s not news that the US has been unhappy with Erdogan for not behaving more submissively in the past and refusing to blindly go along with the previous plans to invade Syria (rendered useless after Russia’s anti-terrorist military intervention there), so it might be trying to convey the message it’s had enough of his games and is now playing their own in return. Of course, the US has always been manipulating Turkey ever since it joined NATO and allowed the Americans to operate out of Incirlik airbase, but this time, the treachery is being taken to a higher level by implicitly throwing out suggestions to Russia, Turkey’s new foe (and only because the US manipulated Turkey into taking aggressive action against it), that it might want to team up in undermining Ankara’s control over its volatile southeast.

  Concluding Thoughts:

  It can safely be assumed that the US influenced Turkey into shooting down the Russian jet over Syrian airspace, predicting quite accurately that this would immediately lead to the deterioration of ties between the two states. An elementary forecast of the specific counter-measures that Russia may take stipulates that these will likely relate to the diplomatic, economic, and energy sectors, which is just what the US wants. Because of Turkey’s aggression against Russia, the strategic partnership between the two is now broken (although not necessarily irreversibly), and Ankara has become the fourth and perhaps most geopolitically significant member of the anti-Russian Intermarum coalition. Furthermore, Turkish Stream looks to be indefinitely put on hold, thus delaying Russia’s game-changing pivot to the Balkans. While the ‘unintended’ consequence of the crisis has been Russia’s foreseeable and absolutely legitimate decision to deploy the S-400 SAM system to Syria, this in a way also plays to the manipulated Turkish-Russian rivalry that the US wanted to produce in order to solidify the completion of the Intermarum project and simultaneously counter Russia’s growing influence in the Mideast.

  The reaction that no one could have predicted, however, is the US purposely leaking comments to Reuters that support the Russian version of events, namely, that the anti-terrorist jet was shot down while flying over Syrian airspace. This completely conflicts with what the US and NATO have said in public, but it shows that the US has had enough time to game out the plane-shooting scenario well in advance, and that it’s playing a sinister divide-and-conquer game against Turkey and Russia. Put in the position where its decision makers are scrambling for responses to the unprecedented aggression against them, Russia can now more easily be led into supporting the Kurdish struggle for sovereignty (whether formally independent or de-facto so) in Turkey, which coincides with one of the US’ premier geopolitical projects.

  From an American perspective, a divided Turkey is doubly useful for its grand strategic designs, as the large pro-NATO Turkish military would remain mostly intact, while the US could gain a major base for force projection (both hard and soft) right in between some of the most important states in the region. It can’t, however, go fully forward with this project unless it has the support of the diplomatic leader of the multipolar world, Russia, otherwise Kurdistan will be just as illegitimate as Kosovo is and might not even come to geopolitical fruition if Moscow and Tehran work to stop it.

  Seen from the Russian standpoint, the US’ intimations actually seen quite attractive. An increase of Russian support to anti-ISIL Kurdish fighters would be a plausibly deniable but strategically obvious way to funnel weapons and equipment to anti-Turkish PKK insurgents. Weakening Turkey from within would be a strong asymmetrical response to a country that has lately been a major thorn in Moscow’s side, and it might create the conditions either for a military coup against Erdogan, a divide between him and Davutoglu (which could be used to Russia’s diplomatic advantage so long as the constitution remains unchanged and Davutoglu legally remains more powerful than Erdogan), or a weakening of Erdogan and a tempering of his anti-Russian and anti-Syrian positions.

  Importantly, the emergence of an independent or semi-independent Kurdish entity in Turkey could create a tempting piece of geopolitical real estate in the New Cold War, but of course, it would then be contested between the multipolar and unipolar worlds. Still, however, it would represent a positive multipolar development in the Mideast, since under the present state of affairs, the entirety of Turkish territory is under unipolar control. If a large chunk of it suddenly became the object of competition between both blocs, then it would definitely signify a strategic advancement at the expense of unipolarity. Of equal importance, this would also significantly impact on the Turkish state and whatever government is in power by that time, and it could possibly make it more amenable to returning to the previously pragmatic relationship with Russia and perhaps even resurrecting Turkish Stream.

  Therefore, Russia surprisingly has nothing to lose and everything to gain by covertly supporting the Kurdish cause in Turkey, no matter if it’s full-out independence or relatively more restrained autonomy, and even if this is objective is shared by the US and done in semi-coordination with it. Turkey would immediately be put on the defensive (although it could try desperately responding by supporting Tatar terrorists in Crimea), the multipolar world have a chance at competing for the loyalty of an ultra-strategically positioned entity, and the consequences that this has for the Turkish government (whether it remains the same or is changed via a [military] coup) could recreate the political conditions for Turkish Stream’s feasibility.

  

  

  

  

  

• To Junk Bond Traders "It Almost Feels Like 2008"

  Despite distressed-debt funds suffering their worst losses since 2008, mainstream apologists continue to largely ignore the carnage in the credit market (even though veteran bond managers have urged "it's not just energy, it's everything.") With the number of loan deals pricing below 80 (distressed) at cycle peaks, and "a less diverse group of investors holding a lot more bonds," price swings continue to be wild but as DB's Melentyev warns, initially "all of this looks random when there is no underlying news to support the big moves. But eventually a narrative emerges — maybe we have turned the corner on the credit cycle."

   

  Investors are shunning the lowest-rated junk bonds.

  

   

  That is underscored by the extra yield that investors are demanding to hold CCC rated credits relative to those rated BB. This has jumped to the most in six years.

  

  As Bloomberg reports,

  With confidence slipping in the strength of the global economy, there are fewer investors to take the opposite side of a trade in the riskiest parts of the market, according to Oleg Melentyev, the head of U.S. credit strategy at Deutsche Bank.

   

  "These are all small dominoes in one corner of the market," Melentyev said. "In the early stage, all of this looks random when there is no underlying news to support the big moves. But eventually a narrative emerges — maybe we have turned the corner on the credit cycle.

  One sometimes-overlooked element that’s contributing to the big price swings is the increasing concentration among investors, according to Stephen Antczak, head of credit strategy at Citigroup Inc.

  Mutual funds, insurance companies and foreign investors make up 68 percent of corporate bondholders compared with 52 percent at the end of 2007.

   

  That means that if one mutual fund investor wants to sell some holdings, there isn’t another one that’s ready to step in. That’s because they typically have similar mandates from investors and often need to sell for the same reasons.

   

  "A less diverse group of investors hold a lot more bonds," Antczak said. "The difference between incremental buyer is more now than it used to be. It takes a bigger move to get people interested."

  Bonds of smaller companies that carry a high amount of debt relative to earnings are most susceptible to falling quickly after earnings are reported, said Michael Carley, a co-founder of hedge-fund firm Lutetium Capital.

  

  Money managers looking at the bonds of those types of companies aren’t spending time examining the issues in those businesses before selling because they’ve got their “own wounds to lick,” said Carley, the former co-head of distressed debt at UBS AG. “And the dealers are saying, ‘I don’t own it; I don’t care.’ So it just plunges.”

  

   

  As we noted previously, for the first time ever, primary dealers' corporate bond inventories have turned unprecedentedly negative. While in the short-term Goldman believes this inventory drawdown is probably a by-product of strong customer demand, they are far more cautious longer-term, warning that the "usual suspects" are not sufficient to account for the striking magnitude of inventory declines… and are increasingly of the view that "the tide is going out" on corporate bond market liquidity implying wider spreads and thus higher costs of funding to compensate for the reduction is risk-taking capacity.

  *  *  *

  One wonders when stock investors will wake up again?

  

   

  

  

  

  

  

  

• Puerto Rico Is About To Default: Your Complete Guide To An Island Debt Debacle

  Last week, we brought you the latest from Puerto Rico’s debt debacle. The commonwealth is desperately trying to restructure some $72 billion in debt while staring down a $354 million bond payment due on December 1. 

  As we discussed at length on Friday, some $270 million of what’s due next week is GO debt guaranteed by the National Public Finance Guarantee Corp. Defaulting on that is bad news and as Moody’s warned earlier this month, a missed payment on the commonwealth’s highest priority obligations “would likely trigger legal action from creditors, commencing a potentially drawn-out process absent swift federal intervention.” 

  Make no mistake, federal intervention is likely to be anything but “swift.”

  A Senate judiciary committee headed by Iowa Republican Charles Grassley will meet on December 1 to discuss a legislative proposal to assist the Padilla government, but it’s hard to imagine that a decision will be made in time to avert at least a partial default. 

  Ultimately, the decision will be between paying bondholders and ensuring that the government can continue to provide public services, and just as Greece prioritized pensions over IMF payments last summer, Padilla isn’t likely to sacrifice the public interest at the altar of the island’s debtors. 

  So, as the clock ticks, we bring you the following helpful guide courtesy of Bloomberg who has made a “list of the island’s debt, how much is outstanding, when major monthly payments are due, and the source of funds that back the securities.”

  *  *  *

  From Bloomberg

  • Puerto Rico Sales Tax Financing Corp.: $15.2 billion. The bonds, known by the Spanish acronym Cofinas, are repaid from dedicated sales-tax revenue. A $6.2 billion portion of the debt, called senior-lien, is repaid first. The remaining $9 billion, called subordinate-lien, get second dibs. $1.2 million of interest is due in February and again in May. Senior Cofinas maturing in 2040 last traded for an average yield of 9.5 percent, while subordinate ones yielded 18 percent.
  • General-obligations: $12.6 billion. The debt backed by the commonwealth’s full faith and credit. The island’s constitution says general obligations must be repaid before other expenses. Puerto Rico owes $357 million of interest in January and an additional $805 million of principal and interest is due July 1. Securities due in 2035 last traded for an average yield of 11.5 percent.
  • Puerto Rico Electric Power Authority: $8.2 billion. Prepa, as it’s called, is the island’s main supplier of electricity and repays the debt from what it charges customers. The utility owes $196 million of interest in January and $420 million of principal and interest July 1. Prepa is negotiating with bond-insurance companies after reaching an agreement with some of its bondholders, who agreed to take a 15 percent loss. Bonds maturing in 2040 last traded at an average yield of 9.2 percent.
  • Puerto Rico Government Development Bank: $5.1 billion. The GDB lends to the commonwealth and its localities. When those loans are repaid, the bank can pay off its debt. The bank owes $354 million in December and $422 million in May. Federally taxable bonds maturing in 2019 last traded for an average yield of 57 percent.
  • Puerto Rico Highways & Transportation Authority: $4.6 billion. The highway agency repays its debt with gas-tax revenue. It owes $106 million of interest in January and $220.7 million of principal and interest in July. The commonwealth has the ability to divert revenue that cover some highway bonds to pay its general-obligation securities, if there are no other available resources, according to the island’s most recent financial disclosure. Bonds maturing July 2028 last traded for an average yield of 32 percent.
  • Puerto Rico Public Buildings Authority: $4.1 billion. The PBA bonds are repaid with lease revenue that public agencies pay for their office buildings. The agency owes $102.4 million of interest in January and $208 million of principal and interest in July. Bonds maturing 2042 last traded for an average yield of 10.4 percent.
  • Puerto Rico Aqueduct & Sewer Authority: $4.1 billion. The utility, called Prasa, supplies most of the island’s water. The debt is repaid from water rates charged to customers. The water agency owes $86.5 million of interest in January and $135.1 million of principal and interest in July. Bonds maturing in 2042 last traded at an average yield of 8.7 percent.
  • Puerto Rico Pension-Obligation Bonds: $2.9 billion. The taxable debt was sold to bolster the island’s nearly depleted pension fund. The bonds are repaid from contributions that the commonwealth and municipalities make to the retirement system. The system pays $13.9 million of interest every month in this budget year. Securities maturing in 2038 last traded for an average yield of 22 percent.
  • Puerto Rico Infrastructure Financing Authority: $1.9 billion. Called Prifa, the agency has sold the island’s rum-tax bonds. These are securities repaid from federal excise taxes on rum made in Puerto Rico. Prifa owes $37.2 million of interest in January and $77.8 million of principal and interest in July. Bonds maturing in 2046 last traded for an average yield of 28 percent.
  • Puerto Rico Public Finance Corp.: $1.09 billion. The bonds are repaid with money appropriated by the legislature. The agency has defaulted every month since August on its debt-service payments because lawmakers failed to allocate the funds. It owes interest every month, the largest being a $24 million payment in February. Bond maturing in 2031 last traded for 7 cents on the dollar, according to trade reports. The yield wasn’t disclosed.

  *  *  * 

  As a reminder, Puerto Rico’s Treasury Single Account likely has negative cash balance, which, according to Height Securities analyst Daniel Hanson, “will make it ‘nearly impossible’ to meet all government payroll obligations over the next six weeks.”

  In other words, even if the government does default in order to save money for the provision of public services, social unrest may now be unavoidable.

  

  

  

  

  

• The Triumph Of Materialism: The Average American Will Spend 830 Dollars On Christmas In 2015

  Submitted by Michael Snyder via The Economic Collapse blog,

  Has there ever been a major holiday more focused on materialism than the modern American Christmas?  This year, Americans are planning to spend an average of 830 dollars on Christmas gifts, which represents a jump of 110 dollars over the average of 720 dollars last year.  But have our incomes gone up accordingly?  Of course not.

  In fact, real median household income in the United States has been experiencing a steady long-term decline.  So in order to fund all of our Christmas spending, we have got to go into even more debt.

  We love to pull out our credit cards and spend money that we do not have on lots of cheap, useless stuff made on the other side of the world by workers making slave labor wages.  We do the same thing year after year, and most of us have grown accustomed to the endless cycle of growing debt.

  In fact, one Pew survey found that approximately 70 percent of all Americans believe that “debt is a necessity in their lives”.  But then we have to work our fingers to the bone to try to make the payments on all of that debt, not realizing that debt systematically impoverishes us.  It may be hard to believe, but if you have a single dollar in your pocket and no debt, you have a greater net worth than 25 percent of all Americans.  I know that sounds crazy, but it is true.

  Overall, when you add up all forms of debt (consumer, business, local government, state government and federal government), Americans are more than 60 trillion dollars in debt.

  Let that sink in for a bit.

  40 years ago, that number was sitting at about 3 trillion dollars.

  We have been on the greatest debt binge in the history of the world.  Even though we were “the wealthiest, most prosperous nation on the entire planet”, we always had to have more.  We just kept on borrowing and borrowing and borrowing from the future until we completely destroyed it.

  And we still haven’t learned anything.  Instead, this Christmas season we will be partying like it’s 2007…

  Americans are planning on celebrating Christmas like it’s 2007.

   

  

   

  A November survey by Gallup found that US adults are planning on spending about $830 on average on Christmas gifts this year.

   

  That’s a huge jump from last year’s $720 average.

   

  Notably, American consumers haven’t suggested a number that high since November 2007, when they were planning on spending $866 on average.

  Sadly, our incomes simply do not justify this kind of extravagance.  As Zero Hedge has pointed out, household incomes “actually peaked at least 15 years ago in 81% of U.S. counties.”

  So why can’t we adjust our lifestyles to match?

  Why must we always have more?

  Here are more details on our declining incomes from the Visual Capitalist…

  • Income peaked one year ago for many of the counties that are a part of the shale boom. This includes much of North and South Dakota, as well as parts of Texas, Nebraska, and Oklahoma. Income in Washington, D.C. and neighboring Arlington County also peaked then.
  • In 1999, a total of 1,623 counties had their households reach peak income. The majority of these counties are in the Midwest and Southeast.
  • The most southern part of California and parts of New England both peaked around 25 years ago.
  • Many states along the Rocky Mountains such as Wyoming and Montana had counties that peaked roughly 35 years ago.
  • Household income peaked in upstate New York, the northern tip of California, and southern Nevada at the same time that humans were first landing on the moon in 1969.

  But you won’t hear this reported on the mainstream news, will you?

  They want us to think that happy days are here again.

  The following chart comes from the Federal Reserve, and it shows that real median household income in the United States has been trending down since 1999…

  

  Americans should be having smaller Christmases instead of bigger ones, but that doesn’t fit the image of who we still think that we are.

  Recently, I published an article entitled “Goodbye Middle Class: 51 Percent Of All American Workers Make Less Than 30,000 Dollars A Year” that was shared more than 44,000 times on Facebook.  In that article, I included brand new figures that were just released by the Social Security Administration.  As you can see, the quality of our jobs is not great…

  -38 percent of all American workers made less than $20,000 last year.

  -51 percent of all American workers made less than $30,000 last year.

  -62 percent of all American workers made less than $40,000 last year.

  -71 percent of all American workers made less than $50,000 last year.

  Without a doubt, most American families should not be spending hundreds of dollars a year on Christmas gifts.

  At these income levels, most American families are just barely surviving.

  But once again this year, millions upon millions of Americans will flock to the malls and big box stores in a desperate attempt to make themselves happy.

  Sadly, those efforts will be in vain.  In fact, in a previous article I highlighted the fact that Christmas is the unhappiest season of the year.  The suicide rate spikes to the highest level of the year during “the holidays”, and 45 percent of all Americans report that they dread the Christmas season.  The following is an excerpt from a Psychology Today article…

  We are told that Christmas, for Christians, should be the happiest time of year, an opportunity to be joyful and grateful with family, friends and colleagues. Yet, according to the National Institute of Health, Christmas is the time of year that people experience the highest incidence of depression. Hospitals and police forces report the highest incidences of suicide and attempted suicide. Psychiatrists, psychologists and other mental health professionals report a significant increase in patients complaining about depression. One North American survey reported that 45% of respondents dreaded the festive season.

  In recent years, an increasing number of Americans have given up the tradition of Christmas gifts entirely, and many of them that I know seem quite happy to have done so.

  Of course most people are still quite satisfied with the status quo, and there are many that will get very angry with you if you dare to suggest that the way that Americans celebrate Christmas has gotten way out of hand.

  But shouldn’t it alarm us that for most Americans the biggest holiday of the year is all about the “stuff” they are going to buy, the “stuff” they are going to give and the “stuff” they are going to get?

  As a society, we are obsessed with things, but those things are never going to make us happy.

  

  

  

  

  

• Charting The Full Impact Of Europe's Plunging Currency On U.S. Corporate Revenues

  When it comes to the current round of currency war between Europe and the US, Europe is winning and the US is losing, and  nowhere is this more obvious than the revenues of the largest US corporations.

  Here is FactSet showing that Dow 30 companies continued to report sales declines in Europe in Q3 as a result of the surge in the US Dollar.

  “Foreign exchange impacts reduced sales by 7.4 percentage points, with notable year-on-year declines in the euro, yen, and Brazilian real. These currencies devalued versus the U.S. dollar by 15%, 14%, and 37% respectively.” –3M (October 22)

  Coming into the Q3 earnings season, there were concerns in the market regarding the impact of slower economic growth and the stronger dollar relative to the euro on U.S. corporate earnings for the third quarter. With the final DJIA components (Home Depot and Wal-Mart Stores) reporting results for Q3 this past week, how did companies in the DJIA perform in the third quarter in Europe in terms of sales?

  How did the revenue numbers for Q3 2015 compare to prior quarters?

  Overall, 11 of the 30 companies in the DJIA provided revenue growth numbers for Europe for the third quarter. Of these eleven companies, nine reported a year-over-year decline in revenues. This number is equal to the number of Dow 30 companies that reported a year-over-year sales decrease in the previous quarter (9). For seven of these DJIA companies, the third quarter marked (at least) the third consecutive quarter of year-over-year declines in revenues from Europe.

  Why? Thank the Fed that topline growth is declining as a result of the soaring dollar… even if the full impact won’t be felt for a long time because for some unclear reason, earnings multiples are rising even as profitability itself is declining: “The stronger dollar appeared to be a factor in the weaker revenue performance of these companies in Europe. Of the 11 companies in the DJIA that provided revenue growth numbers for Europe, all 11 cited some negative impact on revenues or EPS (or both) for Q3 due to unfavorable foreign exchange during their earnings conference calls.”

  

  At some point the Fed will say enough, and that the time has come to give US corporations the benefit of a weak currency. It will probably come just as the Fed is stuck neck-deep in its “tightening cycle.”

   

  

  

  

  

  

• The December Jobs Number May Really Be The "Most Important Ever"

  Everyone has heard the phrase “this is the most important jobs report ever”, and virtually every time this has been an exaggeration. However according to an analysis conducted by BofA’s Vadim Iaralov, the nonfarm payrolls report on December 4 (a day after the just as critical ECB announcement, but more importantly 12 days before the Fed’s “historic” December 16 “rate-hike” announcement) may just indeed be the most important jobs number. Ever.

  Here is why, according to Bank of America:

  With the much-anticipated 16 December FOMC meeting around the corner, the 4 December US non-farm payrolls (NFP) is one of the most important remaining data points. The significance of recent NFP surprises in driving asset prices has been increasing since summer 2014 and is near historical highs.

   

  

   

  We last observed this pattern of market behavior during the 2004-2006 Fed hiking cycle, suggesting this relationship exists due to market expectations for rate policy normalization.

   

  During the previous hiking cycle the importance of NFP surprises rose ahead of the first hike and continued to rise until the end of the hiking cycle. Despite high anticipation for the next Fed hike, the importance of the employment report could remain elevated even after the initial liftoff. This relationship is particularly pronounced now as the Fed has adopted a data-dependent stance, and each NFP report will likely continue to play a key role in informing the path of subsequent Fed policy decisions.

  The importance is actually quite simple: if the report is a solid beat, and if the Fed beats, that means that the stronger the economy, at least as measured by the jobs report, the steeper the rate of hikes will be, the more negative the impact on risk assets. Perhaps this is why so many sellside firms have been setting the stage for a “newer normal” in which a monthly increase of 100,000 jobs is actually warmly greeted by the Fed, even if in reality it means that the US economy is actually stagnating and barely covering the natural rate of growth.

  So what does this mean for various asset classes:

  In past hiking cycles, financial assets all became more correlated to NFP surprises heading into the initial hike as the market began anticipating Fed policy changes. Currently, the importance of NFP surprises is elevated for USD pairs and rates, but low for equities.

   

  

   

  This is an important divergence from the previous hiking cycle when all three asset classes exhibited consistent reactions to NFP surprises. Historically, on positive surprise days, dollars and equities rallied while rates sold off.

  Here is something surprising: according to BofA “Currently, equities are unsure of how to react to a December rate hike.”

  And it all goes back to what we have been warning about for a few months now: if the Fed hikes, it would be a policy error, one from which the Fed may not recover:

  One possible explanation for this divergence is that a December hike would take place at a time when global growth has been slowing rather than accelerating. World GDP YoY growth has been declining since 1Q14, whereas it was increasing during the 1999 and 2004 hikes. Another potential reason is the hike could disturb global imbalances from years of zero-interest rate policy. For these reasons, the risk of a policy mistake is greater than during previous hiking cycles.

  None of which makes the December NFP any less important, however it does mean that just like the Fed’s taper announcement in 2013, and the Fed’s “hawkish” announcement which sent stock surging, the market reaction to next Friday’s jobs report will have some solid support from the trading desk located on the 9th floor of Liberty 33, and, of course, its ancillary market spoofing division in Citadel.

  

  

  

  

  

• With Mass Shootings, The State Makes Us Less Safe

  Submitted by Justin Murray via The Mises Institute,

  In the wake of last month’s shooting at Umpqua University in Oregon, national debate has once again been sparked over the role of firearm controls. Gun-control laws must be passed, we are told, that target these events and reduce or eliminate their frequency. However, much like most debates in the political realm, convenience and sound bites take the center stage over understanding root causes of violence itself. The debate is further confused by improper data comparison and information gathering techniques, mainly to drive a pre-designed political agenda and not to attempt to solve the homicide problem.

  Before we get into the issue of general homicide, it is important to clear a few common errors in identifying the events in Oregon.

  The biggest claim, made by President Obama, is that this doesn’t happen in the same frequency in Europe. Even the linked “Fact Check” at PolitiFact uses information incorrectly. The biggest mistake is that individual nations are compared 1-to-1. A large event in a single small nation will upend the homicide rate while it is true that a smaller nation will have fewer individual events on virtue of being a smaller nation. Before a meaningful comparison can be made, the data needs to be normalized. To accomplish this, I placed every advanced, safe nation in Europe that had a kind of mass killing event into a single, unified nation for the purposes of this exercise. This normalized the population with both the US and this unified state with nearly identical population levels. The nations selected, that had these kinds of events in the past fourteen years, are The United Kingdom, Switzerland, Sweden, Slovakia, Norway, The Netherlands, Italy, Germany, France, Finland, The Czech Republic, Belgium, and Austria.

  An additional error that was made by PolitiFact is that their research ignored acts formally defined as terrorism, which means the Boston Marathon bombing in the US and the three Paris terrorist attacks in 2015 were ignored. I included all forms of mass killings since it is difficult to argue that a mass shooting is fundamentally different because of the motivation of the perpetrator. After the normalization, the chart of these events and the aftermath looks like this:

  

  

  On the surface, this does appear to meet the criteria of President Obama’s claim. These events do happen more often in the United States than in the above grouping of EU nations, with forty-four distinct events in the United States and twenty-five in the EU. However, counting distinct events doesn’t tell the whole story. To get a better understanding of the risk of mass killings, we have to identify the real cause of concern — the loss of human life. When we bring the human loss into consideration, the story changes significantly.

  

  

  This certainly doesn’t support the claim that the EU is safer from mass killers than the US. The main differences that, it is true, these events happen more often in the US, but the events in the EU normalized zone are more deadly (15 killed per EU event vs 7 per US event) which makes the EU events far worse. Further, the total danger from these events is greater in the EU countries, with the EU zone experiencing 933 injuries and 352 casualties to the 473 injuries and 322 casualties in the US.

  Is More Government Security the Answer?

  We’ve previously pointed out that gun control doesn’t have any meaningful impact on homicide rates in general, but would such controls, and other controls such as improved mental health screening and background checks, resolve this issue? Unfortunately, as the EU has shown, particularly with the recent tragic events in Paris, if a full on ban on ownership doesn’t work, then it is unlikely targeting the above factors will work, either. Not to trivialize those who lose their lives in these events, here is what these events look like compared to the general homicide rate:

  

  I didn’t label this EU or US because both are identical, a small blue sliver in a sea of orange. The total percentage is so small, that it shows up as “zero percent.”

  These events are difficult to counteract because of their randomness and infrequency. The ability of the government to identify ahead of time whether or not a small group of men obtained automatic weapons against their ban is likely impossible. Moreover, other means of prevention, such as laws against restricting individuals with mental health problems from purchasing guns, are only as good as those who actively seek help. None of our nations would be willing to subject ourselves to mandatory annual mental health screenings and placing our results in central databases.

  Gun bans, mental health screenings, and other government solutions to protect us from these unpredictable events fall under the classification of Security Theater. When the State is actively telling us that they’re taking care of our protection, we allow ourselves to be lulled into a false sense of security. Further, many governments restrict or outright ban individuals from ensuring their own safety.

  But State agents can’t be everywhere at all times. Security of your own self is ultimately only possible by engaging in the protection yourself. Around the world, governments have decided on our behalf that we do not have the option to secure our own bodies from violence and, in turn, generate the situations that lead to these events. Much like how most of us would own auto insurance absent government mandates, not because we fear the destruction of our vehicle but because, as the saying goes, it’s better to have it and not need it than need it and not have it. A society that is given the option to protect itself is not a fearful society, it is a prudent one. The victims of Paris were never allowed the option to protect their lives, nor were they fortunate to have armed defenders present or trained combatants to stop the attack before it reached them. People need the opportunity to secure their own safety since, as the past twelve years has shown, the State will fail them.

   

  

  

  

  

  

• THaNKSGiViNG 2015…

  

  

  

  

  

• Out Of Gas: Gazprom Cuts Off Ukraine, Will Turkey Be Next?

  Last month in “Pipeline Politics: Russia, Turkey Clash Over Energy As Syria Rift Shifts Focus To German Line,” we revisited Russia’s recent deal with Shell, E.On and OMV to double the capacity of the Nord Stream pipeline, the shortest route from Russian gas fields to Europe.  

  The MOU, signed earlier this year, angered the likes of Ukraine and Slovakia. In short, the more gas that can transported via the Nord Stream, the less needs to go through Eastern Europe and that means less revenue for the countries through which the pipelines are built. “They are making idiots of us. You can’t talk for months about how to stabilize the situation and then take a decision that puts Ukraine and Slovakia into an unenviable situation,” Slovak PM Robert Fico exclaimed a few months back. 

  For those who may need a refresher, here, coutesy of Bloomberg, is a look at the routes by which Russian gas reaches end customers:

  

  Obviously, the conflict in Ukraine has made for a rather awkward situation when it comes to Russian gas supplies. Long story short, Ukraine wants to cut its dependence on Russian gas and if everyone’s telling the truth, Gazprom would probably just as soon not deal with a country that, i) owes Moscow $3 billion on a defaulted bond, and ii) is effectively at war with Russia. 

  Nevertheless, a couple of months ago the two countries signed an deal ensuring supplies through Q1 of 2016 and guaranteeing Ukraine comparable prices to its neighbors. Well, that looks to have fallen apart, because on Wednesday, Gazprom decided to stop shipments to Ukraine citing a lack of prepayments. Optically, that looks bad for Kiev and so, in the energy equivalent of “you can’t fire me because I quit“, Ukraine announced today that it would stop buying Russian gas. 

  “The government has decided to order (state energy firm) Naftogaz to stop buying Russian gas. It is not that they are not delivering us gas, it is that we are not buying any,” Prime Minister Arseny Yatseniuk said. 

  Kiev says it can get cheaper prices elsewhere. “Gazprom CEO Alexei Miller on Wednesday warned Ukraine and Europe of possible gas disruptions following the cut-off,” AP notes, adding that “Russia uses Ukraine’s pipelines to transport a part of its gas deliveries to other European countries.”

  “Ukraine’s refusal to buy Russian gas threatens a safe gas transit to Europe through Ukraine and gas supplies to Ukraine consumers in the coming winter,” Miller said.

  But the pettiness didn’t stop there. Yatsenyuk went on to announce that Ukraine will be closing its airspace to the Russians due to “security concerns.”

  Importantly, it’s not just Eastern European that will suffer because of strained relations with Moscow and the expanded capacity of the Nord Stream. The deal with Shell, E.On and OMV has also put Moscow in a better bargaining position vis-a-vis Turkey, which is the second largest consumer of Russian gas and which paid Gazprom some $10 billion last year.

  

  Prior to the Nord Stream deal and before Russia got directly involved in Syria, Ankara and Moscow were enjoying a burgeoning trade relationship. However, once Russia began flying combat missions from Latakia, relations between Putin and Erogan began to sour. Turkey is a key player in the effort to supply training, guns, and money to the various rebel groups fighting for control of Syria. Indeed, there’s plenty of evidence to suggest that despite Ankara’s conveniently timed “crackdown” on ISIS (which began in late July and just happened to coincide with an AKP election setback), Turkey is perhaps the number one state sponsor of Islamic State (see here for more). Indeed, on Tuesday Putin accused Turkey of facilitating the group’s black market oil trade. 

  Needless to say, once Russia began to conduct airstrikes on anti-Assad elements, Erdogan was not pleased and it was clear from the beginning that it would only be a matter of time before the border disputes began. Sure enough, Turkey shot down a Russian drone last month and subsequently began to complain loudly about alleged Russian incursions into Turkish airspace. Those complaints led directly to a declaration by Erdogan that Turkey may seek to source its gas from someone else. As Sijbren de Jong, an energy security analyst at the Hague Centre for Strategic Studies told Bloomberg, “Putin is betting on Nord Stream, but that bet is risky.” 

  As the tension continued to build, many began to wonder about the fate of the proposed Turkish Stream pipeline and now that Turkey has shot down a Russian warplane, everyone wants to know whether Russia may decide to retailiate by simply cutting Ankara off, leaving Erdogan to figure out where to source some 53% of his country’s energy needs.

  Of course you can expect the Western media to say that Putin can’t afford to cut Turkey off, but even if the coverage is biased towards the NATO member in the equation, it’s still worth taking a look at the commentary. Here’s what Bloomberg had to say today: 

  Turkey relies on Russia for about half its natural gas supplies, paying state-controlled Gazprom PJSC as much as $10 billion last year. That makes their energy ties an unattractive target for retaliation.

   

  With so much at stake for both sides, Russia may look elsewhere in its response to the downing of its warplane by

  Turkey on Tuesday. Russian Deputy Energy Minister Anatoly Yanovsky said that supplies to Turkey would continue in line with the contract. Longer term, Turkey could reduce its dependence on Russian gas through alternative supplies.

   

  The relationship between Turkey and Russia was already strained before Russia’s warplane was shot down, and talks over a new gas pipeline had stalled, according to Alexander Kornilov, an Alfa Bank analyst in Moscow.

   

  Turkish Stream is redundant because there is already existing transfer capacity to Turkey and the rest of Europe, Sberbank PJSC’s investment bank unit said Wednesday in a report to clients.

   

  While Turkey can’t turn away from Russian supplies right away, it still has leverage to fight retaliatory moves, including if Russia takes a hard line on prices or threatens cuts, according to Sijbren de Jong, an analyst at the Centre for Strategic Studies in The Hague.

   

  The sales volume from Turkey is equivalent of 17 percent of Gazprom’s total exports outside the former Soviet Union, according to company data. 

   

  “The bottom line is militarily, strategically they may want to draw a line and say this has gone too far, but it wouldn’t be wise,” said De Jong. “Essentially if you’ve put so much effort into coveting this burgeoning partnership with Turkey from an energy perspective, that’s all going to be for nothing.”

  Perhaps, but it’s not clear that Turkey has as much leverage here as analysts claim. Consider this for instance: 

  “Turkey will probably not want to halt any existing energy arrangements, but it almost certainly means Turkey will start a renewed look at what alternative energy relations it can have,” said John Roberts, an energy security specialist at Methinks Ltd. in Jedburgh, Scotland. “Two obvious choices are becoming a customer for U.S. LNG; the other is Iran.”

  Here’s a look at the breakdown by country in terms of where Ankara sources its gas:

  

  What analysts seem to be discounting here is that ties between Russia and Iran have strengthened materially over the past six months. Russia’s intervention in Syria will not be forgotten in Tehran. As we’ve detailed exhaustively, ensuring that Damascus doesn’t fall to a puppet government of the Saudis is perhaps the most important geopolitical concern for the Iranians. Losing Syria would cut off a supply route to Hezbollah and rollback Iran’s Shiite crescent. It’s probably not an understatement to say that Tehran will be eternally grateful to Moscow for Russia’s participation in Syria on behalf of the government and as we saw when Assad rejected the Qatar-Turkey line but approved the Iran-Iraq-Syria line, these are countries that will, when they feel the situation calls for it, subjegate energy concerns to geopolitics.

  Throw in the fact that Russia and Iran are already in talks on a number of energy projects and it seems reasonable to suspect that if Iran believes Turkey is becoming too much of an impediment to the campaign in Syria, Tehran may just decide to drive a harder bargain when it comes to gas supplies. In short: if you’re Turkey, you don’t really want to put yourself in a position where your fallback plan in the event you anger your biggest energy supplier is to try and negotiate for more trade with that supplier’s closest geopolitical ally, especially when you are actively seeking to subvert both of their goals in a strategically important country. As WSJ put it on Wednesday, “diverting the energy trade wouldn’t be easy.”

  No, it most certainly would not “be easy”, and the big question going forward is this: is it realistic to believe, given what’s going on in Syria, that Iran will be willing to make it any easier? 

  

  

  

  

  

• Kiss Christmas Goodbye

  Submitted by Tony Sagami via MauldinEconomics.com,

  In my article from November 17, I touched on the growing number of retailers that report shrinking traffic and disappointing sales:

  Our consumer-driven economy is not getting any help from suddenly sober shopaholics. In the most recent report, the Commerce Department reported that retail sales rose by a measly 0.1% in September. And it didn’t matter where you wear Gucci loafers or Red Wing work boots.

  Since then, the retail landscape has gotten even muddier.

  The Commerce Department reported that retail sales increased by a miserly +0.1% in October, below the +0.3% Wall Street was expecting. Additionally, sales for the month of September were revised downward from +0.1% to 0.0%.

  So this is what the last three months look like:

  August 0.0%
  September 0.0%
  October 0.1%

  

  You should pay careful attention to retail sales because there is a strong correlation between plunging retail sales and plunging stock prices!

  Walmart, Macy’s, and Nordstrom are the three high-profile retailers to disappoint Wall Street, but they have lots of company.

  • Shoe retailer DSW, Inc. lowered its full-year earnings forecast from $1.80 – $1.90 per share to $1.40 – $1.50 per share. The problem? Slow customer traffic.

  

  • The Gap reported that its October same-store sales dropped by 15% at Banana Republic and by 4% at Gap stores. Additionally, the company warned that it would miss Q3 expectations.

  

  • Urban Outfitters reported Q3 sales of $825.3 million, well below the Wall Street pipe dream of $868.9 million. Urban Outfitters’ shares closed down 7.4% to a four-year low after spitting up that revenue hairball.

  

  The biggest confirmation of the retailing woes came from the Port of Long Beach, the second-busiest US port.

  The Port of Long Beach handled 307,995 containers in October, down from 310,482 and 0.8% less from the same month last year. More troublesome is the 14% plunge in imported containers since August.

  

  That tells me retailers are cutting back their pre-Christmas orders in anticipation of disappointing holiday sales and due to already bulging inventories.

  Speaking of bulging inventories, I want to point out two retailers with ballooning inventories that I think are profit time bombs just waiting to kill investors.

  • Lululemon Athletica (LULU): Yoga-pants maker Lululemon has been suffering from an inventory bulge. Inventory hit $280 million, a 55% year-over-year increase.

  • Under Armour (UA): Inventory ballooned to $867 million at the end of Q3, a 36% increase.

  I’m not suggesting that you rush out, sell all your retail stocks, or short Lululemon and Under Armour tomorrow morning. As always, timing is everything. However, it is crystal clear to me that the Grinch is definitely going to steal Christmas… and that retail stocks are one of the worst places to invest your money.

  

  

  

  

  

• Bank Of America Forecasts No Recession Until 2027 (If Ever), Sees S&P At 3,500 In 10 Years

  A year and a half ago, in May of 2014, when Bank of America’s chief economist Ethan Harris decided to try his hand at long term (really long-term) forecasts, he made several predictions: that 2015 GDP would be 3.3%, that the long-term potential growth rate of the economy is 2.2%, and that the long-term unemployment rate is 6%.

  One year later, we yet again see just why economists tend to be a source of amusement everywhere they go, because moments ago the same Mr. Harris just admitted that 2015 GDP would actually be 2.5% (at best, and realistically 2.1% if Q4 GDP ends up being 1.8% as the Atlanta Fed forecasts), that the long-term growth rate is now lower at 2.0%, even as the long-term unemployment rate has mysteriously declined to 5%, or in other words, a lower potential growth rate results in lower unemployment.

  Go figure.

  Here is what Harris predicted for the “long-term” in early 2014:

  

  And here is his same forecast as released earlier today:

  

  We leave it up to readers to spot the amusing, if startling, differences.

  And yet one thing that hasn’t changed in the past 18 months is that like then, so now, Bank of America refuses to forecast a recession any time in the next 12 years! To wit:

  Obviously, there is considerable uncertainty in forecasting many years out, so these should be viewed as rough baseline numbers. For example, if history is our guide, at some point in the next decade the US will experience a recession, but predicting a recession far in advance is almost impossible. 

  So predicting a recession at some point in the next 12 years impossible, but predicting next year’s GDP is “possible”… assuming one has a 25% error rate tolerance.

  But if you think that is amusing read the following from another BofA prognosticator, its “Equity & Quant Strategist” Savita Subramanian. This is presented without comment.

  S&P 500 targets: 2200 in 2016 and 3500 by 2025

   

  We expect modest gains for US large cap stocks in 2016: the likelihood of a recession in the next 12 months is low in our view, but valuations have normalized from previously low levels and narrowing returns are to be expected. Our forecast represents a 5% rise from current levels, roughly equivalent to earnings growth, where we forecast 2016 EPS of $125.

   

  10-year S&P 500 forecast: 3500 (+67%)

   

  Our work suggests that valuation is a poor short-term timing indicator, but the single most important determinant of long-term returns. Valuations have historically explained 60-90% of subsequent returns over a 10-year time horizon – see Table 2. Normalized P/E – our preferred valuation metric – has explained 80-90% of returns over the subsequent 10-11 years.

   

  Based on current valuations, a regression analysis suggests compounded annual returns of 8% over the next 10 years with a 90% confidence interval of 4-12% (Table 2). While this is below the average returns of 10% over the last 50 years, asset allocation is a zero-sum game. Against a backdrop of slow growth and shrinking liquidity, 8% is compelling in our view. With a 2% dividend yield, we think the S&P 500 will reach 3500 over the next 10 years, implying annual price returns of 6% per year.

  

  So… no recession until 2027, if ever, and S&P at 3500 by 2025.

  Great, just one thing we would like to know: does Bank of America anticipate another bailout of Bank of America during this upcoming golden age a la 2008, or is that also impossible to predict.

  

  

  

  

  

• From Here To Eternity

  Submitted by MN Gordon via Acting-Man.com,

  “Gentlemen-rankers out on the spree,

  Damned from here to Eternity,

  God ha’ mercy on such as we,

  Baa!  Yah!  Bah!”

   

  — Gentlemen-Rankers, Rudyard Kipling 

  Insults and Offenses

  For the first time in 80 years, vast numbers of hardworking, industrious people are finding themselves up the creek without a paddle.  Buying a home, paying college tuition, and squirreling away a few nuts for retirement has become discouragingly difficult.  What’s more, the presumed benefit of these endeavors has become ever more suspect.

  These days there’s a trifecta of offenses debasing the rewards of hard work, saving money, and paying one’s way.  Quite frankly, it’s insulting.  There’s nothing less to make of it, particularly for those competing in the rat race for their family’s daily bread.

   

  

  Promises, promises …

  Cartoon via polyp.org.uk

   

   Plain and simple, central bank fiat money creation, multiplied by commercial banks through fractional-reserve banking, propagates financial and economic chaos.  The experience of long periods of money supply expansion punctuated by abrupt, episodic contractions, has the effect of whipsawing the working stiff’s labors to get ahead.

  On top of that, the middle class is being squeezed by stagnant incomes, declining savings rates, and escalating debt burdens.  Unskilled jobs are meager and low paying.  In addition, professional services jobs have become commoditized via temporary employment services.

  The global economy is in the midst of a restructuring that has been underway since before the turn of the new millennium.  The associated growing pains are agonizing.  The old rules for success, which included a college education and a cubicle job at a large corporation, no longer apply.  But the new rules for success have yet to be written.

   

  

  The hazards of cubicle life

  Cartoon by Scott Adams

   

  Stealing Your Life

  Economic restructuring is a natural occurrence.  New technologies and increased global interconnections accelerate the change.  Nonetheless, at the same time workers are facing these natural challenges, the Fed is heaping on other encumbrances.

  In short, the clever fellows at the Federal Reserve, with consent of the Treasury, inflate the money supply.  For each new digital monetary unit they create, value’s subtracted from the existing money.  This has the ill effect of covertly confiscating property from people’s wages and savings.  It also has the ill effect of reducing the notion of “an honest day’s work for an honest day’s pay” to a fool’s tale.

   

  

  A philosophical moment in the felt-covered solitude of the quiet cubicle of contemplation

  Cartoon by Scott Adams

   

  For example, think of all the days you’d rather have stayed home with your family than schlepping and slogging the day away for money.  Think of all the time you spent on the road getting dumped on by clients while your kids were growing up.  Think of all the sunny days you missed because you were pounding the phones at the office all day.

  For what?  So that after paying taxes and living expenses, what’s left over – your accumulated wealth – would be inflated away from your bank account? Remember, money, in addition to being property, also represents time and the sacrifices made to earn it.  When the Fed inflates your money away they not only steal your property…they steal your life.

   

  From Here to Eternity

  Certainly, this is a disheartening thought.  However, when it comes down to it, life is too short to be bitter.  The fact is, today’s incommodes are nothing new.  They’ll persist in some form or another from here to eternity.

  Like life’s other injustices, the Fed’s shenanigans should be faced with a stoic grin.  The truth should be spoken quietly and clearly.  What is right and good should be articulated with frequent repetition.  The just message will endure.

  Indeed, having the fruits stolen from one’s productive labor is demoralizing.  Nonetheless, one should still get on with the business of life…and do one’s part to reduce the abundance of nonsense circulating about.  Despite all the fraud and folderol out there, humility and veracity continue to be ideals to strive for.  When all else fails, wash the dishes, make the bed, and find some gratitude.

   

  

  Beware of crafty Turkeys

  Cartoon via you-can-be-funny.com

   

  After all, Thanksgiving Day is approaching.  Pilgrims and Squanto, aside.  Some gratitude for blessings received and misfortunes taken away are in order. Money and markets shall do what they do…independent of what you think.  So don’t give them an extra thought.

  Enjoy the moment.  Relish the time with your family.  Savor the feast.

  

  

  

  

• Volume-less, Range-less 'Market' Sparks Largest Small-Cap Short-Squeeze In 2 Months

  It's one of those days…

  The last 4 days have seen the largest "short squeeze" in 2 months…

  

   

  But the broad market went nowhere…

  

   

  As Small Caps (heavily shorted) surged…

  

   

  On the smallest range day of 2015…

  

   

  The market was glued to VWAP most of the day…

  

   

  On the week – absent the Russia-Turkey dump'n'pump the market has traded in a very narrow, well managed range…

  

   

  Treasury yields drifted very modestly lower today…in an extremely narrow range…

  

   

  Credit remains decoupled…

  

   

  But decoupled from stocks…

  

   

  Draghi jawboning oin ECB's 2-tiered QE sparked EUR weakness, USD strength early on but that faded fast as Europe closed…

  

   

  Commodities all followed the same (inverse) pattern to The USD today with Crude's beta the greatest…

  

   

  Oil and stocks continue to pay nice and decouple…

  

   

  Crude gamma growing…

  

   

  Charts: Bloomberg

  

  

  

  

• Let It Snow – California Drought Recovery Remains "Extremely Unlikely"

  While so much hope is pinned on El Nino relieving California's drought in early 2016, climatologists suggest tempering that optimism a little as what is really needed is snow. "Since it has been dry for so long, people get excited,” says one hydrologist, but, as Bloomberg reports, without snow "the notion of fully recovering from the drought is extremely unlikely,” as if the storms come in as rain, or the mountain snow can’t pile up high enough, a lot of water will be lost.

  California is in its fourth year of drought and almost the entire state is abnormally dry, according to the U.S. Drought Monitor in Lincoln, Nebraska.
  Improvement is possible. However, the drought will certainly go into a fifth year, according to the forecast from the U.S. Climate Prediction Center in College Park, Maryland. As Bloomberg reports,

  The drought relief for California widely expected from El Nino in early 2016 will be far more effective if a chill descends soon — ideally with a bit of snow.

   

  “If we can get some snow on the ground and some cold nights, it will set up the snowpack and get cool air pooling,” said California State Climatologist Mike Anderson.

   

  Cool air, especially at high altitudes, will help ensure snow falls and stays on the ground in the mountains through the winter, as needed to supply the state’s reservoirs. While that may seem like a non-issue given the height of the mountains and the tradition of heavy snows there, recent years have seen some worrisome trends.

   

  During the winter of 2014-15, the three-month average temperature in the Sierra region topped the freezing mark of 32 degrees Fahrenheit (zero Celsius) for the first time in records dating to 1950, data compiled by Anderson show.

   

  California as a whole posted its warmest February on record and both December and January came in among the top 10, according to the National Centers for Environmental Information in Asheville, North Carolina.

   

  Here is why all of this is important: If El Nino delivers the promised increase in big, wet storms off the Pacific from January to March, California needs a lot of what falls from those systems to be snow.

  Snow in the mountains stays there until spring, when it melts, runs off and replenishes the state’s reservoirs. If the storms come in as rain, or the mountain snow can’t pile up high enough, a lot of water will be lost.

  So far, the snow in the mountains hasn’t exactly been impressive, and perceptions may have outstripped reality.

   

  

   

  “Since it has been dry for so long, people get excited,” said Rob Hartman, hydrologist in charge of the California Nevada River Forecast Center in Sacramento. “We have had some small storms that left a sprinkle of snow in the mountains. We are still waiting for winter to arrive. We are not ahead of schedule by any means.”

  But there is some hope…

  “The notion of fully recovering from the drought is extremely unlikely,” Hartman said. “But you have to start somewhere.”

   

  That start begins with a little cool air coming in with the next storm. Checking a forecast last week, Anderson said some outlooks were calling for temperatures to reach freezing and below as far down the mountains as 3,000 feet.

   

  “Those are good signs,” he said.

  

  

  

  

  

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