• 1956: "America Peaked Back Then And We've Been In Decline Ever Since"

  As SHTFPlan.com's Mac Slavo noted,

  How far we have fallen! The American Dream used to be attainable to all who worked hard, and freedom was still a tangible thing that many experienced. People used common sense and wisdom from experience to make it through life.

   

  Today, most people are dumbed-down consumers who only know what they have been told through the television, who eat processed foods made by leading corporations with almost no nutritional value, they are in debt up to their eyeballs, and couldn’t think independently if they tried. Problem solving and common decency have disappeared, and the gap between the Americans of 60 years ago is so astonishing as to make movies like Idiocracy and books like The Time Machine appear absolutely correct.

  And so Michael Snyder (via The End of The American Dream blog) compares America 1956 vs. America 2016…

  Is America a better place today than it was back in 1956?  Of course many Americans living right now couldn’t even imagine a world without cell phones, Facebook or cable television, but was life really so bad back then?  60 years ago, families would actually spend time on their front porches and people would actually have dinner with their neighbors.  60 years ago, cars were still cars, football was still football and it still meant something to be an American. 

  In our country today, it is considered odd to greet someone as they are walking down the street, and if someone tries to be helpful it is usually because they want something from you.  But things were very different in the middle of the last century.  Men aspired to be gentlemen and women aspired to be ladies, and nobody had ever heard of  “bling”, “sexting” or “twerking”.  Of course life was far from perfect, but people actually had standards and they tried to live up to them.

  So how did it all go so wrong?

  Could it be possible that life in America peaked back then and we have been in decline ever since?

  Before you answer, I want to share with you a list of comparisons between life in America in 1956 and life in America in 2016…

  In 1956, John Wayne, Elvis Presley and Marilyn Monroe were some of the biggest stars in the entertainment world.

  In 2016, our young people look up to “stars” like Miley Cyrus, Justin Bieber and Lady Gaga.

  In 1956, Americans were watching I Love Lucy and The Ed Sullivan Show on television.

  In 2016, the major television networks are offering us trashy shows such as Mistresses and Lucifer.

  In 1956, you could buy a first-class stamp for just 3 cents.

  In 2016, a first-class stamp will cost you 49 cents.

  In 1956, gum chewing and talking in class were some of the major disciplinary problems in our schools.

  In 2016, many of our public schools have been equipped with metal detectors because violence has gotten so far out of control.

  In 1956, children went outside and played when they got home from school.

  In 2016, our parks and our playgrounds are virtually empty and we have the highest childhood obesity rate on the entire planet.

  In 1956, if a kid skinned his knee he was patched up and sent back outside to play.

  In 2016, if a kid skins his knee he is likely to be shipped off to the emergency room.

  In 1956, “introducing solids” to a baby’s diet may have meant shoving a piece of pizza down her throat.

  In 2016, we have “attachment parenting” which advocates treating children like babies almost until they reach puberty.

  In 1956, seat belts and bicycle helmets were considered to be optional pieces of equipment, and car safety seats were virtually unknown.

  In 2016, millions of us are afraid to leave our homes for fear that something might happen to us, and if something does happen we slap lawsuits on one another at the drop of a hat.

  In 1956, many Americans regularly left their cars and the front doors of their homes unlocked.

  In 2016, many Americans live with steel bars on their windows and gun sales are at all-time record highs.

  In 1956, about 5 percent of all babies in America were born to unmarried parents.

  In 2016, more than 40 percent of all babies in America will be born to unmarried parents.

  In 1956, one income could support an entire middle class family.

  In 2016, approximately one-third of all Americans don’t make enough money to even cover the basics even though both parents have entered the workforce in most households.

  In 1956, redistribution of wealth was considered to be something that “the communists” did.

  In 2016, the federal government systematically redistributes our wealth, and two communists are fighting for the Democratic nomination.

  In 1956, there were about 2 million people living in Detroit and it was one of the greatest cities on Earth.

  In 2016, there are only about 688,000 people living in Detroit and it has become a joke to the rest of the world.

  In 1956, millions of Americans dreamed of moving out to sunny California.

  In 2016, millions of Americans are moving out of California and never plan to go back.

  In 1956, television networks would not even show husbands and wives in bed together.

  In 2016, there is so much demand for pornography that there are more than 4 million adult websites on the Internet, and they get more traffic than Netflix, Amazon and Twitter combined.

  In 1956, the American people had a great love for the U.S. Constitution.

  In 2016, “constitutionalists” are considered to be potential terrorists by the U.S. government.

  In 1956, people from all over the world wanted to come to the United States to pursue “the American Dream”.

  In 2016, 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.

  In 1956, the United States loaned more money to the rest of the world than anybody else.

  In 2016, the United States owes more money to the rest of the world than anybody else.

  *  *  *

  So now that you have seen what I have to share, what do you think?

  Has America changed for the better, or has it changed for the worse?

  

  

  

  

  

• The Salary Needed to Buy A Home in 27 Different U.S. Cities

  The popping of the Greenspan-era housing bubble took about six years in total to fully “deflate”.

  Most U.S. housing markets peaked sometime in 2006, and it wouldn’t be until just before the third-round of quantitative easing in 2012 that this fall would finally be cushioned. Since then, as VisualCapitalist's Jeff Desjardins details, the combination of QE and record-low interest rates have helped re-inflate the housing market. For better or worse, real estate in many U.S. cities are now approaching or passing their 2006 housing highs, but with a growing disparity between individual metropolitan areas.

  Today’s 3D map comes to us from HowMuch.net, and it shows the very different salaries needed to buy a median home in 27 different U.S. metropolitan areas. The salaries range between $31,134 to $147,996, which is a discrepancy of over $100,000.

   

  

  Courtesy of: Visual Capitalist

   

   

  At the low end of the spectrum, it takes a salary of between $30,000 to $40,000 to buy a home in most metropolitan areas in the Midwest. In St. Louis, for example, the salary needed to buy a home is $34,778. Pittsburgh was the least expensive city analyzed, where a salary of $31,135 could buy the median house in the city.

  At the high end is any metropolitan area in California, for which closer to six figures is now needed. San Francisco has the most expensive housing in the country, where residents must make $147,996 a year to be an average homeowner. However, Southern California is not far behind the Bay Area, where salaries of $95,040 and $103,165 are required to buy in Los Angeles and San Diego respectively.

  See the full data set, including mortgage rates, monthly payments, and median house prices here.

  West Coast Envy

  Which cities have rebounded the most since the popping of the housing bubble?

  According to The Economist’s interactive chart on U.S. housing price indices, the average U.S. market recovery between 2006 peak and 2012 trough has been about 63.9%.

  The Eastern half of the country has struggled to rebound to 2006 housing highs, with New York City, Baltimore, Philadelphia, Chicago, Tampa, Miami, and St. Louis all recovering below the above average mark.

  In contrast, prices in the West are soaring: San Francisco, Houston, Dallas, Denver, and Portland have all met or exceeded their 2006 highs. Meanwhile, Los Angeles, Seattle, and San Diego have recovered better than average.

  

  

  

  

  

• Was The Panama Papers "Leak" A Russian Intelligence Operation?

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  As I wrote on Monday, ever since I started reading about the Panama Papers “leak” something kept rubbing me the wrong way. From the absence of any well known, politically powerful Americans on the list, to the anonymous nature of “John Doe” as whistleblower and the clownish reporting from Soros and USAID affiliated organizations, the whole thing stunk from the start.

  The first plausible theory I came across attempting to explain the strangeness of it all was proposed by Craig Murray, and it basically went something like this. The leaker is a real whistleblower, but he placed the information in the wrong hands, therefore the organizations and journalists reporting on the story were not giving us the whole truth. Here’s some of that theory from the post, Are Corporate Gatekeepers Protecting Western Elites from the Leaked Panama Papers?

  Whoever leaked the Mossack Fonseca papers appears motivated by a genuine desire to expose the system that enables the ultra wealthy to hide their massive stashes, often corruptly obtained and all involved in tax avoidance. These Panamanian lawyers hide the wealth of a significant proportion of the 1%, and the massive leak of their documents ought to be a wonderful thing.

   

  The Suddeutsche Zeitung, which received the leak, gives a detailed explanation of the methodology the corporate media used to search the files. The main search they have done is for names associated with breaking UN sanctions regimes. The Guardian reports this too and helpfully lists those countries as Zimbabwe, North Korea, Russia and Syria. The filtering of this Mossack Fonseca information by the corporate media follows a direct western governmental agenda. There is no mention at all of use of Mossack Fonseca by massive western corporations or western billionaires – the main customers. And the Guardian is quick to reassure that “much of the leaked material will remain private.”

   

  The corporate media – the Guardian and BBC in the UK – have exclusive access to the database which you and I cannot see. They are protecting themselves from even seeing western corporations’ sensitive information by only looking at those documents which are brought up by specific searches such as UN sanctions busters. Never forget the Guardian smashed its copies of the Snowden files on the instruction of MI6. 

  Initially, this seemed to be a theory worth exploring, but in the following days I’ve come to a far different conclusion. The primary divergence between what I currently believe and what Mr. Murray proposed is that I do not think the leaker was a genuine whistleblower motived by the public interest. I think the leaker was working on behalf of a sophisticated intelligence agency.

  The fact that we seem to know nothing about “John Doe” concerns me. Say what you will about Edward Snowden, but he came out publicly shortly after his whistleblowing and offered himself up for the world to judge. His life, career and personality have been put on full display, and each and every one of us has had the opportunity to decide for ourselves whether his motivations were noble and pure or not.

  With the Panama Papers’ “John Doe” we are given no such opportunity, and in fact, the whole thing reads very much like a script concocted by some big budget intelligence agency. Once I started coming around to this conclusion, the obvious choice was U.S. intelligence; given the lack of implications to powerful Americans, the clownishly desperate attempts to smear Putin, and the appearance of Soros, USAID, Ford Foundation, etc, linked organizations to the reporting.

  So for someone who already thinks the whole Panama Papers story stinks to high heaven, a CIA link to the release seems obvious; but is it too obvious? Perhaps.

  Earlier this morning, I read an absolutely fascinating theory put forth by Clifford G. Gaddy at the Brookings Institution. Here’s what he wrote in the piece, Are the Russians actually behind the Panama Papers?

  The “Panama Papers”—does this strike anyone else as a very fishy story? It’s like something out of a cheap spy movie.

  Yes, yes it does.

  In early 2015, “John Doe” sends (out of the blue) an email to the German newspaper Süddeutsche Zeitung (SZ), offering 11.5 million documents from a Panamanian law firm relating to offshore shell companies. SZ accepts. Under the International Consortium of Investigative Journalists (ICIJ), some 400 journalists from 80 countries spend a year sifting through the documents. Then, in a coordinated launch, they present their first findings: With nearly identical language in all media (down to the local TV station in Washington that I happened to watch this week), they talk about the grand new revelations of corruption, money laundering, and financial secrecy by over 140 world leaders.

   

  Most reports, no matter where, feature Russian President Vladimir Putin as the headliner. But that might obscure a much bigger and more twisted story.

  The dog that didn’t bark

  Despite the headlines, there is no evidence of Putin’s direct involvement—not in any company involved in the leak, much less in criminal activity, theft, tax evasion, or money laundering. There are documents showing that some of his “friends” have moved “up to two billion dollars” through these Panama-based shell companies.

   

  But nothing in the Panama Papers reveals anything new about Putin. It is in fact far less of a story than has been alleged for a long time. For over 10 years, there have been suspicions that Putin has a vast personal fortune, claimed at first to be $20 billion, then $40, $70, even $100… And now all they find is “maybe” a couple of billion belonging to a friend?

  This is the dog that didn’t bark.

  I completely agree with this conclusion. Putin probably does have a huge fortune stashed away somewhere, but this “leak” doesn’t reveal anything about it. In fact, the Panama Papers will have absolutely zero impact on Putin’s political power at home, while making Western efforts to trash him look manufactured and clownish. Net-net Putin wins from the release of the Panama Papers.

  As Mr. Gaddy explains.

  Some (geo)political context is important here. In recent years, the media has become a key battleground in which Russia and the West have attempted to discredit each other. Early last year, circles in the West sought to use the media to respond to what they described as Russia’s “hybrid warfare,” especially information war, in the wake of the Russian annexation of Crimea and related activities. They identified corruption as an issue where Putin was quite vulnerable. It’s worth looking at the Panama Papers in that context: Journalists are targeting Putin far out of proportion to the evidence they present.

   

  As soon as one delves below the headlines, it’s a non-story. A “friend of Putin” is linked to companies that channel a couple of billion dollars through the offshore companies. Why? To evade Russian taxes? Really? To conceal ownership? From whom? You don’t need an offshore registration to do that. To evade sanctions? That’s a credible reason, but it makes sense only if the companies were registered after mid-2014. Were they?

   

  This information will not harm Putin at all—instead, it gives Putin cover, so he can shrug and say: “Look, everybody does it.” A more serious possibility is that the leaked data will lead to scandals throughout the West, where corruption does matter—a point I’ll discuss. On net, the Russians win.

   

  The cui bono principle connects profits with motives, asking who stands to gain from a certain action. If it’s the Russians who win, isn’t it possible that they are somehow behind at least part of this story? 

  Who is “John Doe”? 

  The ICIJ is the self-described elite of investigative journalists—but what have they discovered about the source of all these documents? The only information we have about John Doe is from SZ, which begins its story: “Over a year ago, an anonymous source contacted the Süddeutsche Zeitung (SZ) and submitted encrypted internal documents from the law firm Mossack Fonseca.” When the staff at SZ asked John Doe about his motive, he reportedly replied in an email: “I want to make these crimes public.”

   

  But how can the journalists—and the public—be sure he’s trustworthy, and that the documents are real, complete, and unmanipulated? It’s not clear that John Doe is a single individual, for one, nor why he would have been confident that he could reveal the documents without revealing himself. He’d also have access to a pretty impressive documents cache, which suggests that an intelligence agency could have been involved. 

  The above seems clear to me as well, which is why I feel pretty strongly that this was some sort intelligence operation.

  Moreover, the revelation brings collateral damage upon legal business and innocent individuals—was that not a worry? In my view, no responsible person with a real concern for rule of law would advocate this sort of sweeping document release. There might be many unintended consequences; it could topple regimes, with unforeseen consequences. It’s pure and naïve anarchism, if the thinking was (as it seems from the outside) to create maximum chaos and hope it will all purge the system of its evils. In any event, the potential for using such a leak for political purposes is immense.

   

  If “we” (in the United States or the West) released these documents, the motive would apparently be to embarrass Putin. This is part of the fantasy that we can defeat Putin in an information war. If that was the motive, the result is pathetic: No real damage is being done to Putin, but there is collateral damage to U.S. allies.

   

  If the Russians did it, a good motive might be to deflect the West’s campaign against Putin’s corruption. But as I’ve explained, any actual reputational damage to Putin or Russia caused by the Panama Papers is in fact pretty trivial. For that cheap price, the Russians would have 1) exposed corrupt politicians everywhere, including in “model” Western democracies, and 2) fomented genuine destabilization in some Western countries. What I wonder, then: Is it a set-up? The Russians threw out the bait, and the United States gobbled it down. The Panama Paper stories run off Putin like water off a duck’s back. But they have a negative impact on Western stability.

  Personally, I’m not convinced they will have any impact on Western stability whatsoever. Rather, here’s what they do achieve: 1) they make the Western press look ridiculous in its obsession with Putin 2) the absence of any notable Americans makes it look like a CIA operation.

  So let’s say that the “who” is the Russians, and the “why” is to deflect attention and show that “everybody does it.” But how? Given Russia’s vaunted hacking capabilities, a special cyber unit in the Kremlin may have been able to obtain the documents. (Monssack Fonseca is maintaining that the leak was not an inside job.) But it is most likely that such an operation would be run out of an agency called the Russian Financial Monitoring Service (RFM). RFM is Putin’s personal financial intelligence unit—he created it and it answers only to him. It is completely legitimate and is widely recognized as the most powerful such agency in the world, with a monopoly on information about money laundering, offshore centers, and related issues involving Russia or Russian nationals.

   

  An operation like the Panama Papers, which is only about financial intelligence, would have to be run out of RFM. Not the FSB, not some ad hoc gang in the Kremlin. While it might not (legally) have access to secrets kept by a firm like Mossack Fonseca, it’s privy to lots of international financial information through the international body of which it is a leading member, the Financial Action Task Force. In short, Russians are better equipped than anyone—more capable and less constrained—to hack into secret files.

   

  As for how to leak the documents, it would actually be pretty ingenious to “incriminate” Russia in a seemingly serious (and headline-grabbing) way without actually revealing incriminating information. That’s exactly what we have. The Panama Papers revealed no Russian secrets. They added nothing to the rumors already circulating about Putin’s alleged private fortune. And the story-that-isn’t-a-story was advanced by none other than the ICIJ. So, done right, the last thing anyone would suspect is that the Panama Papers are a Russian operation.

  A more serious Russian motive?

  Granted, this would be a complicated operation just to defuse the West’s campaign to point to “Putin the kleptocrat.” But maybe there’s another motive.

   

  As many have already pointed out, it’s curious that the Panama Papers mention no Americans. But it’s possible that they do and that the ICIJ hasn’t revealed that information. Perhaps, since the ICIJ is funded by Americans, they’re not going to bite the hand that feeds them. But suppose the ICIJ actually doesn’t have information on Americans—that calls into question the original data, which if actually real and uncensored would most probably include something on Americans. There are undoubtedly many American individuals and companies that have done business with the Mossack Fonseco crew, and it wouldn’t make sense for a collection of 11.5 million documents involving offshore finances to omit Americans entirely. Perhaps, then, someone purged those references before the documents were handed over to the German newspaper. The “someone” would, following my hypothesis, be the Russians—and the absence of incriminating information about Americans is an important hint of what I think to be the real purpose of this leak. 

  Some have argued that the reason no powerful Americans are named is because Americans use other jurisdictions for such behavior. Considering the size of this data leak and the fact that it supposedly contains information going back to the 1970s, I find this explanation unconvincing.

  Now back to Brookings.

  The Panama Papers contain secret corporate financial information, some of which—by far not all—reveals criminal activity. In the hands of law enforcement, such information can be used to prosecute companies and individuals; in the hands of a third party, it is a weapon for blackmail. For information to be effective as a blackmail weapon, it must be kept secret. Once revealed, as in the Panama Papers case, it is useless for blackmail. Its value is destroyed.

   

  Therefore, I suggest that the purpose of the Panama Papers operation may be this: It is a message directed at the Americans and other Western political leaders who could be mentioned but are not. The message is: “We have information on your financial misdeeds, too. You know we do. We can keep them secret if you work with us.” In other words, the individuals mentioned in the documents are not the targets. The ones who are not mentioned are the targets.

  Kontrol, the special Russian variety of control

  In sum, my thinking is that this could have been a Russian intelligence operation, which orchestrated a high-profile leak and established total credibility by “implicating” (not really implicating) Russia and keeping the source hidden. Some documents would be used for anti-corruption campaigns in a few countries—topple some minor regimes, destroy a few careers and fortunes. By then blackmailing the real targets in the United States and elsewhere (individuals not in the current leak), the Russian puppet masters get “kontrol” and influence.

   

  If the Russians are behind the Panama Papers, we know two things and both come back to Putin personally: First, it is an operation run by RFM, which means it’s run by Putin; second, it’s ultimately about blackmail. That means the real story lies in the information being concealed, not revealed. You reveal secrets in order to destroy; conceal in order to control. Putin is not a destroyer. He’s a controller.

  At this point, I want to make something perfectly clear. I do not profess to know the “real story” behind the Panama Papers. The truth is, nobody knows, except for John Doe and the people he was working for (or with). The only thing I feel fairly confident about is that the story we are being fed is not the real story. The more I read and reflect upon the very minor consequences of the leak thus far, the more I become convinced this was a geopolitical play by a powerful intelligence agency. At first, I assumed it was U.S. intelligence, but Mr. Gaddy puts forth a compelling theory. If this was the work of the CIA, it was an extremely sloppy and obvious hit job. On the other hand, if this was the work of Putin for the purposes of blackmail, it’s one of the most ingenious chess moves I’ve ever seen played on the global stage.

  I want to conclude with a very important observation. If Clifford Gaddy’s theory is correct, it’s the worse case scenario for American citizens. It means that Putin essentially has the goods on the U.S. elite and he can now blackmail them for his purposes. Indeed, perhaps Iceland was put forward as an example of what can happen if truly damaging information makes it to the public.

  So if Putin is behind this, and does have the goods on the U.S. elite, not only do we not get rid of the these corrupt oligarchs, we now have to live with them in an even more compromised state than they were before. For all of our sakes, I hope Mr. Gaddy is wrong.

  

  

  

  

  

• Taxpayer Money Well Spent? US Among World's Top Executioners In 2015

  Submitted by Michaela Whitton via TheAntiMedia.org,

  The number of people put to death across the globe in 2015 reached a 25-year high. The alarming surge in executions saw at least 1,634 people sentenced to death in 25 countries, according to a new report by Amnesty International. The figures exclude China, whose numbers remain a state secret despite the country’s title as the world’s top executioner.

  Concluding that 2015 saw highest number of executions recorded by Amnesty International since 1989, the harrowing investigation also revealed a dramatic 54% increase since last year. Some of the methods used to carry out the death sentences included hanging, shooting, lethal injection, and beheading. In most countries where people were sentenced to death or executed, the penalty was imposed using guidelines that did not meet international standards for a fair trial.

  Almost 90% of the executions took place in three countries: Iran, Pakistan, and Saudi Arabia. However, before Westerners become too smug — and in spite of a drop in numbers — the U.S. still ranked as one of the top five executioners globally.

  

  For the seventh consecutive year, the U.S. remains the only country to use capital punishment in the Americas, carrying out 28 executions in six states. Amnesty claims the reason for the lowest recorded use of the death penalty in the U.S. since 1991 is due to legal and logistical challenges concerning the use of lethal injections. In addition, the number of death sentences imposed in the United States was the lowest since 1977 (clearly, the number of executions recorded doesn’t include the victims of drone strikes abroad, unarmed citizens killed by police, or those who died in custody).

  Despite a dramatic rise in the number of people being put to death around the world, there was some good news; Fiji, Madagascar, the Republic of Congo, and Suriname completely abolished the death penalty for all crimes. In addition, Mongolia passed a new criminal code abolishing the death penalty, which will take effect later in 2016.

  The report observed:

  “Whatever the short-term setbacks, the long-term trend is still clear: the world is moving away from the death penalty. Those countries that still execute need to realize that they are on the wrong side of history and abolish the ultimate cruel and inhuman form of punishment.”

  You can read Amnesty International’s full analysis here.

  

  

  

  

  

• WTF Chart Of The Weekend: Down Is The New Up

  Does anyone really believe this is sustainable?

   

  

  Chart: Bloomberg

  The longer the ‘visible’ hand of stabilization maintains the mirage, the bigger the inevitable collapse. Simply put, anything that can end, will! And in this case, badly…

  

  

  

  

  

• "The Greater Depression Has Started" – Comparing 1930s & Today

  Submitted by Doug Casey via InternationalMan.com,

  You've heard the axiom "History repeats itself." It does, but never in exactly the same way. To apply the lessons of the past, we must understand the differences of the present.

  During the American Revolution, the British came prepared to fight a successful war—but against a European army. Their formations, which gave them devastating firepower, and their red coats, which emphasized their numbers, proved the exact opposite of the tactics needed to fight a guerrilla war.

  Before World War I, generals still saw the cavalry as the flower of their armies. Of course, the horse soldiers proved worse than useless in the trenches.

  Before World War II, in anticipation of a German attack, the French built the "impenetrable" Maginot Line. History repeated itself and the attack came, but not in the way they expected. Their preparations were useless because the Germans didn't attempt to penetrate it; they simply went around it, and France was defeated.

  The generals don't prepare for the last war out of perversity or stupidity, but rather because past experience is all they have to go by. Most of them simply don't know how to interpret that experience. They are correct in preparing for another war but wrong in relying upon what worked in the last one.

  Investors, unfortunately, seem to make the same mistakes in marshaling their resources as do the generals. If the last 30 years have been prosperous, they base their actions on more prosperity. Talk of a depression isn't real to them because things are, in fact, so different from the 1930s. To most people, a depression means '30s-style conditions, and since they don't see that, they can't imagine a depression. That's because they know what the last depression was like, but they don't know what one is. It's hard to visualize something you don't understand.

  Some of them who are a bit more clever might see an end to prosperity and the start of a depression but—al­though they're going to be a lot better off than most—they're probably looking for this depression to be like the last one.

  Although nobody can predict with absolute certainty what this depression will be like, you can be fairly well-assured it won't be an instant replay of the last one. But just because things will be different doesn't mean you have to be taken by surprise.

  To define the likely differences between this depres­sion and the last one, it's helpful to compare the situa­tion today to that in the early 1930s. The results aren't very reassuring.

  CORPORATE BANKRUPTCY

  1930s

  Banks, insurance companies, and big corporations went under on a major scale. Institutions suffered the consequences of past mistakes, and there was no financial safety net to catch them as they fell. Mistakes were liquidated and only the prepared and efficient survived.

  Today

  The world’s financial institutions are in even worse shape than the last time, but now business ethics have changed and everyone expects the government to "step in." Laws are already in place that not only allow but require government inter­vention in many instances. This time, mistakes will be compounded, and the strong, productive, and ef­ficient will be forced to subsidize the weak, unproductive, and inefficient. It's ironic that businesses were bankrupted in the last depression because the prices of their products fell too low; this time, it'll be because they went too high.

  UNEMPLOYMENT

  1930s

  If a man lost his job, he had to find another one as quickly as possible simply to keep from going hungry. A lot of other men in the same position competed desperately for what work was available, and an employer could hire those same men for much lower wages and expect them to work harder than what was the case before the depression. As a result, the men could get jobs and the employer could stay in business.

  Today

  The average man first has months of unemployment insurance; after that, he can go on welfare if he can't find "suitable work." Instead of taking whatever work is available, especially if it means that a white collar worker has to get his hands dirty, many will go on welfare. This will decrease the production of new wealth and delay the recovery. The worker no longer has to worry about some entrepreneur exploiting (i.e., employing) him at what he considers an unfair wage because the minimum wage laws, among others, precludes that possibility today. As a result, men stay unemployed and employers will go out of business.

  WELFARE

  1930s

  If hard times really put a man down and out, he had little recourse but to rely on his family, friends, or local social and church group. There was quite a bit of opprobrium attached to that, and it was only a last resort. The breadlines set up by various government bodies were largely cosmetic measures to soothe the more terror-prone among the voting populace. People made do because they had to, and that meant radically reducing their standards of living and taking any job available at any wage. There were very, very few people on welfare during the last depression.

  Today

  It's hard to say how those who are still working are going to support those who aren't in this depression. Even in the U.S., 50% of the country is already on some form of welfare. But food stamps, aid to fami­lies with dependent children, Social Security, and local programs are already collapsing in prosperous times. And when the tidal wave hits, they'll be totally overwhelmed. There aren't going to be any breadlines because people who would be standing in them are going to be shopping in local supermarkets just like people who earned their money. Perhaps the most dangerous aspect of it is that people in general have come to think that these programs can just magically make wealth appear, and they expect them to be there, while a whole class of people have grown up never learning to survive without them. It's ironic, yet predictable, that the programs that were supposed to help those who "need" them will serve to devastate those very people.

  REGULATIONS

  1930s

  Most economies have been fairly heavily regulated since the early 1900s, and those regulations caused distortions that added to the severity of the last depression. Rather than allow the economy to liquidate, in the case of the U.S., the Roosevelt regime added many, many more regulations—fixing prices, wages, and the manner of doing business in a static form. It was largely because of these regulations that the depression lingered on until the end of World War II, which "saved" the economy only through its massive reinflation of the currency. Had the government abolished most controls then in existence, instead of creating new ones, the depression would have been less severe and much shorter.

  Today

  The scores of new agencies set up since the last depression have created far more severe distortions in the ways people relate than those of 80 years ago; the potential adjustment needed is proportionately greater. Unless government restrictions and controls on wages, working conditions, energy consumption, safety, and such are removed, a dramatic economic turnaround during the Greater Depression will be impossible.

  TAXES

  1930s

  The income tax was new to the U.S. in 1913, and by 1929, although it took a maximum 23.1% bite, that was only at the $1 million level. The average family’s income then was $2,335, and that put average families in the 1/10^th of 1 percent bracket. And there was still no Social Security tax, no state income tax, no sales tax, and no estate tax. Furthermore, most people in the country didn't even pay the income tax because they earned less than the legal minimum or they didn't bother filing. The government, therefore, had immense untapped sources of revenue to draw upon to fund its schemes to "cure" the depression. Roosevelt was able to raise the average income tax from 1.35% to 16.56% during his tenure—an increase of 1,100%.

  Today

  Everyone now pays an income tax in addition to all the other taxes. In most Western countries, the total of direct and indirect taxes is over 50%. For that reason, it seems unlikely that direct taxes will go much higher. But inflation is constantly driving everyone into higher brackets and will have the same effect. A person has had to increase his or her income faster than inflation to compensate for taxes. Whatever taxes a man does pay will reduce his standard of living by just that much, and it's reasonable to expect tax evasion and the underground economy to boom in response. That will cushion the severity of the depression somewhat while it serves to help change the philosophical orientation of society.

  PRICES

  1930s

  Prices dropped radically because billions of dollars of inflationary currency were wiped out through the stock market crash, bond defaults, and bank failures. The government, however, somehow equated the high prices of the inflationary '20s with prosperity and attempted to prevent a fall in prices by such things as slaughtering livestock, dumping milk in the gutter, and enacting price supports. Since the collapse wiped out money faster than it could be created, the government felt the destruction of real wealth was a more effective way to raise prices. In other words, if you can't increase the supply of money, decrease the supply of goods.

  Nonetheless, the 1930s depression was a deflationary collapse, a time when currency became worth more and prices dropped. This is probably the most confusing thing to most Americans since they assume—as a result of that experience—that "depression" means "de?ation." It's also perhaps the biggest single difference between this depression and the last one.

  Today

  Prices could drop, as they did the last time, but the amount of power the government now has over the economy is far greater than what was the case 80 years ago. Instead of letting the economy cleanse itself by allowing the ?nancial markets to collapse, governments will probably bail out insolvent banks, create mortgages wholesale to prop up real estate, and central banks will buy bonds to keep their prices from plummeting. All of these actions mean that the total money supply will grow enormously. Trillions will be created to avoid de?ation. If you ?nd men selling apples on street corners, it won't be for 5 cents apiece, but $5 apiece. But there won't be a lot of apple sellers because of welfare, nor will there be a lot of apples because of price controls.

  Consumer prices will probably skyrocket as a result, and the country will have an in?ationary depression. Unlike the 1930s, when people who held dollars were king, by the end of the Greater Depression, people with dollars will be wiped out.

  THE SOCIETY

  1930s

  The world was largely rural or small-town. Communications were slow, but people tended to trust the media. The government exercised considerable moral suasion, and people tended to support it. The business of the country was business, as Calvin Coolidge said, and men who created wealth were esteemed. All told, if you were going to have a depression, it was a rather stable environment for it; despite that, however, there were still plenty of riots, marches, and general disorder.

  Today

  The country is now urban and suburban, and although communications are rapid, there's little interpersonal contact. The media are suspect. The government is seen more as an adversary or an imperial ruler than an arbitrator accepted by a consensus of concerned citizens. Businessmen are viewed as unscrupulous predators who take advantage of anyone weak enough to be exploited.

  A major financial smashup in today's atmosphere could do a lot more than wipe out a few naives in the stock market and unemploy some workers, as occurred in the '30s; some sectors of society are now time bombs. It's hard to say, for instance, what third- and fourth-generation welfare recipients are going to do when the going gets really tough.

  THE WAY PEOPLE WORK

  1930s

  Relatively slow transportation and communication localized economic conditions. The U.S. itself was somewhat insulated from the rest of the world, and parts of the U.S. were fairly self-contained. Workers were mostly involved in basic agriculture and industry, creating widgets and other tangible items. There wasn't a great deal of specialization, and that made it easier for someone to move laterally from one occupation into the next, without extensive retraining, since people were more able to produce the basics of life on their own. Most women never joined the workforce, and the wife in a marriage acted as a "backup" system should the husband lose his job.

  Today

  The whole world is interdependent, and a war in the Middle East or a revolution in Africa can have a direct and immediate effect on a barber in Chicago or Krakow. Since the whole economy is centrally controlled from Washington, a mistake there can be a national disaster. People generally aren’t in a position to roll with the punches as more than half the people in the country belong to what is known as the "service economy." That means, in most cases, they're better equipped to shuffle papers than make widgets. Even "necessary" services are often terminated when times get hard. Specialization is part of what an advanced industrial economy is all about, but if the economic order changes radically, it can prove a liability.

  THE FINANCIAL MARKETS

  1930s

  The last depression is identified with the collapse of the stock market, which lost over 90% of its value from 1929 to 1933. A secure bond was the best possible investment as interest rates dropped radically. Commodities plummeted, reducing millions of farmers to near subsistence levels. Since most real estate was owned outright and taxes were low, a drop in price didn't make a lot of difference unless you had to sell. Land prices plummeted, but since people bought it to use, not unload to a greater fool, they didn't usually have to sell.

  Today

  This time, stocks—and especially commodities—are likely to explode on the upside as people panic into them to get out of depreciating dollars in general and bonds in particular. Real estate will be—next to bonds—the most devastated single area of the economy because no one will lend money long term. And real estate is built on the mortgage market, which will vanish.

  Everybody who invests in this depression thinking that it will turn out like the last one will be very unhappy with the results. Being aware of the differences between the last depression and this one makes it a lot easier to position yourself to minimize losses and maximize profits.

  *  *  *

  So much for the differences. The crucial, obvious, and most important similarity, however, is that most people's standard of living will fall dramatically.

  The Greater Depression has started. Most people don't know it because they can neither confront the thought nor understand the differences between this one and the last.

  As a climax approaches, many of the things that you've built your life around in the past are going to change and change radically. The ability to adjust to new conditions is the sign of a psychologically healthy person.

  Look for the opportunity side of the crisis. The Chinese symbol for "crisis" is a combination of two other symbols – one for danger and one for opportunity.

  The dangers that society will face in the years ahead are regrettable, but there's no point in allowing anxiety, frustration, or apathy to overcome you. Face the future with courage, curiosity, and optimism rather than fear. You can be a winner, and if you plan carefully, you will be. The great period of change will give you a chance to regain control of your destiny. And that in itself is the single most important thing in life. This depression can give you that opportunity; it's one of the many ways the Greater Depression can be a very good thing for both you as an individual and society as a whole.

  

  

  

  

  

• BofA Notices Something Troubling: China's Debt Bubble Has Burst

  It was just a few days ago when we covered most recently that China has created a subprime debt bubble of monstrous proportions. We explained that the exposure isn’t just within the conventional, state-backed banking system, but also within their “wild west” shadow banking system, which has introduced “investors” to a significant amount of risk. 

  We know that it’s not a question of if, but when will the bubble finally pop (and as we show below, it already has) and introduce a new subprime (and debt in general) financial crisis for the world to deal with.

  While it is sometimes difficult to get the data around just how significant a problem NPL defaults have become for China, and more specifically how the shadow banking lenders are faring, Bank of America has done some work to help give clarity around just that.

  As BofAML shows below, defaults in the shadow banking sector have accelerated sharply, growing in both size and volume since late 2011.

  

  And just like that, the relaxed credit policies in China, in their desperate desire to reinflate housing prices and stimulate the economy, have created a significant issue for the central planners to contend with , one which seems to be a recurring theme… Needless to say, the government is now scrambling to both suppress the number of defaults, and companies are even taking drastic measures to not have to report that they’re insolvent, but it may be too late.

  Because as the chart above clearly shows, China’s debt bubble has officially burst. It’s all downhill from here.

  BofA’s David Cui explains:

  We have noticed a sharp jump since mid-2015 in the total value of reported defaults of shadow banking products, defined here as non-bank-loan debt instruments that include bonds, trusts, and credit products offered by peer-to-peer (P2P) and various offline wealth management companies (WMCs). While the government and some involved parties are busily trying to suppress defaults, risk exists that at certain point the scale and scope of the task may overwhelm their efforts; which may trigger a credit crunch, in our view. Although the exact timing is difficult to forecast, as defaults pile up, the risk of the debt market reaching a psychological turning point should keep on rising by our assessment.

   

  Chart 1 (above) shows the trend of defaulted value in the shadow banking sector, based on data we gathered on noticeable default cases since late 2011 as reported by the media. As of June 2015, the accumulated amount was Rmb53bn; by now, it’s reached Rmb214bn.

   

  * * *

   

  The government is clearly concerned about the risks in shadow banking. Just today, it’s reported that 1) NDRC had called upon issuers and underwriters of enterprise bonds to assess default risks; 2) the Shanghai municipal government had stopped registration of new WMCs, and will review certain existing ones; 3) the Asset Management Association of China (AMAC) will announce rules by the end of Apr to help investors identify illegal fund raising activities by privately raised funds; and 4) CSRC may require brokers to include their off-balance sheet businesses, including derivatives, in their risk assessment, including leverage. The question is whether the government is closing the stable door after the horse has bolted. We suspect that the answer is yes.

  One couldn’t make it any more convoluted, opaque and sadly, entertaining (for when it all unravels) if one tried.

  It sounds like an enormous storm is brewing, and once again it’s a direct result of central planners convinced they know best not only how to run an economy, but that they will be able to fix everything once what is China’s most historic debt bubble ever, burst. 

  Or maybe, what we are told by overeager 17 year old hedge funds is true, and this time it’s different.

  

  

  

  

  

• The Beginning Of The End For Obamacare: Largest US Health Insurer Exits Georgia, Arkanasas

  You can’t say UnitedHealth didn’t warn us.

  * * *

  Tracking the slow motion trainwreck of Obamacare has become one of our preferred hobbies: below is just a random sample of headlines covering just the most recent tribulations of the “we have to pass it to find out what’s in it” Unaffordable Care Act:

  • In Latest Obamacare Fiasco, Most Low-Income Workers Can’t Afford “Affordable Care Act”
  • The Stunning “Explanation” An Insurance Company Just Used To Boost Health Premiums By 60%
  • Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why
  • Obama Promised Healthcare Premiums Would Fall $2,500 Per Family; They Have Climbed $4,865
  • Largest Health Insurer On Colorado Exchange Abruptly Collapses
  • Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud
  • “$19,000 Premiums, Up 4x Since Passage”: The ‘Crippling Effect’ Of Obamacare On The Middle Class
  • Meet The Family That Just Spent Half Its Annual Income Paying For Obamacare

  But the most surprising article we wrote was our explanation from last November explaining why “Your Health Insurance Premiums Are About To Go Through The Roof” showing that even insurance companies have been unable to earn a profit under Obamacare, as shown in the following chart:

  

   

  This was a stunning revelation because, after all, the Affordable Care Act was largely drafted by the insurance industry itself, and if for whatever reason, it itself was unable to capitalize on Obamacare, then it has truly been a disaster.

  It all came to a head in late November of last year when none other than the U.S.’s biggest health insurer, UnitedHealth, cut its 2015 earnings forecast with a warning that it was considering pulling out of Obamacare, just one month after saying it would expand its presence in the program. At the time UnitedHealth Group said it would scale back marketing efforts for plans it’s selling this year under the Affordable Care Act, and may quit the business entirely in 2017 because it has proven to be more costly than expected.

  In a statement, UnitedHealth said that “the company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.”

  Needless to say, the implications for Obamacare – which had seen a surge in problems over the past year – were dire: As Bloomberg reported at the time, “a pull-back would deal a significant blow to President Barack Obama’s signature domestic policy achievement. While UnitedHealth has been slower than some of its rivals to sell Obamacare policies since new government-run marketplaces for the plans opened in late 2013, the announcement may indicate that other insurers are struggling.”

  “If one of the largest and presumably, by reputation and experience, the most sophisticated of the health plans out there can’t make money on the exchanges, then one has to question whether the exchange as an institution is a viable enterprise,” Sheryl Skolnick, an analyst at Mizuho Securities said at the time. UnitedHealth further said it suspended marketing its individual exchange plans and is cutting or eliminating commissions for brokers who sell the coverage.

  Fast forward to today, this largest U.S. health insurer, announced it has decided to pull the plug on two state Obamacare markets.

  Going forward, UnitedHealth said it will no longer sell plans for next year in Georgia and Arkansas, according to state insurance regulators. Tyler Mason, a UnitedHealth spokesman, confirmed the exits and declined to say whether the company would drop out of additional states, Bloomberg reported.

  As per our extensive coverage of the topic, the reason for the pull out is simple: many, if not most, insurers have found it difficult to turn a profit in the new markets created by the Affordable Care Act, “where individuals turned out to be more costly to care for than the companies expected. UnitedHealth and Aetna Inc. both posted losses from the policies last year, as did big Blue Cross and Blue Shield plans in states like North Carolina.“

  According to Bloomberg, UnitedHealth’s decision to stop offering ACA plans next year means that people who are currently enrolled with the insurer will have to choose a new health insurance provider next year. And while UnitedHealth is the biggest carrier in the United States, with about 42 million medical customers, it has a smaller role in the ACA’s markets. The company had about 650,000 in individual exchange-compliant policies as of Dec. 31.  Kenneth Ryan James, a spokesman for the Arkansas Insurance Department, told Bloomberg tgat UnitedHealth had a “small footprint” in the state, where Blue Cross and Blue Shield plans are dominant.

  However, now that the the precedent has been made, it will likely promptly spillover to other major insurers, including Blue Cross Blue Shield plans, which are dominant on many state exchanges, and have also complained about losses in the individual market, citing higher-than-expected medical claims. 

  In total, Georgia currently has nine – make it eight after the withdrawal of UnitedHealth – health insurers that currently offer ACA polices, according to Glenn Allen, a spokesman for the state’s insurance commissioner. Others include Aetna, Humana Inc. and Cigna Corp. No other company has yet told Georgia that it’s exiting, and companies have until May 11 to decide, he said.

  We are certain that many if not all will promptly follow in UnitedHealth’s footsteps as the beginning of the end for Obamacare finally plays out as so many skeptics of the “Affordable” Care Act had predicted.

  

  

  

  

  

• Black Activists Heckle, Turn On Clinton; Accuse Him Of "Destroying Their Communities"

  It is no secret that one of the core support groups behind Hillary’s presidential campaign are black voters. Which is why it came as a surprise when none other than Bill Clinton faced down protesters angry at the impact his 1994 crime reforms have had on black Americans and defended the record of his wife, Hillary Clinton, who is relying on the support of black voters in her quest for the presidency.

  As Reuters reports, the former president spent more than 10 minutes confronting the protesters at a campaign rally in Philadelphia for his wife over criticisms that the crime bill he approved while president led to a surge in the imprisonment of black people. Clinton’s speech devolved into confusion when several protesters heckled the former president mid-speech and held up signs, including one that read: “CLINTON Crime Bill Destroyed Our Communities.”

  Bill Clinton’s remarks on Thursday drew criticism online. Some saw him as dismissive of the Black Lives Matter movement, a national outgrowth of anger over a string of encounters in which police officers killed unarmed black people. Johnetta Elzie, a civil rights activist, wrote online that Clinton “can’t handle being confronted by his own record.”

  “This is like watching a robot malfunction,” she wrote. She was referring to Bill, not Hillary.

   

  Ahead of Clinton’s speech activists in the Black Lives Matter protest movement circulated video footage of Hillary Clinton defending Bill’s reforms in 1994. In the footage, she calls young people in gangs “super-predators” who need to “be brought to heel.” Hillary Clinton, 68, who also has faced protesters upset by her remarks, said in February she regretted her language.

  To be sure, Bill Clinton defended her 1994 remarks, which protesters say were racially insensitive, and suggested the protesters’ anger was misplaced.

  “I don’t know how you would characterize the gang leaders who got 13-year-old kids hopped on crack and sent them out on the street to murder other African-American children,” he said, shaking his finger at a heckler as Clinton supporters cheered, according to video of the event. “Maybe you thought they were good citizens. She (Hillary Clinton) didn’t.“

  The question whether they are good citizens aside, the bigger problem is that absolutely nothing has been done to even address a problem of gang violence which has resulted in a record surge in gun homicides in cities such as Obama’s own Chicago, as we reported last week.

  

   

  That said, Clinton was right: “You are defending the people who kill the lives you say matter,” he told a protester. “Tell the truth.” Many have criticized the Black Lives Matter activists for actively attacking white people, while openly ignoring the problems within their own society.

  One thing is clear, however: whether as a result of Clinton’s crime bill or not, the United States has more people in prison than any other country. According to the Bureau of Justice Statistics, 1.05 million prisoners were held in federal or state facilities in 1994. By 2014, it was 1.56 million. That year, 6 percent of all black men in their 30s were in prison, a rate six times higher than that of white men of the same age.

  On Thursday confusion ensued over whether or not Clinton defended his legislation: the former president said last year that he regretted signing the Violent Crime Control and Law Enforcement Act into law because it contributed to the high incarceration rate of black people for nonviolent crimes. On Thursday, he did not explicitly recant those regrets, but appeared to be angry at any suggestion the bill was wholly bad.

  The legislation imposed tougher sentences, put thousands more police on the streets and helped fund the building of extra prisons. It was known for its federal “three strikes” provision that sent violent offenders to prison for life. The bill was backed by congressional Republicans and hailed at the time as a success for Clinton.

  Hillary Clinton promised to end “mass incarceration” in the first major speech of her campaign last year. She has won the support of the majority of black voters in every state nominating contest so far, often by a landslide.

  And while many attack Trump on flipflopping on many issues, this is becoming one particular topic that may have a lasting impact on Hillary’s core support group if left unresolved. During Hillary Clinton’s failed 2008 presidential bid, civil rights leaders and high-ranking Democrats in Congress criticized the former president for statements he made during a heated campaign against then-U.S. Senator Barack Obama.

  Bill Clinton said Obama’s campaign had “played the race card.” Obama became the first U.S. black president in November that year.

  

  

  

  

  

• Market ReCap 4-8-2016 (Video)

  By EconMatters

  

  Oil moved higher on short covering, equities faded in front of earnings, and most currencies appreciated against the U.S. Dollar.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

• For Albert Edwards, This Is The "One Failsafe Indicator" Of An Inevitable Recession

  When trying to time the next US recession, most economists – as one would expect – look at economic data. The problem with such “data” as last year’s farcical double seasonal GDP adjustments have shown, is that if the government is intent on putting lipstick on the pig that is US GDP, it will do just that over and over, unleashing non-GAAP GDP if it must, to avoid revealing the truth until it is prepared to do so.

  To avoid such purposeful obfuscation SocGen’s Albert Edwards looks at places where it is more difficult to fabricate and goalseek data. Conveniently, he has discovered precisely that in what calls a “failsafe recession indicator,” one which has stopped flashing amber and has turned to red. He is referring to whole economy profits data, which in his own words “shows a gut wrenching slump.”

  What Edwards is referring to is not that different from what we posted about back in October when we said that on 5 of the past 6 times when corporate profits dropped 60%, the economy entered a recession. This time the drop is far worse, and it’s no longer just energy (the loophole used by many to explain away why in 1985 there was no recession). However, instead of looking at bottom up data, the SocGen strategist instead collapses corporate profits from the top down.

  

  Edwards lays out the reasons why he believes that “a recession now virtually inevitable”, and since this is Albert Edwards after all, he has a jovial follow up: not only will the US economy contract, it “will surely be swept away by a tidal wave of corporate default.”

  From his latest Global Strategy Weekly

  Despite risk assets enjoying a few weeks in the sun our failsafe recession indicator has stopped flashing amber and turned to red. Newly released US whole economy profits data show a gut wrenching slump. Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided – even more so than the ridiculously overvalued equity market – is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.

   

  The temper tantrum risk assets threw at the start of the year was sufficient for the Fed to backpedal furiously on rate hikes. Like the Grand Old Duke of York, the Fed marched us up to the top of the hill and then down again – at the behest of the markets. And as more and more contorted excuses are wheeled out to justify its inaction we all surely know by now that the Fed’s articulated “data-dependent” rate hikes are primarily focused solely on the level of the S&P, i.e., when it slumps they will quickly back off rate hikes and use any excuse necessary  including dismissing surging core CPI inflation. How sad that Central Bank policy should have come to this.

   

  I suppose now the S&P has recovered we are about to go through another turn on the monetary/market merry-go-round. Ignore this noise. Recent whole economy profits data show that while the Fed plays its games, the economic cycle is withering and writhing from within. For historically, when whole economy profits fall this deeply, recession is virtually inevitable as business spending slumps. And if I had to pick one asset class to avoid it would be US corporate bonds, for which sky high default rates will shock investors.

   

  

   

   

  We have written extensively in the past as to why sell-side economists almost to a man and woman fail to predict recessions. One of the key reasons – aside from the obvious wish not to make an unpopular call that might prove wrong and likely fatal to their career – is that they do not place enough importance on the role of profits as a driver of the economic cycle.

  My own observation has led me to the conclusion that when whole economy profits begin to fall sharply, this is usually followed shortly after by the overall economy tipping over into recession, driven by the volatile business investment cycle. The national accounts, whole economy profits data give a wider and “cleaner” estimate of the underlying profits environment than the heavily doctored “pro-forma” quoted company profits data (the former also often leads the latter). As illustrated below, a longer term chart shows how whole economy profits tend to be a leading indicator of the business investment cycle. It also shows the current profits downturn is notably worse than the 1998 downturn – which is often cited as evidence that a profits recession does not necessarily lead to a full blown economic downturn.

   

  

  At this point Edwards observes that some fellow skeptics like Gerry Minack do not see a recession as imminent (he sees a stagflation). However, he remains adamant: “My own view is that Fed tightening may not be a necessary condition to catalyse a recession and that the deep profits downturn is sufficient in itself. Historically all recessions are effectively caused by slumps in business investment driven by a profits downturn: the chart below shows that whenever GDP growth (dotted line) is negative it is almost totally overlaid by the contribution of GDP growth in business investment (red line).“

  

  Will Edwards be right? Of course, but at that point the government – which needs to preserve confidence in growth at all costs – will simply change the definition on GDP first, and when that fails, of “recession” next. And all shall once again be well.

  

  

  

  

  

• Why Janet Yellen Can Never Normalize Interest Rates

  Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  No Return to Normal

  Overall, world stocks have held up well, despite cascading evidence of impending doom.

  U.S. corporate profits have been in decline since the second quarter of 2015. Globally, 36 corporate bond issues have defaulted so far this year – up from 25 during the same period of 2015. Economists at JPMorgan Chase put the U.S. economy growth rate for the first quarter at 0.7% – down by over one-third from earlier estimates.

   

  

  Annual rate of change in quarterly pre-tax profits: nothing to write home about. A  small “profits recession” incidentally preceded the last economic downturn as well – click to enlarge.

   

  And there is $1.7 trillion in junk bonds outstanding – a trillion more than in 2008. Some of these are sure to default in the months ahead. Speculators are already shorting the banks with the biggest piles of these grenades in their vaults.

  Over the last few days, we’ve been trying to coax out an insight. It concerns whether Fed chief Janet Yellen really does have investors’ backs. Not that we have any doubt about her intentions.

  Her career has been financed and nurtured by credit and the people who provide it. Crony capitalists, corrupt politicians, and Deep State hustlers paid good money for her; she’ll do all she can to avoid letting them down.

   

  

  Bank stocks vs. the S&P 500 Index: something isn’t right in financial land – click to enlarge.

   

  But something isn’t working. Not for her. Not for Bank of Japan governor Haruhiko Kuroda. Not for the president of the European Central Bank, Mario Draghi. Not for People’s Bank of China governor Zhou Xiaochuan. Their tricks no longer work.

  We’re on record with a bold prediction: The Fed will NEVER normalize interest rates. Readers may wonder how that jives with our deeper insight: Nobody knows anything. And of course, we don’t know whether the Fed will normalize or not. But let us further explain our reasoning; you make up your own mind as to where to place your bet.

   

  

  They’ve built a big house of cards…and they presumably realize it by now (how can they not?)

   

  The short version of our argument: For the last eight years, the Fed has tried to stimulate the economy with ultra-low interest rates. Business, consumers, and government now almost all depend on credit… and most need ultra-low rates to make ends meet.

  Consumers are in better shape, generally, than they were in 2008. But corporations and governments are in worse shape. Raise the cost of funding, and you will push many of them over the edge.

  Banks, pension funds, and insurance companies are especially vulnerable. They’re now stocked up with low-yield government bonds. Should interest rates rise, those bonds will go down in price. In other words, raising rates will provoke the very calamity the Fed was trying to avoid: the bankruptcy of the financial sector.

   

  The Triumph of Politics

  But wait…how did Bernanke, Yellen, Kuroda, Draghi et al. think they would ever get away with it? How could they believe – even for a minute – that a debt problem could be solved by adding more debt? And yet, they always got away with it before.

  After World War II, for example, the feds had a higher debt-to-GDP ratio than they have now. But after the war, the economy boomed, inflation rose… and soon the debt was no problem. Again, at the beginning of President’s Reagan’s first term, economists worried about large government deficits.

   

  

  The “there’s no coming back from this” chart: total US credit market debt (black line), federal government debt (green line), GDP (red line) and the federal funds rate (light-blue line) – click to enlarge.

   

  The job of colleague David Stockman – director of Reagan’s budget team – was to bring those deficits under control. He failed… a story well told in his book The Triumph of Politics: Why the Reagan Revolution Failed.

  Conservative economists thought the U.S. would sink into another slimy pool of deficits and debt. But once again, a spurt of growth (with low deficits) during the Clinton years reduced the debt to a more manageable level. So, why worry?

  Because this time, it’s not working. Growth is slowing. Productivity has stalled. As former Goldman boy Gavyn Davies put it in the Financial Times: “The slowdown in labor productivity accounts for most of the massive disappointment in global output growth since just before the 2008 crash.”

  Professor Robert Gordon at Northwestern University believes there is more to it than just a cyclical downturn. He maintains that the extraordinary growth of the Industrial Revolution had played itself out by the 1980s. And it can’t be repeated.

  We have another hypothesis: Either way, the debt can never, voluntarily, be brought under control. And the Fed can never “normalize” rates.

  

  

  

  

  

• Minimum Wage Jobs Are Safe: Robot Waiters Fired For Spilling Food And Drinks, Malfunctioning

  It has been a dangerous time for minimum wage waiters and bartenders. While on one hand, never in the history of the US has there been more “food and eating place” workers, and soaring with every month – if only in the BLS’ in house statistical models to compensate for the manufacturing recession the US finds itself in…

  

   

  … on the other hand, their corporate employers, alarmed by the recent spread of minimum wage hikes have been taking measures such as these:  

  the McCafe Coffee Kiosk (which is basically a self-serve coffee machine for the cheap price of $2.99)…

  

   

  … The McRobot

  

   

  … And the McLinecook.

  

   

  But the war of robot vs unskilled-worker-demanding-a-pay-raise, which the former had been expected to win by complete anihiliation of the latter hit a snag when actual robot waiters were employed, pardon, deployed in China leading to unintended consequences.

  Out of three Guangzhou restaurants that used robots to serve customers, two have closed and the third has fired its robot waiters, the Workers’ Daily has reported (We couldn’t find a Chinese Robot Daily yet).

  According to the Chinese media, customers flocked to the Heweilai Restaurant chain in the southern Chinese city when it introduced robots last year, but the chain has stopped using the machines for a number of reasons.

  A staff member said the robots couldn’t effectively handle soup dishes, often malfunctioned, and had to follow a fixed route that sometimes resulted in clashes. A customer also said the robots were unable to do tasks such as topping up water or placing a dish on the table.

  

   

  Another restaurant in Guangzhou’s Baiyun District said robots were used only because of a high turnover of waiters and waitresses.

  “The robots weren’t able to carry soup or other food steady and they would frequently break down. The boss has decided never to use them again,” said one employee.

  

   

  The limitations of the technology were clear, says another. They added: “They can’t take orders or pour hot water for customers.”

  

  However, the report said robots were mainly used to attract attention and don’t help reduce human resource costs.

  Zhang Yun, a vice president at the Guangdong University of Technology, said robots will be widely used within the manufacturing industry in the future, as many tasks are repetitive, but further development is needed before robots are able to work effectively in the service sector.

  For now, it appears, China’s minimum wage workers, and it has a few hundred million of those, will not be phased out just yet.

  In the US, however, it’s a different matter. Remember Boston Dynamics’ Atlas? The 5′ 9″ tall, 180 lbs robot is perfectly suited to replace any number of fast food employees. All it needs is the McDonalds retention letter and the next stage in the war of (minimum paid) man against robot may commence.

  

  

  

  

  

• Shocking Photo: Nearly 30 Oil Tankers in Traffic Jam Off Iraqi Coast

  Submitted by Charles Kennedy of OilPrice.com

  Shocking Photo: Nearly 30 Oil Tankers in Traffic Jam Off Iraqi Coast

  Oil tankers are caught in a traffic jam near the Iraqi port of Basra, causing delays in loading. According to Reuters, around 30 very large crude carriers (VLCCs) are sitting in the Persian Gulf, and the backlog could cost ship owners more than $75,000 per day. Some could be waiting for weeks to reach the port.

  Check out this shocking satellite photo of the tanker traffic jam just off the coast of Iraq.

  

  The culprit is high oil production in Iraq. The port at Basra is struggling to load up all the oil tankers fast enough, forcing some to sit and wait. Iraq exported about 3.26 million barrels per day (mb/d) in March from its southern coast, which is up from just 2.5 mb/d in 2010.

  And the line of tankers appears to be growing. The gridlock is forcing up the cost of renting an oil tanker. That, combined with the shrinking capacity of available storage in China is pushing up tanker rates in Asia as well. Shipping data shows that VLCC rates have doubled from $37,250 per day to $74,700 per day.

  As of now, Reuters calculates that there are 27 VLCCs sitting in the Gulf near Basra, holding about 43 million barrels of oil, double the typical backlog. Some have been waiting for weeks. The current waiting time is 18 to 19 days, which is two to three times the normal wait of 5 to 10 days.

  Reuters contacted a captain of one oil tanker, who said that he wasn’t sure when he would be able to load up at the port. “We’ve been given no details,” he said, declining to be identified.

  Meanwhile, onshore, Iraq is struggling with a bit of rising instability in the country’s south, which is far from the battlefields with ISIS and has been one of the few refuges of stability. However, militias have a growing presence there, raising concerns for the international oil companies operating in Basra.

  

  

  

  

  

• Weekend Reading: The Fourth Turning

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Last week, I interviewed the author of “The Fourth Turning”, economist and demographer Neil Howe on “The Lance Roberts Show.” The discussion focused on the demographic shift that is currently occurring in the United States and the impact it will have on economics in the future. One of the most striking points of the discussion is how American’s are acting in many of the same ways they did during “The Great Depression.”  Also, he delves into the coming crisis in the next decade that will change the landscape of how American’s think and behave in the future.

  You can listen to the full interview by clicking here.

  I bring this up because just after I had the interview with Neil, it was Stanley Druckenmiller to point out many of the same issues.

  The disaster that Druckenmiller sees coming for the United States is all about changing demographics and entitlement spending. The same problem Neil Howe pointed out.

  In 1940, entitlement payments, which include everything from disability payments to Social Security to Medicare, amounted to just over 20% of annual government spending in the United States.  Today, entitlement spending has swelled to nearly 70% of the annual federal budget.

  With the 20-year baby boom that took place after World War II now beginning to result in a retiree boom, the demographic trend is going to create an entitlement spending catastrophe.

  Since 1980, the number of working-age people the country has had has outnumbered those age 65 and over by a count of 5-to 1. In other words, the country had enough workers to generate the tax revenue to support the number of retirees.  By 2030, that ratio is going to drop to 2.5-to-1.

  

  I think you will find the interview very interesting if you are a long-term investor.

  Looking to the markets, if you like volatility you had to love this week with the markets dropping 22 points on Tuesday, rising 21 points on Wednesday and dropping almost 25 points on Thursday. That kind of volatility should come with a dose of “Dramamine.”  The question now is whether all of the Federal Reserve “jaw boning” will continue to elevate stock prices higher as we head into what will most likely be a very rough earnings season.

  As John Hussman tweeted yesterday:

  Over the past year, "announcement effect" of global central bank easing on equity markets has typically been wiped out within 2-3 weeks.

  — John P. Hussman (@hussmanjp) April 7, 2016

   

  As I discussed last week, with the month of April winding up the seasonally strong time of the year, earnings season just ahead and economic growth weak, the risks to the downside far outweigh “hope” of higher prices.  Or, is “bad news” still the a bear market deterrent?

  ---

  CENTRAL BANKING

  • Yelling “Stay” In A Burning Theater by David Stockman via Contra Corner
  • Unconventional Monetary Policy On Stilts by Nouriel Roubini via Project Syndicate
  • Fed’s Mandate Outsourced to China by Macro Man
  • Central Banks: Enabling The Addiction by Buttonwood via The Economist
  • Fed “Is A God That Has Failed” by George Gilder via CNBC
  • Who’s Responsible For The Next Crisis by Narayana Kocherlakota via Bloomberg View
  • Janet Yellen Is Playing A Dangerous Game by Joe Calhoun via Alhambra Partners
  • What Would Be Necessary For More QE Or NIRP by Bob Janjuah via ZeroHedge
  • Heard At Every Major Peak: This Isn’t A Bubble via Reuters

  ---

  MARKETS & EARNINGS

  • Beat The Market, Trade Like A Cockroach by Greg Guenthner via Daily Reckoning
  • Traffic Jam Of A Market by Adam Koos via MarketWatch
  • Unintended Consequences & Market Outcomes by John Rekenthaler via Morningstar
  • Overbought Condition Tips Scales To Bears by Michael Gayed via Market Watch
  • A Brief Warning On Q1 Earnings via HedgeEye
  • US Braces For Worst Earnings Since 2009 by Blaise Robinson via Bloomberg
  • S&P Repeating A Rare Event by Harry Dent via Business Insider

  ---

  ECONOMY & OIL 

  • An Historic & Disappointing Jobs Recovery by Derek Thompson via The Atlantic
  • $85 Oil By Christmas by Nick Cunningham via OilPrice.com
  • Simple Math Shows America Headed For Disaster by Jody Chudley via The Daily Reckoning
  • Proof Oil Prices Won’t Recover Soon by Matt Badiali via Growth Stock Wire
  • Oil Likely To Fall Back Below $30 via Seeking Alpha
  • Time To Weed Out MLP’s by Christine Idzelis via Investment News
  • KKR’s Chilling Message About The End Of The Credit Cycle by Wolf Richter via WolfStreet
  • If The Economy Is Better Why Is It Worse Than 6-Months Ago by Tyler Durden via ZeroHedge

  ---

  OTHER GOOD READS

  • Albert Edwards: The Coming Recession  by Bob Bryan via Business Insider
  • Bond Yields Say “Mediocre Economy” Here To Stay by Mark Gilbert via Bloomberg View
  • Each Fed Intervention Deprives Investor Lessons by John Hussman via Hussman Funds
  • How Does A Market Get Cheap by Meb Faber via Faber Research
  • The Hidden Economics Of Porn by Joe Pinsker via The Atlantic
  • Think A Half Cycle Ahead by David Merkel via Aleph Blog
  • Dividends: US Economy In Contraction by IronMan via Political Calculations
  • White House Wants Your IRA by Staff via WSJ
  • Indicator Suggests Gold Bear Market Over by Jesse Felder via The Felder Report
  • High Beta Stocks Losing Leadership via Dana Lyons via Tumblr

  ---

  “The typical investor has usually gathered a good deal of half-truths, misconceptions, and just plain bunk about successful investing.” –Philip A. Fisher

  

  

  

  

  

• This Is How You Keep The S&P Green For The Year, Redux

  Just as we explained in this morning's wrap, today was all about keeping The S&P 500 in the green year-to-date…

  

   

  Because nothing says "efficient" markets like ten VIX-smash-based "rescues" of S&P 500 from the confidence-crushing perils of a red close year-to-date…

  

   

  And how was today's "save" achieved… the good old VIX smash…

  

   

  Just like we saw on Tuesday…
  

   

  Now the 10th time in a row…

  

  

  

  

  

  

• Banks Battered As Yen-magedddon Sends Stocks To Worst Week In 2 Months

  This seems to sum the week up…

   

  An ugly week for stocks despite the best ramping efforts…

  

   

  Financials were the week's biggest losers… worst week in 2 months

  

   

  Plenty more to come…

  

   

  Facebook had a tough time as FANG stocks suffered their worst week in 2 months (-2.2%)…breaking an 8-week winning streak

  

  TSLA ripped on 100% cancellabe pre-orders for a flying unicorn due sometime soon.

  As Digiday reported, some publishers saw their Facebook traffic nosedive last month, even as Facebook pushes initiatives designed to get users to stay in its app. A traffic analytics company, speaking anonymously to avoid getting on Facebook’s bad side, said Facebook traffic across clients, representing some of the biggest publishers, declined about 20 percent from January to March. The data showed the biggest drops came from publishers that have been heavily invested in Instant Articles, the fast-loading mobile initiative.

   

  Sine the "great" payrolls data, stocks are in the red.. and WTI Crude is epically bid…

  

   

  Treasury yields tumbled – making it a positive return week for bonds for the 3rd week of the last 4…

  

   

  The USD Index ended the week modestly lower (5th down week of the last 6) as AUD weakness offset JPY strength…

  

   

  USDJPY suffered its 2nd worst week in 3 years, erasing all the post-QE3, post-QQE2 gains (JPY devaluation)…

  

   

  Gold & Silver had their best week in a month as crude soared rather idiotically today to a yuuge win for the week (and copper remained mired in the reality of un-growthiness)…

  

   

  Oil algos jumped on every twitch of a headline and turn of a datapoint today no matter what it said – clearly their only goal was to close above the 100-day moving average…

  

   

  Oil and Stocks decoupled again… inverting last week's decoupling…

  

   

  So what happens next?

  

   

  Charts: Bloomberg

  

  

  

  

• Ron Paul Warns "The Conflict Between Government & Liberty Is At A Boiling Point"

  This is excerpted from the introduction of Ron Paul's Liberty Defined: 50 Essential Issues that Affect Our Freedom.

  Liberty means to exercise human rights in any manner a person chooses so long as it does not interfere with the exercise of the rights of others. This means, above all else, keeping government out of our lives. Only this path leads to the unleashing of human energies that build civilization, provide security, generate wealth, and protect the people from systematic rights violations. In this sense, only liberty can truly ward off tyranny, the great and eternal foe of mankind.

  The definition of liberty I use is the same one that was accepted by Thomas Jefferson and his generation. It is the understanding derived from the great freedom tradition, for Jefferson himself took his understanding from John Locke (1632–1704). I use the term “liberal” without irony or contempt, for the liberal tradition in the true sense, dating from the late Middle Ages until the early part of the twentieth century, was devoted to freeing society from the shackles of the state. This is an agenda I embrace, and one that I believe all should embrace.

  To believe in liberty is not to believe in any particular social and economic outcome. It is to trust in the spontaneous order that emerges when the state does not intervene in human volition and human cooperation. It permits people to work out their problems for themselves, build lives for themselves, take risks and accept responsibility for the results, and make their own decisions.

  Our standards of living are made possible by the blessed institution of liberty. When liberty is under attack, everything we hold dear is under attack. Governments, by their very nature, notoriously compete with liberty, even when the stated purpose for establishing a particular government is to protect liberty.

  Take the United States, for example. Our country was established with the greatest ideals and respect for individual freedom ever known. Yet look at where we are today: runaway spending and uncontrollable debt; a monstrous bureaucracy regulating our every move; total disregard for private property, free markets, sound money, and personal privacy; and a foreign policy of military expansionism. The restraints placed on our government in the Constitution by the Founders did not work. Powerful special interests rule, and there seems to be no way to fight against them. While the middle class is being destroyed, the poor suffer, the justly rich are being looted, and the unjustly rich are getting richer. The wealth of the country has fallen into the hands of a few at the expense of the many. Some say this is because of a lack of regulations on Wall Street, but that is not right. The root of this issue reaches far deeper than that.

  The threat to liberty is not limited to the United States. Dollar hegemony has globalized the crisis. Nothing like this has ever happened before. All economies are interrelated and dependent on the dollar’s maintaining its value, while at the same time the endless expansion of the dollar money supply is expected to bail out everyone.

  This dollar globalization is made more dangerous by nearly all governments acting irresponsibly by expanding their powers and living beyond their means. Worldwide debt is a problem that will continue to grow if we continue on this path. Yet all governments, and especially ours, do not hesitate to further expand their powers at the expense of liberty in a futile effort to force an outcome of their design on us. They simply expand and plummet further into debt.

  Understanding how governments always compete with liberty and destroy progress, creativity, and prosperity is crucial to our effort to reverse the course on which we find ourselves. The contest between abusive government power and individual freedom is an age-old problem. The concept of liberty, recognized as a natural right, has required thousands of years to be understood by the masses in reaction to the tyranny imposed by those whose only desire is to rule over others and live off their enslavement.

  This conflict was understood by the defenders of the Roman Republic, the Israelites of the Old Testament, the rebellious barons of 1215 who demanded the right of habeas corpus, and certainly by the Founders of America, who imagined the possibility of a society without kings and despots and thereby established a framework that has inspired liberation movements ever since. It is understood by growing numbers of people who are crying out for answers and demanding an end to Washington’s hegemony over the world.

  And yet even among the friends of liberty, many people are deceived into believing that government can make them safe from all harm, provide fairly distributed economic security, and improve individual moral behavior. If the government is granted a monopoly on the use of force to achieve these goals, history shows that that power is always abused. Every single time.

  Over the centuries, progress has been made in understanding the concept of individual liberty and the need to constantly remain vigilant in order to limit government’s abuse of its powers. Though steady progress has been made, periodic setbacks and stagnations have occurred. For the past one hundred years, the United States and most of the world have witnessed a setback for the cause of liberty. Despite all the advances in technology, despite a more refined understanding of the rights of minorities, despite all the economic advances, the individual has far less protection against the state than a century ago.

  Since the beginning of the last century, many seeds of destruction have been planted that are now maturing into a systematic assault on our freedoms. With a horrendous financial and currency crisis both upon us and looming into the future as far as the eye can see, it has become quite apparent that national debt is unsustainable, liberty is threatened, and the people’s anger and fears are growing. Most importantly, it is now clear that government promises and panaceas are worthless. Government has once again failed and the demand for change is growing louder by the day. Just witness the dramatic back-and-forth swings of the parties in power.

  The only thing that the promises of government did was to delude the people into a false sense of security. Complacency and mistrust generated a tremendous moral hazard, causing dangerous behavior by a large number of people. Self-reliance and individual responsibility were replaced by organized thugs who weaseled their way into achieving control over the process whereby the looted wealth of the country was distributed.

  The choice we now face: further steps toward authoritarianism or a renewed effort in promoting the cause of liberty. There is no third option. This course must incorporate a modern and more sophisticated understanding of the magnificence of the market economy, especially the moral and practical urgency of monetary reform. The abysmal shortcomings of a government power that undermines the creative genius of free minds and private property must be fully understood.

  This conflict between government and liberty, brought to a boiling point by the world’s biggest bankruptcy in history, has generated the angry protests that have spontaneously broken out around the country – and the world. The producers are rebelling and the recipients of largess are angry and restless.

  The crisis demands an intellectual revolution. Fortunately, this revolution is under way, and if one earnestly looks for it, it can be found. Participation in it is open to everyone. Not only have our ideas of liberty developed over centuries, they are currently being eagerly debated, and a modern, advanced understanding of the concept is on the horizon. The Revolution is alive and well.

  The goal is liberty. The results of liberty are all the things we love, none of which can be finally provided by government. We must have the opportunity to provide them for ourselves, as individuals, as families, as a society, and as a country.

  

  

  

  

  

• Something Just Snapped In Saudi Money Markets

  Away from the headlines about The Panama Papers, global financial markets turmoiled quietly this week with a surge in equity and FX volatility and banks suffering more death blows. However, something happened in Saudi Arabia’s banking system that was largely uncovered by anyone in the mainstream… overnight deposit rates exploded to their highest since the financial crisis in 2009…

   

  

   

  It is clear that that the stress in Saudi markets has spread from the forward derivatives markets to actual funding problems.

  

  This suggests one of the two main things: either Saudi banks are desperatly short of liquidity or Saudi banks do not trust one another and are charging considerably more to account for the suspected credit risk.

  Either way, not good. So what is going on behind the scenes in Saudi Arabia?

  

  

  

  

  

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• Lost Faith In Central Banks And The Economic End Game

  Submitted by Brandon Smith via Alt-Market.com,

  We live in strange economic times, stranger perhaps than at any other point in history. Since 2007-2008, the globally intertwined and dependent fiscal system has suffered considerable declines in every conceivable area. Manufacturing around the world is in a slump, from Japan to China to Europe, with the minimal manufacturing accomplished in the U.S. also fading. Consumption is falling, most notably in petroleum and raw materials. Employment is truly dismal, with the U.S. posting over 94 million people as “non-participants” in the national work force.

  High paying jobs are disappearing, and the only jobs replacing them are in the low wage service sector. This problem is becoming so pervasive that certain more socialist states including California and New York are attempting to offset the loss of sustainable income jobs by forcing retail and service companies into paying an inflated minimum wage. That is to say, states hope to stop the bloodletting in wages by magically turning low paying jobs into high paying jobs.

  As anyone with any economic sense knows, you cannot have a faltering consumer sector in which people are buying less and force service based companies to pay their employees far more per hour than the job is worth. Those companies will simply lay off more employees, cut hours or shut down entire branches of their operations in order to maintain their profit margins. Either that, or those companies will go out of business.

  One sector, though, has continued to reap certain benefits (for now), and that is equities. There is a good reason for this.

  The stock market is a kind of Pavlovian control mechanism, a mental trigger in the minds of the masses that dominates their perceptions of the world’s financial health. The drooling public sees green lines and they hail impending “recovery;” they see red lines and suddenly they begin to wonder if all is not well. As the former head of the Federal Reserve Dallas branch, Richard Fisher admitted in an interview with CNBC, the U.S. central bank in particular has made its business the manipulation of the stock market to the upside since 2009:

  "What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.

   

  It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow.

   

  I’m not surprised that almost every index you can look at … was down significantly." [Referring to the results in the stock market after the Fed raised rates in December.]

  Fisher went on to hint at the impending danger:

  I was warning my colleagues, “Don’t go wobbly if we have a 10-20% correction at some point…. Everybody you talk to … has been warning that these markets are heavily priced.”

  Central banks have focused most of their efforts on levitating the Dow as well as energy markets for some time now.

  Why? Because the general public does not pay attention to any other market indicators. They do not care that equipment giant Caterpillar is having the worst profit period in the company’s history. They do not care that the Baltic Dry Index, a measure of global shipping rates and thus a measure of global orders for raw goods, continues to bounce around well below its original historic lows due to crashing shipping demand. They do not care that according to the World Economic Forum, oil demand has dropped to levels not seen since 1997. They do not know nor do they care to know. Their only barometer for economic danger is the Dow, and central banks know this well.

  Something has changed recently, though. Why, for example, did the Fed go against its long-time mandate of manipulating equities into positive territory by committing to the taper of QE3? Why did they then later commit to hiking interest rates, an action they KNEW would cause a massive downturn in stocks?

  The jawboning of stocks in March back from the brink actually tells us a lot in terms of the central bank’s intentions. First, it tells us that the Fed does not intend to use tools such as rate cuts and stimulus measures to buy back market optimism. Rather, they are relying solely on investor faith that central banks are not going to leave them high and dry. They have decided to use manipulative language alone, rather than the manipulative monetary policy we have grown accustomed to.

  Second, the action of the Fed in raising rates has torn away the veil and shown the public stocks truly cannot survive without central bank support. The moment the Fed leaves markets to their own devices, the only things left for investors to turn to are the fundamentals, and of course the fundamentals are ugly beyond belief. Thus, stocks begin to plummet.

  As I point out in my article “Markets Ignore Fundamentals And Chase Headlines Because They Are Dying,” some of the greatest market rallies in U.S. history occurred during the onset of the Great Depression, and all of these rallies were based on a false sense of public faith that recovery was “right around the corner”. The rally this past March is no different. There are no fundamentals to back it, it was built entirely on faith, and soon it will implode as similar rallies did during the Depression.

  Just in the past week alone, certain signs are bubbling to the surface to undermine the facade of the recent dubious rally.

  For anyone who was betting on oil markets to continue their rally past the $40 per barrel mark, there was a lot of bad news. Saudi Arabia crushed optimism by announcing that it would not be entertaining a “production freeze” proposal unless ALL other oil producing nations, including Iran, also agreed to it.

  Iran then doubly crushed optimism by announcing an increase in production rather than committing to a freeze.

  Russia then administered the final blow by releasing data showing that their oil output had risen to historic levels, indicating that they will not be entering into any agreement on a production freeze.

  Besides a recent overly optimistic (and rather suspicious inventory draw) which has caused a short term rebound, all indicators show that oil will be headed back to the lows seen at the beginning of this year.

  Why do oil markets matter? Well, it would seem that stocks for the past few months have been loosely tracking oil. When oil has taken a dramatic turn to the negative, so have stocks. This may be a purely psychological correlation, but that is kind of the point. ALL stock market movements are purely psychological today, and when psychological optimism fails, the fundamentals strike hard. So far, oil is solidly back in volatile territory, and equities are following.

  In fact, most of the world is beginning to feel tremors yet again in stocks as central bank meeting and announcements are having less and less affect on positive psychology.

  Asian markets were trounced the past week with a return to volatility as Chinese and Japanese central banks were either unable or unwilling to slow the tide. European markets followed, with some market participants coming to terms with the nature of the recent rally:

  “The market is missing confidence,” said Mathias Haege, who helps oversee 300 million euros ($342 million) as managing partner of MaxAlpha Asset Consultant in Frankfurt. “At the end of the day, it doesn’t matter what central banks are doing if economic growth doesn’t accelerate and corporate earnings continue to shrink.”

  And there you have it. Stock markets are in no way a measure of economic health at this time, they are only a measure of investor confidence in central banks, and that confidence is failing in light of extremely negative fundamentals.

  So, I ask again, why have many central banks and the Federal Reserve in particular pulled back from their usual tools (near zero rates and stimulus) at a time when investor faith in the economy is falling?

  Recently, Wikileaks published a transcript of an internal International Monetary Fund (IMF) discussion that provides some answers. The general thrust of the document shows that the IMF deliberately set the stage for a return to instability in Greece this summer with the intention of destabilizing the EU, and more specifically cornering Germany. The goal? To essentially force the EU to allow the IMF to take a more commanding role in the economic affairs of the supranational body.

  Far too much attention is paid to the criminality of national central banks like the Federal Reserve, but the Federal Reserve is nothing more than a franchise, an appendage of a greater banking syndicate with the IMF, Bank for International Settlements (BIS) and the World Bank leading the way.

  What many people do not seem to understand is that national central banks are expendable in the minds of globalists like those at the IMF. They are nothing but institutions on paper. Their true assets are unknown because they have never been audited. They can be destroyed or absorbed on a whim if globalists see greater gains as a result. The Wikileaks documents support the assertions I wrote in my article, “The Economic End Game Explained,” that central banks, led by the IMF and the BIS, are deliberately creating instability in global markets in order to create a crisis large enough to substantiate total centralization of power in the hands of those same institutions.

  This should not be news to anyone, but unfortunately it is. Back in 2012 IMF head Christine Lagarde made this revealing statement:

  "When the world around the IMF goes downhill, we thrive. We become extremely active because we lend money, we earn interest and charges and all the rest of it, and the institution does well. When the world goes well and we’ve had years of growth, as was the case back in 2006 and 2007, the IMF doesn’t do so well both financially and otherwise."

  If the IMF is engineering a financial crisis in Europe in order to gain more power and influence, why wouldn’t the Fed be doing the same for the IMF in America?

  The ONLY explanation that makes sense in terms of the Fed allowing an incremental removal of support from U.S. markets is that their GOAL is to create instability. The jawboning and exploitation of false hopes acts as a kind of steam valve, slowing the crash to a manageable pace.

  The loss of faith in central banks and their ability to support dying markets is indeed occurring. However, this is not the whole story. The fact is, the loss of faith is MEANT to happen, and it is useful to globalists at the IMF who now seek to replace hundreds of central bank franchises across the globe with a single governing entity overseeing the financial administration of the entire world. That is to say, the IMF is creating the problem so that they can offer themselves and their authority as a solution.

  Just as the international bankers use stimulus and rate policy as tools, so, to, do they use chaos.

  

  

  

  

  

• Puerto Rico Bonds Crash After "Moratorium" Raises Default Risk

  Just a day after Governor Alejandro Garcia Padilla signed a law that enables him to temporary halt debt payments, dramatically raising the risk of widespread defaults, Puerto Rico securities had the biggest one-day drop in more than eight months.

   

  

   

  Today's plunge is the biggest decline since July 28, 2015, a day after PR indicated that it was set to skip interest and principal payments on some securities for the first time.

  As The NY Times reports, Gov. Alejandro García Padilla of Puerto Rico on Wednesday signed a bill that would allow him to declare a state of emergency and give him authority to halt payments on the island's crushing $72 billion debt.

  The measures capped two days and nights of marathon debate in Puerto Rico's legislature, where lawmakers from the main opposition party called any unilateral debt moratorium dangerous and members of the governor's party insisted that doing nothing would be even worse.

   

  "This legislation provides us with the tools to address the highest priority of needs — providing essential services to our people — without fear of retribution," the governor said in a statement on Wednesday. He accused Puerto Rico's creditors of hampering federal assistance by "misinforming the public and dissuading Congress from doing what is right for our 3.5 million American citizens."

   

  The Puerto Rican Senate approved the measure at about 3 a.m. Tuesday. The House, after becoming embroiled in a dispute over whether certain types of bonds should be excluded, approved it around 1 a.m. Wednesday.

   

  The bill did not specify a starting date for a moratorium, leaving that decision to the governor. But a big debt payment, $422 million, is due on May 1, and there have been many signs that Puerto Rico is not able or willing to pay it.

   

  That payment is due on bonds issued by the Government Development Bank, an institution that plays a critical role in the island's financial affairs, including holding deposits of municipalities and other government entities. As recently as last week, holders of the bank's debt were in talks about an agreement that would give the bank some breathing room if it failed to make the payment.

   

  But those efforts broke off in the face of a flurry of revelations that the bank was insolvent, that it might be placed in receivership, and that it was swiftly moving deposits to other financial institutions, apparently to keep them from being frozen or drained away by frightened depositors.

   

  The bill says the bank has just $562 million in cash. A moratorium would be intended, among other things, to help preserve that cash, so the bank can use it to finance the activities of other parts of the government.

   

  The law also establishes a new framework for putting the development bank into receivership, and creating a "bridge bank" that would take over some of its deposits and obligations during the moratorium.

  The situation was not helped by Puerto Rico Treasury Secretary Juan Zaragoza who said there was "absolutely" no way the Treasury will have the funds make the more than $700M payment due July 1.

  There are $300M in checks made out to suppliers that are being held because the Treasury doesn’t have the funds, Zaragoza said

   

  Estimates that between other central government debts and public corporations, the amount owed to suppliers of government goods and services is about $2B, Zaragoza said

  'Conversations' with creditors continue but the pendulum appears to be swinging towards Puerto Rico's restructuring,

  Stephen Spencer, who represents some investors who have already agreed to restructure their bonds, said, "We intend to carefully review the legislation, but at this stage we believe that it may lead to violations of the terms of the agreement."

  He said that the administration last fall had hailed that restructuring as a model for others to follow, adding that the bondholders he represents should have been excluded from any coming moratorium, "rather than being cast into a state of uncertainty."

  And/or a US taxpayer funded bailout…

  In Washington, House Republicans seeking to rescue Puerto Rico prepared to release a revised plan that includes a federal oversight panel. The proposal has been contentious on the island, where the governor and his top advisers are increasingly at odds with investors over how to restructure the debt, most of it in the form of municipal bonds.

  As we detailed yesterday, what was more troubling is that in a move similar to what we have seen in Greece, only this time a voluntary one on behalf of the island and not its vassal owners (as happened with Greece), the newly signed Puerto Rico Emergency Moratorium & Financial Rehabilitation Act also empowers the governor to order the financially battered Government Development Bank (GDB) to restrict the outflow of cash in a bid to stabilize its dwindling liquidity levels, which stood at roughly $560 million as of April 1, according to the bill.

  In other words, capital controls.  

  This, incidentally, confirms what we said yesterday, when we concluded that "the situation is getting messier by the day with a compromise deal now seemingly impossible – absent a US government bailout – and meanwhile Puerto Rico's money is running out, which will ultimately be the decisive catalyst that leads to the next step in the crisis."

  That moment may have just arrived.

  

  

  

  

  

• Are Russians In For Yet Another War?

  Submitted by Angela Borozna via OrientalReview.org,

  Do Russians want another war? If you are Russian, you would be surprised by the question. Why would anyone want war (hot or cold)? But if you are an American, and grew up fearing ‘bad Russians’ such question does not surprise you a bit. After all, the whole Cold War was based on the main assumption – Russians/Soviets want war!

  Despite being an allies during the World War II, the friendship between the Soviet Union and the United States was quickly replaced with an intense rivalry. Just one year after the victory over Nazi Germany, a new face of the Soviets was painted in the West – the ‘evil Russians’, who wanted one thing – world domination.

  It would be absurd if it didn’t have such dire consequences – years of fear on the both sides of the Atlantic, and wasted resources, which could have been spent on normalizing people’s lives. 

  After losing more than 20 million people in the World War II, and experiencing hunger and devastation of ruined industries and infrastructure, the last thing the Soviets wanted after the WWII was another war. It took the Soviet Union decades to rebuild the country. People lived in deep poverty and everyone was longing for a normal life. Yes, U.S.S.R. was building up defense industry – because it didn’t want to be attacked again. Offense was never the purpose!

  How did the former allies become the adversaries?

  The fear of the Soviet Union was initiated by Kennan’s ‘Long telegram’, sent on February 22 1946 from Moscow to James Byrnes in State Department, Washington D.C. The telegram was later reprinted as an article in Foreign Affairs, called ‘The Sources of Soviet Conduct’, where he pictured Russians as too “insecure and untrusting and too obsessed with protecting their borders.” A portion of Kennan’s ‘Long Telegram’ was selectively quoted to the public to make an image of evil Russia that is looking to take over the world.

  Another part of telegram, stating that the Soviet Union is actually much weaker than the US and doesn’t pose a danger to America was omitted: “Gauged against Western World as a whole, Soviets are still by far the weaker force.” Not just “weaker” – the economy of Soviet Union after the war was a fraction of American economy. But that part got ignored – the telegram was enough to send Pentagon, and propaganda machine into motion. Building weapons is a profitable business, after all.

  

  Ex British PM Winston Churchill delivering his Fulton speech on March 5, 1946.

  On March 5, 1946, shortly after Kenan’s ‘Long Telegram’, Winston Churchill made his famous ‘Iron Curtain’ speech in Fulton, Missouri. Churchill proposed coordination of the Anglo-American military to halting the spread of Russian Communism, which he warned has become a “growing challenge and peril to Christian civilization.”

  The former British Prime Minister, standing on the platform beside President Truman, warned that only through a military alliance of English-speaking nations can a clash of ideologies be prevented from bursting into a third world war. Despite agreeing in 1945 at Yalta Conference to post-war settlement, Churchill characterized Russia as dropping an ‘Iron Curtain’ in the middle of Europe in order to create ‘Spheres of Influence’.

  The catchy phrases of the speech became the new language of the Cold War and created an image of Russia as an enemy of the West. Churchill insisted that the Soviets want war and they plan to conquer all of Europe. Former British Prime Minister warned that Moscow understands only force and that in order to stop Soviet ‘expansion’, the West has to unite around the United States, who has the necessary force (nuclear bomb).

  Shortly after the United States demonstrated convincingly its nuclear capability in August 1945, the Soviet Union developed its own nuclear weapon, and the gloomy era of the arms race and fear-mongering on both sides would begin. The “Iron Curtain” speech at Fulton would turn former allies into enemies for many years to come.

   Formation of NATO and Warsaw Pact

  

  Copy of the 1954 Soviet note to NATO, click to download full PDF

  A year after Stalin died in 1953, the Kremlin asked to join NATO. In the declassified ‘note’, dated April 1 1954, the Soviet government, asked Western leaders to “examine the matter of having the Soviet Union participate in the North Atlantic Treaty“, for which it received an answer that ‘the unrealistic nature of the proposal does not warrant discussion’.

  Why did Soviets asked to join NATO? Naturally, Kremlin leaders believed that the alliance, uniting US and the Soviet Union in its fight against Germany could become a true security alliance. After the refusal, Russia had no choice but to establish its own security alliance, the Warsaw Pact, which was established in 1955.

  In 2001, Kremlin’s request to join NATO once again was met with refusal from the alliance. Moscow again expected too much from so-called ‘strategic partnership’, which ended up to be in name only.

   Why are we fighting the new Cold War?

  The period of time since Vladimir Putin’s first presidency till now has been marked by a slow buildup of tension between the United States and Russia to the point when the Cold War II became a new reality. The media is complicit in heightening the tension by deliberately omitting or distorting the information and creating an image of ‘totalitarian regime’ in Russia.

  Instead of tracing the true source of events in Ukraine and Syria, the major Western news sources blame the responsibility on Kremlin, taking it as far as claiming that Russia is fueling the instability in the Middle East and Ukraine in order to spread chaos to Europe. Such claims are unfounded and the opposite is true: the instability on Russia’s borders can harm Russia more than Europe.

  There are several reasons for the return of confrontation, but the main reason is that United States had failed to understand Russia’s willingness to cooperate with the West in the early 1990s. The U.S. continued to treat Russia with mistrust. Russia was treated as a looser, and an attempt for cooperation with the West was perceived as a sign of economic weakness. Russia was treated as a beggar, who was asking to be liked, to join “gentlemen’s clubs”. And it was accepted, with much condescendence from those “civilized gentlemen” to sit at some of the fine tables, as long as awkward Russian bear was on a leash.

  

  A typical primitive propaganda cartoon depicting “aggressive Russia” for Western public.

  When the bear started showing some teeth, and growling once in a while, gentlemen started to worry and wonder if they haven’t made a mistake of dealing with such an unrefined creature? They didn’t care that the bear meant no harm – beast is a beast and should be dealt with accordingly! So, the taming of the beast began.

  Slowly, but surely, the image of ‘aggressive Russia’ started to emerge. And thanks to misinformation about real causes of war in Georgia and Ukraine we got a total culmination, what CNN, Washington Post and the New York Times were “predicting” all along – ‘resurgent Russia’.

  How can we avoid a confrontation between the two nuclear superpowers when Washington is determined to continue its information warfare, in which it determined to portray Russia in bad light, no matter what Russia does?

  Just like the Cold War I, the Cold War II has its ideological underpinning, except, now it is not about communism versus capitalism, it is about multipolarity versus unipolarity. It just happened Russia was not willing to be a part of unipolar world. It just happened to be against Russian national character to be serving a “higher master”. How did it dare to disobey? Well, the nuclear weapons came handy for standing up to protect its national pride and its national interest in face of America bluntly stepping into Russia’s spheres of interest.

  Is current U.S. – Russia state of relations a result of the U.S. blindly following its own grand strategy at any cost? According to Wolfowitz doctrine states are not allowed to have their own national interests, and no one can stay in the way of US global preeminence:

  “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”

  In respect to the Middle East and Southwest Asia, Wolfowitz doctrine does not hide its objective: “our overall objective is to remain the predominant outside power in the region and preserve U.S. and Western access to the region’s oil.”

  The Wolfowitz doctrine clearly states that “We must maintain the mechanism for deterring potential competitors from even aspiring to a larger regional or global role.” Russia is definitely a stumbling block to American goal of “dominating a region whose resources would, under consolidated control, be sufficient to generate global power.”

  Like generations of Cold War fighters before him, Wolfowitz warned against the possible threat posed by a resurgent Russia:

  “We continue to recognize that collectively the conventional forces of the states formerly comprising the Soviet Union retain the most military potential in all of Eurasia; and we do not dismiss the risks to stability in Europe from a nationalist backlash in Russia or efforts to reincorporate into Russia the newly independent republics of Ukraine, Belarus, and possibly others….’We must, however, be mindful that democratic change in Russia is not irreversible, and that despite its current travails, Russia will remain the strongest military power in Eurasia and the only power in the world with the capability of destroying the United States.”

  Despite the two decades of Russia’s attempts at assuring the United States that strategic partnership between the two states is possible and desirable, American leadership never took these assurances seriously. The Cold War mentality never left the U.S. foreign policy. NATO expansion and the wave of Color revolutions in the former Soviet Union only consolidated a mistrust of the United States in Russia.

  John Pilger wrote:

  “How many people are aware that a world war has begun? At present, it is a war of propaganda, of lies and distraction, but this can change instantaneously with the first mistaken order, the first missile.”

   

  “In the last 18 months, the greatest build-up of military forces since World War Two — led by the United States — is taking place along Russia’s western frontier. Not since Hitler invaded the Soviet Union have foreign troops presented such a demonstrable threat to Russia.  Ukraine — once part of the Soviet Union — has become a CIA theme park. Having orchestrated a coup in Kiev, Washington effectively controls a regime that is next door and hostile to Russia: a regime rotten with Nazis, literally. Prominent parliamentary figures in Ukraine are the political descendants of the notorious OUN and UPA fascists. They openly praise Hitler and call for the persecution and expulsion of the Russian speaking minority. In Latvia, Lithuania and Estonia — next door to Russia — the U.S. military is deploying combat troops, tanks, heavy weapons. This extreme provocation of the world’s second nuclear power is met with silence in the West. “

  We are back to fear and mistrust of each other as we were back in 1946. We have already been at the brink of the nuclear war once, do we want to take another chance?

  

  

  

  

  

• Here Is Rothschild's Primer How To Launder Money In U.S. Real Estate And Avoid "Blacklists"

  Anyone closely following the Panama Papers tax haven story, is by now familiar with the role that Rothschild plays in providing virtually identical services right inside the US by the Rothschild Trust, as explained in our recent article “Rothschild Humiliates Obama, Reveals That “America Is The Biggest Tax Haven In The World.”

  They are also probably familiar with the name Andrew Penney profiled in January by Bloomberg as follows:

  Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

  * * *

  For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. “is effectively the biggest tax haven in the world.” The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”

  So for all those now former Mossack Fonseca, or their “Panamanian” peers who have not been rooted out yet, or for anyone else who wishes to open a domestic “trust”, here is the primer straight from Rothschild Trust.

  Key highlights:

  • In the year since we opened Rothschild Trust North America in Reno, Nevada, we have discovered the versatility of Nevada trusts and their usefulness within the context of our international business.
  • Rothschild Trust has long embraced clients with US connections and the complexity this brings to planning. Our new US offering has enabled us to offer creative solutions not only to anticipated situations, but also to unusual or complex scenarios that require bespoke structures.
  • In our experience, Nevada trusts can be useful planning tools not only for onshore or first generation American families, but also for  foreign offshore families looking to invest in the US.
  • Such structures maintain privacy and block US estate tax liability, but are subject to two layers of income tax (at both the corporate and shareholder level) as well as high levels of both income and capital gains tax, making them inefficient for appreciating or income-generating property.

  Worried about FATCA exposure abroad? Just use Rothschild domestically:

  • In the build-up to FATCA implementation, some US clients who had assets in offshore trusts for historic reasons have decided to domesticate these structures to lower the burden of reporting. These domestications form part of the general trend we have seen towards moving structures onshore.
  • The US, and Nevada in particular with its favourable trust laws and attractive state tax regime, offers a variety of planning opportunities that can achieve complex planning aims with simplified reporting obligations and compliance concerns.

  Here Rothschild explains to foreigners how to launder money using U.S. real estate:

  • The foreign company contributes its shares to the US LLC and then liquidates, and the US corporate subsidiary it owns elects to be treated as a qualifying sub-chapter “S” subsidiary. The end result is a single layer of US income tax and reduced rates on income and capital gains tax, though in the case of property that has appreciated greatly in value – such as, for example, prime New York condominiums – there can be a significant tax cost to the liquidation.
  • We have recently seen the usefulness of “foreign” Nevada trusts for offshore foreign investors in US real estate. The appointment of a foreign protector to a trust that would otherwise qualify as a US domestic trust causes the trust to fail the “control” prong of the US court and control test for trust situs, and therefore prevents the trust from qualifying as tax-resident for US federal income tax.
  • Generally, this type of structure is useful for foreign offshore investors in US real estate (or other US situate assets) who do not wish to file US tax returns in their own name and who, having no personal US nexus, would like to minimize the amount of US tax payable on the investments

  This, of course, would not be possible if the National Association of Realtors was not complicit. Which it is, as we have covered since 2012:

  Many of you reading this will undoubtedly have spent time in an international bank and been forced to sit through countless hours of “know your client” and AML training. Fascinating to note that the National Association of Realtors lobbied for and received a waiver from such regulation. That’s right, realtors actually went to the U.S. government and said: we want to be able to help foreign business oligarchs and other nefarious business people launder money through the real estate markets of the United States – and prevailed.

   

  Here’s their official position:

   

  “NAR supports continued efforts to combat money laundering and the financing of terrorism through the regulation of entities using a risk-based analysis. Any risk-based assessment would likely find very little risk of money laundering involving real estate agents or brokers. Regulations that would require real estate agents and brokers to adopt anti-money laundering programs may prove to be burdensome and unnecessary given the existing ML/TF regulations that already apply to United States financial institutions.”

  So far, regulations that prevent foreigners from laundering money in the US have indeed proven “burdenseome.” The result: record high luxury real estate prices which is now used by foreign oligarchs and money launderers as the modern day “Swiss bank account”, and which make this particular sector of US housing accessible only to other foreigners.

  If you are still not convinced to use Rothschild, here is one more reason: to avoid a “blacklists” – after all, everyone is anonymous:

  • Nevada “foreign” trusts may also prove attractive to settlors from politically sensitive countries who are grappling with blacklists and strict CFC regulations as they seek to structure their assets.

  And here is where Rothschild comes as close as it possibly could to putting that US-based tax havens are used for tax evasion:

  The use of Nevada “foreign” trusts avoids blacklists and the stigma that can come with placing assets in jurisdictions typically viewed as tax havens, without creating exposure to US income tax on non-US income. As more countries adopt blacklists, strict CFC regimes and other measures designed to shut-down perceived tax havens, the flexibility and higher degree of certainty afforded by US trusts may become increasingly attractive.

  The question, then, is why does the US not adopt such a regime which makes money laundering impossible for both foreigners and in more limited instances, residents? For now, however, it hasn’t and probably won’t, despite Obama’s heartfelt appeal on Tuesday that “Tax avoidance is a big, global problem.”

  So for all those who can’t wait to use Rothschild for all their “Trust” needs, here is your contact:

  

   

  The Rothschild primer:

  

  

  

  h/t Ronan

  

  

  

  

  

• Who Is The Richest Person In Every State

  Yesterday morning, following news that David Tepper was set to depart his home state of New Jersey for Florida (and being NJ’s richest man, his departure is already being lamented) using the latest Forbes billionaire data, we presented a chart laying out the number of billionaires by state to show which states have the biggest “billionaire flight” buffer.

  

   

  Due to popular demand, we are following this up with a listing of the richest people by state, in map format, courtesy of Salil Mehta.

  

   

  And in list format.

  

  

  Source

  

  

  

  

  

• 19 Facts That Prove Things In America Are Worse Than They Were Six Months Ago

  While we all very capable of discerning the 'recovery' facts from the peddled recovery fiction throughout President Obama's reign…

  

   

  …a close up over the last six months suggests things are getting worse in a hurry. As The Economic Collapse blog's Michael Snyder details, while most people seem to think that since the stock market has rebounded significantly in recent weeks that everything must be okay, that is not true at all.

  Has the U.S. economy gotten better over the past six months or has it gotten worse?  In this article, you will find solid proof that the U.S. economy has continued to get worse over the past six months.  Unfortunately, most people seem to think that since the stock market has rebounded significantly in recent weeks that everything must be okay, but of course that is not true at all.  If you look at a chart of the Dow, a very ominous head and shoulders pattern is forming, and all of the economic fundamentals are screaming that big trouble is ahead.  When Donald Trump told the Washington Post that we are heading for a “very massive recession“, he wasn’t just making stuff up.  We are already seeing lots of things happen that never take place outside of a recession, and the U.S. economy has already been sliding downhill fairly rapidly over the past several months.

  With all that being said, the following are 19 facts that prove things in America are worse than they were six months ago…

  #1 U.S. factory orders have now declined on a year over year basis for 16 months in a row.  As Zero Hedge has noted, in the post-World War II era this has never happened outside of a recession…

  In 60 years, the US economy has not suffered a 16-month continuous YoY drop in Factory orders without being in recession. Moments ago the Department of Commerce confirmed that this is precisely what the US economy did, when factory orders not only dropped for the 16th consecutive month Y/Y, after declining 1.7% from last month

  #2 Factory orders have now reached the lowest level that we have seen since the summer of 2011.

  #3 It is being projected that corporate earnings will be down 8.5 percent for the first quarter of 2016 compared to one year ago.  This will be the fourth quarter in a row that we have seen year over year declines, and the last time that happened was during the last recession.

  #4 Total business sales have fallen 5 percent since the peak in mid-2014.

  #5 S&P 500 earnings have now fallen a total of 18.5 percent from their peak in late 2014.

  #6 Corporate debt defaults have soared to the highest level that we have seen since 2009.

  #7 The average rating on U.S. corporate debt has fallen to “BB”, which is lower than it has been at any point since the last financial crisis.

  #8 The U.S. oil rig count just hit a 41 year low.

  #9 51 oil and gas drillers in North America have filed for bankruptcy since the beginning of last year, and according to CNN we could be on the verge of seeing the biggest one yet…

  Shale oil driller SandRidge Energy (SD) warned there was “substantial doubt” it would survive the oil downturn. The Oklahoma City company said this week it is exploring a potential Chapter 11 bankruptcy filing.

   

  Based on its $3.6 billion of debt, SandRidge would be the biggest North American oil-focused company to go bust during the current downturn, according to a CNNMoney analysis of stats compiled by law firm Haynes and Boone.

  #10 According to Challenger, Gray & Christmas, job cut announcements by major firms in the United States were up 32 percent during the first quarter of 2016 compared to the first quarter of 2015.

  #11 Consumers in the United States accumulated more new credit card debt during the 4th quarter of 2015 than they did during the entire years of 2009, 2010 and 2011 combined.

  #12 Existing home sales in the U.S. were down 7.1 percent during the month of February, and this was the biggest decline that we have witnessed in six years.

  #13 Subprime auto loan delinquencies have hit their highest level since the last recession.

  #14 The Restaurant Performance Index in the U.S. recently dropped to the lowest level that we have seen since 2008.

  #15 Major retailers all over the country are shutting down hundreds of stores as the “retail apocalypse” accelerates.

  #16 If you take the number of working age Americans that are officially unemployed (8.1 million) and add that number to the number of working age Americans that are considered to be “not in the labor force” (93.9 million), that gives us a grand total of 102 million working age Americans that do not have a job right now

  #17 Since peaking during the 3rd quarter of 2014, U.S. exports of goods and services have been steadily declining.  This is something that we never see outside of a recession…

  

  #18 The cost of everything related to medical care just continues to skyrocket even though our wages are stagnating.  According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year, and yet the cost of medical care just hit a brand new all-time high…

  

  #19 Our government debt continues to spiral out of control.  At this point it is sitting at a staggering total of $19,218,516,838,306.52, but when Barack Obama first entered the White House it was only 10.6 trillion dollars.  That means that our government has been stealing an average of more than 100 million dollars an hour from future generations of Americans every single hour of every single day since Barack Obama was inaugurated…

  

  How in the world can anyone look at those numbers and suggest that everything is okay?

  I simply do not understand how that could be possible.

  Part of the problem is that Americans have been trained to be irrationally optimistic.  It is fine to have an optimistic outlook on life, but when it causes you to throw logic and reason out the window that is not good.

  For example, you can be “optimistic” about your ability to fly all you want, but if you step off a 10 story building you are going to take a very hard fall to the ground.

  Similarly, you can ignore all of the facts and pretend that our economic prosperity is sustainable all you want, but it won’t change the fundamental laws of economics.

  Who is to blame for all this disappointment? Simple…

  

   

  Finally, don't forget, "There are no signs of a US recession anytime soon"… apart from these nine charts that is…

  

  

  

  

  

  

• Caught On Tape: Russian Attack Helicopter Hunts, Destroys ISIS Vehicles

  While the “war against ISIS” has been quietly pulled from the front pages in recent months (even as both Russia and the US continue to pile forces into Syria), having served its political purpose, it continues on the ground. As evidence we have the following newly-released videos show Russian Mil Mi-28NE Night Hunter helicopters hunting Islamic State vehicles in Syria.

   

  Russian helicopters, warplanes strike ISIS during Palmyra liberation https://t.co/H2hWGrQRUz pic.twitter.com/9pOpIKSsGG

  — RT (@RT_com) March 31, 2016

   

  According to RT, the Mi-28NE reportedly use Ataka (NATO designation AT-9 Spiral-2) anti-tank guided missiles with shaped charge warheads, designed to eliminate armored vehicles; the pickups and trucks of the Islamic State (IS, formerly ISIS) terrorists are pierced through. A number of people can be seen running away from the vehicles in the midst of an attack.

  As seen on video, pilots do not target fleeing terrorists.

  The targets are engaged from various distances, sometimes well over 5km away, with speeds of the aircraft exceeding 200kph.

  On some videos it is clearly visible that terrorists are firing at the helicopters with automatic weapons, though incapable of damaging the armored ‘flying tanks’, which can withstand hits from 12.7mm bullets.

  And since the “war against ISIS” is gradually fading now that the world’s attention has finally been drawn to its Turkish sources of funding, we look forward to the next, just as exciting videos: ECB helicopters launching stack of €100 bills (because the €500 should be made illegal soon) at European citizens.

  

  

  

  

  

• Asia's Largest Clothing Retailer Plummets After Slashing Guidance By A Third; Blames Strong Yen

  It didn’t take long for the impact of the stronger yen, and the weak global economy, to manifest themselves on the company that is Asia largest clothing retailer.

  Moments ago, shares of Japan’s clothing empire Fast Retailing, whose most prominent brand is Uniqlo, plunged by 10% sending its stock price to the lowest since June 2013, after the company cut its profit forecast made just four months ago by a third from JPY180 billion to JPY120 billion (well below the JPY169 consensus) a five year low, saying a stronger yen eroded the value of overseas sales and unexpectedly warm winter weather hurt demand for the company’s down coats and thermal underwear. It also announced it would cut its dividend to JPY350/shr vs. JPY370 per the prior guidance.

  

  The sellside, which completely missed the collapse in profits, was quick to come up with a narrative:

  • “Lack of any ground breaking new functionality has raised concerns that rivals have caught up with similar products in the summer range”, writes Nomura Securities chief researcher Masafumi Shoda in report
  • Earnings show “fresh evidence of the pitfalls involved in selling a limited range of items in mass quantities under a single brand” writes SMBC Nikko Securitites senior analyst Kuni Kanamori in report

  Bloomberg adds that billionaire Chairman Tadashi Yanai had bet on expanding the company’s Uniqlo casual clothing brand outside Japan, opening flagship stores in shopping districts from London to Paris, Shanghai, New York and Seoul. The move, prompted by stagnating economic growth in Japan, has made the company more vulnerable to a strengthening Japanese currency.

  The yen’s gain, which as reported earlier had wiped out all losses since the expansion of Japan’s QE in October 2014 and is up over 10% in 2016, led to a JPY22.8 yen foreign-exchange loss in the first half, the retailer reported Thursday. Chief Financial Officer Takeshi Okazaki warned that there could be more exchange losses if the yen continues to strengthen.

  It wasn’t just the stronger Yen: Fast Retailing also took a 21 billion yen impairment loss related to its J Brand premium denim label in the U.S. and its domestic and overseas stores, but the message to both its and all other investors was clear: either the BOJ steps in with some more easing, or more companies are going to suffer from comparable “shock announcements” in the coming weeks as Japan’s earnings season evolves.

  

  

  

  

  

• Nomura's Bob "The Bear" Janjuah: "The Question Is What Would Be Necessary For The Fed To Do QE Or NIRP"

  The latest from Nomura’s Bob “the bear” Janjuah

  Power of the Fed’s words waning?

  I wanted to update my two earlier notes from this year, published on 7 January (link) and 4 March (link). The two specific drivers for this update are outlined below and are linked to each other and to the two notes referenced above:
   
  1 – The rally off of the February lows in risk assets has been marginally stronger than I had earlier anticipated, but in particular has lasted a fortnight longer than I had expected. As per my March note my stop loss for the rally off of the February lows was set at (based on the cash S&P500 index) consecutive weekly closes above 2040. And I expected the next bear leg to begin in early or mid-March. So far my stop loss has NOT been triggered – we have come close, and if we close above 2040 this Friday then my stop loss will be activated, but 2040 has proven to be a great pivot point for the last three weeks. I also note with much interest that outside of the major large cap US indices things already look much more bearish, most notably in Japan and Europe, where in both cases risk markets have been rolling over into bearish price action since early March. Furthermore, core duration markets have traded very well, not just in Europe and Japan, but also in the US. Nonetheless, as my stop loss may soon get triggered I wanted to present this update.

  2 – I set out in January that (globally) risk assets (stocks, credit, commodities and EM) would struggle through H1 2016 and that the only relief would come from the Fed admitting failure and flipping to dove mode again, thus weakening the USD and providing relief to crude, commodity, EM, credit and equity markets. In March I re-emphasised my view that the Fed ‘put’ (i.e., the point at which the Fed admits failure and flips from hawk to dove) would not be seen until mid-2016 and would require the cash S&P500 index to drop into the 1500s. Clearly, I had given the Fed too much credit – it flipped after a drop to 1810 and shifted in March, all much earlier than I had expected.
   
  With all this in mind, how am I left?

  1 – Clearly, my confidence on my negative views for global growth, on my belief in deflation over inflation and on the deeply negative outlook for earnings are now set even more in stone. The Fed has told me as much. In fact, I suspect that the Fed in private is far more concerned about these factors then it is currently willing to admit.

  2 – The Fed’s change in March was all about weakening the USD, which in turn is designed to help the US economy fight off imported deflation, instead of which the Fed hopes to import inflation into its economy (all to try and hit the 5% nominal GDP growth target which I discussed in my March note) and with it the hope that it helps US exporters regain competitiveness. USD weakness also helps crude and commodity exporters, and it helps the EM world, which has suffered from commodity price weakness and tight USD financial conditions at a time when the EM world is drowning in USD debt. China is a huge beneficiary as the Fed’s flip and USD weakness allow China to continue devaluing vs the world ex-the US without having to do anything itself, and it helps (at the margin) the heavily USD-indebted Chinese economy. The big losers are of course Japan and Europe, and this is compounded by the fact that both the ECB and the BOJ are, in my view, already at the limits of what they can do credibly. Just look at price action on the EUR, on European stocks, on core duration in Europe, on the JPY, on the Nikkei and/or on JGBs. The charts speak for themselves and should concern policymakers at both these institutions.

  3 – I am also even more convinced now that we are about 10 months through a multi-year bear market that likely won’t bottom until late 2017 or early 2018. This will be a stair-step decline with all the strength to the downside punctuated by occasional (very) violent bear market counter-trend rallies driven by short covering, hope and residual (albeit rapidly decaying) belief in policymakers. I still feel confident that we will see 1500s on the cash S&P500 index in late Q2 or Q3, and some of the things I look at suggest a final bear market bottom for the cash S&P500 index around the same levels as the 2011 lows of sub-1100. However, this is a longer-term idea that will be subject to refinement. The focus must be on the next few days, weeks and months.

  4 – In this light the first hurdle or trigger is this Friday’s equity market close in the US. If the cash S&P500 index closes above 2040 then I will be stopped out. In such an outcome the risk then is that we head towards the highs of November 2015 (2116) or even May 2015 (2135). Of course if we fail to close above 2040 this Friday then the view for Q2 2016 outlined in my March note would continue to apply, targeting a fresh leg lower into the 1700s for the cash S&P500 index over the next few weeks, and with a larger move into the 1500s by late Q2 or Q3. Within this I would expect at least one violent countertrend bear market rally, perhaps over late Q2 or early Q3, taking the S&P from the 1700s (if I am right!) up into the 1900s before the leg lower into the 1500s over late Q2 or most likely Q3. I am comfortable that such a period of positive counter-trend price action for risk assets will NOT be based on material and sustained improvements in global growth or earnings, rather the drivers would still be hope and a strong view that the Fed is actually going to ease (i.e., action or promises of action in the dovish direction rather than just words or promises not to hike).

  The critical longer-term question to my mind is whether the Fed is going to re-introduce QE and/or cut rates ultimately into negative territory. This takes us into the realm of when and what would the necessary pre-conditions need to be. This in turn takes us into the realm of credibility. My view – and it is only my view, as nobody can know the answers to these three questions for sure, is still that the Fed does not actually do anything more than jaw-bone until or unless the S&P500 cash index is into the 1500s and the outlook for growth, employment and inflation get significantly worse – perhaps with the unemployment rate inching higher not lower. Timing wise late Q2 or Q3 is still my target, though the closer we get to the US presidential election the more the Fed will be hampered. In terms of credibility, while I think the ECB and the BOJ are scrapping the barrel, the Fed still has the ability to influence things, at least for now.

  What this also all means is that while I may suffer a stop out soon, and stop losses exist to be respected, I also do not think that this current rally leg has much left in it – the power of Fed speak without Fed action is already waning I think. Consecutive weekly closes above 2116 (possibly) and/or 2135 (definitely) would force me to reconsider my views for the rest of Q2 and Q3. Until or unless these levels are crossed I would urge investors to be extremely cautious about getting too long risk and getting overly complacent.

  The underlying global growth and earnings outlooks are poor and deflation is still running rampant, albeit right now perhaps more so (at least in terms of perception) in Europe and Japan than in the USD-bloc (which includes almost all EM economies, as well as the usual economies such as Canada and Australia). As everyone wants a weaker currency, I do not expect the period of USD weakness we have seen since early March, and which has been the real catalyst for the latest ramp-up in risk assets and hope, to last unabated for much longer without much more explicit easing/explicit promises of easing by the Fed which, as I have said above, is unlikely until things get much worse. More likely are fresh attempts by the ECB and/or the BOJ to ease to drive down the EUR and JPY before the Fed can actually do anything explicit. In my view, this, of course, will put Chinese devals back on the table. The global FX war continues, which on any meaningful timeframe is ultimately a destructive outcome for the global economy. It seems sad that central bankers are so focused on transitory and largely illusory wins, which have served the global economy so badly over the last decade.
   

  

  

  

  

  

• "It's Probably Nothing": Truck Orders Plunge 37% As Unsold Inventories Soar Most Since 2007

  When we last looked at order of heavy, or Class 8, truck one quarter ago – that all-important, forward looking barometer of domestic trade – we said that even with 2015 in the history books, and as we start 2016 where the base effect was supposed to make the annual comps far more palatable, the latest, January data, as abysmal: “the drop continues to be one of Great Recession proportions, manifesting in yet another massive 48% collapse in truck orders in the first month of the year as demand appears to have gone in a state of deep hibernation.”

  Fast forward one quarter when we now have another three months of Class 8 truck data, and unfortunately the orderbook has gone from bad to worse. As the WSJ reports, orders for new big rigs plunged and inventories of unsold trucks soared to their highest levels since just before the financial crisis, as uncertainty about future demand and a weak market for freight transportation weighed on truck manufacturers.

  About 67,000 Class 8 trucks are sitting unsold on dealer lots, after sales in March dropped 37% from a year earlier to 16,000 vehicles, according to ACT Research. Class 8 trucks are the type most commonly used on long-haul routes. Inventories haven’t been this high since early 2007, said Kenny Vieth, president of ACT.

  

  The number of March orders was the lowest since 2012.

  The problem according to the WSJ? Simply not enough freight, or as some may call it, trade: “It boils down to, at present, there are too many trucks chasing too little freight,” Mr. Vieth said.

  As the Journal adds, companies that placed large orders in late 2014, only for customers to move less freight than expected last year, are reluctant to buy more vehicles now, analysts said. Online freight marketplace DAT Solutions reported last month that spot market rates for dry vans, or the box trucks that are ubiquitous on U.S. highways, fell 18% between February 2015 and February 2016, an indication of weak demand.

  “Fleets are being very cautious in the current uncertain economic environment,” wrote Don Ake, a vice president with FTR Transportation Intelligence, which reported similar order numbers for March. “Freight has slowed due to the manufacturing recession, so they have sufficient trucks to meet current demand.”

  Some examples:

  Aaron Tennant, owner of Simplex Leasing Inc., a trucking company in Jamestown, N.D., said that last June, anticipating market growth, he placed an order of 115 new Navistar International Corp. trucks to replace 75 trucks and expand his fleet to 245 vehicles. But that growth has not come. “Once this order is complete, I’m probably not going to consider buying any new trucks until at least October or November,” he said. “It’s definitely coming from caution. The market has softened in the last year.”

  Meanwhile, the backlog is growing: Stifel analyst Michael Baudendistel wrote in a note Tuesday that the backlog of Class-8 trucks appears to be about six months, and said that truck and truck component manufacturers like PACCAR Inc., Navistar and Meritor Inc. are likely to see further pressure on their share prices and earnings.

  But it’s not just trucking weakness. As BMO’s Brad Wishak notes, for the first 12 weeks of 2016, U.S. railroads reported cumulative volume of 2,905,113 carloads, down 13.7% from the same point last year, while Canadian railroads reported cumulative rail traffic volume of 1,540,562 carloads, containers and trailers, down 5.3 percent yoy, largely due to a drop in coal shipments but indicative of a decline across all product lines.

  

  An obvious conclusion is that despite all the talk of a rebound in economic growth and domestic and global trade, the facts on the ground simply do not confirm this.

  So, as we asked four months ago, should one be concerned by this precipitous drop? Absolutely not: as the Federal Reserve would certainly say “it’s probably nothing.”

  
  

  

  

  

  

  

• Cash Banned, Freedom Gone

  Submitted by Thorstein Polleit via The Mises Institute,

  Some politicians want to ban cash, arguing that cash is helping criminals. The first steps in that direction are the withdrawal of big denomination notes and the limits imposed on cash payments.

  Proponents of a ban on cash claim that this will help fight criminal transactions — involved in money laundering, terrorism, and tax evasion. These promises of salvation are used to get the general public to agree to a society without cash. But there is no convincing proof for the claim that the world without cash will be a better one. Even if undesirable behavior is indeed financed by cash, you still need to answer the question: will the undesirable behavior disappear without cash? Or will those who commit the undesirable acts take to new ways and means to reach their goal?

  Take the example of the 500 euro note. If we do away with it, won't those who wish to use cash pay with five 100 euro notes instead? Or ten 50 euro notes? And what about the costs imposed on the large majority of respectable people, if you put a ban on their cash? Using the same logic, should we ban alcohol, because some can't handle it properly?

  It’s Really about Central Banks

  The plan to restrict the use of cash, or to abolish it step by step, has nothing to do with the fight against crime. The real reason is that states (and their central banks) want to introduce negative interest rates.

  Although central banks have long pursued inflationary policies that devalue the debt owed by governments, negative interest rates offer a new and powerful tool to do this. But, to make negative interest rates work well, you have to get rid of physical cash.

  Otherwise, if you apply negative rates on bank deposits, customers in the short or long run will try to avoid the costs that negative rates impose on their bank deposits. So, depositors will, in many cases, hoard cash. To block this last escape route, proponents of the ban on cash want to do away with it.

  The Natural Rate of Interest

  Incidentally, some reputable economists are supporting the plan, claiming that the “natural rate” has become a negative rate. Because of that, central banks were forced to push interest rates below zero, being the only way to foster growth and employment. The assertion that the balanced interest rate has become negative doesn't stand up to a critical examination though.

  It is inherently impossible that the balanced interest rate is negative. Market rates, which entail the balanced rate, can fall below zero, but not the balanced rate itself. The policy of negative rates is no cure for the economy but causes massive economic problems.

  Competition and Property Rights

  Banning cash is infringing on the freedom of citizens on a massive scale. In withdrawing cash, the citizen is bereft of choice for his payments. After all, the state has the monopoly on the production of money. There is no competition on cash. Thus, nobody but the state can satisfy the demand for money by citizens.

  If the state bans cash, all transactions must be executed electronically. For the state to see who buys what when and who travels when where is then only a small step away. The citizen thus becomes completely transparent and his financial privacy is being lost. Even the prospect that a citizen can be spied upon at any time is an infringement on his right of freedom.

  Cash helps to protect the citizen from an unfettered intrusiveness by the state. If the state increases taxes too much, citizens at least have the option to avoid the tribulation by paying in cash. The knowledge that citizens can do so, makes states hold back a little.

  States will give up any restraint once cash has been banned. The justified concern isn't at all rendered obsolete by the cases of Sweden and Denmark, where the cashless society is said to function to its perfection. The citizens of those countries can still use foreign cash if they want.

  The plan to ban cash – step by step – is a sign of the fundamental ailment of our time: the state is destroying more and more of the freedom of citizens and businesses, once it has turned into a territorial monopolist and highest judge of all conflicts.

  The fight to keep cash may bring something good though: it will shed light on the need to take the power away from the state as we know it, by applying the same principles of law on its actions as on those of each and every citizen. That way, the state’s monopoly on producing cash would come to an end and the citizen wouldn't need to worry that he may be deprived of his cash against his will.

  

  

  

  

  

• Japan Prints Additional ¥10,000 Bills As People Scramble To Stash Away Cash

  Long before negative interest rates shifted from the monetary twilight zone into the mainstream (with some 30% of global government bonds now trading with a subzero yield), one organization wrote a report warning about the dangers of NIRP. The NY Fed. Back in 2012, NY Fed staffers wrote “If Interest Rates Go Negative . . . Or, Be Careful What You Wish For” it warned “if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.“

  Then, last October, Bank of America looked at the savings rates across European nations which had implemented NIRP and found something disturbing: instead of achieving what what central banks had expected, it was leading to precisely the opposite outcome: “household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

  The evidence:

  

  Which was to be expected by most people exhibiting common sense: NIRP by definition is deflationary, and as such as prompts consumers to delay consumption, and as a result to save as much as possible, if not in the banks where their savings may soon be taxed under NIRP regimes, then in cash.

  And nowhere if the failure of NIRP – and unconventional monetary policy in general – more evident than what just happened in Japan, where according to Japan Times, the Finance Ministry plans to increase the number of ¥10,000 bills in circulation, amid signs that more people are hoarding cash.

  It will print 1.23 billion such notes in fiscal 2016, 180 million more than a year earlier. The number of ¥10,000 bills issued annually leveled off at around 1.05 billion in the fiscal years from 2011 to 2015.

  The paper adds that some financial market sources believe it is because more people are keeping their money at home rather than in banks, because interest rates on deposits have fallen to almost zero after the Bank of Japan introduced a negative interest rate in February.

  Actually make that most market sources, because the failure of NIRP is now too staggering for even tenured economists to deny. As for Japan, Kuroda appears to have made the country’s chronic over-saving problem even worse.

  The total amount of cash stashed at home is estimated to have surged by nearly ¥5 trillion to some ¥40 trillion in the past year, Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said.

  He attributed the sharp increase to people not wanting their wealth to become known to authorities following the introduction of the My Number common identification system for tax and social security.

  In addition, the BOJ’s negative rate policy “may have fueled concerns among the public about depositing their money in banks,” Kumano said.

  There will be 200 million ¥5,000 bills issued in fiscal 2016, down by 80 million, and 1.57 billion ¥1,000 bills, down by 100 million.

  Recent BOJ data show daily averages for currency in circulation rose 6.7 percent from a year before to ¥90.3 trillion at the end of February, the sharpest growth in 13 years.

  The number of ¥10,000, ¥5,000 and ¥1,000 bills in circulation increased 6.9 percent, 0.2 percent and 1.9 percent, respectively.

  The punchline: not only has the Japan’s aggressive attempt to escalate QE now been unwound, with all USDJPY gains since the October 2014 expansion of the BOJ’s QE been lost, leading to a comparable collapse in the Nikkei.

  As for the BOJ printing more cash, that is merely a case study for what will soon happen in other NIRP-friendly regimes at least until cash is banned, of course.

  

  

  

  

  

• Steve Wynn "Nobody Likes Being Around Poor People, Especially Poor People"

  Steve Wynn is no stranger to controversy nor is his dislike of president Obama a secret.

  Back in the summer of 2011, when discussing Obama, he said  "the guy keeps making speeches about redistribution, and maybe's ought to do something to businesses that don't invest, they're holding too much money.  You know, we haven't heard that kind of money except from pure socialists."

  Then a few months later, he engaged in another major anti-Obama rant: "I am watching my employees standard of living drop off because of deficits. I think that the American public is beginning to make the connection between deficits and their own loss of the standard… I say right now that the Democratic agenda of spend and bribe the public has bankrupt this country, and until it stops, the citizens of this country are in for more hard times. And fancy speeches aren't going to change that. Only a fundamental realization that citizens are going to have to take real, sophisticated responsibility for how we allocate the resources of this country."

  Last September he again made waves when he became one of the first high profile personalities to endorse Donald Trump.

  Then, overnight, during a presentation to Wynn Resorts investors, Wynn tossed out another bombshell which, while taken out of context, will further inflame the already class tension within the US. This is what he said: "rich people only like being around rich people, nobody likes being around poor people, especially poor people."

  Whether or not what he said is true is secondary because as Robert Frank correctly points out, "this line is sure to go viral as the latest tone-deaf gaffe by a billionaire, akin to the 2014 remarks made by technology venture capitalist Tom Perkins saying that rich people were being persecuted and should get more votes."

  That said, in its full context context the phrase was less incendiary:

  This company caters to the top end of the gaming world. We're sort of a Chanel, Louis Vuitton to use the comparison and metaphor of the retail business. But unlike Chanel and Louis Vuitton, we are able in our business to cater to all of the market by making our standard so high that everybody wants to be in the building. Or to put it in a more colloquial way, rich people only like being around rich people, nobody likes being around poor people, especially poor people.

   

  So we try and make the place, feel upscale for everyone. That is to say, we cater to people who have discretion and judgment and we give them the choice and we are consistent in that, whether the economy is up or the economy is down. We don't do layoffs, we pay attention to our capital structure, so that we don't bounce around our employee base, and we don't bounce around our service levels.

  And while Wynn's point about desiring to create a sense of wealth that draws all kinds of crowds is indeed reasonable for a business plan, it is almost certain that that particular soundbite will promptly make the social media rounds as another indication of the language used by Picasso-collecting, Ferrari-driving billionaires (especially one who endorses Trump).

  It will certainly not help the simmering tensions beneath America's great wealth divide which is growing greater with every passing year.

  

  

  

  

  

• New York Students Walkout Ahead Of "Misogynist, Homophobe, Racist" Cruz Visit

  In what appears to be a table-turning act of micro-aggression (or just aggression), Republican presidential candidate Ted Cruz's planned visit to a school in the Bronx was canceled after students threatened a walkout if the Texas senator came. As The Hill reports, students at the school wrote a letter to the principal, explaining "the presence of Ted Cruz and the ideas he stands for are offensive," calling Cruz "misogynistic, homophobic and racist." Definitely not someone they want in their 'safe space'.

  Cruz was scheduled to speak at Bronx Lighthouse College Preparatory Academy, but as The Hill details, students at the school wrote a letter to the principal asking that she not allow Cruz to come.

  "We told her if he came here, we would schedule a walkout," said Destiny Domeneck, 16.

   

  "Most of us are immigrants or come from immigrant backgrounds. Ted Cruz goes against everything our school stands for."

   

  The letter explained that a group of students would leave during the fourth period as "an act of civil disobedience in regards to the arrival of Ted Cruz to BLCPA." It said that the act would be the students' opportunity to "stand up for our community and future."

   

  “We have all considered the consequences of our actions and are willing to accept them,” the letter said.

   

  “The presence of Ted Cruz and the ideas he stands for are offensive.”

   

  The letter also called Cruz "misogynistic, homophobic and racist."

   

  "He has used vulgar language, gestures, and profanity directed at a scholar and staff members, along with harassing and posing threats to staff and scholars according to the Disciplinary Referral slip," the letter said.

   

  "This is not to be taken kiddingly or as a joke. We are students who feel the need and right to not be passive to such disrespect."

  Did the students get Cruz confused with Trump? This narrative is definitely not the one the establishment would like everyone to follow – Cruz is the hero remember, saving the status quo from the terribleness of The Donald.

  In response to the letter, surprise, surprise, the CEO of Lighthouse Academies agreed to cancel the visit, once again acquiescing to the demands of a righteous few…

  “I’d like to commend you and the other students for your commitment to your beliefs and values," Lighthouse principal Alix Duggins wrote in a response. "I believe that I would not have been able to get the visit cancelled without your actions."

  Cruz is campaigning in New York ahead of the April 19 primary. He was in the Bronx campaigning on Wednesday.

  The NY Daily News made it clear how they feel..

  

  

  

  

  

  

• "Let Me Tell You About The Very Rich"

  Authored by Pedro Nicolaci Da Costa, originally posted at ForeignPolicy.com,

  It’s not like we didn’t know what was going on. But the “Panama Papers,” the largest-ever document leak and one that implicates political leaders and business executives around the world, confirms it – cementing a widespread distrust of public and private institutions in the global economy.

  It remains to be seen whether the scale of the revelations, whose full scope is only slowly starting to emerge, will be a catalyst for positive change or just more fodder for curmudgeonly conspiracy theorists. But one thing is clear: The debate over global economic policy is going to be deeply affected for a while to come.

  The epic document dump, which includes 11.5 million files from the Panamanian law firm Mossack Fonseca, implicates a string of world leaders, their families, and close associates in an intricate web of shell companies constructed for the sole purpose of hiding money from tax authorities.

  Following the Great Recession and world financial meltdown, policymakers have fallen broadly into two camps: those who see a significant role for official intervention through fiscal and monetary stimulus policies, and those who see government as the problem and push for structural changes to push it out of the way.

  Both Europe and the United States imposed considerable austerity on government finances despite prevailing modern economic thinking suggesting governments should spend more, not less, in times of economic weakness.

  This budget-cutting approach to exiting the economic crisis, predicated on the dubious notion that fiscal prudence will boost confidence and hence growth, was sold to the public as a shared sacrifice across society.

  But as the Panama Papers appear to show, the very wealthy play by an entirely different set of rules than the average person when it comes to paying taxes.

  That means any discussions about the direction of various government budgets are now going to play second fiddle to a more urgent debate about rampant tax evasion by the upper echelons of society. It also heightens concerns about inequality that have driven the post-crisis debate. How are governments supposed to fund themselves if those who can most afford to pay taxes are most able to avoid them and do so with impunity? And how are voters supposed to expect their taxes to be well-spent if many of their political and business leaders are themselves wealthy tax evaders? After all, tax avoidance and evasion by Greece’s elites played a significant role in making the country the indebted basket case it has become.

  In one country, Iceland, the political consequences have been immediate. Thousands took to the streets Monday demanding the prime minister’s resignation for his alleged involvement in a money-hiding scheme. By Tuesday, he was out of a job.

  Elsewhere, the impact is likely to trickle more slowly. Still, the mere existence of myriad parallel investigations from the U.S. Justice Department to the Australian authorities casts a new pall of uncertainty over a wobbly global economy that has already been mired in slow, subpar growth for several years.

  Brazil offers an interesting and fresh case study. The recent corruption scandal that began with oil giant Petrobras and then spread to many key leaders in the government (now including a looming impeachment proceeding against President Dilma Rousseff) has prompted some observers to revert to the view of Latin America as the ultimate institutional basket case. But as Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, argues, the developments in Brazil, and the active role of the judiciary in securing high-profile prosecutions against corrupt actors, are actually a sign that institutions built since the country’s exit from dictatorship in the 1980s are actually standing up pretty well to what is otherwise a systemic political crisis.

  Ironically, it is that sense of justice and fairness that is sorely lacking in rich nations still smarting from the pessimism that has enveloped the global economic outlook since the 2008 financial meltdown. Many of the key players in the crisis, including the CEOs of the major Wall Street firms that pushed the financial system to the brink, were bailed out. Several remain in their jobs today, making millions of dollars a year — as if nothing had happened.

  The sense of social imbalance is reinforced by the perception that a revolving door between government and the private sector, particularly in banking, ensures the rules are rigged in favor of corporations to the detriment of individuals and taxpayers. The role of global banks has been a prominent feature of early reporting on the Panama files, reinforcing the impression of the entire sector as one big, risky rip-off machine, preying on consumers and governments to maximize profit. The scandal is only the latest in a series of almost countless ones, most of which were settled with fines and no admission of guilt. There is hardly a global financial market that has not been systematically manipulated by major Wall Street firms: interest rates, foreign exchange, metals, electricity — the list goes on.

  One ideal scenario is that the revelations become so damaging to financial stability that it forces a massive rethink of global tax havens, which, by some estimates, top $20 trillion, an amount larger than the entire annual output of the U.S. economy.

  In the short run, however, the Panama Papers are likely to add to a generalized anxiety about the future in financial markets. With heightened uncertainty comes greater volatility, which will make it hard for policymakers, including U.S. Federal Reserve officials worried about the global outlook, to figure out what to do next. Longer term, the truth will ultimately have a cleansing, cathartic effect. But in the meantime, expect more bumps on the road to a more stable global economic environment.

  

  

  

  

  

• Is This Why Car Sales Are Soaring?

  While San Francisco residents appear willing to live in boxes in other people’s front rooms, it appears there is another habitat for humans that is becoming more popular in the new normal…

  Google Searches for “Living in a Car” hit an all-time-high…

  

  h/t @ReaperCapital

  So does that explains the surging car sales?

  Though, of course, questioning the “awesomeness” of Obama’s recovery is simply “peddling fiction” and while “living in a car” might to some seem like a bad thing, the low cost of financing has allowed many homeless people to achieve the American Dream… in a vehicle.

  

  Behold, the government-enabled source of the v-shaped recovery in vehicular-habitation.

  

  

  

  

  

• Europe Threatens To Require Visas From Americans And Canadians

  According to Reuters, the European Union is considering whether or not to require US and Canadian citizens to obtain a visa before traveling to the bloc. Currently, the US enjoys a visa waiver program with the majority of the European Union that is reciprocated on both sides of the Atlantic. Of course, the introduction of the more restrictive process of obtaining a formal travel Visa would hinder tourism for the European Union, something the local economy desperately needs to remain intact.

  This may be driven by the fact that the United States hasn’t yet lifted visa requirements for some EU member countries such as Romania, Bulgaria, and Poland. But more likely, this is just a bit of gamesmanship on the part of the EU. The US and European Union are in ongoing negotiation regarding the Transatlantic Trade and Investment Partnership, and there appear to be some sticking points that the two sides can’t quite come to an agreement on – namely labor, environmental, and regulatory standards.

  As Reuters adds, “trade negotiations between Brussels and Washington are at a crucial point since both sides believe their transatlantic agreement, known as TTIP, stands a better chance of passing before President Barack Obama leaves the White House in January.”

  The latest US Statement on the TTIP negotiations in Brussels sheds some light on why the EU may be stepping up their rhetoric:

  This round comes just three weeks after the signing of the Trans-Pacific Partnership.  We look forward to concluding a similarly high standard agreement with the European Union.

   

  Two of the texts that we put forward this round were on labor and the environment.  These proposals underscore our commitment to promote our high labor and environmental objectives in T-TIP.  

   

  Just as in our previous trade agreements, we propose making adherence to labor and environmental standards enforceable in T-TIP, which we believe strengthens those protections. 

   

  We believe that T-TIP also has the potential to increase transatlantic cooperation in addressing labor and environmental challenges more generally, to the benefit of all of our citizens and people around the world. 

   

  We made significant advances in the regulatory area during the round.  Our goal in T-TIP – which makes it one of the most ambitious trade agreement in history – is to bridge, where possible, regulatory divergences and promote greater regulatory compatibility – all without lowering the environmental, health and safety protections that our citizens have come to expect.

   

  At our meetings this week we advanced our discussions of regulatory cooperation and good regulatory practices with the aim of strengthening transparent rule-making on both sides of the Atlantic. 

   

  Public comment and input reinforce the democratic legitimacy of our regulatory systems without diminishing parliamentary control over those processes.

  To be sure, this is merely more political posturing: when the dust settles the European Union won’t be “aggressive” enough to actually follow through on a visa threat; after all such a move would force the US to reciprocate which may impact sales of ultra luxury US real estate to billionaires who are eager to flee the worst European refugee crisis since the second World War.

  

  

  

  

  

• Government Accounting Is Fraudulent

  The Government Accountability Office (GAO) is the non-partisan auditor and investigator for Congress.

  The GAO says that the U.S. government’s records are so poorly kept that it can’t really audit them.  Specifically, the GAO provided a report to Congress yesterday stating:

  The federal government was unable to demonstrate the reliability of significant portions of its accrual-based financial statements as of and for the fiscal years ended September 30, 2015, and 2014, principally resulting from limitations related to certain material weaknesses in internal control over financial reporting and other limitations affecting the reliability of these financial statements. For example, about 34 percent of the federal government’s reported total assets as of September 30, 2015, and approximately 19 percent of the federal government’s reported net cost for fiscal year 2015, relate to three CFO Act agencies—the Department of Defense (DOD), the Department of Housing and Urban Development, and the U.S. Department of Agriculture—that received disclaimers of opinion on their fiscal year 2015 financial statements. As a result, we were prevented from providing an opinion on the accrual-based financial statements.

   

  The federal government did not maintain adequate systems or have sufficient appropriate evidence to support certain material information reported in its accrual-based financial statements. The underlying material weaknesses in internal control, which have existed for years, contributed to our disclaimer of opinion on the accrual-based financial statements as of and for the fiscal years ended September 30, 2015, and 2014.  Specifically, these weaknesses concerned the federal government’s inability to

   

  ***

   

  ·         adequately account for and reconcile intragovernmental activity and balances between federal entities;

   

  ·         reasonably assure that the government wide financial statements are (1) consistent with the underlying audited entities’ financial statements, (2) properly balanced, and (3) in accordance with U.S. generally accepted accounting principles (U.S. GAAP); and

   

  ·         reasonably assure that the information in the (1) Reconciliations of Net Operating Cost and Unified Budget Deficit and (2) Statements of Changes in Cash Balance from Unified Budget and Other Activities is complete and consistent with the underlying information in the audited entities’ financial statements and other financial data.

   

  These material weaknesses continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost as well as the financial and nonfinancial performance of certain programs and activities;(3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an efficient and effective manner.

  Moreover, the Pentagon hasn’t even attempted to comply with government audits …  and “$8.5 trillion in taxpayer money doled out by Congress to the Pentagon [between] 1996 [and 2013] has never been accounted for.”  The military wastes and “loses” trillions of dollars.

  In addition:

  • Nobel prize-winning economist Joe Stiglitz says the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption. “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said

  • We’ve known for a long time that the Bureau of Labor Statistics fudges the numbers to make unemployment look lower than it is really is. BLS itself has admitted that its “adjustments” skew unemployment data during recessions. Indeed, the former head of the BLS recently said BLS statistics are B.S. … and that unemployment is much higher than the government is letting on

  • The Bureau of Economic Analysis is revising 84 years of economic history … which will make the economy magically look better

  • The U.S. (and British) governments encouraged interest rate manipulation. And central banks have been directly manipulating interest rates for hundreds of years

  • The government has long ignored energy and food prices when reporting on inflation

  • Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy when they were not. The Treasury Secretary also falsely told Congress that the bailouts would be used to dispose of toxic assets … but then used the money for something else entirely

  • The Commodity Futures Trading Commission has conspired with big banks to manipulate commodities prices for decades

  • The government-sponsored rating agencies committed massive fraud (and see this)

  • The Treasury department allowed banks to “cook their books”

  • Regulators knew of and allowed the use of debt-hiding accounting tricks by the big banks

  • The SEC has been shredding Wall Street documents for decades to help the big banks cover up their fraud

  • The Secretary of Treasury (Tim Geithner) was complicit in Lehman’s accounting fraud, (and see this)

  • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this. For example, the Federal Reserve turned its cheek and allowed massive fraud, and the SEC has repeatedly ignored accounting fraud (a whistleblower also “gift-wrapped and delivered” the Madoff scandal to the SEC, but they refused to take action). Indeed, Alan Greenspan took the position that fraud could never happen

  • The regulators pretend that they are being tough on the big banks. But – instead of doing the right thing – they’ve done everything they can to help COVER UP THEIR SINS

  • The non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest

  • Congress recently told the courts that Congress can’t be investigated for insider trading

  Yesterday's GAO report also predicted:

  By 2089 … debt held by the public as a share of GDP reaches 314 percent in our baseline extended simulation or 568 percent in our alternative simulation

  As the head of the GAO put it, “We’re going to owe more than our entire economy is producing and by definition this is not sustainable.”

  The Hill reported in November:

  The former U.S. comptroller general says the real U.S. debt is closer to about $65 trillion than the oft-cited figure of $18 trillion.

   

  Dave Walker, who headed the Government Accountability Office (GAO) under Presidents Bill Clinton and George W. Bush, said when you add up all of the nation’s unfunded liabilities, the national debt is more than three times the number generally advertised.

   

  ***

   

  “If you end up adding to that $18.5 trillion the unfunded civilian and military pensions and retiree healthcare, the additional underfunding for Social Security, the additional underfunding for Medicare, various commitments and contingencies that the federal government has, the real number is about $65 trillion rather than $18 trillion, and it’s growing automatically absent reforms ….”

  But former Senior Economist for the President’s Council of Economic Advisers and current Boston University economics professor Laurence Kotlikoff says that – when unfunded liabilities are taken into account – the fiscal gap for the U.S. is actually 3 times higher … $205 trillion as of 2013 (and getting worse all the time).

  We believe that an accurate would show that the government already owes more than the entire economy is producing …

  

  

  

  

• The Panama Papers Could Really End Hillary Clinton's Campaign

  Submitted by Jake Anderson via TheAntiMedia.org,

  With Senator Bernie Sanders winning seven of the last eight delegate battles — the most recent was Tuesday night’s Wisconsin victory — there’s a feeling in the air that most progressives haven’t felt since the Iowa caucus. It speaks to a hard truth Hillary Clinton and her choleric campaign staffers will encounter when they wake up in the morning: Bernie really could still beat Clinton and become the Democratic nominee for president.

  No way, some of you are saying. The television faces said the delegate math was too hard. The superdelegates make it impossible. Hillary wins the primaries, Bernie only wins caucuses; America won’t elect a socialist; the nation won’t rally behind free healthcare and college tuition.

  Despite the supposedly ineluctable logic of Sanders’ unelectability, many pundits now believe there has been a seismic shift in the 2016 presidential race. It is becoming increasingly obvious that Americans are sick to death of the two corporatist political establishments and will do anything to send them a message. The evidence of this is that the two most popular candidates in the 2016 election are a Jewish democratic socialist and a reality TV star who referred to his penis during a nationally televised debate.

  Then there’s the matter of the Panama Papers. In case you haven’t heard about them over the roar of mainstream media’s ‘round-the-clock anti-Trump coverage, it’s being referred to as the biggest data leak in history. For the last year, 400 journalists have been secretly decoding 11.5 million documents leaked from Panamanian law firm Mossack Fonseca. The 2.6 terabytes of data show billions of dollars worth of transactions dating back 40 years.

  Acquired from an anonymous source by the German newspaper Süddeutsche Zeitung and then shared with the International Consortium of Investigative Journalists, the documents present a jaw-dropping paper trail of how the upper echelon of the 1 percent has used shell companies and offshore tax havens to avoid paying billions of dollars in taxes. In less than a week of exposure, the Panama Papers have already implicated 140 world leaders from 50 different countries. Top executives and celebrities who appear in the leaked emails, PDFs, and other documents may also be indicted in money laundering, tax evasion, and sanctions-busting activities.

  Though the source of the leak opted not to do a Wikileaks-style data dump and is instead allowing media outlets to curate the information, international tax reform could be imminent.

  The revelations are relevant to the 2016 presidential election because they once again illustrate the stark contrast in judgement between Bernie Sanders and Hillary Clinton. The transgressions documented in the Panama Papers were directly facilitated by the Panama-United States Trade Promotion Agreement, which Congress ratified in 2012. In 2011, Sanders took to the floor of the senate to strongly denounce the trade deal:

  “Panama is a world leader when it comes to allowing wealthy Americans and large corporations to evade US taxes by stashing their cash in offshore tax havens. The Panama free trade agreement will make this bad situation much worse. Each and every year, the wealthiest people in this country and the largest corporations evade about $100 billion in taxes through abusive and illegal offshore tax havens in Panama and in other countries.”

  Clinton, on the other hand, completely ignored the tax haven issue, and instead, regurgitated the same job-creation platitude she used to peddle NAFTA, which has decimated American manufacturing jobs and led to an economic refugee crisis in Mexico.

  Beyond just exposing her unwillingness to understand how modern free trade agreements benefit the rich and punish impoverished countries, Clinton may have a more nefarious connection to the Panama Papers.

  In lobbying for the Panama-United States Trade Promotion Agreement, Clinton paved the way for major banks and corporations, most notably the Deutsche Bank, to skirt national laws and regulations. After she resigned as Secretary of State, the Deutsche Bank paid her $485,000 for a speech. While criminality can’t yet be definitively established, this may change when the “Süddeutsche Zeitung” publishes its comprehensive list at the end of the month. In addition to the aforementioned connection, Clinton’s name has already surfaced in connection to a billionaire and a Russian-controlled bank named in the files.

  The fallout from the Panama Papers is being felt around the world. On Tuesday, Iceland’s Prime Minister resigned after it was revealed his family had used a shell company to hold millions of dollars worth of bonds in a collapsed bank. After an interview in which Prime Minister Sigmundur Davíð Gunnlaugsson had a meltdown when asked about the company’s assets, over 20,000 citizens of Iceland protested.

  How does this lead to Bernie Sanders defeating Hillary Clinton? The Sanders campaign has been run on the premise that Clinton is inextricably linked to political corruption, disastrous military interventions, and collusion with Wall Street. If it can be shown that Clinton was involved in criminal improprieties exposed by the Panama Papers, this will constitute yet another major line of attack for Sanders headed into the April 14th debate in New York. If Sanders wins the New York primary a few days later and scoops up a proportion of its 247 delegates, the narrative of the election will dramatically shift.

  When added to the myriad other Clinton scandals and political vulnerabilities, the Democratic party’s gatekeeper superdelegates could decide that Clinton is too big of a liability going into the general election. It all comes down to New York, though — Sanders must win New York. If he does, you will see historic chaos unleashed upon the American electorate. And if the Panama Papers leak sets off an unstoppable domino effect, the DNC may soon find its fractured party looking just as ghoulish as the clown’s autopsy being conducted on the Republican Party.

  

  

  

  

  

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• Blast From the Past – Hillary Clinton vs. Bernie Sanders on Panama

  Submitted by Michael Krieger of LibertyBlitzkrieg

  Blast From the Past – Hillary Clinton vs. Bernie Sanders on Panama

  

  Unlike most politicians, Bernie Sanders becomes increasingly impressive the more you learn about him. Forget for a moment whether you think the tax dodging strategies popularized by the Panama Papers are ethical or not, it’s important to note that Bernie Sanders publicly warned about an expansion in such behavior all the way back in 2011. On the other hand, Hillary Clinton and Barack Obama pushed for legislation that made such controversial strategies easier, under the guise of “free trade” with Panama.

  First, here’s what Senator Sanders had to say on the matter in 2011:

  The man’s prescience is remarkable. As his votes against the Patriot Act, Iraq War and banker bailouts demonstrate, Bernie Sanders has been on the right side of history on all the major issues of the 21st century. In contrast, Hillary Clinton has been on the wrong side of history on pretty much everything.

  For some additional insight on the Panama situation, let’s turn to the International Business Times:

  Years before more than a hundred media outlets around the world released stories Sunday exposing a massive network of global tax evasion detailed in the Panama Papers, U.S. President Barack Obama and then-Secretary of State Hillary Clinton pushed for a Bush administration-negotiated free trade agreement that watchdogs warned would only make the situation worse.

   

  Soon after taking office in 2009, Obama and his secretary of state — who is currently the Democratic presidential front-runner — began pushing for the passage of stalled free trade agreements (FTAs) with Panama, Colombia and South Korea that opponents said would make it more difficult to crack down on Panama’s very low income tax rate, banking secrecy laws and history of noncooperation with foreign partners.

   

  Even while Obama championed his commitment to raise taxes on the wealthy, he pursued and eventually signed the Panama agreement in 2011. Upon Congress ratifying the pact, Clinton issued a statement lauding the agreement, saying it and other deals with Colombia and South Korea “will make it easier for American companies to sell their products.” She added: “The Obama administration is constantly working to deepen our economic engagement throughout the world, and these agreements are an example of that commitment.”

   

  Critics, however, said the pact would make it easier for rich Americans and corporations to set up offshore corporations and bank accounts and avoid paying many taxes altogether.

   

  “The FTA would undermine existing U.S. policy tools against tax haven activity,” warned consumer watchdog group Public Citizen at the time, saying the agreement would encourage corporations to thwart any U.S. efforts to combat financial secrecy. The group also noted that U.S. government contractors, as well as major financial firms supported by taxpayer bailouts, stood to gain from the trade deal’s provisions that could make it harder to crack down on financial secrecy.

   

  Despite the warnings from watchdog groups, some Democratic lawmakers urged the Obama administration to aggressively push for the Panama agreement. According to a 2009 email sent to Clinton by her top State Department aide, high-ranking then-Sen. Max Baucus, D-Mont., was pushing for passage of the Panama and Colombia free trade pacts, and Rep. Charles Rangel, D-N.Y., said “the president had to lend his star power to pushing them through.” Obama ultimately did just that, hosting Panama’s president at a 2011 Oval Office event touting the proposed trade pact.

  Beyond once again illuminating stark differences between Hillary and Bernie, this episode also demonstrates how dishonest politicians like Obama and Clinton frequently use “free trade” language to push forward crony legislation that has little to do with trade.

  You’ve been warned.

  

  

  

  

  

• Does Not Compute: The Market Is The "Most Overbought Since 2009" Yet "Most Short Since 2008"

  Yesterday we first reported something unexpected: when looking at the constituents of the record short squeeze that started two months ago, and still continues, traders had largely maintained kept single-name shorts, and instead covered short ETF exposure.

  

   

  This followed a previous observation showing that when it comes to NYSE short interest, it is near the record highs (in absolute terms, if not as a % of market cap) reached during the financial crisis.

  

   

  Furthermore, as we have been reporting for the past 2 months, the “smart money” clients of BofA have been consistently selling this rally, and as of this last week, have sold shares for 10 consecutive weeks,with the selling actually accelerating, and in the last week, during which the S&P 500 was up 1.8%, BofA clients sold a total of $4 billion, the largest since September, and the fifth-largest in BofA history.

  

   

  Bloomberg summarized all of this overnight in a note discussing the well-known short overhang, amounting to $1 trillion in total short interest.

  Amid its biggest about-face in nine decades, a funny thing has happened in the U.S. stock market, where rather than loosen their grip bears have grown ever-more impassioned. They’ve sent short interest to an eight-year high and above $1 trillion, by one analyst’s math. Position reports from the Commodity Futures Trading Commission show mutual fund managers are more skeptical now than any time since at least 2010.

   

  “There’s an enormous demand coming,” said Thomas J. Lee, managing partner at Fundstrat Global Advisors LLC., in an interview with Bloomberg TV . “Retail investors are about to put a lot of money into the equity markets because they’re trend followers and the S&P has had two positive quarters in a row. Funds can’t keep a trillion short position, larger than March ’09.”

   

  It started in August, when bearish investors sent bets against U.S. stocks above 4 percent of available shares for the first time in six years. They haven’t backed off since. By the end of February, the ratio climbed to 4.4 percent, the highest since 2008, according to exchange data compiled by Bloomberg. As of March 15, that level was 4.3 percent, equivalent to a short position just under $1 trillion.

  So, supposedly the market is the most short since 2008.

  Which is odd because according to a report released this morning by UBS, while there are allegedly record shorts, the market is somehow, at the very same time, the most overbought since 2009. Here are technicians Michael Riesner and Marc Muller:

  With the SPX hitting a new reaction high on Wednesday we were obviously too early in expecting the SPX to top out last week. However, our base case has not changed. The SPX continues to trade in the time window of our late March/early April top projection. The market is still in its most overbought position since 2009 and together with the internal momentum starting to deteriorate we see the SPX in a final extension instead of starting a new breakout, and in this context we are sticking to our recent comment and would not chase the market on current levels.

   

  

   

  So, at the very same time, this market is the “most overbought since 2009” and “most shorted since 2008“…

  No Wonder Morgan Stanley chief equity strategist Adam Parker lost it this week, and is seeing nothing but cockroaches.

   

  

  

  

  

  

• Millionaires Are Fleeing Chicago In Record Numbers

  Recently, we’ve shown where wealthy people reside within the US, and where they’re fleeing from (here, and here). We now present to you the US city that is winning the race to drive out their wealthiest taxpayers. 

  As the Chicago Tribune reports, that city is none other than Chicago, Illinois. 

  Millionaires are leaving Chicago more than any other city in the United States on a net basis, according to a report by New World Wealth.

  About 3,000 individuals with net assets of $1 million or more (not including their primary residence) moved from the city last year, representing about 2% of the city’s high net worth individuals.  It is unclear where they went: cities in the United States that saw a net inflow of millionaires included Seattle and San Francisco. One thing is certain: they couldn’t wait to get out. 

  Among the reasons cited for leaving their former home town, many said rising racial tensions and worries about crime as factors in the decision.

  The gun violence part we get. Over the weekend, when we penned that “Chicago Disintegrates – Gun Shootings Soar An Unprecedented 89%: “It’s The Struggling Economy” we broke out the stunning statistics within America’s very own warzone:

  “Gun violence in the windy city is on track to post its worst year in the 21st century, the result of an unprecedented surge in gun deaths in the first three months of the year.  By March 31, 141 people had been killed, according to the Chicago Police Department.

   

  The 141 deaths in the first three months of the year mark a 71.9% jump from the same period in 2015, when 82 people were killed. It’s the worst start to a year since 1999, when 136 people died in the first three months the year, according to the Chicago Tribune.

   

  At that pace – an average of three killings every two days – Chicago would have 564 homicides by the end of the year. That would eclipse the 468 killings recorded in 2015 and 416 in 2014.“

  

   

  Still, at least for the time being, these mass shooting sprees are largely isolated to poor neighborhoods of the windy city. As such, it is difficult to see millionaires be directly impacted by what happens in inner city ghettos.

  Which probably explains why while the article touches on crime and racial tensions as reasons people are leaving, there is also another little, or rather big, matter that is driving the people away: taxes. 

  According to the Tribune, Illinois Comptroller Leslie Munger recently had this to say about the mounting unpaid bills and budget concerns that the state continues to face.

  “We can’t go bankrupt and we can’t print money. Taxpayers are going to have to pay this bill.”

  Actually it can go bankrupt.

  Recall that just two weeks ago we reported that the “Countdown To Insolvency Begins For Chicago Pensions As State Supreme Court Rejects Reform Bid“, in which we wrote that following a controversial Supreme Court decision, “there will be no legislating away pension benefits – even if doing so is the only realistic way for officials to ensure that state and local governments can continue to pay out any benefits at all going forward. That is, even if long-run insolvency is certain, benefits will be paid out in full up to and until the day of reckoning finally comes and it will be up to lawmakers to figure out how to rescue the system in the meantime. If that means raising taxes and/or going into further debt, then that’s what it means.”

  And although they may not be able to print money, we can’t help but wonder if the organization that can, will begin to take on the state insolvency issue in the future to prevent that from happening. After all, the bailout tour must continue to roll on.

  For now however, Chicago’s future is bleak, and when the hammer finally does hit, it will do so without Chicago’s wealthiest present.

  Finally, it may not come as a surprise that of all cities around the globe, Chicago was only third in millionaire exodus rankings.

  Which was first? Paris, France.

  

  A Rolls-Royce is displayed Feb. 11, 2016, at the Chicago Auto Show. 3,000
  millionaires moved out of Chicago in 2015, it is unclear what cars they drove
  

  

  

  

  

  

• Buying Dollar Bills For $1.10

  The following research was jointly produced by: J. Brett Freeze, CFA of Global Technical Analysis and 720 Global

  Buying Dollar Bills For $1.10

  720 Global has written four articles to date on stock buybacks and the harm these actions will likely have on future corporate growth rates and the economy. To better gauge the effect of buybacks we join forces with Brett Freeze to present a unique analysis on the S&P 100.

  As we have previously noted, a large majority of companies, including 94 of the S&P 100, have actively repurchased shares since 2011. These companies often announce and execute share repurchases without providing a rationale to shareholders. As a fiduciary of shareholder’s capital, managements’ core responsibility is to act in the best interest of its shareholders. Unfortunately, we believe the majority of current repurchase activity is dictated by management’s self-serving desire – temporarily inflating the current market-value of company stock, while enriching themselves through the exercise and sale of equity-based incentive compensation.

  There are two conditions that should be met when a company engages in a stock buyback. 1) The shares should be trading below intrinsic value 2) there are no investment opportunities available that would allow the company to continue to grow at a desirable rate. If both conditions can be met a case may be made for share buybacks.

  This article solely focuses on the first aforementioned condition– intrinsic value. For more information on the second condition, please read “In Yahoo, Another Example of the Buyback Mirage” by Gretchen Morgenson of the New York Times. In her recent article, which quoted 720 Global, she demonstrates how Yahoo weakened future earnings growth rates and corporate value through questionable stock buybacks.

  Intrinsic value is not the market price or market capitalization of a company or its stock, but a theoretical value formulated through analysis of the balance sheet and income statement of the company. Conceptually, investors should seek companies whose share prices trade below intrinsic value and shun those trading above intrinsic value. This logic equally applies to corporate management executing buybacks.

  When shares are purchased below intrinsic value, the company has added value. It is equivalent to buying a dollar bill for fifty cents. Conversely, share repurchases executed at a premium to intrinsic value destroy intrinsic value. Existing shareholders who sell are rewarded by the share-repurchase program, but those who hold are irreparably damaged. In the words of Warren Buffett from his assault on buybacks – “Buying dollar bills for $1.10 is not good business for those who stick around.”

  For this analysis we evaluate share repurchase activity and intrinsic values for the companies in the S&P 100 Index. Our measure of intrinsic value for non-financial companies was calculated using Global Technical Analysis’s proprietary discounted cash-flow model. For each non-financial company, 20-years of estimated forward cash flows were discounted by the weighted-average cost of capital (energy company data was normalized, when necessary). For financial companies, our measure of intrinsic value was calculated using Global Technical Analysis’s proprietary residual income model.

  The following table provides a glimpse of the value being reduced by share buybacks of five widely-held companies.

  The entire analysis is presented below by S&P Sector. Within each sector, companies are ranked by cumulative share repurchases relative to Q1 2011 outstanding shares. The final column of data shows the effect of share repurchase activity on intrinsic value. This column reveals the positive or negative effect that buybacks have had on the intrinsic value of each respective company.

  The results of our analysis confirm our beliefs regarding share repurchases. Approximately two-thirds of the S&P 100 destroyed intrinsic value, by an average amount of 12.03%, as a result of their share-repurchase programs.

   

  ***Corporate names have been withheld from this presentation. A full analysis can be acquired by contacting the authors.

  

  

  

  

  

  

  

  

• Which American States Have The Most Billionaires

  Yesterday’s news that New Jersey may be headed for fiscal peril now that the state’s wealthiest resident, hedge fund billionaire David Tepper is headed for warmer (and more tax receptive climes), caught many by surprise. Not his departure that is, but just how much of New Jersey’s tax revenue was contingent on just this one person. As Bloomberg reported, “New Jersey relies on personal income taxes for about 40% of its revenue, and less than 1% of taxpayers contribute about a third of those collections. A one percent forecasting error in the income-tax estimate can mean a $140 million gap.”

  This means that a potential billionaire exodus from states such as CT and NJ (or any other), is emerging as one of the bigger fiscal threats to state budgets.

  So which states are most at risk? For the answer we used the latest Forbes data listing the states with the most billionaires.  According to the magazine, there are “540 billionaires in the United States, with a combined net worth of $2.399 trillion. That’s more billionaires and more combined net worth than any other nation in the world.“

  This is where they live across the U.S.:

  

  For the sake of California’s fiscal stability, we hope governor Jerry Brown has better ideas of how to retain the 124 billionaires (with a cumulative net worth of over half a trillion dollars) currently calling the Golden State home than by merely continuing with his minimum wage hike bonanza. As we reported yesterday, California has already seen an exodus of state residents departing for other places in the US like Texas. If the all important billionaires were to depart, it would get very ugly for the state whose budget is already on edge.

  Source

  

  

  

  

  

• Dutch Referendum May Have Unleashed European "Continental Crisis"

  In early January, European Commission President Jean-Claude Juncker warned that a Dutch advisory referendum, which took place today, on the bloc’s association agreement with Ukraine could lead to a “continental crisis” if voters reject the treaty.

  In an interview in January for Dutch daily NRC Handelsblad, Juncker said Russia would “pluck the fruits” of a vote in the Netherlands against deepened ties between the European Union and Ukraine. “I want the Dutch to understand that the importance of this question goes beyond the Netherlands,” NRC quoted Juncker as saying. “I don’t believe the Dutch will say no, because it would open the door to a big continental crisis.”

  The reason why Jean-Claude “when it gets serious, you have to lie” Juncker was so nervous, is that the vote, launched by anti-EU forces, is seen as test of the strength of Eurosceptics on the continent just three months before Britain votes on whether to stay in the European Union.

  Fast forward to today when the vote just took place, and based on initial exit polls, Juncker was dead wrong. According to Reuters, in a rebuke for the government, which campaigned in favor of the EU-Ukraine association agreement, roughly 64 percent voted “No” and 36 percent said “Yes”. 

  As a reminder, the political, trade and defense treaty is already provisionally in place but has to be ratified by all 28 European Union member states for every part of it to have full legal force. The Netherlands is the only country that has not done so.

  And, it appears, that in a big hit for those who had plotted the Ukraine ascension, the Dutch may have just frozen Ukraine dead in its tracks.

  Eurosceptics had presented the referendum as a rare opportunity for their countrymen to cast a vote against the EU and the way it is run – including its open immigration policies. 

  But here lies the rub. Although it is non-binding, it will be considered as an advisory referendum by the government if turnout reaches 30 percent. Otherwise it will be considered null and void and need not be taken into consideration by the government. 

  And while according to some initial exit polls, the turnout was just 28%, or below the required threshold, the most recent data has the turnout as 32%, or sufficient.

  Still, this number may change before the night is over, so keep a close eye on this otherwise insignificant vote in the Netherlands as it may have momentuous consequences for the country and the entire European project. According to a prominent Dutch pollster, the final turnout will be 31%, or an absolute nailbiter.

  Prominent pollster @mauricedehond thinks final turnout figure will be 31% https://t.co/Iu9ZV2DFhg #veryclose #DutchReferendum

  — Pieter Cleppe (@pietercleppe) April 6, 2016

  The turnout, far lower than in national or local elections, reflected many voters’ puzzlement at being asked to vote on such an abstruse topic. “Yes” voters were certainly confused: “I think the people who asked for this referendum have made a huge commotion,” said Trudy, a “Yes” voter in central Amsterdam. “It’s nonsense, which cost lots of money, and it’s about something nobody understands.”

  Which, of course, is what anyone who is in the vast minority will say.

  Meanwhile, Geert Wilders, leader of the eurosceptic Freedom Party, urged voters to send a message to Europe by saying “No”. “I think many Dutchmen are fed up with more European Union and this treaty with Ukraine that is not in the interests of the Dutch people,” he told reporters. “I hope that later, both in the United Kingdom and elsewhere in Europe, other countries will follow.” 

  As Reuters adds, a clear vote against the treaty in the run-up to Britain’s June 23 referendum on whether to quit the EU could escalate into a domestic or even a Europe-wide political crisis.

  Dutch leaders say voting against the treaty would also hand a symbolic victory to Russian President Vladimir Putin.

  It is unclear if anti-Russian sentiment swayed voters nearly two years on but increasing resentment among the Dutch at the consequences of the EU’s open-border policies has propelled Wilders – who openly opposes Muslim immigration – to the top of public opinion polls.

  In many ways, Wilders is the local Donald Trump.

  

   

  Reuters also notes that the ballot also taps into a more deep-seated anti-establishment sentiment highlighted by a resounding rejection in 2005 of a European Union constitution, also in a referendum.

  However, just like in Greece, the gears are already set in motion to ignore the majority vote.  In parliament, Prime Minister Mark Rutte’s conservative VVD party has said it would ignore a narrow “No” vote, while junior coalition partner Labour has said it would honor it, setting the stage for a split.

  But ignoring a clear “No” would be risky for Rutte’s already unpopular government — which has lost further ground over Europe’s refugee debate – ahead of national elections scheduled for no later than March 2017.

  While we are confident that ultimately the will of the “No” voters will be ignored, just as it was in Greece, the resentment toward an oligarchic class which clearly can only operate under a non-democratic, call it despotic, regime is sure to spread. As for the Netherlands, while nothing may happen for the next 12 months, it will take some very brazen vote tampering next year to perpetuate a status quo which no longer serves the majority of its own country. 
  

  

  

  

  

  

• McDonalds Responds To Minimum Wage Hikes, Launches McCafe Coffee Kiosk

  When it comes to jobs growth in the US, all one can say is thank god for waiters and bartenders: after all, a Starbucks barista is precisely what a recently fired oil chemical engineer making half a million dollars really wants to do with their life.

  

   

  However, the days of easy job gains for the BLS may be coming to an end (even if on a seasonally adjusted, goalseeked basis the trend has a long way to go).

  According to Brand Eating, fast food king McDonald’s has been spotted testing a self-serve McCafe coffee station/kiosk out in downtown Chicago. The station is located in the restaurant but apart from the counter and looks to be a theoretically more convenient way for those who just want a cup of coffee to skip the regular line (while also freeing employees from having to make each drink in the back).

  In essence, this is the company’s latest venture to make employees responsible for one less task as corporate HQ slowly but surely responds to minimum wage hikes sweeping all states, and in the process, outsource its minimum wage workers to simple machines which will never unionize or have any demands aside from being cleaned occasionally.

  As shown below, the coffee station includes a touchpad for ordering and paying (it appears to take credit card only), a beverage spout, and a dispenser for cups.

  

   

  According to Brand Eating, “drink options include lattes, mochas, and cappuccinos that are customizable with various flavorings, types of milk, and amount of espresso. There doesn’t seem to be an option for drip coffee. The price for the drinks is $2.99. The concept and set up is very similar to McDonald’s Create Your Taste customized ordering available at some restaurants.

  The idea makes a lot of sense seeing as, here in the U.S., the McCafe espresso and steamed milk is automatically dispensed from a machine anyway, with syrups added after accordingly. What they’ve basically done here is put the dispenser on the other side of the counter and added automation for the syrup and ordering/payment.

   

  At the very least, having a touchscreen menu to look through is much preferable to me than the video screen menu at my local McDonald’s that intermittently plays a montage of the drinks so that I have to wait through to see the menu.

  What’s next? Why more of this of course.

  

  

  

  

  

  

• "Rotten To The Core"

  Submitted by Bill Bonner, courtesy of Acting-Man

  We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

  

  Staggering on…., Image credit: David Sidmond

  Last week, we gained some insight into the ailment. Something in the diagnosis has puzzled us for years: How is it possible for the most advanced economy in the history of the world to make such a mess of its most basic bodily functions – getting and spending?

  By our calculations – backed by studies, hunches, and deep research – the typical American man (it is less true for women) earns less in real, disposable income per hour today than he did 30 years ago.

  He goes to buy a car or a house, and he finds he must work longer to pay the bill than he would have in the last years of the Reagan administration. How is that possible? What kind of economic quackery do you need to stop capitalism from increasing the value of workers’ time?

  What kind of policies and circumstances are required to stiffen its joints… clog up its innards… and rot its brain? Globalization? Financialization? Bad trade deals? Too much red tape? Too many cronies? Too many zombies?

  

  We can identify at least one source of the quackery…

  All of those things played a role. But our answer is simpler: poison money. The bigger the dose… the sicker it got. When you say you “have some money,” you usually believe that there is, somewhere, an electronic database in which it is recorded that you are the owner of some amount of currency.

  You have $100,000 in your account, right?   Does it mean that there is a little cubbyhole somewhere, with your name on it, in which you will find a stack of 1,000 Ben Franklins? Nope. Not even close. No cubbyhole. No stack of money. No nothing.

  Does it mean the bank is carefully guarding some 1s and 0s, digital information proving that it at least “stores” your money in its database? Nope again! What it means is there is a financial institution of uncertain integrity… with a complex electronic balance sheet of uncertain accuracy… listing alleged financial claims and contracts of uncertain quality…

  …and that you are one of the many thousands of entries on the debit side… with a claim to a certain number of dollars… which the institution may or may not have, each of uncertain value.

  

  When prolific American bank robber Willie Sutton was asked why he robbed banks, he reportedly said “Because that’s where the money is”. Not anymore, not really, Photo credit: Allan Grant

  Today, banks – and this could be said of the entire financial system – no longer have “money.” They have credits and debits. Your deposit is your bank’s liability and your asset.

  But look at the balance sheet. You don’t know how many of the claims shown on the left are right… or whether, when the other creditors get finished with it, any of the assets shown on the right are left. All you know is that the system works. Until it doesn’t.

  System Seizure

  For many months, we have urged readers to prepare themselves for problems. One day, the accumulation of contradictions, misinformation, and plain old “trash” in the system will cause a seizure. You will go to the ATM, and it won’t work.

  That day, your life could take a big turn to the downside… depending on how widespread the problem is… the cause of it… and how you prepared for it. Of course, we don’t know for sure that that day will ever come. We are always in doubt, especially about our own forecasts.

  

  And then, one morning…, Photo credit: sxc

  Still, the potential problem seems likely enough… and grave enough… to justify some minimal precautions. You might cross the street blindfolded without getting run down, but it is still a good idea to look both ways. Usually, we look to the right… where we see the problems inherent in a credit-based money system.

  The feds can create all the credit they want. But real people can’t pay an infinite amount of debt service. Like a junkyard dog reaching the limit of his chain, the credit cycle has a way of jerking people back to reality.

  Real Money

  But there are other potential problems coming from the left. An electronic, credit-based money system is fragile. It can be hacked by thieves. It can be attacked by terrorists. It can be shut down by accident. Even a “bug” could bring it to its knees.

  And then what? How will you get money? How will you spend it? How will you buy gasoline or food? Our advice: Keep some cash on hand. Make sure you own some gold, too – real gold, coins that you can hold in your hand and you can flip to your grandchildren.

  “Hey kid,” you say with a knowing and superior air, “take a look at this. This is real money. You don’t have to plug it in.” By the way… Gold just had its best quarter in 30 years. Do buyers know something? Maybe.

  

  

  

  

  

  

• "My Passion Is Puppetry"

  By Ben Hunt of Salient Partners

  “My Passion Is Puppetry“

  We are supposedly living in the Golden Age of television. Maybe yes, maybe no (my view: every decade is a Golden Age of television!), but there’s no doubt that today we’re living in the Golden Age of insurance commercials. Sure, you had the GEICO gecko back in 1999 and the caveman in 2004, and the Aflac duck has been around almost as long, but it’s really the Flo campaign for Progressive Insurance in 2008 that marks a sea change in how financial risk products are marketed by property and casualty insurers. Today every major P&C carrier spends big bucks (about $7 billion per year in the aggregate) on these little theatrical gems.

  This will strike some as a silly argument, but I don’t think it’s a coincidence that the modern focus on entertainment marketing for financial risk products began in the Great Recession and its aftermath. When the financial ground isn’t steady underneath your feet, fundamentals don’t matter nearly as much as a fresh narrative. Why? Because the fundamentals are scary. Because you don’t buy when you’re scared. So you need a new perspective from the puppet masters to get you to buy, a new “conversation”, to use Don Draper’s words of advertising wisdom from Mad Men. Maybe that’s describing the price quote process as a “name your price tool” if you’re Flo, and maybe that’s describing Lucky Strikes tobacco as “toasted!” if you’re Don Draper. Maybe that’s a chuckle at the Mayhem guy or the Hump Day Camel if you’re Allstate or GEICO. Maybe, since equity markets are no less a financial risk product than auto insurance, it’s the installation of a cargo cult around Ben Bernanke, Janet Yellen, and Mario Draghi, such that their occasional manifestations on a TV screen, no less common than the GEICO gecko, become objects of adoration and propitiation.

  

  For P&C insurers, the payoff from their marketing effort is clear: dollars spent on advertising drive faster and more profitable premium growth than dollars spent on agents. For central bankers, the payoff from their marketing effort is equally clear. As the Great One himself, Ben Bernanke, said in his August 31, 2012 Jackson Hole speech: “It is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC’s decision to greatly expand securities purchases.” Probably not a coincidence, indeed.

  Here’s what this marketing success looks like, and here’s why you should care.

  This is a chart of the S&P 500 index (green line) and the Deutsche Bank Quality index (white line) from February 2000 to the market lows of March 2009.

  

  Source: Bloomberg Finance L.P., as of 3/6/2009. For illustrative purposes only.

  Now I chose this particular factor index (which I understand to be principally a measure of return on invested capital, such that it’s long stocks with a high ROIC, i.e. high quality, and short stocks with a low ROIC, all in a sector neutral/equal-weighted construction across a wide range of global stocks in order to isolate this factor) because Quality is the embedded bias of almost every stock-picker in the world. As stock-pickers, we are trained to look for quality management teams, quality earnings, quality cash flows, quality balance sheets, etc. The precise definition of quality will differ from person to person and process to process (Deutsche Bank is using return on invested capital as a rough proxy for all of these disparate conceptions of quality, which makes good sense to me), but virtually all stock-pickers believe, largely as an article of faith, that the stock price of a high quality company will outperform the stock price of a low quality company over time. And for the nine years shown on this chart, that faith was well-rewarded, with the Quality index up 78% and the S&P 500 down 51%, a stark difference, to be sure.

  But now let’s look at what’s happened with these two indices over the last seven years.

  

  Source: Bloomberg Finance L.P., as of 3/28/2016. For illustrative purposes only.

  The S&P 500 index has tripled (!) from the March 2009 bottom. The Deutsche Bank Quality index? It’s up a grand total of 10%. Over seven years. Why? Because the Fed couldn’t care less about promoting high quality companies and dissing low quality companies with its concerted marketing campaign — what Bernanke and Yellen call “communication policy”, the functional equivalent of advertising. The Fed couldn’t care less about promoting value or promoting growth or promoting any traditional factor that requires an investor judgment between this company and that company. No, the Fed wants to promote ALL financial assets, and their communication policies are intentionally designed to push and cajole us to pay up for financial risk in our investments, in EXACTLY the same way that a P&C insurance company’s communication policies are intentionally designed to push and cajole us to pay up for financial risk in our cars and homes. The Fed uses Janet Yellen and forward guidance; Nationwide uses Peyton Manning and a catchy jingle. From a game theory perspective it’s the same thing.

  Where do the Fed’s policies most prominently insure against financial risk? In low quality stocks, of course. It’s precisely the companies with weak balance sheets and bumbling management teams and sketchy non-GAAP earnings that are more likely to be bailed out by the tsunami of liquidity and the most accommodating monetary policy of this or any other lifetime, because companies with fortress balance sheets and competent management teams and sterling earnings don’t need bailing out under any circumstances. It’s not just that a quality bias fails to be rewarded in a policy-driven market, it’s that a bias against quality does particularly well! The result is that any long-term expected return from quality stocks is muted at best and close to zero in the current policy regime. There is no “margin of safety” in quality-driven stock-picking today, so that it only takes one idiosyncratic stock-picking mistake to wipe out a year’s worth of otherwise solid research and returns.

  So how has that stock-picking mutual fund worked out for you? Probably not so well. Here’s the 2015 S&P scorecard for actively managed US equity funds, showing the percentage of funds that failed to beat their benchmarks over the last 1, 5, and 10 year periods. I mean … these are just jaw-droppingly bad numbers. And they’d be even worse if you included survivorship bias.

  

  Small wonder, then, that assets have fled actively managed stock funds over the past 10 years in favor of passively managed ETFs and indices. It’s a Hobson’s Choice for investors and advisors, where a choice between interesting but under-performing active funds and boring but safe passive funds is no choice at all from a business perspective. The mantra in IT for decades was that no one ever got fired for buying IBM; today, no financial advisor ever gets fired for buying an S&P 500 index fund.

  But surely, Ben, this, too, shall pass. Surely at some point central banks will back away from their massive marketing campaign based on forward guidance and celebrity spokespeople. Surely as interest rates “normalize”, we will return to those halcyon days of yore, when stock-picking on quality actually mattered.

  Sorry, but I don’t see it. The mistake that most market observers make is to think that if the Fed is talking about normalizing rates, then we must be moving towards normalized markets, i.e. non-policy-driven markets. That’s not it. To steal a line from the Esurance commercials, that’s not how any of this works. So long as we’re paying attention to the Missionary’s act of communication, whether that’s a Mario Draghi press conference or a Mayhem Guy TV commercial, then behaviorally-focused advertising — aka the Common Knowledge Game — works. Common Knowledge is created simply by paying attention to a Missionary. It really doesn’t matter what specific message the Missionary is actually communicating, so long as it holds our attention. It really doesn’t matter whether the Fed hikes rates four times this year or twice this year or not at all this year. I mean, of course it matters in terms of mortgage rates and bank profits and a whole host of factors in the real economy. But for the only question that matters for investors — what do I do with my money? — nothing changes. Stock-picking still won’t work. Quality still won’t work. So long as we hang on every word, uttered or unuttered, by our monetary policy Missionaries, so long as we compel ourselves to pay attention to Monetary Policy Theatre, then we will still be at sea in a policy-driven market where our traditional landmarks are barely visible and highly suspect.

  Here’s my metaphor for investors and central bankers today — the brilliant Cars.com commercial where a woman is stuck on a date with an incredibly creepy guy who declares that “my passion is puppetry” and proceeds to make out with a replica of the woman.

  What we have to do as investors is exactly what this woman has to do: get out of this date and distance ourselves from this guy as quickly as humanly possible. For some of us that means leaving the restaurant entirely, reducing or eliminating our exposure to public markets by going to cash or moving to private markets. For others of us that means changing tables and eating our meal as far away as we possibly can from Creepy Puppet Guy. So long as we stay in the restaurant of public markets there’s no way to eliminate our interaction with Creepy Puppet Guy entirely. No doubt he will try to follow us around from table to table. But we don’t have to engage with him directly. We don’t have participate in his insane conversation. No one is forcing you keep a TV in your office so that you can watch CNBC all day long!

  Look … I understand the appeal of a good marketing campaign. I live for this stuff. And I understand that we all operate under business and personal imperatives to beat our public market benchmarks, whatever that means in whatever corner of the investing world we live in. But I also believe that much of our business and personal discomfort with public markets today is a self-inflicted wound, driven by our biological craving for Narrative and our social craving for comfortable conversations with others and ourselves, no matter how wrong-headed those conversations might be.

  Case in point: if your conversation around actively managed stock-picking strategies — and this might be a conversation with managers, it might be a conversation with clients, it might be a conversation with an Investment Board, it might be a conversation with yourself — focuses on the strategy’s ability to deliver “alpha” in this puppeted market, then you’re having a losing conversation. You are, in effect, having a conversation with Creepy Puppet Guy.

  There is a role for actively managed stock-picking strategies in a puppeted market, but it’s not to “beat” the market. It’s to survive this puppeted market by getting as close to a real fractional ownership of real assets and real cash flows as possible. It’s recognizing that owning indices and ETFs is owning a casino chip, a totally different thing from a fractional ownership share of a real world thing. Sure, I want my portfolio to have some casino chips, but I ALSO want to own quality real assets and quality real cash flows, regardless of the game that’s going on all around me in the casino.

  Do ALL actively managed strategies or stock-picking strategies see markets through this lens, as an effort to forego the casino chip and purchase a fractional ownership in something real? Of course not. Nor am I using the term “stock-picking” literally, as in only equity strategies are part of this conversation. What I’m saying is that a conversation focused on quality real asset and quality real cash flow ownership is the right criterion for choosing between intentional security selection strategies, and that this is the right role for these strategies in a portfolio.

  Render unto Caesar the things that are Caesar’s. If you want market returns, buy the market through passive indices and ETFs. If you want better than market returns … well, good luck with that. My advice is to look to private markets, where fundamental research and private information still matter. But there’s more to public markets than playing the returns game. There’s also the opportunity to exchange capital for an ownership share in a real world asset or cash flow. It’s the meaning that public markets originally had. It’s a beautiful thing. But you’ll never see it if you’re devoting all your attention to CNBC or Creepy Puppet Guy.

  

  

  

  

  

• Where One Swiss Bank Will Be Buying Gold

  While the furious rally that proppeled gold higher in the first quarter – by the most in 25 years – appears to have fizzled, it is hardly over. So for those wondering when they should add to their position, or start a new one, here is some advice from Geneva Swiss Bank, which believes that $1,180-$1,190 “may be a good level to buy gold.”

  The bull case is known to everyone by now, but here it is again, from the source:

  • We believe that gold remains a great hedge against currency debasement
  • Investors increasing doubts on the effects of central banks aggressive monetary policies will continue to be a tailwind for the only currency that machines can’t print
  • Last but not least, asset allocators are piling back into gold again.

  The result: the following chart.

  

  

  

  

  

  

• No Turning Point: What Happens in Wisconsin Stays in Wisconsin; Hell to Pay

  Submitted by Mike “Mish” Shedlock of MishTalk

  In the wake of an expected victory in Wisconsin, Ted Cruz gave the expected victory speech.

  “Tonight is a turning point. It is a rallying cry,” said Cruz to an elated crowd of his supporters.

  Nonsense. What happens in Wisconsin stays in Wisconsin.

  Nomination Analysis

  Cruz won 36 of 42 Wisconsin delegates. In the Path to a Trump Victory, Nate Silver estimated Trump needed to win 18 Wisconsin delegates.

  Trump won six, leaving him 12 short.

  New York has 95 delegates. Silver estimates Trump needs 58 of then.

  I expect Trump will pick up 70 putting him back on track. I made that estimate on April 4 in Rumors of Trump’s Demise Overblown; Wisconsin May Not Matter if Trump Sweeps New York.

  Recent Polls

  

   

  Silver’s Poll’s Only Projection

  

  If those numbers for Trump come in, and we will find out on April 19, the momentum will clearly have shifted back to Donald Trump.

  Still on Course

  Financial Times writer Edward Luce sees things pretty much the way I do. In an article today, Luce says Donald Trump Still Just About on Course.

  Despite having self-inflicted the worst two weeks of his campaign, and provoking the opposition of almost every senior Republican in Wisconsin, Mr Trump still took more than a third of the vote — and in a state that he was likely to lose.

   

  Wisconsin’s demographics, which skew towards educated conservatives, are similar to that of Iowa, which Mr Cruz won at the start of the primary season two months ago. New York’s are closer to that of New Hampshire, which Mr Trump won handily the following week.

   

  It is anybody’s guess what Mr Trump will say, or tweet. His capacity for self-destruction can never be underestimated. But it takes a leap of faith to believe he will be defeated on his home turf by a Texan conservative who denigrates “New York values”.

   

  Wisconsin does not drastically alter the bigger picture. Republicans are probably heading towards a contested convention in Cleveland in which they will confront a choice between Mr Trump and Mr Cruz.

  Contested Convention

  It’s a bit premature to come to the conclusion a contested convention is the odds-on-favorite, but it is increasingly likely.

  In January, I stated the only likely way Trump could be stopped was a contested convention. That was long before media glommed onto the idea. Today the notion of a contested convention is mainstream.

  Hell to Pay

  It remains to be seen if we do have a brokered convention but a Talking Points Memo accurately says there will be Hell to Pay, if we do. Emphasis is mine.

  I certainly knew that election night was not the end of the delegation selection process in most states – especially in caucus states. But I confess I did not realize how many states do not allow a candidate any direct control over who ‘their’ delegates even are. So Donald Trump could win all the delegates in a particular state but have party functionaries pick the actual people who will serve as ‘Trump’s’ delegates. So they’re bound on the first ballot but actually there to support Cruz or Kasich or some other unicorn candidate.

   

  I think many people imagine a raucous and wild scene where the Trump delegates walk out of the hall after the convention gives Mitt Romney or maybe Jeb Bush’s son ‘P.’ the nomination. But in fact there may be no Trump supporters there to walk out. Now, obviously there will be some. But maybe not that many.

   

  The ‘Trump delegates’ who agree to vote for someone else on the second ballot may not be former Trump supporters. They may be Cruz supporters or just party regulars.

   

  All of this is why this is bounding toward a wildly destructive conflagration in Cleveland. Elections of all sorts rest not fundamentally on rules and bylaws but on legitimacy. An RNC national committeeman recently complained that the press had given people the wrong impression that voters decided who the nominee was rather than the party. By the rules, he may be right. But good luck sailing that ship across any body of water.

   

  TPM Readers know, because it’s been one of the site’s core perennial issues for 15 years, that people’s right to their vote gets disregarded all the time. But it is by definition almost always the votes of the marginalized and those lacking power, almost always those most loosely tied to the political system. And usually it either does not or cannot be proven to swing an actual election. It is quite another thing, under the bright lights of intense national press scrutiny to take the win away from the guy who unambiguously won the most votes.

   

  Trump’s constituency is the part of the electorate which Republican politicians have been marinating in grievance and betrayal politics for decades. Only it’s not coming from Al Sharpton or Hollywood elites or limousine liberals or Feminazis. It will be coming from their supposed protectors, their party.

   

  It won’t go down well. There will be hell to pay.

  Hell to pay indeed!

  This is precisely why Trump feels marginalized to the point he may not support the Republican candidate if he doesn’t win.

  And why should he?

  Can Cruz Beat Hillary?

  Can Cruz or some alternative “hand-picked” candidate defeat Hillary?

  It seems dubious, at best. To win the election, the Republican nominee will have to pick up votes from some independents and some traditional Democrats.

  What votes can Cruz pick up? Anything? I challenge anyone to explain what inroads Cruz, Kasich, or any other hand-picked Republican Neanderthal can deliver from either Democrats or Independents.

  Appealing to the core is the road to ruin, and Trump proves it.

  And if Trump runs on a third party ticket, it will be next to impossible for Cruz or any other Republican candidate win.

  Can Trump Beat Hillary?

  Despite the talk, Trump will retain nearly all of the traditional Republican vote. Sure, some may vote Hillary or sit the election out. But the strong anti-Hillary sentiment will overcome almost all of that.

  On the plus side, Trump will pick up votes from anti-war Democrats, anti-war independents, anti-establishment independents, anti-Fed independents, and most importantly – angry white Democrats who blame China and Mexico for our problems.

  On the minus side, Trump has offended a lot of people. However, there will be some time for him to make amends and sound more presidential.

  Destructive Republican Party Breakup

  Whether Trump wins the nomination or it is stolen from him, a destructive breakup of the holier-than-thou, war-mongering, neocon pseudo-conservative hypocrites running the Republican party is potentially at hand.

  For that we can all thank Trump, whether you like the guy or not. It’s time to rebuild the Republican party, and this is a good start.

  If the nomination is stolen from Trump, he can finish the job with a third-party candidacy.

  

  

  

  

  

• Before Trump, Sen Bulworth Spoke Truth To Power

  Submitted by Douglas Herman

      “The majority of men are not capable of thinking, but only of believing and are not accessible to reason but only to authority.”

      -­ Arthur Schopenhauer
   
  Voting is like bungee jumping: it’s for people who like big jerks. If the 2016 US Presidential election seems like a manufactured media circus, perhaps we can blame Hollywood. More precisely, we can blame fictional Senator Jay Billington Bulworth and his bluster for providing the blueprint.

  In books and movies, Life often imitates Art. I know from personal experience, having penned a historical fiction novel, The Guns of Dallas, that apparently came true two years after publication. When an old CIA operative named E. Howard Hunt made a deathbed confession to Rolling Stone magazine about the JFK Assassination, he echoes a similar confession my protagonist made in my novel a couple years before.

  But they give no prizes for such prescience.  Instead they give Pulitzer Prizes and Nobel Prizes to liars and war criminals. They give Presidential Medals of Freedom to corrupt, incompetent or deceitful career public servants who do a huge disservice to the public and endanger the Republic. They give Oscars and Emmys and glowing accolades to filmmakers who create violent movies based on fantasies and fabrications that prop up the deep state. But they give no awards for speaking truth to power. Often only a bullet awaits those who do.

  Long before Donald Trump uttered his first shocking statement, a fictional Hollywood politico named Senator Bulworth spoke truth to power and shocked a nation. So much so that the movie lost money, was critically panned and may have gotten the iconic actor and producer, Warren Beatty, blacklisted from Hollywood.

  Why? Truth is a dangerous weapon. More dangerous than a thousand light sabers. But sadly, Truth is the First & Last Casualty in America’s Penultimate War.

  * * *

  Some people think that truth is relative. At least my relatives do. Try telling your friends and family that all truth passes through Three Stages, from ridicule to violent opposition to eventual acceptance, according to that guy Schopenhauer again, who must have been a lot of fun at parties. My friends and family remain at stage one.

  In an essay called Bulworth In 2013, artist Jim Kirwan remarked: “Warren Beatty made Bulworth in 1998 to warn America about what this country had become . . . The film is about a disillusioned Senator who tires of the lies and begins to tell it like it is.  No other major filmmaker has dared to produce, much less chosen to put these topics before the public.”

  Bulworth quickly insults or provokes everyone he meets, from Black civic leaders to Jewish movie moguls to a roomful of the Senator’s corrupt corporate donors.  While on a fundraiser, Senator Bulworth visits the home of some Hollywood heavyweights and is asked bluntly by one of them: “Senator, do you think those of us in the entertainment business need government help in determining limits on sex and violence in today’s films and television programs?”

  Bulworth replies: “You know the funny thing is, how lousy most of your stuff is. You make violent films, you make dirty films, you make family films, but just most of them are not very good, are they? Funny that so many smart people could work so hard on them and spend so much money on them and, I mean, what do you think it is? It must be the money, huh. It must be the money, it turns everything to crap you know. Jesus Christ how much money do you guys really need?”

  And that is how you get black-listed from Hollywood, despite all the Oscars you have won in the past. Talk truth to power and damn if they don’t try to ruin you.

  Bulworth continues on in his suicidal mission. Warren Beatty is masterful and marvelous, like Trump on truth serum or steroids. Intoxicated with his candor, Senator Bulworth begins to rhyme, to a roomful of stunned corporate backers. “And over here, we got our friends from oil/ They don’t give a shit how much wilderness they spoil/ They tell us they are careful, we know that it’s a lie/ As long as we keep driving cars, they’ll let the planet die/ Exxon, Mobil, the Saudis and Kuwait, if we still got the Middle East, the atmosphere can wait/ The Arabs got the oil, we buy everything they sell/ But if the brothers raise the price, we’ll blow them all to hell.”

  Imagine Trump saying something like THAT?

  So ask yourself this, dear reader: When has ONE candidate managed to provoke and then UNITE the hysterical Left liberals and the entrenched, super rich & powerful oligarchs of the Extreme Right against him? Not to mention uniting the puppets and pundits of the mainstream media? Has that ever happened in American history? Before Bulworth? Before Trump?

  Consider the growing list of powerful, special interests arrayed against Donald Trump. Billionaire corporate heads oppose Trump. Dozens of them flew down to Sea Island, Georgia to devise ways to remove Trump from the Republican ticket. “”What we see at Sea Island is that, despite all their babble about bringing the blessings of democracy to the world’s benighted, AEI, Neocon Central, believe less in democracy than in perpetual control of the American nation by the ruling Beltway elites,” wrote Patrick Buchanan. “If an outsider like Trump imperils that control . . . the elites will come together to bring him down, because behind party lines, they’re soul brothers in pursuit of power.”

  Speaking of soul brothers, another billionaire, and self-confessed Nazi collaborator, George Soros backs BlackLivesMatters.  Soros provided in excess of $30 million in “seed” money to BLM.  Tweeted top BLM activist and rapper Tef Poe: “ If Trump wins, young niggas such as myself are fully hell bent on inciting riots everywhere we go.”
   
  Billionaires bankrolling ghetto brothers to burn and riot? And NO outcry from the American media, naturally.
   
  Soros also backs unlimited immigration with his Open Borders group, the same people responsible for blocking a state highway in Arizona. Again not a peep from the mainstream media. But a cabal of connected newspaper columnists, who style themselves “National Security Leaders,” many who pimped for the endless wars in the Middle East, including such aptly named warmongers as Max Boot, Charles Krauthammer, Michael Chertoff and Robert Kagan oppose Trump.  Likewise billionaire Jewish movie moguls, many of whom have donated millions to Hillary Clinton, oppose Trump. Billionaire Chinese oligarchs and manufacturers, with factories filled with low-paid workers and fearful that tariffs may curtail their obscene profits, oppose Trump. Pop political celebs such as Elizabeth Warren and RINO relics Mitt Romney and John McCain oppose Trump and urge voters to reject him.
   
  Every one of these outspoken opponents of Trump was represented in the Bulworth movie in some fashion, especially the network talking heads. In the movie, Bulworth finally confronts the media. The American mainstream media hates and fears Trump, I mean Bulworth. He knows exactly what kind of prostitutes they are. But the media realizes Bulworth is hot news. So they have to cover him. They are forced to cover him, against their will. Exactly as they are forced to cover Trump.

  * * *

  “You know the guy in the booth who’s talking to you in that tiny little earphone,” says Bulworth to some bimbo who reminds me of Meagan Kelly. “He’s afraid the guys at network are gonna tell him that he’s through/ If he lets a guy keep talking like I’m talking to you/ Cause the corporations got the networks and they get to say who gets to talk about the country and who’s crazy today/ I would cut to a commercial if you still want this job/ Because you may not be back tomorrow with this corporate mob/ Cut to commercial, cut to commercial, cut to commercial. Okay Okay I got a simple question that I’d like to ask of this network/ That pays you for performing this task/ How come they got the airwaves? They’re the peoples aren’t they?/ Wouldn’t they be worth 70 billion to the public today?/ If some money-grubbin Congress didn’t give them away?”

  Bulworth, like Trump nearly 20 years later, seems to present the people, the voters,  with a fresh perspective. Even if the apparent fresh perspective is a fraud or a mirage. But to the Powers-That-Be, any courageous man who speaks truth to power presents a fearful challenge: How to rein in this dangerous man, before he does any more damage? Easy enough. Whether a Bulworth or a Trump, similar wild card candidates who have suddenly become the newest darling of the public, they must be taught to toe the party line, or be removed from the picture. Simple.

  How? Assassination or electoral fraud.

  In the movie, Bulworth is eventually removed, at the height of his fame and popularity with the voters. In reality, so is anyone else who dares to challenge the status quo. JFK and RFK most recently. I imagine the powerbrokers are devising a scenario as I write this. Perhaps a disgruntled bus boy with three names, a troubled sort who keeps a diary and owns a handgun will ambush Trump. Naturally the media presstitutes will gloat in private but pretend a somber sorrow. And Hillary will be selected, or someone suitable to Wall Street and the police state. Hardly matters who.

  As our empire erodes, and overseas tyranny evolves into full moral meltdown at home, and the economy becomes a series of bubbles, the sociopaths in charge resort to more inventive and draconian measures. Trump is neither the solution nor the answer but more like another symptom. A long simmering effect of a longer lingering cause. The cause and effect of bad governance, of corruption without any consequences.

  

  

  

  

  

• Governor Of Puerto Rico Set To Impose Capital Controls

  Yesterday, in the latest plot twist surrounding the inevitable Puerto Rico default, we observed that after the commonwealth island’s Senate passed a surprising bill to impose a debt moratorium on any future debt repayment, its bonds – predictably – tumbled.

  

   

  We also noted that the legislation addressed the Government Development Bank, or GDB, which is facing speculation that it’ll lapse into insolvency. The bank’s receivership process, liquidity and reserve requirements and payment obligations would be suspended indefinitely, according to an analyst’s read of the bill, which also seeks to split the entity into a “good bank” and “bad bank.”

  Hedge funds holding debt in the GDB sued on Monday to stop the bank from returning deposits to local government agencies as it faces a growing cash shortage. The funds, which include affiliates of Brigade Capital Management, Claren Road Asset Management and Solus Alternative Asset Management, accused the bank of seeking to “prop up” local agencies at the expense of other creditors. The GDB has a $422 million debt-service payment due May 1.

   

  The Government Development Bank serves the dual purpose of providing financial support to local governments and acting as a financial adviser to the commonwealth. The funds, which say they hold a “substantial amount” of almost $3.75 billion in the bank’s outstanding debt, blamed the entity’s deteriorating condition on a “hopeless conflict” between loyalties to Puerto Rico and to creditors.

  Fast forward to today, when Puerto Rico Governor Alejandro García Padilla signed a measure into law Wednesday that would enable him to declare a moratorium on the commonwealth’s debt payments, mere hours after it cleared the Legislature amid concerns of securing enough support in the lower chamber and a full-court press by creditor lobbyists demanding changes to the bill.

  What was more troubling is that in a move similar to what we have seen in Greece, only this time a voluntary one on behalf of the island and not its vassal owners (as happened with Greece), the newly signed Puerto Rico Emergency Moratorium & Financial Rehabilitation Act also empowers the governor to order the financially battered Government Development Bank (GDB) to restrict the outflow of cash in a bid to stabilize its dwindling liquidity levels, which stood at roughly $560 million as of April 1, according to the bill.

  In other words, capital controls.  

  This, incidentally, confirms what we said yesterday, when we concluded that “the situation is getting messier by the day with a compromise deal now seemingly impossible – absent a US government bailout – and meanwhile Puerto Rico’s money is running out, which will ultimately be the decisive catalyst that leads to the next step in the crisis.“

  That moment may have just arrived.

  As Caribbean Business writes, García Padilla plans to sign an executive order to this effect immediately following the enactment of the moratorium legislation, sources said.

  Several sources told Caribbean Business the urgency to enact the bill stems from concerns that municipalities and other public entities will request the withdrawal of funds each entity holds in the bank, which would further jeopardize the GDB’s operations.

  Acting under the Puerto Rico Constitution’s police powers, the law allows the governor to declare a moratorium on the commonwealth’s entire debt, as well as a stay against any litigation that may result. The measure amends, or “modernizes,” the receivership process of not only the GDB, but also of the Economic Development Bank. If the GDB is placed under the new receivership process, a temporary “bridge” bank could be created to carry out some of the GDB’s functions and honor deposits.

  The law also creates a new entity, called the Puerto Rico Fiscal Agency & Financial Authority, that essentially takes over the GDB’s roles as the island’s fiscal agent and financial adviser. The entity’s board consists of only one member, and in addition to its fiscal agent duties, will take charge of the commonwealth’s debt-restructuring efforts.

  

  

  

  

  

• Rothschild Humiliates Obama, Reveals That "America Is The Biggest Tax Haven In The World"

  In his speech yesterday, following the Treasury’s crack down on corporate tax inversions, Obama blamed “poorly designed” laws for allowing illicit money transfers worldwide. Since the speech came at a time when the entire world is still abuzz with the disclosure from the Panama Papers, Obama touched on that as well: “Tax avoidance is a big, global problem” he said on Tuesday, “a lot of it is legal, but that’s exactly the problem” because a lot of it is also illegal.

  There is one major problem with that: of all the countries in the world, it is none other than the country of which Obama is president, the United States, that has become the world’s favorite offshore “tax haven” destination.

  As Bloomberg, which first broke the story about Nevada’s use as a prominent tax haven early this year, writes, “Panama and the U.S. have at least one thing in common: Neither has agreed to new international standards to make it harder for tax evaders and money launderers to hide their money.”

  Over the past several years, amid increased scrutiny by journalists, regulators and law enforcers, the global tax-haven landscape has shifted. In an effort to catch tax dodgers, almost 100 countries and other jurisdictions have agreed since 2014 to impose new disclosure requirements for bank accounts, trusts and some other investments held by international customers — standards issued by the Organization for Economic Cooperation and Development, a government-funded international policy group.

  In short: while Obama is complaining about corporate tax avoidance and slamming Panama, he is encouraging it in the U.S.

  Places like Switzerland and Bermuda are agreeing, at least in principle, to share bank account information with tax authorities in other countries. Only a handful of nations have declined to sign on. The most prominent is the U.S. The other ona is, of course, Panama, and we just saw what happened there.

   

  The latest reporting “underscores the secrecy in Panama,” said Stefanie Ostfeld, the acting head of the U.S. office of the anti-corruption group Global Witness. “What’s lesser known, is the U.S. is just as big a secrecy jurisdiction as so many of these Caribbean countries and Panama. We should not want to be the playground for the world’s dirty money, which is what we are right now.”

  For Obama, however, it is important to not let facts get in the way of a good speech, or welcoming the dirty, laundered money of the world’s uber wealthy, be they criminals or not, as they transfer their wealth from Panama to Nevada, Wyoming and other tax sheltering destinations in the U.S.

  To be sure, the US has taken steps to keep track of US assets abroad, but not of foreign assets in the US.

  In 2010, Congress passed the Foreign Account Tax Compliance Act, or Fatca, as the U.S. Justice Department began prosecuting Swiss banks for enabling tax evasion. Fatca forces certain financial firms to disclose to the Internal Revenue Service any foreign accounts held by U.S. citizens.

   

  Fatca doesn’t, however, bind banks to provide information on foreigners with U.S. accounts to regulators abroad. The U.S. has entered into agreements with some other countries requiring such exchange with foreign regulators, but tax planners say they are considered relatively easy to avoid.

   

  That’s where the OECD came in, with its own international take on Fatca that the U.S. declined to sign.

  Panama has been one country which has done everything in its power to delay and dilute its compliance with OECD regulations.

  In a January interview, an official at Trident Trust Co., a big provider of offshore vehicles, said it was seeing a large number of accounts moving into Panama because of its weak commitment to the OECD regulations. “The Panama office was extremely overworked, because a lot of people are re-domiciling to Panama from BVI and Cayman,” said Alice Rokahr, a Trident official based in South Dakota. In late February, OECD officials said publicly that Panama had been “removed from the list of committed jurisdictions” that agreed to share information.

   

  The latest coverage of shell companies created by a Panamanian law firm could give the OECD new ammunition to put pressure on the country to sign onto the information-sharing agreements, some tax experts said.

  But while one can criticize Panama, and with cause, for enabling tax evasion, at least its leaders don’t pretend to be saints, who do precisely what they condemn. Far less can be said about Obama.

  “The U.S. doesn’t follow a lot of the international standards, and because of its political power, it’s able to continue,” said Bruce Zagaris an attorney at Berliner Corcoran & Rowe LLP who specializes in international tax and money laundering regulations.  “It’s basically the only country that can continue to do that. Others like Panama have tried, but Panama can’t punch as high as the U.S.“

  And confirming just that, in a statement issued Monday by OECD secretary general Angel Gurria, the OECD said “Panama is the last major holdout that continues to allow funds to be hidden offshore from tax and law-enforcement authorities.”

  The statement didn’t mention the U.S., which is the OECD’s largest funder.

  And there it is: the US, simply because it is the biggest – and wealthiest – bully in the yard, can dispense morality all day long, but just don’t ask it to practice what it preaches.

  Meanwhile, advisers around the world are increasingly using the U.S. resistance to the OECD’s standards as a marketing tool – attracting overseas money to U.S. state-level tax and secrecy havens like Nevada and South Dakota, potentially keeping it hidden from their home governments.

  Advisors such as Rothschild, profiled initially by Bloomberg’s Jesse Drucker.

  Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.
   
  * * *
   
  For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. “is effectively the biggest tax haven in the world.” The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”

  And that is all you need to know.

  

  

  

  

  

• Guest Post: Why Hillary Clinton’s Paid Speeches Are Relevant

  By Eric Zuesse, originally posted at strategic-culture.org

  On the fake-‘progressive’ (actually conservative-Democratic-Party) website that’s run by a longtime CIA asset Markos Moulitsas, “Daily Kos,” there was posted on February 24th an article by “motocat”, headlined, “I have personally been to a closed door corporate Clinton speech. This is what I experienced.” This person, he or she, didn’t indicate what the speech said, other than “how disappointing the whole thing was,” and, that it was a speech by Bill Clinton, not Hillary Clinton, and “It made me feel sort of sad to see how old and feeble he looked. The last time I had seen Bill speak was when he was running for his first term as President. He looked like a different man.”

  Then the author went into speculation about what might be in Hillary Clinton’s speeches:

  “Everyone wondering what Hillary possibly could have said in 30 minutes that was worth 250K is missing the point. These people are celebrities. They are booked to deliver paid speeches, because it benefits those who book them in some way. You might as well ask what Kanye West could possibly say in 45 minutes at Madison Square Garden that would be worth 250K to the promoter.

  I have no doubt that Hillary does not want to release the transcripts of those speeches because those pouring through them for a gotcha news story or to prove a point, will surely find praise for the institutions she was speaking on behalf of. In this political climate, that would be a bad news cycle for her. I also have no doubt that she also showered glowing praise on the countless colleges whose commission speeches she spoke at, as well as praised the accomplishments of whatever non-profit she spoke on behalf of. Does anyone really think her speech to the US Green building council in 2013 was fair and balanced about negative aspects of what the Green building council has done? No. These are performances for a purpose.

  Personally, I am surprised she just doesn’t come out and say the following.

  ‘For many years I worked as a paid speaker. I gave speeches to many different organizations in many different industries, who all paid me very well. It was my job, and part of my job was to be inspiring, encouraging, and flattering to those people in the audience and those who paid me.’

  I’m not sure what people expect to find in these corporate event speeches she gave dozens of throughout the year. Backroom promises? Revelations about how she plans to screw the middle class? Confessions of cardinal sins? No company or speaker would be so stupid as to include that sort of thing in a corporate event speech anyway.

  There are many important issues to be focusing on right now in this race and debate, but this isn’t one of them.”

  There were over a thousand reader-comments to that idiotic article, as of April 1st, and then it said: “Comments are closed on this story.” The readers who had gotten through the article and were sufficiently struck by it to enter a comment to it were generally debating each other, via comments such as “What makes the diarist think that a pubic [that person’s perhaps Freudian misspelling of ‘public’] event selling tickets has any comparison to the intimate and closed door speeches given by the Clintons to the upper echelon of high finance?” versus (responding to that one): “or the private intimate talks by Bernie and with his supporters. How doe [that person’s misspelling of ‘do’, of course] we know Bernie has not promised something.” In other words: a foolish article elicited over a thousand comments from foolish readers, at that Democratic-Party propaganda site. They’re just the Democratic Party equivalent of Rush Limbaugh’s Republican-Party fools – no different, except for the labels they give themselves.

  Hillary Clinton’s paid speeches (which none of those fools knew anything about – not even the article’s writer did) are not relevant because of anything that they said (which was public to all attendees; her meaningful comments might have been made privately to the executive who had hired her for the speech), but because the organizations that paid typically $225,000 to her, for each of them, were paying a servant, for extremely valuable services that that servant is being expected to provide to the owners and top executives of that organization if that servant becomes the U.S. President (or, in the case of her husband Bill) for valuable services that already were provided by that servant when he was a President. They’re pay-offs, for services that are anticipated, or else that have already been provided. They are not (such as the author was assuming) for “the speech.”

  The fools who had read that article weren’t commenting about how atrocious and stupid it was; they were debating with each other, on the basis of their ignorance and stupidity, which enabled that article to hold their interest and then to engage comments from them upon other idiots’ comments about it.

  This is how enough of such self-characterizing ‘liberal’ voters become suckered into voting for a far-right (except on ‘social’ issues) candidate who is as atrocious and unqualified to serve as President as is Hillary Clinton.

  However, if her speeches are relevant as prospective, and/or retrospective, pay-offs to her, then who and what are these groups that have been providing these pay-offs to her: Here’s the complete list, as it was tabulated and posted online in March by the lawyer Paul Campos (then copied without credit to him, by several others). And, as you can see, they are anything but “the countless colleges whose commission speeches she spoke at, as well as praised the accomplishments of whatever non-profit she spoke on behalf of.”

  —

  http://www.lawyersgunsmoneyblog.com/2016/03/you-get-what-you-pay-for

  DATE EVENT LOCATION FEE

  • March 19, 2015 American Camping Association Atlantic City, NJ $260,000.00
  • March 11, 2015 eBay Inc. San Jose, CA $315,000.00
  • February 24, 2015 Watermark Silicon Valley Conference for Women Santa Clara, CA $225,500.00
  • January 22, 2015 Canadian Imperial Bank of Commerce Whistler, Canada $150,000.00
  • January 21, 2015 tinePublic Inc. Winnipeg, Canada $262,000.00
  • January 21, 2015 tinePublic Inc. Saskatoon, Canada $262,500.00
  • December 4, 2014 Massachusetts Conference for Women Boston, MA $205,500.00
  • October 14, 2014 Salesforce.com San Francisco, CA $225,500.00
  • October 14, 2014 Qualcomm Incorporated San Diego, CA $335,000.00
  • October 13, 2014 Council of Insurance Agents and Brokers Colorado Springs, CO $225,500.00
  • October 8, 2014 Advanced Medical Technology Association (AdvaMed) Chicago, IL $265,000.00
  • October 7, 2014 Deutsche Bank AG New York, NY $280,000.00
  • October 6, 2014 Canada 2020 Ottawa, Canada $215,500.00
  • October 2, 2014 Commercial Real Estate Women Network Miami Beach, FL $225,500.00
  • September 15, 2014 Cardiovascular Research Foundation Washington, DC $275,000.00
  • September 4, 2014 Robbins Geller Rudman & Dowd, LLP San Diego, CA $225,500.00
  • August 28, 2014 Nexenta System, Inc. San Francisco, CA $300,000.00
  • August 28, 2014 Cisco Las Vegas, NV $325,000.00
  • July 29, 2014 Corning, Inc. Corning, NY $225,500.00
  • July 26, 2014 Ameriprise Boston, MA $225,500.00
  • July 22, 2014 Knewton, Inc. San Francisco, CA $225,500.00
  • June 26, 2014 GTCR Chicago, IL $280,000.00
  • June 25, 2014 Biotechnology Industry Organization San Diego, CA $335,000.00
  • June 25, 2014 Innovation Arts and Entertainment San Francisco, CA $150,000.00
  • June 20, 2014 Innovation Arts and Entertainment Austin, TX $150,000.00
  • June 18, 2014 tinePublic Inc. Toronto, Canada $150,000.00
  • June 18, 2014 tinePublic Inc. Edmonton, Canada $100,000.00
  • June 10, 2014 United Fresh Produce Association Chicago, IL $225,000.00
  • June 2, 2014 International Deli-Dairy-Bakery Association Denver, CO $225,500.00
  • June 2, 2014 Let’s Talk Entertainment Denver, CO $265,000.00
  • May 6, 2014 National Council for Behavorial Healthcare Washington, DC $225,500.00
  • April 11, 2014 California Medical Association (via Satellite) San Diego, CA $100,000.00
  • April 10, 2014 Institute of Scrap Recycling Industries, Inc. Las Vegas, NV $225,500.00
  • April 10, 2014 Let’s Talk Entertainment San Jose, CA $265,000.00
  • April 8, 2014 Marketo, Inc. San Francisco, CA $225,500.00
  • April 8, 2014 World Affairs Council Portland, OR $250,500.00
  • March 24, 2014 Academic Partnerships Dallas, TX $225,500.00
  • March 18, 2014 Xerox Corporation New York, NY $225,000.00
  • March 18, 2014 Board of Trade of Metropolitan Montreal Montreal, Canada $275,000.00
  • March 13, 2014 Pharmaceutical Care Management Association Orlando, FL $225,500.00
  • March 13, 2014 Drug Chemical and Associated Technologies New York, NY $250,000.00
  • March 6, 2014 tinePublic Inc. Calgary, Canada $225,500.00
  • March 5, 2014 The Vancouver Board of Trade Vancouver, Canada $275,500.00
  • March 4, 2014 Association of Corporate Counsel – Southern California Los Angeles, CA $225,500.00
  • February 27, 2014 A&E Television Networks New York, NY $280,000.00
  • February 26, 2014 Healthcare Information and Management Systems Society Orlando, FL $225,500.00
  • February 17, 2014 Novo Nordisk A/S Mexico City, Mexico $125,000.00
  • February 6, 2014 Salesforce.com Las Vegas, NV $225,500.00
  • January 27, 2014 National Automobile Dealers Association New Orleans, LA $325,500.00
  • January 27, 2014 Premier Health Alliance Miami, FL $225,500.00
  • January 6, 2014 GE Boca Raton, FL $225,500.00
  • November 21, 2013 U.S. Green Building Council Philadelphia, PA $225,000.00
  • November 18, 2013 CME Group Naples, FL $225,000.00
  • November 18, 2013 Press Ganey Orlando, FL $225,000.00
  • November 14, 2013 CB Richard Ellis, Inc. New York, NY $250,000.00
  • November 13, 2013 Mediacorp Canada, Inc. Toronto, Canada $225,000.00
  • November 9, 2013 National Association of Realtors San Francisco, CA $225,000.00
  • November 7, 2013 Golden Tree Asset Management New York, NY $275,000.00
  • November 6, 2013 Beaumont Health System Troy, MI $305,000.00
  • November 4, 2013 Mase Productions, Inc. Orlando, FL $225,000.00
  • November 4, 2013 London Drugs, Ltd. Mississauga, ON $225,000.00
  • October 29, 2013 The Goldman Sachs Group Tuscon, AZ $225,000.00
  • October 28, 2013 Jewish United Fund/Jewish Federation of Metropolitan Chicago $400,000.00
  • October 27, 2013 Beth El Synagogue Minneapolis, MN $225,000.00
  • October 24, 2013 Accenture New York, NY $225,000.00
  • October 24, 2013 The Goldman Sachs Group New York, NY $225,000.00
  • October 23, 2013 SAP Global Marketing, Inc. New York, NY $225,000.00
  • October 15, 2013 National Association of Convenience Stores Atlanta, GA $265,000.00
  • October 4, 2013 Long Island Association Long Island, NY $225,000.00
  • September 19, 2013 American Society of Travel Agents, Inc. Miami, FL $225,000.00
  • September 18, 2013 American Society for Clinical Pathology Chicago, IL $225,000.00
  • August 12, 2013 National Association of Chain Drug Stores Las Vegas, NV $225,000.00
  • August 7, 2013 Global Business Travel Association San Diego, CA $225,000.00
  • July 11, 2013 UBS Wealth Management New York, NY $225,000.00
  • June 24, 2013 American Jewish University University City, CA $225,000.00
  • June 24, 2013 Kohlberg Kravis Roberts and Company, LP Palos Verdes, CA $225,000.00
  • June 20, 2013 Boston Consulting Group, Inc. Boston, MA $225,000.00
  • June 20, 2013 Let’s Talk Entertainment, Inc. Toronto, Canada $250,000.00
  • June 17, 2013 Economic Club of Grand Rapids Grand Rapids, MI $225,000.00
  • June 16, 2013 Society for Human Resource Management Chicago, IL $285,000.00
  • June 6, 2013 Spencer Stuart New York, NY $225,000.00
  • June 4, 2013 The Goldman Sachs Group Palmetto Bluffs, SC $225,000.00
  • May 29, 2013 Sanford C. Bernstein and Co., LLC New York, NY $225,000.00
  • May 21, 2013 Verizon Communications, Inc. Washington, DC $225,000.00
  • May 16, 2013 Itau BBA USA Securities New York, NY $225,000.00
  • May 14, 2013 Apollo Management Holdings, LP New York, NY $225,000.00
  • May 8, 2013 Gap, Inc. San Francisco, CA $225,000.00
  • April 30, 2013 Fidelity Investments Naples, FL $225,000.00
  • April 24, 2013 Deutsche Bank Washington, DC $225,000.00
  • April 24, 2013 National Multi Housing Council Dallas, TX $225,000.00
  • April 18, 2013 Morgan Stanley Washington, DC $225,000.00

  — 

  None of the 91 speeches was to a college, nor to any other such type of organization.

  At zerohedge, the payments for all the speeches were totaled to: $21,667,000.

  Here are some of the other routes through which she is also preparing for her ultimate retirement (and her and Bill’s bequest to daughter Chelsea): arms deals, oil and gas (and here), and donors.

  Anyone who would presume that Hillary Clinton gets paid those types of fees for “her speeches,” because she’s a “celebrity,” needs to go back to elementary school. (But, of course, since the aristocracy are in control of the country, the elementary schools aren't even teaching about such matters – nor are the high schools, which should be.)

  In other words: her paid speeches are just a part of the legal graft she’s in politics for. “You might as well ask what Kanye West could possibly say in 45 minutes at Madison Square Garden that would be worth 250K to the promoter.” No, it’s not like that, at all.

  Hillary Clinton is no Kanye West. She makes her money in a very different way. Serving a far wealthier clientele. What she serves them, is us.

  After all: how else would you get a wealth-distribution that’s like this?

  It requires lots of lies, and lots of suckers for them, to make them believe in “the system.”

  To produce the meat, shepherds are needed; and people such as Hillary Clinton are specialized in doing that type of job.

  Hello, meat; this is the farm.

   

  

  

  

  

  

• Panama Tax Haven Scandal: The Bigger Picture

  A Huge Leak

  The “Panama Papers” tax haven leak is big …

  After all, the Prime Minister of Iceland resigned over the leak, and investigations are taking place worldwide over the leak.

  But Why Is It Mainly Focusing On Enemies of the West?

  But the Panama Papers reporting mainly focuses on friends of Russia’s Putin, Assad’s Syria and others disfavored by the West.

  Former British Ambassador Craig Murray notes:

  Whoever leaked the Mossack Fonseca papers appears motivated by a genuine desire to expose the system that enables the ultra wealthy to hide their massive stashes, often corruptly obtained and all involved in tax avoidance. These Panamanian lawyers hide the wealth of a significant proportion of the 1%, and the massive leak of their documents ought to be a wonderful thing.

   

  Unfortunately the leaker has made the dreadful mistake of turning to the western corporate media to publicise the results. In consequence the first major story, published today by the Guardian, is all about Vladimir Putin and a cellist on the fiddle. As it happens I believe the story and have no doubt Putin is bent. 

   

  But why focus on Russia? Russian wealth is only a tiny minority of the money hidden away with the aid of Mossack Fonseca. In fact, it soon becomes obvious that the selective reporting is going to stink. 

   

  The Suddeutsche Zeitung, which received the leak, gives a detailed explanation of the methodology the corporate media used to search the files. The main search they have done is for names associated with breaking UN sanctions regimes. The Guardian reports this too and helpfully lists those countries as Zimbabwe, North Korea, Russia and Syria. The filtering of this Mossack Fonseca information by the corporate media follows a direct western governmental agenda. There is no mention at all of use of Mossack Fonseca by massive western corporations or western billionaires – the main customers. And the Guardian is quick to reassure that “much of the leaked material will remain private.”

   

  What do you expect? The leak is being managed by the grandly but laughably named “International Consortium of Investigative Journalists”, which is funded and organised entirely by the USA’s Center for Public Integrity. Their funders include

   

  Ford Foundation
  Carnegie Endowment
  Rockefeller Family Fund
  W K Kellogg Foundation
  Open Society Foundation (Soros)

   

  among many others. Do not expect a genuine expose of western capitalism. The dirty secrets of western corporations will remain unpublished.

   

  Expect hits at Russia, Iran and Syria and some tiny “balancing” western country like Iceland. A superannuated UK peer or two will be sacrificed – someone already with dementia.

   

  The corporate media – the Guardian and BBC in the UK – have exclusive access to the database which you and I cannot see.

  They are protecting themselves from even seeing western corporations’ sensitive information by only looking at those documents which are brought up by specific searches such as UN sanctions busters. Never forget the Guardian smashed its copies of the Snowden files on the instruction of MI6. 

   

  What if they did Mossack Fonseca database searches on the owners of all the corporate media and their companies, and all the editors and senior corporate media journalists? What if they did Mossack Fonseca searches on all the most senior people at the BBC? What if they did Mossack Fonseca searches on every donor to the Center for Public Integrity and their companies?

   

  What if they did Mossack Fonseca searches on every listed company in the western stock exchanges, and on every western millionaire they could trace?

   

  That would be much more interesting. I know Russia and China are corrupt, you don’t have to tell me that. What if you look at things that we might, here in the west, be able to rise up and do something about?

   

  And what if you corporate lapdogs let the people see the actual data? 

  Indeed, Wikileaks comments:

  Washington DC based Ford, Soros funded soft-power tax-dodge “ICIJ” has a WikiLeaks problem #PanamaPapers https://twitter.com/ChMadar/status/717395684207550467 …

  And:

  Putin attack was produced by OCCRP which targets Russia & former USSR and was funded by USAID & Soros.

  U.S. Companies Use Foreign Tax Evasion

  American companies are big users of foreign tax havens.  For example, we pointed out in 2014:

  American multinationals pay much less in taxes than they should because they use a widespread variety of tax-avoidance scams and schemes, including …  Pretending they are headquartered in tax havens like Bermuda, the Cayman Islands or Panama, so that they can enjoy all of the benefits of actually being based in America (including the use of American law and the court system, listing on the Dow, etc.), with the tax benefits associated with having a principal address in a sunny tax haven.

   

  ***

   

  U.S. Public Interest Research Group notes:

  Tax haven abusers benefit from America’s markets, public infrastructure, educated workforce, security and rule of law – all supported in one way or another by tax dollars – but they avoid paying for these benefits. Instead, ordinary taxpayers end up picking up the tab, either in the form of higher taxes, cuts to public spending priorities, or increases to the federal debt.

  

  USPIRG continues:

  The United States loses approximately $184 billion in federal and state revenue each year due to corporations and individuals using tax havens to dodge taxes. On average, every filer who fills out a 1040 individual income tax form would need to pay an additional $1,259 in taxes to make up for the revenue lost.

  • Pfizer, the world’s largest drug maker, paid no U.S. income taxes between 2010 and 2012 despite earning $43 billion worldwide. In fact, the corporation received more than $2 billion in federal tax refunds. In 2013, Pfizer operated 128 subsidiaries in tax haven countries and had $69 billion offshore and out of the reach of the Internal Revenue Service (IRS).
  • Microsoft maintains five tax haven subsidiaries and stashed $76.4 billion overseas in 2013. If Microsoft had not booked these profits offshore, they would have owed an additional $24.4 billion in taxes.
  • Citigroup, bailed out by taxpayers in the wake of the financial crisis of 2008, maintained 21 subsidiaries in tax haven countries in 2013, and kept $43.8 billion in offshore jurisdictions. If that money had not been booked offshore, Citigroup would have owed an additional $11.7 billion in taxes.

  Al Jazeera reports:

  Rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280bn in lost income tax revenues, according to research published on Sunday.

   

  ***

  “We’re talking about very big, well-known brands – HSBC, Citigroup, Bank of America, UBS, Credit Suisse – some of the world’s biggest banks are involved… and they do it knowing fully well that their clients, more often than not, are evading and avoiding taxes.”

   

  Much of this activity, Christensen added, was illegal.

  So the Panama Papers stories haven’t focused on it, but U.S. corporations are hiding huge sums of money in foreign tax havens.

  Obama and Clinton Enabled Panamanian Tax Evasion Havens

  Of course, Obama and Hillary Clinton enabled and supported Panama’s ability to act as a tax evasion haven.

  So it’s a little disingenuous for them now to say we should “crack down” on tax havens.

  US and UK – Not Panama – Biggest Tax Havens for Money Laundering Criminals and Tax Cheats

  But the bigger story is that America is the world’s largest tax haven … with the UK in a close second-place position.

  The Guardian noted last year:

  The US has overtaken Singapore, Luxembourg and the Cayman Islands as an attractive haven for super-rich individuals and businesses looking to shelter assets behind a veil of secrecy, according to a study by the Tax Justice Network (TJN).

  Bloomberg  headlined in January, The World’s Favorite New Tax Haven Is the United States:

  After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

   

  “How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Peter A. Cotorceanu, a lawyer at Anaford AG, a Zurich law firm, in a recent legal journal. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”

   

  Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

   

  The U.S. “is effectively the biggest tax haven in the world” —Andrew Penney, Rothschild & Co.

   

  ***

   

  Others are also jumping in: Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.

   

  Trident Trust Co., one of the world’s biggest providers of offshore trusts, moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline.

   

  “Cayman was slammed in December, closing things that people were withdrawing,” said Alice Rokahr, the president of Trident in South Dakota, one of several states promoting low taxes and confidentiality in their trust laws. “I was surprised at how many were coming across that were formerly Swiss bank accounts, but they want out of Switzerland.”

   

  ***

   

  One wealthy Turkish family is using Rothschild’s trust company to move assets from the Bahamas into the U.S., he said. Another Rothschild client, a family from Asia, is moving assets from Bermuda into Nevada. He said customers are often international families with offspring in the U.S.

  Forbes points out that the U.S. is not practicing what it is preaching:

  A report by the Tax Justice Network says that the U.S. doesn’t even practice what it preaches. Indeed, the report ranks America as one of the worst. How bad? Worse than the Cayman Islands. The report claims that America has refused to participate in the OECD’s global automatic information exchange for bank data. The OECD has been designing and implementing the system to target tax evasion. Given the IRS fixation on that topic, you might think that the U.S. would join in.

   

  However, it turns out that the United States jealously guards its information. The Tax Justice Network says the IRS is stingy with data. Of course, with FATCA, America has more data than anyone else. FATCA, the Foreign Account Tax Compliance Act is up and running. The IRS says it is now swapping taxpayer data reciprocally with other countries. The IRS says it will only engage in reciprocal exchanges with foreign jurisdictions meeting the IRS’s stringent safeguard, privacy, and technical standards.

  The Tax Justice Network report blasts the U.S. for being a one-way street:

  The United States, which has for decades hosted vast stocks of financial and other wealth under conditions of considerable secrecy, has moved up from sixth to third place in our index. It is more of a cause for concern than any other individual country – because of both the size of its offshore sector, and also its rather recalcitrant attitude to international co-operation and reform. Though the U.S. has been a pioneer in defending itself from foreign secrecy jurisdictions, aggressively taking on the Swiss banking establishment and setting up its technically quite strong Foreign Account Tax Compliance Act (FATCA) – it provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction at both the Federal and state levels. (Click here for a short explainer; See our special report on the USA for more).”

  The Washington Post writes:

  One of the least recognized facts about the global offshore industry is that much of it, in fact, is not offshore. Indeed, some critics of the offshore industry say the U.S. is now becoming one of the world’s largest “offshore” financial destinations.

   

  ***

   

  A 2012 study in which researchers sent more than 7,400 email solicitations to more than 3,700 corporate service providers — the kind of companies that typically register shell companies, such as the Corporation Trust Company at 1209 North Orange St. — found that the U.S. had the laxest regulations for setting up a shell company anywhere in the world outside of Kenya. The researchers impersonated both low- and high-risk customers, including potential money launderers, terrorist financiers and corrupt officials.

   

  Contrary to popular belief, notorious tax havens such as the Cayman Islands, Jersey and the Bahamas were far less permissive in offering the researchers shell companies than states such as Nevada, Delaware, Montana, South Dakota, Wyoming and New York, the researchers found.

   

  ***

   

  “In some places [in the U.S.], it’s easier to incorporate a company than it is to get a library card,” Joseph Spanjers of Global Financial Integrity, a research and advocacy organization that wants to curtail illicit financial flows, said in an interview earlier this year.

   

  ***

   

  Too often, however, shell companies are used as a vehicle for criminal activity — disguising wealth from tax authorities, financing terrorism, concealing fraudulent schemes, or laundering funds from corruption or the trafficking in drugs, people and arms.

   

  ***

   

  The Organization for Economic Co-operation and Development, a group of 34 advanced countries, drew up its own tough tax disclosure requirements, called Common Reporting Standards, and asked roughly 100 countries and jurisdictions around the world to approve them. Only a handful of countries have refused, including Bahrain, Vanuatu and the United States.

  Bloomberg reports:

  Advisers around the world are increasingly using the U.S. resistance to the OECD’s standards as a marketing tool — attracting overseas money to U.S. state-level tax and secrecy havens like Nevada and South Dakota, potentially keeping it hidden from their home governments.

  Salon notes:

  Several states – Delaware, Nevada, South Dakota, Wyoming – specialize in incorporating anonymous shell corporations. Delaware earns between one-quarter and one-third of their budget from incorporation fees, according to Clark Gascoigne of the FACT Coalition. The appeal of this revenue has emboldened small states, and now Wyoming bank accounts are the new Swiss bank accounts. America has become a lure, not only for foreign elites looking to seal money away from their own governments, but to launder their money through the purchase of U.S. real estate.

  And the UK is a giant swamp of tax evasion and laundering as well …

  The Independent reported last year:

  The City of London is the money-laundering centre of the world’s drug trade, according to an internationally acclaimed crime expert.

   

  ***

   

  His warning follows a National Crime Agency (NCA) threat assessment which stated: “We assess that hundreds of billions of US dollars of criminal money almost certainly continue to be laundered through UK banks, including their subsidiaries, each year.”

   

  Last month, the NCA warned that despite the UK’s role in developing international standards to tackle money laundering, the continued extent of it amounts to a “strategic threat to the UK’s economy and reputation”. It added that the same money-laundering networks used by organised crime were being used by terrorists as well.

   

  ***

   

  Interviewed by The Independent on Sunday, Mr Saviano said of the international drugs trade that “Mexico is its heart and London is its head”. He said the cheapness and the ease of laundering dirty money through UK-based banks gave London a key role in drugs trade. “Antonio Maria Costa of the UN Office on Drugs and Crime found that drug trafficking organisations were blatantly recycling dirty money through European and American banks, but no one takes any notice,” he said. “He found that banks were welcoming dirty money because they need cash, liquidity during the financial crisis. The figures are too big to be rejected …. Yet there was no reaction.”

  (Background.)

  In a separate article, the Independent wrote:

  Billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London properties through anonymous offshore front companies – making the city arguably the world capital of money laundering.

   

  The flow of corrupt cash has driven up average prices with a “widespread ripple effect down the property price chain and beyond London”, according to property experts cited in the most comprehensive study ever carried out into the long-suspected money laundering route through central London real estate, by the respected anti-corruption organisation Transparency International.

   

  ***

   

  Any anonymous company in a secret location, such as the British Virgin Islands, can buy and sell houses in the UK with no disclosure of who the actual purchaser is. Meanwhile, TI said, estate agents only have to carry out anti-money-laundering checks on the person selling the property, leaving the buyers bringing their money into the country facing little, if any scrutiny.

   

  ***

   

  Detective Chief Inspector Jon Benton, director of operations at the Proceeds of Corruption Unit, said: “Properties that are purchased with illicit money, which is often stolen from some of the poorest people in the world, are nearly always layered through offshore structures.

   

  ***

   

  Companies set up in the Crown Dependencies and British Overseas Territories such as Jersey, British Virgin Islands and Gibraltar are the preferred option for concealment of corrupt property purchases.

   

  More than a third of company-owned London houses are held by effectively anonymous firms ….

  TruePublica notes:

  The consequence of its operations is that money laundering is now at such levels and so widespread that the authorities have recently admitted defeat in its battle of attrition by stating openly it has been completely overwhelmed and lost control. Keith Bristow Director-General of the UK’s National Crime Agency said just six months ago that the sheer scale of crime and its subsequent money laundering operations was “a strategic threat” to the country’s economy and reputation and that “high-end money laundering is a major risk”.

  Indeed:

  TJN  [the Tax Justice Network] says the UK would be ranked as the worst offender in the world if considered along with the three Crown Dependencies (Jersey, Guernsey and the Isle of Man) and the 14 Overseas Territories (including notorious tax havens such as Bermuda, the Cayman and Virgin islands).

   

  In their 2015 Index, TJN state: “Overall, the City of London and these offshore satellites constitute by far the most important part of the global offshore world of secrecy jurisdictions.”

  For background on the Isle of Jersey, see this Newsweek article.

  Agence France-Press points out:

  "London is the epicentre of so much of the sleaze that happens in the world," Nicholas Shaxson, author of the book "Treasure Islands", which examines the role of offshore banks and tax havens, told AFP.

   

  ***

   

  "Tax evasion and stuff like that will be done in the external parts of the network. Usually there will be links to the City of London, UK law firms, UK accountancy firms and to UK banks," he said, calling London the centre of a "spider's web".

   

  "They're all agents of the City of London — that is where the whole exercise is controlled from," Richard Murphy, professor at London's City University, said of the offshore havens.

   

  ***

   

  "When the British empire collapsed, London swapped being the governor of the imperial engine to being an offshore island and allowing money to come with no questions asked," he added.

   

  With public pressure mounting, Murphy said Britain had the power to legislate directly on its overseas territories, but the lobbying power of the financial sector and worries about upsetting the jewel in Britain's economic crown were holding back efforts.

   

  "The City of London seems to believe that without these conduits, then it would not have the competitive edge that it needs," he said.

   

  "The financial institutions have become like wild animals," added Shaxson.

  

  

  

  

• Stocks Soar On Oil Ignition, Biotech Bonanza

  In what was shaping up to be a low-volume snoozer of a day, things changed dramatically at 10:30am when the DOE confirmed last night’s API data according to which US crude inventories had their biggest weekly decline since January even as distillates and gasoline stocks rose. That headline sent WTI soaring by 5.4%, the most since March 16.

  

   

  The crude spike was all the “momentum ignition” that futures needed to stage a dramatic surge, soaring from 2035, jumping as much as 20 points higher to 2055 before the slightly more hawkish than expected FOMC Minutes reported pushed ES lower by 10 point. And then, out of nowhere, a massive buying program emerged out of nowhere, and sent the E-mini tofresh highs.

  

   

  It wasn’t just oil: an even more notable notable move took place in the biotech sector, which surged by over 5%, its biggest intraday gain since November 2011, and accounted for nearly half of the S&P500’s gain. The reason was the collapse of the Valeant-Allergan deal. No really: while talking on CNBC, Brent Saunders said that now that the deal has been pulled, Allergan could weigh deals. That is all the slgos needed to hear and unleashed a massive frontrunning spree, buying up every N/M PE company they could find.

  

   

  To be sure, as equity algos were scrambling into risk, the VIX was getting crushed, and while it was a last second VIX slam that prevented the S&P from closing red for the year yesterday, today’s the selling started early, and from 16 the VIX was back at just around 14 at last check.

  

   

  Not everyone was rushing into a Risk On mode, however: while the 10Y sold off modestly, it was at 1.75%, back to Monday’s levels.

  

   

  But that didn’t stop the S&P500 from closing at the day highs, some 1.1% higher, while the Nasdaq raked in 1.6%, just 80 points away from the “psychological 5000 level” and the highest of 2016, on hope the biotech bubble may be rekindled.

  All this took place as the dollar tumbled from overnight highs, sending the JPY and the EUR surging, and resulting in even more headaches for Kuroda and Draghi, with the latter now once again forced to think how to create another Bund “hit” like last May as the yield on the 10Y Bund is almost at all time lows.

  The USDJPY plunged below the critical support of 110, sliding as low as 119.30, and at last check was trading around 109.70, virtually assuring that the BOJ will have to do something in the coming weeks to push the Japense currency weaker once again.

  

   

  The bulk of the sector moves were summarized by Credit Suisse as follows:

  • Biotech outperforms as investors try and find what companies PFE targets next…and what AGN does next with the $30bn they get from TEVA –likely keeps M&A interest in biotechs, especially smid caps alive
     
  • Asset Managers outperform – DOL Fiduciary Standards less burdensome (Longer phase in time through April 2018…Grandfathering for existing plans …Disclosure requirements were relaxed) – WETF, LPLA, RFJ, SF etc
  • Ferts holding in despite weak MON #s; some debate about whether they would have to update guidance again today (on FX and/or glyphosate) so maybe relief no further guide down but I don’t think many expected a change
  • Energy ripping — Crude at day’s high and Oil E&P, Oil Servs and most subgroups all rallying.  We highlighted Dislocation between HY cash and energy prices this morning – most thought it read bearish for HY (as opposed to bullish for energy) but maybe not
  • Lighting plays hit on CREE (-19% on warning) …ETN read thru
  • Paper names down on BAML call –initiates KS at UP and downgrades UFS to UP
  • Banks underperform;  Several street downgrades (brokers #s continue to get cut)
  • German bunds near record lows on a flight to safety
  • Industrial short cycle names hit on MSM read thru; March Sales being worse than February is driving conversations with clients about “short cycle trends weakening sequentially” as a potential sign that the rally we have seen in short cycle stocks can’t be sustained
  • Casinos weak on WYNN #s – Macau just below expectation

  Finally, some observations from CS on what to look forward to as we are about to enter the prime of earnings season: here’s what stands out

  One of our favorite ways to gauge sentiment around earnings at the sector and industry group level is by tracking the pace of upward EPS estimate revisions.  At the sector level, revisions weakness has been broad based, with no sectors seeing more than 50% of revisions to the upside in the past 13 weeks. However, two of the weakest sectors – Materials and Industrials – have started to rebound off of post financial crisis lows. Consumer Discretionary revisions trends have also seen an uptick in recent weeks.  Revisions in many defensive oriented sectors – Staples, Telecom and Utilities – had been in decline but have recently begun to show signs of improvement. Banks, Diversified Financials and Real Estate have seen revisions trends fall to levels near or below past lows (post ’09), but the latest data shows signs of an uptick so we are watching for a bottom. Banks in particular recently saw revisions hit extreme lows.  Pharma/Biotech revisions have fallen to post ’09 lows, with no signs of a bottom emerging as of yet.

  So it’s all really bad news (but thankfully there are buybacks, and non-GAAP adjustments, and multiple expansion, and of course, the Fed) but because the terrible is becoming a little less terrible for a few companies, just BTFD.

  And now we sit back and watch what crazy things Peter Panic may do tonight to offset the collapse in the USDJPY to levels not seen in one and a half years, which have made a total mockery out of Japan’s QQE and NIRP.

  

  

  

  

• U.S. Oil Production Continues to Drop in Latest EIA Report (Video)

  By EconMatters

  

   

   

  We had nearly a 5 Million drawdown in Oil Inventories during what is technically still the building season for Oil Stocks.  

   

  Read: Oil Saw Biggest Inventory Draw Since January (Zero Hedge)

  
  

  
  

   

   

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

• How Much Of S&P Earnings Growth Comes From Buybacks

  Having pounded the table on buybacks as the only marginal source of stock purchasing since some time in 2013, we were delighted one month ago when Bloomberg finally got it, writing an article titled “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” The answer: corporate stock repurchases of course.

  This is what it found:

  Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.

   

  “Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins, director of equity research at Wilmington Trust Co., which oversees about $70 billion. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

  But, when you have the ECB backstopping purchases of corporate bonds, giving companies a green light to issue debt at will and use the proceeds to buyback even more stock, it won’t end just yet.

  However, now that it is common knowledge that over the past several years the market has been conducting the most elaborate acrobatic example of pulling itself up by its bootstraps, by conducting a slow motion LBO in which just over 1% of the S&P has been purchased with incremental leverage, another question which bears answer is how much of S&P EPS growth comes from buybacks?

  This is important because with Q1 earnings season starting and expected to post the worst, -8.5% drop in EPS since the financial crisis, and one in which collapsing energy and financial will be routinely ignored, we asked what would happen to “earnings” if one also excluded the benefit from buybacks.

  Here is the answer courtesy of Deutsche Bank:

  About 25% of S&P 500 EPS growth comes from buybacks on average since 2012. The S&P 500 companies on aggregate pay out 2/3 of their earnings through dividends & buybacks.

   

  

   

  Buybacks are an important part of the earnings payout and a significant driver of total shareholder return and EPS growth in a slow sales world. However, the complexities in correctly measuring buyback payout ratios, buyback yields and buyback flows cause investor confusion. Just as option expense shouldn’t be excluded from EPS or from any FCF measures used for valuation, it should not be neglected in net buyback activity measures. Buyback yield estimates should reflect the continuous issuance of stock to employees at option exercise prices that are well below the market price at which shares are repurchased. This is why we estimate buyback yield as: (net dollars spent on buybacks less option expense) / market cap. This is because although companies report net dollars spent on buybacks, they spend more per share repurchased than what they receive per share issued.

  In other words, since the financial world now openly excludes everything it does not agree with, if one were to exclude the contribution of buybacks to Q1 earnings, the S&P would be down not 8.5% but double digits. And, more troubling, if excluding energy and buybacks, then Q1 EPS would be not only negative (7 of 10 sectors are projected to decline in Q1, so energy and 6 others), but even more negative. We expect this to be addressed by the mainstream media some time in 2018.

  

  

  

  

  

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• All Quiet On The Eurasian Front

  Submitted by Pepe Escobar via SputnikNews.com,

  So now Iran is back to being demonized by the West as “provocative” and “destabilizing”. How come? Wasn’t the nuclear deal supposed to have brought Iran back to the Western-concocted “concert of nations”?

  Iran will once again be discussed at the UN Security Council. The reason: recent ballistic missile tests, which according to the West, are “capable of delivering nuclear weapons” – an alleged violation of the 2015 UN Security Council Resolution 2231.

  

  This is bogus. Tehran did test-launch ballistic missiles in early March. Supreme Leader Ayatollah Khamenei stressed missiles were key to Iran's future defense. Ballistic missiles have nothing to do with Iran’s nuclear program; and yet Washington kept bringing it to the table during the manufactured nuclear crisis.  

  Russia knows it, of course. The head of the Russian Foreign Ministry’s Department for Non-Proliferation and Arms Control, Mikhail Ulyanov, once again had to go on the record saying the ballistic missile tests did not breach the UNSC resolution.

  What else is new? Nothing. Washington will keep pressure on Tehran for a fundamental reason; the US did not get the natural gas commitments they were expecting after the nuclear deal. Iran privileges selling natural gas to Asian – and European – customers. Eurasian integration is the key.

  South US Sea, anyone?

  Pressure also runs unabated over China related to the South China Sea. Beijing is not exactly worried. As much as Washington and Tokyo ratchet it up, Beijing increases its footprint in the Paracels and the Spratlys. The meat of the matter though is further south.

  For China, the key is non-stop smooth trade and energy flows through a maritime highway that happens to contain crucial choke points. These choke points – most of all the Malacca Strait – are supervised by Indonesia, Malaysia and Singapore.

  

  There’s absolutely no incentive for Indonesia to confront China. And Beijing for its part characterizes Jakarta as a peacemaking power. What matters for Jakarta is actually to boost maritime trade ties with Beijing. Same for Kuala Lumpur – even if Malaysia and China do have their not exactly apocalyptic South China Sea quarrels.

  The (rhetorical) pattern from Washington spells out the usual, well, torrent of words. But what is the Empire of Chaos to do? A naval takeover of the South China Sea?  Order Indonesia and Malaysia not to further improve their own – mutually beneficial — economic ties with Beijing?  

  Let’s keep rotating

  Then there’s NATO. Many a key player across the Beltway is absolutely fed up with turbulent “NATO ally” Sultan Erdogan. Yet the impression is being created – by the Masters of the Universe lording over the lame duck Obama administration – that they are turning to Turkey to reinforce an already anti-Russian NATO, with the whole process covered up in “terrorist” rhetoric. The fact that Ankara is for all practical purposes blackmailing the EU is dismissed as irrelevant. This is a classic misdirection policy.

  Yet it’s still unclear how “NATO ally” Turkey will keep acting in Syria, considering that Washington and Moscow may – and the operative word is “may” — have struck a grand bargain.

  

   

  This does not mean that the pressure over Russia will be relaxed any time soon. The Pentagon announced it will be spending $3.4 billion on deploying hardware and hundreds of “rotating” US troops to Eastern Europe to counter – what else – “Russian aggression”. This after the Pentagon announced it will quadruple the funds for the so-called European Reassurance Initiative in fiscal year 2017, pending Congress approval, which is all but inevitable.

  Moscow is not exactly worried. The US brigade will have about 4,500 troops. Then there will be a few Bradley fighting vehicles, Humvees,
  Paladin self-propelled howitzers and perhaps, by 2017, a Stryker brigade. No air force. Perhaps the odd Warthog. This is basically window dressing to appease hysterical Baltic vassals.  

  Now let’s sing Under Pressure

  Pressure over Iran. Pressure over China. Pressure over Russia – which included the (failed) plot to destroy the Russian economy using the oil production of the GCC petrodollar gang even if that would mean the destruction of the US oil industry, against US national interests.

  Syria has graphically demonstrated Russian military capabilities to the real rulers of the Empire of Chaos – and that has left them dazed and confused. Up to the Syrian campaign, the whole focus was on China, especially Chinese missiles that could hit US guidance satellites for ICBMs and cruise missiles, as well as Chinese ability to shoot down an incoming foe traveling at a speed faster than an ICBM. A silent Chinese submarine surfacing undetected next to American aircraft carriers compounded the shock.

  Now the Masters have realized the Pentagon is even more incapacitated compared to Russia. So Russia, and not China, is now the top “existential threat”. 

  

   

  Certainly if Poland, Hungary, Bulgaria, Turkey, not to mention France and the UK had any idea how far behind the Russians the US really is, then NATO might collapse for good, and the entire “West” would eventually shift away from Empire of Chaos hegemony. And if that was not dramatic enough, reality TV entertainer Donald Trump is emitting signs that the US should disassociate itself from NATO – imagine it dissolving under Trump rule, in parallel to the implosion/disintegration of the EU.

  It may be enlightening to go back to what happened nine years ago, at the Munich security conference. Vladimir Putin already could see it coming, if not in detail at least conceptually. The inevitable geo-economic expansion of China via the One Belt, One Road (OBOR), the official denomination of the New Silk Roads – which are bound to unify Eurasia. The steady progress of the Shanghai Cooperation Organization (SCO), evolving from a sort of Asian economic/trade community towards a sort of Asian NATO as well. The success of the “4+1” coalition in Syria should be read as a precursor to the SCO’s increased international role.

  What’s left for the Empire of Chaos in the Eurasian front is the wishful thinking of attempting to encircle both Russia and China, while both keep actually expanding all across the Eurasian Heartland, shedding US dollars and buying gold, signing a flurry of contracts in yuan and selling oil and gas to all and sundry. Under Pressure? Well, call it a song by Queen and David Bowie; It's the terror of knowing/What this world is about/Watching some good friends/Screaming, "Let me out!"

   

  

  

  

  

  

• Shots Fired: Wikileaks Accuses Panama Papers' Leaker Of Being "Soros-Funded, Soft-Power Tax Dodge"

  Earlier today, for the first time we got a glimpse into some of the American names allegedly contained in the “Panama Papers”, largest ever leak. “Some”, not all, and “allegedly” because as we said yesterday, “one can’t help but wonder: why not do a Wikileaks type data dump, one which reveals if not all the 2.6 terabytes of data due to security concerns, then at least the identities of these 441 US-based clients. After all, with the rest of the world has already been extensively shamed, it’s only fair to open US books as well.”

  The exact same question appeared in an interview conducted between Wired magazine and the director of the organization that released the Panama Papers, the International Consortium of Investigative Journalists, or ICIJ, Gerard Ryle.

  This is what Ryle said:

  Ryle says that the media organizations have no plans to release the full dataset, WikiLeaks-style, which he argues would expose the sensitive information of innocent private individuals along with the public figures on which the group’s reporting has focused. “We’re not WikiLeaks. We’re trying to show that journalism can be done responsibly,” Ryle says. He says he advised the reporters from all the participating media outlets to “go crazy, but tell us what’s in the public interest for your country.”

  Question aside about who it is that gets to decide which “innocent private individuals” are to be left alone, Wikileaks clearly did not like being characterized as conducting “irresponsible” journalism – and to the contrary, many in the public arena have called for another massive, distributed effort to get to the bottom of a 2.4TB treasure trove of data which a handful of journalists will simply be unable to dig through – and moments ago, on Twitter, accused the ICIJ of being a “Washington DC based Ford, Soros funded soft-power tax-dodge” which “has a WikiLeaks problem.”

  Washington DC based Ford, Soros funded soft-power tax-dodge “ICIJ” has a WikiLeaks problem #PanamaPapers https://t.co/xEXlmGg0fG

  — WikiLeaks (@wikileaks) April 5, 2016

   

  Moments later, in a subsequent tweet it added that the “Putin attack was produced by OCCRP which targets Russia & former USSR and was funded by USAID & Soros.“

  #PanamaPapers Putin attack was produced by OCCRP which targets Russia & former USSR and was funded by USAID & Soros. pic.twitter.com/tgeKfLuROn

  — WikiLeaks (@wikileaks) April 5, 2016

  #PanamaPapers: WikiLeaks’ Kristinn Hrafnsson calls for data leak to be released in full https://t.co/5FAOtaO2Ix

  — WikiLeaks (@wikileaks) April 5, 2016

  Should we release all 11 million #PanamaPapers so everyone can search through them like our other publications?

  — WikiLeaks (@wikileaks) April 3, 2016

  And so, a new contest is born: one between the “old” source of mega leaks, and the new one. We wonder if and when Edward Snowden and/or Glenn Greenwald will also chime in.

  But we are far more interested if now, that there appears to be a war brewing between Wikileaks and ICIJ, who what “information” will be released next, and whether whatever comes out will put the entire Panama Papers project in a different perspective, one which, as even Bloomberg has hinted, may have been to benefit the last remaining global tax haven around, the United States itself, as well as the most notorious provider of “tax haven” services in in said country: Rothschild.

  

  

  

  

• The 50 Most Murderous Cities In The World

  Brazil has been in crisis for some time now.

  The country’s economy shrunk -3.8% last year, and its President, Dilma Rousseff, is holding on for dear life. Once chairman of Petrobras, the state-run oil giant currently engulfed in a colossal political scandal, she is now being threatened with impeachment just 15 months into her second four-year yerm.

  Her approval remains at an all-time low of just 11%. The currency has halved in value since 2011, and the country’s credit has been downgraded to junk status.

  However, as VisualCapitalist's Jeff Desjardins explains, it’s not only the economic and political spheres that are troubling in Brazil. The country also has the dubious distinction of being the world center for homicides. Today’s chart, from The Economist, shows the 50 most murderous cities in the world – and Brazil is home to a mind-boggling 32 of them.

  The good news is that key cities, such as Rio de Janeiro, are on the lower side of the spectrum. That said, the host of the 2016 Olympic Games is barely safer than Compton, with a murder rate of 18.6 per 100,000 people each year.

  The bad news is that Brazil now has more than 10% of all the world’s murders. While the murder rate has fallen in the largest cities around the country, it has picked up in many of the smaller ones. Cities such as Fortaleza or Natal are among the most violent in the world, with rates above 60 murders per 100,000.

   

  

  Courtesy of: Visual Capitalist

   

  Other Notes on the Study

  The United States made the list with two of the 50 most violent cities: Baltimore and St. Louis.

  Latin America was home to 44 of 50 of the cities. The only cities not in Latin America: Baltimore, St. Louis, Kingston (Jamaica), and Cape Town (South Africa).

  Venezuela was omitted from these rankings because of highly inaccurate data, but Caracas and other cities in the country are known to be some of the most dangerous cities in the world.

  

  

  

  

  

• The ECB’s Monetary Policy Is Now Creating a Rush Into Derivatives

  Submitted by Mike Krieger of Libertyblitzkrieg

  The ECB’s Monetary Policy Is Now Creating a Rush Into Derivatives

  One of the most catastrophic things central banks have done in the post financial crisis period is destroy financial markets. Investors are no longer investors, they’re merely helpless rats running around the lunatic central planning maze desperately attempting to survive by front running the latest round of central bank purchases.

  While actual macroeconomic and corporate fundamentals do still exert influence on financial asset prices from time to time, the far bigger driver of performance over the past several years is central bank policy. To understand just how destructive this is, recall what we learned in last month’s post, Japan’s Bond Market is One Gigantic Joke – “No One Judges Corporate Credit Risks Seriously Anymore”:

  TOKYO — Fixed-income investors in Japan are increasingly assessing bonds based on their likelihood of being bought by the central bank, rather than the creditworthiness of the issuers.

   

  Still, the fund manager desperately wanted to get hold of the bond because he bets that debt issued by Mitsui and other trading houses will be picked up by the Bank of Japan in its bond purchase program.Even if an investor buys a bond with a subzero yield, the investor could sell it to the central bank for a higher price, the thinking goes.

   

  “It goes to show that no one judges corporate credit risks seriously anymore,” said Katsuyuki Tokushima at the NLI Research Institute.

  As insane as it may be, investors now acknowledge that fundamental analysis is merely an afterthought when compared to the far bigger influence of central bank buying. While this destroys free markets, fuels malinvestment bubbles and rewards cronyism, it doesn’t stop central planners — it merely emboldens them. The latest example of such hubris was on full display last month when the ECB’s Mario Draghi increased QE by a third. Here’s some of what’s happened since.

  From Bloomberg:

  A rush for credit exposure in Europe is manifesting in the swaps market because investors are struggling to find enough bonds to satisfy their demand.

   

  The European Central Bank’s plan to purchase corporate bonds is fueling demand for securities in anticipation of a rally when the purchases start. Investment-grade bond funds in euros had inflows each week since the ECB said on March 10 that it would expand measures to stimulate the economy. That’s already suppressed yields and made it harder to obtain the notes, making credit derivatives more attractive.

   

  Wagers on European credit-default swap indexes have more than doubled since the ECB’s announcement. Investors had sold a net $25 billion of protection as of March 25, near the highest since at least December 2013 and up from $11 billion as of March 4, according to Bank of America’s analysis of data from the Depository Trust & Clearing Corp.

   

  “There’s a dearth of bonds investors can get their hands on,” said Mitch Reznick, the London-based co-head of credit at Hermes Investment Management, which oversees $33 billion. “In this liquidity vacuum, managers can use credit-default swaps as a proxy for the bonds that they can’t obtain in order to get longer in credit.”

  This behavior is a lot of things, but “investing” is not one of them.

  “The quickest way to go long credit is by selling contracts tied to indexes in large size,” said Roman Gaiser, who oversees 3.5 billion euros ($4 billion) of assets as the Geneva-based head of high yield at Pictet Asset Management SA. “That’s easier than buying lots of individual bonds. It’s a quick way of getting exposure to credit.”

   

  Gaiser said he increased a long position in European credit-default swap indexes after the ECB announcement.

   

  Though the ECB hasn’t said which bonds it plans to buy, some investors are holding onto securities they expect to be on its list, according to Rik Den Hartog, a portfolio manager at Kempen Capital Management in Amsterdam. Kempen, which oversees about $5.5 billion of credit, sold bonds and derivatives on Italian utility Enel SpA last month because the default swaps paid almost three times the spread on the notes, Den Hartog said.

  So “investing” has morphed into simply front-running the decisions of unelected central planners. That’s all there is to it, and while that’s disturbing enough, there may be another unappreciated angle to this mess. When QE was rolled out by Bernanke, many of us assumed that printing money to buy bonds would be immediately devastating for the currency in question. The current state of affairs makes me question whether this assumption still works going forward.

  If investors are merely looking to front run central banks, you could make an argument that QE can strengthen a currency, at least in the short run, as global fund managers move into the QE producing nation’s currency in order to front run central bank purchases.

  So in the short-term, will further QE weaken a nation’s currency or strengthen it? It’s an important question to ask in this increasingly twisted world of global finance.

  

  

  

  

  

• Wisconsin Primary: Cruz, Sanders Win – Live Webcast

  Live (if voice-overed) feed from CNN:

   

  It’s official: Ted Cruz and Bernie Sanders win:

  #Breaking: CNN projects Bernie Sanders will win the Democratic #WIPrimary https://t.co/DkPyle0Wrv #CNNElection pic.twitter.com/V25kMzaRm0

  — CNN Politics (@CNNPolitics) April 6, 2016

  #Breaking: CNN projects Ted Cruz will win the Republican #WIPrimary https://t.co/DkPyle0Wrv pic.twitter.com/UYXkIfgRSj

  — CNN Politics (@CNNPolitics) April 6, 2016

  The early but decisive results are out, and Cruz and Sanders have a commanding lead (from CNN):
  

  

  

   

  First exit poll results out:
  

  

  

  That’s that. pic.twitter.com/xTTK6nqQYO

  — Philip Bump (@pbump) April 6, 2016

  * * *

  Exit Poll questions:
  

  Early Fox News exit polls for #Moderates in #Wisconsin: pic.twitter.com/CbBgWYv3TJ

  — FOX Business (@FoxBusiness) April 5, 2016

   

  Some samples of exit polling from Politico:

  A majority of voters casting their ballots in the Wisconsin Republican primary on Tuesday said the party’s nominee should be the candidate who receives the most delegates, regardless of whether that person clinches the 1,237 majority outright, according to an NBC News exit poll.

  While 56 percent said the nomination should go to the candidate with the most votes, 42 percent said the delegates should be able to choose anyone they prefer at July’s Republican National Convention in Cleveland. More than eight-in-ten of those who said they supported Donald Trump (83 percent) said they preferred the nomination go to the person with the most votes, while just 42 percent of those backing another candidate said the same.

  * * *

  Preview

  When the 2016 race kicked kicked off last year, few pundits would have predicted Wisconsin’s April primary might be a game changer on both sides of the aisle. But the Badger state, which heads to the polls today, could be key in determining if the Republicans head to a contested convention and if Bernie Sanders retains momentum after five straight victories.

  Polls close at 9 p.m. EDT. Results could be known shortly after the polls close.

  Before we show what’s at stake, here is a reminder of what the current delegate breakdown looks like.

  First the Democrats:

  

   

  And the GOP:

  

   

  Ahead of tonight’s primary, Trump has 737 of the 1,237 delegates needed to sew up the Republican nomination, and Mr Cruz 475. Clinton has 1,243 delegates to Mr Sanders’ 980, with 2,383 required for the Democratic nomination.

  A Wisconsin victory for Cruz, who is leading in the polls, would raise the odds of the Republican nomination being wrested from Mr Trump in a contested convention, which could tear the party apart. Trump would need to elevate his game and reap 57% of remaining delegates to win outright before July’s party conference, according to the Associated Press.

  The Real Clear Politics polling average put Cruz ahead of Trump, 35 percent to 32 percent, while Kasich trailed wilth 23 percent. On the Democratic side, Clinton led in the poll average, 48 percent to 47 percent.

  Trump unleashed his wife Melania in Milwaukee on Monday as he sought to shore up his support among female voters. “No matter who you are, man or a woman, he treats everyone equal,” said 45-year-old Mrs Trump in a rare speech.

  Among the Democrats, former Secretary of State Mrs Clinton is saddled with persistent questions about her honesty and trustworthiness.

  Grassroots enthusiasm for Mr Sanders remains high, but the self-proclaimed democratic socialist needs to win at least 60% of all remaining delegates.

  Both Clinton and Trump look likely to perform better in New York’s upcoming primary and five northeastern states that vote on 26 April. Wisconsin is the first of several midwestern and northeastern states voting in April. New York holds its primary on April 19.  Connecticut, Delaware, Maryland, Pennsylvania and Rhode Island hold their primaries on April 26.

  Cruz and Mr Trump are calling for Ohio Governor John Kasich, the only other Republican still hanging on in the race, to drop out. But he has refused.

  Raising the stake for Trump is that according to a just released Reuters/Ipsos poll Cruz has pulled into a statistical dead heat with front-runner Donald Trump.  Cruz received 35.2 percent of support to Trump’s 39.5 percent, the poll of 568 Republicans taken April 1-5 found. The numbers put the two within the poll’s 4.8 percentage-point credibility interval, a measure of accuracy. Cruz and Trump were also briefly in a dead heat on March 28.

  Trump has led almost continually in national Reuters/Ipsos polling since last July. Ohio Governor John Kasich, the only other Republican still in the race for the party’s nomination, placed third in Tuesday’s Reuters/Ipsos poll, with 18.7 percent.

  * * *

  Here’s a rundown of everything at stake today:

  GOP

  State voting: Wisconsin

  Delegates up for grabs: 42

  Delegate Allocation explained: Of the 42 delegates, 24 are in Congressional districts, (3 in each of the 8 districts) and 18 are at-large delegates. The at-large delegates are winner-take-all and based on the statewide vote. Whoever wins the statewide vote gets all 18 delegates. The Congressional districts are winner-take-all based on district. So, for example, if Ted Cruz wins one Congressional district, he will get all 3 of the delegates there. If he wins all 8 districts, he will get all 24 delegates.

  Why it matters: The setup makes it possible for the winner to sweep all 42 delegates, and makes it even more likely they will amass a majority. This presents an ideal opportunity for Cruz and John Kasich, who are trying to stop Donald Trump from clinching the 1,237 delegates needed for the nomination. The latest Marquette University Law School poll showed Cruz with 40-30 lead over Trump. Trump leads Cruz by 262 delegates, but Trump still needs to win 57 percent of the remaining delegates to get to 1,237. If Cruz wins big in Wisconsin, he makes Trump’s path to that number more complicated. And if John Kasich manages to win one or 2 congressional districts, that would set Trump back even further.

  However, Trump does have one advantage: Wisconsin is an open primary, where he tends to perform better than in caucuses and closed primaries.

  DEMOCRATS

  State voting: Wisconsin

  Delegates up for grabs: 86 pledged, and 10 superdelegates, former and current Democratic leaders and elected officials, who can select the candidate of their choosing, wherever they want and whenever they want, and can switch at any time.

  Delegate Allocation explained: As is standard for the Democrats, both candidates have to get a minimum of 15 percent of the vote to amass any delegates. Both Clinton and Sanders are virtually certain to hit that threshold.

  Why it matters: Sanders has proven he can play in the Midwest, beating Clinton in Michigan and coming in close behind her in Missouri and Illinois. According to a recent Marquette University Law School poll, he has a four point lead over her. Clinton leads Sanders by 263 pledged delegates, and her lead widens to 701 delegates when incorporating the superdelegates who have committed to her. Even if Clinton loses in Wisconsin, Sanders is unlikely to make a dent in that delegate lead; If the race is as close as the polls are forecasting, the Vermont senator is unlikely to gain many more delegates. And while Clinton needs to win 42 percent of the remaining pledged delegates, Sanders needs to win 57 percent. When factoring in superdelegates, Clinton need to win 36 percent and Sanders needs to win 73 percent.

  But while math may be on her side, a loss in Wisconsin would mean Clinton heads into her adopted home state of New York having lost six states in two weeks — a fact Sanders is well aware of.

  “I don’t want to get Hillary Clinton any more nervous than she already is,” he said at a campaign stop Monday in Wisconsin. “So don’t tell her this, but we win here, we win in New York State, we are on our way to the White House.”

  

  

  

  

  

• The Recovery-less Recovery

  It appears that Ed Yardeni's market-driven global growth barometer is peddling more fiction about the so-called 'recovery'…

  Can you see where perception diverged from reality? (and why…)

  

  Source: Yardeni.com

  Just remember, the market is NOT the economy (unless it is going up).

  

  

  

  

  

• BOJ's Kuroda Threatens More Easing, Stocks Tank, Absurdity Reigns

  Submitted by Wolf Richter via WolfStreet.com,

  “Negative interest expense” or some such absurdity yet to be coined.

  “For now, the effect of negative interest rates is very strong, so we’d like to steadily proceed with this policy,” Bank of Japan Governor Haruhiko Kuroda told parliament today, to reassure the nervous politicians that the economy was on the right track under his fearless and wise leadership.

  Alas, the BOJ’s “tankan” survey, released on Friday, showed that confidence plunged among manufacturers to the lowest point since 2013, while inflation expectations weakened further. The economy in the January-March quarter is likely to shrink again, after having already shrunk in the prior quarter, to form another technical recession. Despite government and BOJ exhortations, wage increases remain elusive, now an imperceptibly small 0.4% from a year ago.

  But just in case the BOJ’s scorched-earth policies of negative interest rates and asset purchases – mostly Japanese Government Bonds, Japanese REITs, and equity ETFs – haven’t accomplished the desired miracles yet, the BOJ would be willing to accelerate the same failed policies, such as pushing interest rates deeper into the negative, and try some new things too, such as diving into riskier assets, he said.

  But it won’t be predictable. The BOJ could mix and match the next policy steps, depending on the economy, prices, and “market moves, particularly those in Japan,” he said. At least, he’s admitting that the BOJ is slave to the financial markets.

  “We won’t necessarily choose a rate cut just because it’s easier to do so,” he said. It could be anything.

  Turns out, Japan Inc., which has been coddled and favored by Abenomics even more so than by prior administrations, is not investing enough in Japan despite tax incentives for investments, but instead is focusing capital investments on its projects in other countries. Capital expenditures in Japan, which would boost the economy, are lagging.

  So the BOJ has kicked off yet another way to coddle and favor Japan Inc. with a special incentive: another stock market pump-up scheme that is now coming to fruition.

  Back in December it promised to buy shares of ETFs that would have to be created for just this purpose. They would incorporate shares of companies that follow the BOJ’s dictum: boost wages, employment, and capital spending.

  So Daiwa Asset Management in partnership with index provider MSCI will develop a special stock index for these anointed companies. Nomura Asset Management and other firms in the Nomura group plan to put their own index together. It’s up to them to decide which companies are doing what the BOJ wants them to do to the extent that they deserve being included. And the special ETFs will track those indices.

  Nomura Asset Management and Daiwa Asset Management have now completed setting up their ETFs that fit this mold. On April 1, both asset managers filed applications with the Tokyo Stock Exchange for listing these ETFs. They’re expected to make their debut on the TSE in mid-May. Nikko Asset Management, DIAM, and Mitsubishi UFJ Kokusai Asset Management are also working on ETFs to that effect.

  Once they start trading, the BOJ will buy shares of these newfangled ETFs at a rate of ¥300 billion ($2.7 billion) a year with the explicit goal of driving up the stock prices of the companies in the ETF. If it works out that way, which is doubtful since practically nothing in the Japanese stock market has worked the way the BOJ had planned, it would be the reward for those companies that asset managers deem obedient to the BOJ’s wishes.

  So just how helpful is all this?

  Stocks tanked, again. There’s a reason why the Japanese stock market has become a hedge-fund hotel, and why Japanese retail investors try to stay away from it. The Nikkei dropped 2.4% today to 15,733. It has plunged 24.6% from its recent peak in June and is sinking deeper into its bear-market mire.

  One thing is clear: While the BOJ has failed in propping up stocks, it has totally succeeded in suffocating the once vast Japanese Government Bond market by buying up every JGB that isn’t nailed down. It’s a marvel, actually. The BOJ’s primary dealers buy the JGBs when the government issues them at a negative yield, knowing that they will soon sell them to the BOJ at an even greater negative yield and thus make a guaranteed profit on the difference.

  The 10-year JGB yield is -0.07%. Pension funds, insurance companies, banks, and money managers have begun to unload their JGB holdings. Only the BOJ is buying.

  It seems that the BOJ will not stop until it owns most of the JGBs out there. It’s paying the government the negative yield, actually paying the government to borrow money to fund its gargantuan deficits. If this farce continues long enough and more of the older JGBs are rolled over, interest expense in the Japanese budget will turn to income, called “negative interest expense” or some such absurdity yet to be coined. Someday this is going to end in tears. But not tomorrow. Kuroda knows this, hoping that the “after tomorrow” won’t be under his watch. After me the deluge!

  All 11 Japanese asset managers that offer money market funds are planning to scuttle them after returning their remaining assets to investors. This marks another big accomplishment of negative interest rates. And the bitter irony? Read…  NIRP Kills Off All Money Market Funds in Japan

  

  

  

  

  

• Who Are The Best Paid Bank CEO: The One Chart Summary

  If you ever wondered what Jamie Dimon meant by “That’s why I’m richer than you”, this summary from the Financial Times explains.    

  

  

  

  

  

  

• As Pfizer-Allergan Sinks, These "Inversion" Deals Could Be Next

  While the surge in Q1 market volatility has had a dramatic impact on asset prices, and led to some unprecedented central bank interventions to stabilize markets, one product that has seen a dramatic hit and has yet to rebound, is M&A.

  According to BofA, North American M&A volumes declined again in March, falling to $107bn from $140bn in February, $157bn in January and the recent peak of $410bn in November of last year.

  

  The implication of the above is that investment banking revenues from M&A advisory work, which had been steadily rising over the past two years, are about to see a sharp decline. And, after a year which saw a record $5 trillion in global M&A, this will be a bitter pill to swallow for the banking community. The top M&A deals of 2015 are shown below.

  

  

   

  However, that may be just the beginning of bankers’ headaches.

  It is no secret that over the past several years, one of the primary drivers behind M&A activity was tax inversions, which however as yesterday’s striking announcement by the US Treasury made clear, are now effectively over, and with them goes much of the impetus for companies to merge.

  And while the Pfizer-Allergan $160 billion merger may be the most notable casualty of the Treasury’s decree, there are various other deals working on corporate inversion deals or who have carried out inversions in the past. They are shown in the list below, courtesy of Bloomberg:

  Progressive Waste-Waste Connections

  Texas-based Waste Connections Inc. agreed to buy fellow garbage-hauling company Progressive Waste Solutions Ltd. in January, and announced plans to move its tax domicile to Canada. The new company would have an effective tax rate of about 27 percent, down from the 40 percent rate that Waste Connections pays now, it said in a statement at the time.

  The proposed regulations would have an impact of less than 3 percent of the new company’s adjusted free cash flow, which is expected to be more than $625 million, the companies said in a joint statement Tuesday. “The two companies remain committed to the strategic merger.”

  Waste Connections shares fell as much as 7.2 percent. Progressive Waste dropped 9.3 percent.

  Terex-Konecranes

  Terex Corp., a U.S. crane and construction-machinery maker, agreed to combine with Finnish competitor Konecranes Oyj last year to create a group with a combined $10 billion in sales, incorporated in Finland.

  While the companies described the transaction as a merger of equals, Terex stockholders would own 60 percent of the combined business.

  Since then, China’s Zoomlion Heavy Industry Science & Technology Co. has made a counteroffer for Terex. Still, with the U.S. closely scrutinizing deals that put American technology into Chinese hands, that deal would have its own regulatory hurdles.
  Terex shares closed 2.3 percent down in New York.

  Johnson Controls-Tyco

  Auto-parts maker Johnson Controls Inc.’s planned merger with Ireland-based Tyco International Plc was targeted by Hillary Clinton’s campaign ads. Clinton called the plan to move Johnson Controls’s address to tax-friendly Cork “an outrage.”

  Tyco itself got a foreign tax address in the late 1990s through an inversion, as part of a takeover of the security company ADT, which was incorporated in Bermuda. Tax inversions seem to be one of the few things the presidential candidates can agree on, with Bernie Sanders, Donald Trump and Clinton all targeting the practice in their campaigns.

  Tyco shares declined 3 percent in New York. Johnson Controls fell 2.2 percent.

  Mylan-Meda

  Drugmaker Mylan NV said Tuesday it’s “comfortable moving forward” with a $7.2 billion deal to buy Sweden’s Meda AB, in response to concerns about the impact of Treasury rules.

  Mylan moved its headquarters from Pittsburgh to the Netherlands in 2015 after buying Abbott Laboratories’ generic drug business in overseas markets like Europe. In February this year, the company agreed to buy Meda.

  Mylan shares fell 2.8 percent in Nasdaq trading while Meda declined 1 percent in Stockholm.

  IHS-Markit

  IHS Inc., which provides data analysis, agreed to buy London-based Markit Ltd. for about $5.5 billion last month with plans to relocate to the U.K. The Englewood, Colorado-based company and Markit said in a regulatory filing Tuesday that they don’t expect the merger to be subject to the new rules.

  “Based on our preliminary review at this time, we also believe that the other U.S. Treasury rule changes will not impact the combined company’s adjusted effective tax rate guidance of a low to mid-twenties percentage range.”

  IHS shares declined 2.6 percent in New York Stock Exchange trading while Markit declined 2.6 percent.

  * * *

  It remains to be seen how much of a hit on the future M&A backlog the Treasury’s announcement will have, but even if banks suffer a drop in revenue, there is one silver lining: tens if not hundreds of thousands of workers who would have been otherwise “synergized” aka laid off as part of the merger process, will keep their jobs that much longer, because instead of boosting shareholder equity and requiring the cutting of overhead to accomodate the new debt, many of the companies that would have otherwise merged will continue as standalone entities. As such they will need all the support they can get.

  The chart below shows the combined employees of the top 10 M&A deals of 2015, and what our estimate is of the combined layoffs between them.

  

  

  

  

  

  

• Year Of The Outsider: Why Bernie Sanders' Democratic Rebellion Is So Significant

  Authored by Thomas Palley,

  2016 was supposed to have been the year of Jeb Bush versus Hillary Clinton: the year when the established Bush dynasty confronted the upstart rival Clinton Dynasty. But the year of the insider has turned into the year of the outsider. On both sides, voters have unexpectedly given vent to thirty years of accumulated anger with neoliberalism which has downsized their incomes and hopes.

  Though the Republican rebellion has been more clear-cut in its dismissal of insider candidates, it is Bernie Sanders’ Democratic rebellion that is of potentially far greater historic significance.

  The Republican rebellion is of much less significance

  The Republican uprising has undoubtedly exhibited greater anger. If Donald Trump or Ted Cruz triumph in the November general election, they threaten an uglier more intolerant politics that could even become tinged with American black-shirtism.

  However, absent the darkest of outcomes, the Republican rebellion is of less lasting political significance for two reasons.

  First, it does not fundamentally challenge the neoliberal economic model that is the root cause of popular anger on all sides. Nationalism, racism, evangelism, and cultural atavism scratch the scapegoat itch, but they do not challenge Corporate America’s and Wall Street’s domination which sustains neoliberalism.

  Second, and more importantly, the Republican rebellion does not change the party’s pre-existing political trajectory and relies on electoral forces that are peaking out.

  That contrasts with Sanders’ Democratic rebellion which explicitly challenges the neoliberal economic model, and is also about defining the political character of the coming Democratic electoral majority.

  Viewed in this light, the Republican rebellion is an eruption from an angry electoral base whose political power is waning, whereas the Democratic rebellion is an eruption from a rising base whose political agenda awaits definition.

  Trump and Cruz are a logical extension of Republican politics

  The Republican elite has been profoundly taken aback by the dismissal of Crown Prince Jeb Bush and the Boy Scout Senator Marco Rubio, but both Trump and Cruz represent a logical extension of Republican politics rather than a break.

  Long ago, Richard Nixon unleashed the politics of hate with his “southern strategy”, aimed at exploiting animosity toward President Johnson’s civil rights legislation to convert the South (i.e. the Confederacy) from Democrat to Republican.

  Trump and Cruz have discarded the dog whistle and explicitly articulated a level of racism and xenophobia the establishment is strategically uncomfortable with. Other than that, they have towed the line on tax cuts for the rich, and Cruz was orthodox on trade until Trump started making hay with the issue.

  Despite Cruz’s odious personality, the Republican establishment prefers him as he has been more orthodox on trade and Social Security, while Trump is also loathed for humiliating Jeb Bush with his taunt of “low energy”.

  That said, if Trump wins the nomination, a rapprochement is likely. For the Republican establishment, tax cuts and preserving neoliberal globalization are preeminent, and Trump is an opportunistic businessman who trumpets deal-making.

  Trump and Cruz accelerate Republicans’ demographic destiny

  The rise of Trump and Cruz has merely accelerated Republicans’ date with demographic destiny. The party of dog whistle racism and immigrant bashing always faced a difficult future because of demographic trends making minorities an increasing share of the electorate.

  Republicans hoped to postpone that difficult future by a combination of voter suppression policies (e.g. making voter registration difficult; reducing polling booth access; and excluding minority voters via “new Jim Crow” laws denying voting rights to convicted felons) and gerrymandering congressional districts in states like Texas, Wisconsin and Michigan. That has already given Republicans control of the House of Representatives despite receiving far fewer total votes.

  The undemocratic construction of the US constitution, which gives two Senate seats to both small states like Wyoming (population 580k) and large states like California (population 38.5 million), also means Republicans have remained competitive in the Senate. That is because of their relative strength in the comparatively under-populated interior states.

  These features could delay electoral developments, but the prognosis was always an outlook in which Republicans were going to be increasingly uncompetitive nationally. Trump’s and Cruz’s hate politics has simply accelerated and cemented that prognosis.

  Wall Street will need a new senior political partner: Democrats for sale?

  That electoral prospect implies Republicans can no longer reliably deliver for Corporate America and Wall Street, which means Corporate America and Wall Street need to find another sure political partner. Therein lies the greater significance of the Sanders – Clinton contest.

  Over the last thirty years, Wall Street has had little difficulty working with and funding Democrats, and the Clintons have been especially cooperative. For many years, Goldman Sachs has been happy to split its political contributions, sending 55% to the Republicans and 45% to the Democrats. Now, Goldman can make a small recalibration and send a little bit more to the Democrats.

  If Hillary Clinton wins, the Democratic Party will remain squarely within the orbit of Wall Street and Corporate America. The Democrats will become the ruling party, but their rule will substantially continue what we have had, perhaps supplemented by an extra spoonful of compassionate economic policy.

  If Sanders wins, there is a chance the Democratic Party can rediscover its modern roots of New Deal social democracy via expanded Social Security, single payer health insurance, debt-free college, the end of neoliberal trade policies, and reining in of corporate power.

  The Democrats: party of identity politics or party of New Deal social democracy?

  These features mean it is the choices of Democrats that will set the political course for the next generation. Demographics imply Democrats will be the majority of the future, but the party’s political identity and agenda is up for grabs.

  If the Clinton vision prevails, the Democratic Party stands to become a party of neoliberal economics, headlined by identity politics. A Clinton-led Democratic Party will also continue President Obama’s tactical appeals to “bi-partisanship”. The goal would be to enlist moderate upper-middle class Republican-leaning professionals into a corporate controlled Democratic Party franchise.

  If the Sanders vision prevails, the Democrats will pivot toward their New Deal social democratic roots. In that case, economic solidarity and inclusion become the headline. And the party again aspires to be a mass movement rather than an awkward stitching together of corporate money, social liberals, and minority voters.

  The curse of money

  However, as long as unlimited money is allowed in politics, there is a perennial danger of a backdoor Wall Street takeover. That is because a New Deal Democratic Party would still need money to compete in elections, leaving an opening for Corporate America and Wall Street to take back control.

  That is why limits on money contributions and repealing the Citizens United decision are so important. It also explains why Sanders has made that the central focus of his political revolution, while Clinton has persistently sought to diminish the issue.

  

  

  

  

  

• The Nattering Naybobs Of Normalization (A Tale Of 3 Fed Heads)

  Authored by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  Leaning Into the Wind

  During our lifetime, three Fed chiefs have faced a similar challenge.

  Each occupied the chairman’s seat at a time when “normalization” of interest rates was in order.

  Recently, we remembered William McChesney Martin, head of the U.S. Fed under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations. Today, we compare Martin with two of his successors, Mr. Paul Volcker and Ms. Janet Yellen. We allow you to draw your own conclusion.

   

  

  Punchbowl theft alert!

  In 1951, the Fed and the Treasury clashed over “normalizing” interest rate policy after almost 10 years of tight control. In 1942, after the U.S. entered World War II, and at the request of the Treasury, the Fed pegged interest rates at a low level to make it easier for the government to finance the war. Come peacetime, it had to finesse a return to market-set rates.

  Of course, the Fed can never fully shirk its responsibilities or ignore its influence. Its voting committee, the Federal Open Market Committee (FOMC), has the ultimate say on setting short-term rates. But its hand on the controls can be heavy… or light. It can allow the market to express itself. Or it can shut the market up and do the talking itself.

  After the troops came home, Martin developed two metaphors to describe his views on central banking. The first was that the central bank should neither set rates high nor low, but instead “lean into the wind.” The idea was to moderate market forces by exerting a little counter-cyclical pressure.

  If the economy were running hot, the central bank would maintain its funds rate a little higher than usual. If the economy were cooling off, it would aim for a slightly lower rate. That brings us to the second of Martin’s metaphors.

  The job of the Fed, he said, was to “take away the punch bowl just as the party gets going.” In other words, raise interest rates just when the economy starts to enter an unsustainable boom.

   

  Times Change

  Mr. Martin was not necessarily less intelligent than those who succeeded him. But times change. Fashions evolve. Today, Truman’s appointee as Fed chief might as well be wearing spats.

  In February 1951, the annual consumer price index, or CPI – the most common measure of inflation – was running at almost 8% a year. President Truman summoned the entire FOMC to the White House – with Martin as the principal negotiator – to extract a pledge from them to keep interest rates pegged at low levels.

  But the Fed dug its heels in and refused to “maintain the existing situation.” Martin then announced that he would allow interest rates to rise. And rise they did. From just under 1% when Martin took over as Fed chief, short-term rates stood at almost 4% at the start of the 1960s.

   

  Frontal Assault

  The next challenge came at the end of the 1970s. Paul Volcker, appointed by Jimmy Carter, was the man for the job. When Volcker took over the Fed, in August 1979, short-term rates and the CPI were somewhere north of 11%. And he aimed to bring both down to more normal levels.

  But then as now, inflation had its friends. And everyone knew that bringing it under control would be painful. In 1980, Mr. Volcker spoke directly to the challenge:

  After decades of inflation, many of us, more or less comfortably, have adapted our business and personal lives to the prospect of more inflation.

   

  We count on capital gains from inflating house and land values as a substitute for real savings. We assume our competitors will match our aggressive pricing policies, and will also accede to high wage demands. We take comfort in our purchases of precious metals, art, and more exotic “collectibles” – or envy those who did buy – and are tempted to project essentially speculative price movements into the great beyond.

   

  But none of this sense of accommodation to inflation can be a valid excuse for not acting to deal with the disease.

   

  

  Anguish alert!

   

  Getting inflation under control meant taking away not only the punch bowl, but also the entire buffet and open bar of money and credit on which the markets feasted.

  But Volcker did not back away. He said what he meant and meant what he said. In June 1981, he dosed the economy with a 19.1% federal funds rate; in a few months, the fever was broken.

   

  No Return to Normal

  And now, we have Ms. Janet Yellen at the Fed’s helm, her firm grip on the wheel… her steely eye on the horizon. The situation is nothing like that which Mr. Volcker faced. Instead of a CPI in double-digits, today, the Fed is worried that consumer prices are not going up fast enough.

  “An important concern about persistently low inflation,” is how Fed governor Lael Brainard described what was disturbing her sleep. And $7 trillion of developed-country government debt now trades at yields below zero – providing governments around the world with free money.

  Getting back to normal is never easy, especially when you don’t want to get there. On March 27, 2015, Ms. Yellen spoke to her challenge.

   

  

  The creature from the punchbowl!

  Photo credit: Pablo Martinez Monsivais / Keystone / AP

   

  “Normalizing Monetary Policy: Prospects and Perspectives” was the title of her speech. But both the content and the consequences were very different from those of either Mr. Volcker or Mr. Martin.

  Where Mr. Martin had insisted that dictating interest rates was “inconsistent with… a private enterprise system,” Ms. Yellen saw no inconsistency at all. Where Mr. Martin saw the need in a great emergency – World War II – to depart from market-set interest rates, Ms. Yellen is ready to leave the market behind at the drop of the Dow.

  And where Mr. Martin and Mr. Volcker both went resolutely about their work, Ms. Yellen seems unsure. A year ago, she said she would normalize rates “only gradually”… and that, although she had the “macro-prudential regulatory and supervisory tools” to do the job, investors should not expect miracles.

  Nor did they receive any. In the 12 months that have gone by since her speech, only 25 basis points (even sparrows refuse to bend to pick up such trivial morsels) is the total of her niggardly gift to savers. As for “normal”… it is still nowhere in sight.

  

  

  

  

• MoSSaCK FoNSeCa SeaRCH

  

  

  

  

  

• Tuesday Humor: The Paperclip Is Back With Year-End Tax Planning Advice

  The infamous Microsoft help paperclip makes a timely appearance, providing options for all of your year-end tax planning needs.

  

  h/t @ebitdad

  

  

  

  

  

• California Gov. Signs Minimum Wage Hike: Admits It "Doesn’t Make Economic Sense" As Locals Flee For Texas

  As we discussed previously states such as California are saying to hell with economics in their efforts to appease their voting base. Yesterday, both New York and California signed legislation to raise the minimum wage to $15 an hour. New York will phase in the $6 an hour increase over three years, and California will phase in their $5 an hour increase over the next six years.

  The irony of the situation, which will most certainly go under reported, is that even California’s Governor Brown knows that it’s not the right decision to make economically. Regarding the actual economic impact, California’s Governor Brown was quoted as saying that “economically, minimum wages may not make sense.”

  This is clear.

  As we noted before, it is even clear to the locals businesses owners like the Marmalade Café which has seven locations. “First, you have to raise prices, otherwise you’ll be out of business,” owner Selwyn Yosslowitz told the Times. So higher prices for diners. That’s “first.” We imagine you can guess what’s “second.” “We will try to re-engineer the labor force,” Yosslowitz said. “Maybe try to reduce the number of bus boys and ask servers to bus tables.” In other words: “Maybe” we’ll fire some folks and the people who keep their jobs will have to be more efficient. 

  Yosslowitz also worries about the dynamic we’ve discussed over the course of documenting Wal-Mart’s experience with wage hikes: namely that you have to preserve the wage hierarchy. You can’t hike wages for the lowest paid workers and then expect those further up the pay ladder to be satisfied with what they made before. “The other big worry [is] that employees already making $15 an hour will demand a raise as well”, Yosslowitz said. “It’s a chain reaction.”

  Indeed, the problems with haphazard wage hikes are now readily apparent even to those who stand to benefit the most from the new legislation. Take Miguel Sanchez of Highland Park who works two jobs making tortillas. “It’s good for workers, but I imagine this is not going to be good news for employers and small businesses,” he says. “Will the cost of things go up?” he asks. “Are employers going to cut back hours because they can’t afford it? I worry.”

  So even tortilla makers get it, but like Wal-Mart, “some folks” will need to actually see the layoffs before they’ll concede that you can’t cheat economic truisms and that’s really a shame for the people who will lose their jobs in the meantime.

  * * *

  But back to CA Governor Brown who after that brief epipharny he quickly forgot about reality, and told the truth about why he was signing the legislation.

  “Morally and socially and politically, they (minimum wages) make every sense because it binds the community together and makes sure that parents can take care of their kids in a much more satisfactory way.”

  

  Ah yes, as long as you and your political party get votes in the upcoming elections, the actual impact on the people you claim to represent and care about is irrelevant – noted.

  After all, this is what seems to get votes, and as we said previously: “Of course how much you earn and even whether or not you have a job at all only matters to the extent that “shit” costs money, which is why it might be a good idea to just go ahead and vote for “A Future To Believe In”

  

   

  However, in perhaps the most poetic cause and effect scenario, once the people realize that items such as minimum wage actually do nothing but hurt their chances for gaining employment or starting a small business, they leave the state in droves.

  Based on a study of IRS tax returns, over 250,000 California residents moved out of the state between 2013-2014.

  It’s no better in the other “minimum wage hiking state”, New York, where United Van Lines data shows that out of all of their relocation contracts, New York comes in second for “high outbound.”

  Now that higher minimum wages are a reality, we’re certain these numbers won’t get any better in future years.

  

  

  

  

  

  

• Porn Star Explains Why You Are A Scumbag Who "Gets In The Way Of Justice"

  Submitted by Simon Black via SovereignMan.com,

  The Internet practically exploded this weekend after a detailed report was published proving that dozens of corrupt politicians around the world have been stealing public funds and hiding the loot overseas.

  In other news, the Pope is Catholic.

  Not to make light of this, but this hardly comes as a surprise. There’s some Grade A filth in positions of power who routinely funnel public funds into their own pockets.

  Whether they secret the funds offshore, buy expensive flats in London, purchase Bitcoin, or stuff cash under their mattresses seems hardly relevant.

  The real issue is that systems of government routinely put morally bankrupt individuals in control of trillions of dollars of cash.

  Seriously, what do people expect is going to happen?

  Yet this never seems to be concern. The media outcry always seems to focus on the manner in which public officials hide their assets, not the fact that the funds were stolen to begin with.

  This report targets the illicit use of offshore corporations, specifically those set up by a single law firm in Panama.

  In reality, this issue hardly boils down to one firm.

  There are thousands of law firms all around the world, including in the UK and the United States, that register companies for their clients.

  Some of those companies end up being used for nefarious purposes, including fraud and theft.

  But it’s crazy to presume that corrupt officials and con artists are the only ones who would ever need a company in one of these “shady” jurisdictions.

  (Those “shady” jurisdictions, by the way, include Wyoming, South Dakota, and Delaware.)

  Alongside the report is a video with a scantily clad porno actress named Lisa Ann, star of “Who’s Nailin’ Paylin,” a satire in which Ms. Ann spoofs former Vice Presidential candidate Sarah Palin engaged in sexual… congress.

  No I am not making this up…

  In her video, the porn starlet explains that only arms dealers and scumbags set up asset protect vehicles like anonymous shell companies, which can include something like a Delaware LLC.

  Never mind that people in the Land of the Free are living in the most litigious society in human history.

  Or that last year the US government stole more money and private property from its citizens through civil asset forfeiture than all the thieves and felons in the country combined.

  Given such obvious realities, you’d have to be crazy to NOT take steps to protect your savings.

  But if a porn star says that you’re a scumbag who ‘gets in the way of justice’ by setting up a Delaware LLC to safeguard your assets and reduce your legal liability, it must be true.

  So let it be written.

  Look, the anger and disgust of seeing corrupt people getting away with a crime is understandable, particularly when that crime is stealing from taxpayers.

  But nobody ever seems to attack the real problem– that these people are ever put in positions enabling them to steal taxpayer funds to begin with.

  Instead the spotlight is always on how they hide it. That’s like focusing on what color T-shirt the ax murderer was wearing.

  My concern is that is if corrupt officials shift tactics and start buying gold, there will be calls to outlaw gold. Or if they start holding cash, there will be even louder calls to ban cash.

  These reports are incredibly damning for the dozens, even hundreds or thousands of bad actors who abuse the system.

  But at the same time they create a mass hysteria that puts law-abiding taxpayers who value their financial privacy into the same category as some corrupt African dictator.

  Listen in to today’s podcast as we discuss this trend even more, what I call the “New Dark Ages”.

  We’ve entered a time where privacy and personal freedom are trivial inconveniences rather than the bedrock cultural values they used to be.

  For example, I question when our society degenerated to the point that a porn star gets to tell us what we should and should not be able to do with our own private property. . .

  I’d advise you to turn DOWN the volume. This podcast is probably the most intense I’ve ever done. Listen in here.

  (click image for link to podcast)

  

  

  

  

  

  

• 'Economic Models' Forecast GOP White House (With Or Without Trump)

  Despite bookies' odds at 66% that The Democratic Party will win The White House in November, economic models predict a Republican victory (with or without Trump).

   

  

   

  As The Hill reports, Republicans are expected to win the White House under two economic models that have accurately forecast presidential elections for decades. A third model run by Moody’s Analytics predicts Democrats will win the White House, in part because of President Obama’s rising approval rating.

  “As economists this is a very unusual election and there’s a lot more uncertainty introduced this time around that could upset the balance and the historical relationship of how marginal voters vote,” said Dan White, an economist with Moody’s Analytics who oversees the firm’s monthly election model.

   

  Ray Fair, a Yale professor who launched his model in 1978, told The Hill that while all elections include unruly features that an economic model can’t pick up, “this one seems particularly unusual.”

   

  “If there’s any time in which personalities would trump the economy it would be this election,” Fair said.

   

  Fair’s model has correctly forecast all but three presidential races since 1916 but was wrong in 2012, when it predicted a narrow loss for Obama to Mitt Romney.

   

  It relies on just three pieces of information: per capita growth rate of gross domestic product in the three quarters before an election, inflation over the entire presidential term and the number of quarters during the term growth per capita exceeds 3.2 percent.

   

  Given the sluggish economy, his model doesn’t show enough growth under Obama to predict a Democratic win in the election. In his most recent forecast from January, his model predicted a 45.66 percent share of the presidential vote for the Democratic candidate, less than the 49 percent it predicted in 2012.

   

  The other two models, unlike Fair’s, consider the incumbent president’s approval rating. In both cases, Obama’s improving favorability helps his party’s chances of winning the White House. But only one of those models predicts a Democratic win.

  White said that one of the most frequently asked questions he gets is whether a Trump variable could be added into the model to test out how his brand of fireworks factors in.

  No way, he said.

   

  “The model doesn’t know or care if there are two or 10 candidates,” he said. “It knows the economics and whether marginal swing voters will keep the incumbent party in or not.”

  In fact, their models are designed to sweep away the effects of boisterous personalities and the usual ebbs and flows of a long presidential campaign season and instead track specific economic factors that voters deem most important.

  "So the logic that says that these models should have worked over the past few decades also says that they should work in this election cycle, too,” he told The Hill.

   

  “There's no reason to think the models should do better or worse in 2016,” he said.

  

  

  

  

  

• Oil Will Be Over $50 a Barrel by July 4th (Video)

  By EconMatters

  

  A strong API Report reporting over a 4 million barrel drawdown in Oil inventories, and a report out of Kuwait saying that an output freeze deal by major oil producers would proceed without Iran will be bullish for the oil market. We expect the short covering to begin tonight, tomorrow and for the next 8 days before the Doha Meeting.

  
  
  
  
  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

• As Seen On One Billboard: The San Francisco Housing Bubble

  That San Francisco, ground zero of the second tech – this time private (and currently bursting) – bubble, has a housing market that is “just a little frothy” is no surprise to anyone, but even we had to chuckle when we saw this billboard making the twitter rounds.

  

   

  As Marketwatch notes, real estate is so frothy in the San Francisco Bay Area that a new development in the city’s Lake Merced neighborhood felt the need to advertise its townhomes on a billboard as million-dollar deals – get in now while the price is right!

  This is what the “low $1,000,000s” will buy you: a 1,547 square foot, 3-bedroom, 2-bath townhome (listed on real estate site Redfin for $1,012,000+).

  

   

  Feel like hunting for better bargains? Then how about this 3-bedroom, 3.5-bathroom, 2,393 square foot townhome listed for $1,649,900+.

  

  “You’ll take in the lifestyle of the city but leave all the limitations of San Francisco behind,” according to the development’s website. “So, when your day is done, you’ll pull into the garage, hit the button and walk into a place that’s different from the start.”

  Translation: these aren’t located near the hustle and bustle. The Lake Merced area is located in the city’s southwest corner, far from downtown and other popular neighborhoods in the central parts of the city.

  For some context, here’s a look at the rest of the San Francisco housing market. This shack was listed for $350,000 and sold in September 2015 for $408,000, nearly 17% above the asking price. The real-estate agent referred to the “home” as “above and beyond distressed.”

  If that didn’t sufficiently impress (or exasperate) you, take a look at some listings in the city’s more central areas, which may leave you thinking “low 1,000,000s” in Lake Merced is a deal after all.

  This 1-bedroom, 2-bath home is located near the baseball stadium AT&T Park. It’s 1,428 square feet and is listed for $1,950,000, plus $563.36 in monthly homeowners association dues.

  

   

  This 3-bedroom, 2-bath home is located in hipster enclave Mission Dolores and is larger at 2,580 square feet. It is listed with the words “huge price reduction” for just $2,599,000.

  

   

  As a reminder, according to Case Shiller, home prices in San Francisco rose 10.5% over the past year. U.S. house prices overall rose 5.7% compared with a year ago in January, or about three times more than average wages. Since 2012, median housing prices in San Francisco have more than doubled, hitting $1.225 million in February 2016, as the following dramatic charts demonstrate.

  

  

   

  And here is the problem: to be able to purchase a house in San Francisco, a prospective buyer should make on average over quarter million dollars per year, nearly 6 times more than for the broader U.S.

  

  Much more on the San Fran housing market in the Paradon “March 2016 San Francisco Real Estate Report”

  

  

  

  

  

• Here Are Some Of The Americans In The "Panama Papers"

  With media attention squarely falling on the foreigners exposed by the Panama Papers offshore tax haven scandal, everyone has been asking for more information on who are the Americans involved in this biggest data leak in history. After all, as we showed, Mossack Fonseca had over 400 American clients. But who are they?

  Today, courtesy of McClatchy, we get some answers: while there are no politicians of note are in files but plenty of others. Among them: Retirees, scammers, and tax evaders, all of whom found a use for secrecy of offshore companies.

  As the news paper reports, “the passports of at least 200 Americans show up in this week’s massive leak of secret data on secretive offshore shell companies.”

  And yet, the following release may prompt merely more questions: given the high-profile nature of some of the foreign names in the leaks “many of the Americans may seem like small fish.”

  Perhaps few Americans used Panama to hide their shady dealings; perhaps that was as intended.

  In any event, here are some of the findings courtesy of McClatchy:

  Determining a precise number of Americans in the data is difficult. There are at least 200 scanned individual U.S. passports. Some appear to be American retirees purchasing real estate in places like Costa Rica and Panama. Also in the database, about 3,500 shareholders of offshore companies who list U.S. addresses. And almost 3,100 companies are tied to offshore professionals based in Miami, New York, and other parts of the United States.

  Further complicating matters, some U.S. citizens enjoy dual citizenship and open accounts under foreign passports. Others appeared to be American retirees purchasing real estate in places like Costa Rica and Panama.

  Among the cases McClatchy and its partners found: 

  Robert Miracle of Bellevue, Wash., is in the files. He was indicted for a $65-million Seattle-area Ponzi scheme involving investment in Indonesian oilfields, with new investors’ money allegedly used to pay off past investors. Miracle was sentenced on May 13, 2011, to 13 years in prison after pleading guilty to wire fraud and tax evasion.

  Miracle’s company was called Mcube Petroleum, and it remained an active shareholder in several offshore companies in the British Virgin Islands up until he pleaded guilty. The offshores were created by Mossack Fonseca.

  Benjamin Wey is a U.S. citizen and president of New York Global Group. He was indicted last year, along with his Swiss banker, Seref Dogan Erbek, on securities fraud charges. Wey’s alleged scheme to conceal a true ownership interest in publicly traded companies was at the heart of the charges. Wey is accused of using offshores set up with Mossack Fonseca to disguise complicated transactions between Chinese operating companies and publicly traded U.S. shell companies.

  The two “are believed to have profited in the tens of millions, while victim shareholders were left holding the bill,” Diego Rodriguez, an FBI official involved in the case, said in a statement at the time of indictment.

  Florida billionaire Igor Olenicoff, a commercial real estate mogul, appears in the data as a shareholder of Olen Oil Management Limited. He raised a national stir in 2007 after being sentenced to just two years of probation for tax evasion. He paid a $52 million fine after not declaring more than $200 million in offshore shell companies. More recently, he was found guilty in 2014 for making replicas of a pricey sculpture and was ordered to make restitution to the sculptors whose work he had copied.

  There’s Anthony J. Gumbiner, the Dallas-area chairman of Hallwood Group Inc. He’s a British national with deep Texas ties who settled an insider trading case in 1996 with the Securities and Exchange Commission, paying $1.7 million in penalties at the time.

  A jetsetter in the 1980s, Gumbiner was known for his lavish lifestyle in Monte Carlo. More recently, he’s been tied up in litigation over oilfield investments. His Hallwood Energy filed for Chapter 11 bankruptcy protection in 2009.

  It wasn’t until 2015 that the law firm seemed to catch on to Gumbiner’s legal problems and started to conduct enhanced background checks. By then his offshore companies had been inactive since 2011.

  And there’s John Michael “Red” Crim, author of the self-published books “From Here to Malta,” and “I’ve Been Arrested, Now What?”

  

  Federal jurors in Philadelphia in January 2008 convicted Crim and two associates in a plot to have investors use phony trusts to cheat the IRS out of roughly $10 million in tax revenue.

  In an interview with McClatchy’s project partner Fusion, at a halfway house in Los Angeles last February, Crim described how he brought business to Mossack Fonseca and other registered corporate agents.

  “My responsibility is to set-up the documentation, hand it over to the client, and now they’re in business,” Crim said. “I don’t even know sometimes what that business is about, and I didn’t want to spend all my time investigating what they’re doing. I mean, some of (them) just flat out would tell you it was none of your business.”

  In a separate case, federal authorities were unaware that a defendant in a fraud case had an offshore account with Mossack Fonseca. Internet phone company executive Jonathan Kaplan pleaded guilty in Bridgeport, Conn., in 2007 to accepting more than $400,000 in a commercial bribery scheme.

  Kaplan received probation. A law enforcement source, speaking on condition of anonymity because of pending legal matters, confirmed that prosecutors did not know that Kaplan had established an offshore company in the British Virgin Islands in 2004 called SGA Wireless. It remained active until May 2010.

  Reached by phone in New Jersey, Kaplan was asked whether he told authorities about SGA Wireless. He stammered, “I’m going to have to decline. I’ll talk to you.” He then abruptly hung up.

  * * *

  As we said, the surprising lack of any high profile names could merely stoke speculation of list scrubbing, or alternatively, we hope it will force the broader population to shift its attention to the true real locus of “offshore tax evasion”, perhaps the biggest in the world: the United States of America itself.

  

  

  

  

  

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• Turkey: The Business Of Refugee Smuggling & Sex Trafficking

  Submitted by Uzay Bulut via The Gatestone Institute,

  • Professional criminals convince parents that their daughters are going to a better life in Turkey. The parents are given 2000-5000 Turkish liras ($700-$1700) as a "bride price" — an enormous sum for a poor Syrian family.

  • "Girls between the ages of twelve and sixteen are referred to as pistachios, those between seventeen and twenty are called cherries, twenty to twenty-two are apples, and anyone older is a watermelon." — From a report on Turkey, by End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT).

  • Many Muslims have difficulty with, or even an aversion to, assimilating into the Western culture. Many seem to have the aim of importing to Europe the culture of intimidation, rape and abuse from which they fled.

  • Although the desperate victims are their Muslim sisters and brothers, wealthy Arab states do not take in refugees. The people in this area know too well that asylum seekers would bring with them problems, both social and economic. For many Muslim men such as wealthy, aging Saudis, it is easier to buy Syrian children from Turkey, Syria or Jordan as cheap sex slaves.

  On International Women's Day, March 8, Turkish news outlets covered the tragic life and early death of a Syrian child bride.

  Last August, in Aleppo, Mafe Zafur, 15, married her cousin Ibrahim Zafur in an Islamic marriage. The couple moved to Turkey, but the marriage ended after six months, when her husband abruptly threw out of their home. With nowhere to sleep, Mafe found shelter with her brother, 19, and another cousin, 14, in an abandoned truck.

  On 8 March, Mafe killed herself, reportedly with a shotgun. Her only possession, found in her pocket, was her handwritten marriage certificate.

  Mafe Zafur is only one of many young Syrians who have been victims of child marriage. Human rights groups report even greater abuse that gangs are perpetrating against the approximately three million Syrians who have fled to Turkey.

  A detailed report on Syrian women refugees, asylum seekers, and immigrants in Turkey, issued as far back as 2014 by the Association for Human Rights and Solidarity with the Oppressed (known in Turkish as Mazlumder), tells of early and forced marriages, polygamy, sexual harassment, human trafficking, prostitution, and rape that criminals inflicted upon Syrians in Turkey.

  According to the Mazlumder report, Syrians are sexually exploited by those who take advantage of their destitution. Children, especially girls, suffer most.

  Evidence, both witnessed and forensic, indicates that in every city where Syrian refugees have settled, prostitution has drastically increased. Young women between the ages of 15 and 20 are most commonly prostituted, but girls as young as thirteen are also exploited.

  Secil Erpolat, a lawyer with the Women's Rights Commission of the Bar Association in the Turkish province of Batman, said that many young Syrian girls are offered between 20 and 50 Turkish liras ($7-$18). Sometimes their clients pay them with food or other goods for which they are desperate.

  Women who have crossed the border illegally and arrive with no passport are at high risk of being kidnapped and sold as prostitutes or sex slaves. Criminal gangs bring refugees to towns along the border or into the local bus terminals where "refugee smuggling" has become a major source of income.

  Professional criminals convince parents that their daughters are going to a better life in Turkey. The parents are given 2000-5000 Turkish liras ($700-$1700) as a "bride price" — an enormous sum for a poor Syrian family — to smuggle their daughters across the border.

  "Many men in Turkey practice polygamy with Syrian girls or women, even though polygamy is illegal in Turkey," the lawyer Abdulhalim Yilmaz, head of Mazlumder's Refugee Commission, told Gatestone Institute. "Some men in Turkey take second or third Syrian wives without even officially registering them. These girls therefore have no legal status in Turkey. Economic deprivation is a major factor in this suffering, but it is also a religious and cultural phenomenon, as early marriage is allowed in the religion."

  Syrian women and children in Turkey also experience sexual harassment at work. Those who are able to get jobs earn little — perhaps enough to eat, but they work long and hard for that little. They are also subjected to whatever others choose to do to them as they work those long hours.

  A 16-year old Syrian girl, who lives with her sister in Izmir, told Mazlumder that "because we are Syrians who have come here to flee the war, they think of us as second-class people. My sister was in law school back in Syria, but the war forced her to leave school. Now unemployed men with children ask her to 'marry' them. They try to take advantage of our situation."

  If they are Kurds, they are discriminated against twice, first as refugees, then as Kurds. "The relief agencies here help only the Arab refugees; when they hear that we are Kurds, they either walk away from us, or they give very little, and then they do not return."

  The organization End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT) has produced a detailed report on the "Status of action against commercial sexual exploitation of children: Turkey." ECPAT's report cites, from the 2014 Global Slavery Index, estimates that the incidence of slavery in Turkey is the highest in Europe, due in no small measure to the prevalence of trafficking for sexual exploitation and early marriage.

  The ECPAT report quotes a U.S. State Department study from 2013: "Turkey is a destination, transit, and source country for children subjected to sex trafficking."

  The ECPAT report continues,

  "There is a risk of young asylum seekers disappearing from accommodation centres and becoming vulnerable to traffickers.

   

  "It is feared that reports from the UN-run Zaatari refugee camp for Syrians in Jordan are equally true for camps in Turkey: aging men from Saudi Arabia and other Gulf states take advantage of the Syrian crisis in order to purchase cheap teenage brides.

   

  "Evidence indicates that child trafficking is also happening between Syria and Turkey by established 'matchmakers' who traffic non-refugee girls from Syria who have been pre-ordered by age. Girls between the ages of twelve and sixteen are referred to as pistachios, those between seventeen and twenty are called cherries, twenty to twenty-two are apples, and anyone older is a watermelon."

  Apparently, 85% of Syrian refugees live outside refugee camps, and therefore cannot even be monitored by an international agency.

  Many refugee women in Turkey, according to the lawyer and vice-president of the Human Rights Association of Turkey (IHD), Eren Keskin, are forced to engage in prostitution outside, and even in, refugee camps built by the Turkish Prime Minister's Disaster and Emergency Management Authority (AFAD).

  "There are markets of prostitution in Antep. Those are all state-controlled places. Hundreds of refugees — women and children — are sold to men much older than they are," said Keskin. "We found that women are forced into prostitution because they want to buy bread for their children."

  Keskin said that they have received many complaints of rape, sexual assault and physical violence from refugees in the camps in the provinces of Hatay and Antep. "Despite all our attempts to enter those camps, the officials have not allowed us to."

  The Human Rights Association of Turkey has received many complaints of rape, sexual assault and physical violence from Syrian refugees in camps in Turkey. (Image source: UNHCR)

  Officials at AFAD, however, have strongly denied the allegations. "We provide refugees with education and health care. It is sad that after all the devoted work that AFAD has done to take care of refugees for the last five years, such baseless and unjust accusations are directed at us," a representative of AFAD told Gatestone.

  "The number of refugees in Turkey has reached to 2.8 million. Turkey has twenty-six accommodation centers in which about three hundred thousand refugees live. Those centers are regularly monitored by the UN; some UN officials are based in them."

  "Many refugees could have been provided with jobs suited to their training or skills," Cansu Turan, a social worker with the Human Rights Foundation of Turkey (TIHV), told Gatestone.

  "But none of them was asked about former jobs or educational background when they Turkish officials registered them. Therefore, they can work only informally and under the hardest conditions just to survive. This also paves the way for their sexual exploitation.

   

  "The most important question is why the refugee camps are not open to civil monitoring. Entry to refugee camps is not allowed. The camps are not transparent. There are many allegations as to what is happening in them. We are therefore worried about what they are hiding from us."

  "At our public centers where we provide support for refugees," Sema Genel Karaosmanoglu, the Executive Director of the Support to Life organization, told Gatestone.

  "We have encountered persons who have been victims of trafficking, sexual, and gender-based violence.

   

  "There is still no entry to the camps, and there is no transparency as entry is only possible after getting permission from relevant government institutions. But we have been able to gain access to those camps administered by municipalities in the provinces of Diyarbakir, Batman, and Suruc, Urfa."

  A representative at AFAD, however, told Gatestone that "the accommodation centers are transparent. If organizations would like to enter those places, they apply to us and we evaluate their applications. Thousands of media outlets have so far entered the accommodation centers to film and explore the life in them."

  "The number of current refugees is already too high," said the lawyer Abdulhalim Yilmaz, head Mazlumder's Refugee Commission. "But many Arab states, including Saudi Arabia and Bahrain, have not taken in a single Syrian refugee so far. And there are tens of thousands of refugees waiting at the borders of Turkey."

  If these women and children knew what was possibly awaiting them in Turkey, they would never set foot in the country.

  This is the inevitable outcome when a certain culture — the Islamic culture — does not have the least regard for women's rights. Instead, it is a culture of rape, slavery, abuse and discrimination that often exploits even the most vulnerable.

  The horror is that Turkey is the country that the EU is entrusting to "solve" the serious problem of refugees and migrants.

  The international community needs to protect Syrians, to cordon off parts of the country so that more people will not want to leave their homes to become refugees or asylum seekers in other countries. Perhaps many Syrians would even return to their homes.

  The West has always opened its arms to many beleaguered individuals from Muslim countries — such as 25-year-old Afghan student and journalist Sayed Pervez Kambaksh, who was beaten, taken to prison, and sentenced to death in 2007 for downloading a report on women's rights from the internet and for questioning Islam.

  It was Sweden and Norway that helped Kambaksh to flee Afghanistan in 2009 by helping him get access to a Swedish government plane. Kambaksh is now understood to be in the United States.

  Several European countries, however, have become the victims of the rapes, murders and other crimes committed by the very people who have entered the continent as refugees, asylum seekers or migrants.

  Europe is going through a security problem, as seen in the terrorist attacks in Paris and Brussels. Many Muslims have difficulty with, or even an aversion to, assimilating into the Western culture. Many seem to have the aim of importing to Europe the culture of intimidation, rape and abuse from which they fled.

  It would be more just and realistic if Muslim countries that share the same linguistic and religious background as Syrian refugees — and that are preferably more civilized and humanitarian than Turkey — could take at least some responsibility for their Muslim brothers and sisters. Although the desperate victims are their Muslim sisters and brothers, wealthy Arab states do not take in refugees. We have not seen any demonstrations with signs that read "Refugees Welcome!" People know that asylum seekers would bring with them problems, both social and economic. For many Muslim men such as wealthy, aging Saudis, it is easier to buy Syrian children from Turkey, Syria or Jordan as cheap sex slaves.

  Women and girls are not, to many, human beings who deserve to be treated humanely. They are only sex objects whose lives and dignity have no value. Syrians are there to abuse and exploit. The only way they can think of helping women is to "marry" them.

  

  

  

  

  

• "This Is Gonna Hurt"

  One way or another…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• CNBC's Steve Liesman Makes A "Discovery": Americans Are Increasingly Angry And They Want Trump

  Earlier today, CNBC’s Steve Liesman made two very important, in fact “critical”, if about one year overdue, discoveries.

  The first one was that Americans are angry.

  According to the CNBC All-America Survey, a majority of Americans are angry about both the political and the economic system. 

  Perhaps if CNBC had discovered this sooner, it would have figured out that the reason it no longer reports its ratings to Nielsen has something to do with its underlying “rosy” slant on things, one which perhaps brings out people’s, well, anger. That and the occasional informercial for Ferrari and million dollar homes.

  

   

  The second discovery is that angry Americans largely support Trump over Hillary, something we have discussed since last summer.

  As Liesman puts it, nearly three-fourths of the public is angry or dissatisfied with the political system in Washington, compared with 56 percent who are angry or dissatisfied about the economy. This group favors Trump on the economy over Clinton 28 percent to 21 percent.

  

   

  Of those dissatisfied or angry with the economic system, Trump leads on the economy 27 percent to 19 percent for Clinton.

  

   

  All of these “surprises” should have been obvious.  But then the survey revealed several findings which surprised even us.

  First, and rather curiously, income isn’t correlated with anger, with angry respondents found both among the rich and the poor. 55% of people who earn $100,000 or more are dissatisfied or angry with the economic system, the same percentage as those who earn $30,000 or less.

  Also surprising: the wealthiest Americans are more likely to be angry or dissatisfied with the political system than the lowest income Americans.

  Another surprise: while conventional wisdom is that Clinton has more of a lock on the Democratic nomination than Trump has on the GOP nod, the CNBC survey shows that on key economic issues, Bernie Sanders is more of a challenge to Clinton than Kasich and Cruz are to Trump. For example, Sanders is virtually tied with Trump 25 percent to 26 percent on which candidate is judged to have the best policy for regulating Wall Street and the big banks. Clinton has the support of only 16 percent of the public on the issue. Clinton leads with support of 25 percent of the public on who has the best policies for the middle class, followed by 21 percent for Sanders and 16 percent for Trump.

  And finally, since this is CNBC, the channel reported that Trump is seen as best for the stock market by a wide margin. Fully 31 percent say his policies would be best for the stock market’s performance, compared with just 17 percent for Clinton. As many Democrats as Republican’s think Trump would be best for stocks.

  Which begs this question: since those who have the most invested in the stock market “run the system”, as they say, and ultimately decide who the next president is, why wouldn’t they “pick” Trump? And just how much of the most theatrical presidential election in history is, well, just theater?

  * * *

  Liesman’s full interview below:

  

  

  

  

  

• Vietnam War At 50 – Ron Paul Asks "Have We Learned Nothing?"

  Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

  Last week Defense Secretary Ashton Carter laid a wreath at the Vietnam Veterans Memorial in Washington in commemoration of the "50th anniversary" of that war. The date is confusing, as the war started earlier and ended far later than 1966. But the Vietnam War at 50 commemoration presents a good opportunity to reflect on the war and whether we have learned anything from it.

  Some 60,000 Americans were killed fighting in that war more than 8,000 miles away. More than a million Vietnamese military and civilians also lost their lives. The US government did not accept that it had pursued a bad policy in Vietnam until the bitter end. But in the end the war was lost and we went home, leaving the destruction of the war behind. For the many who survived on both sides, the war would continue to haunt them.

  It was thought at the time that we had learned something from this lost war. The War Powers Resolution was passed in 1973 to prevent future Vietnams by limiting the president’s ability to take the country to war without the Constitutionally-mandated Congressional declaration of war. But the law failed in its purpose and was actually used by the war party in Washington to make it easier to go to war without Congress.

  Such legislative tricks are doomed to failure when the people still refuse to demand that elected officials follow the Constitution.

  When President George HW Bush invaded Iraq in 1991, the warhawks celebrated what they considered the end of that post-Vietnam period where Americans were hesitant about being the policeman of the world. President Bush said famously at the time, “By God, we’ve kicked the Vietnam Syndrome once and for all.”

  They may have beat the Vietnam Syndrome, but they learned nothing from Vietnam.

  Colonel Harry Summers  returned to Vietnam in 1974 and told his Vietnamese counterpart Colonel Tsu, "You know, you never beat us on the battlefield." The Vietnamese officer responded, "That may be so, but it is also irrelevant."

  He is absolutely correct: tactical victories mean nothing when pursuing a strategic mistake.

  Last month was another anniversary. March 20, 2003 was the beginning of the second US war on Iraq. It was the night of “shock and awe” as bombs rained down on Iraqis. Like Vietnam, it was a war brought on by government lies and propaganda, amplified by a compliant media that repeated the lies without hesitation.

  Like Vietnam, the 2003 Iraq war was a disaster. More than 5,000 Americans were killed in the war and as many as a million or more Iraqis lost their lives. There is nothing to show for the war but destruction, trillions of dollars down the drain, and the emergence of al-Qaeda and ISIS.

  Sadly, unlike after the Vietnam fiasco there has been almost no backlash against the US empire. In fact, President Obama has continued the same failed policy and Congress doesn’t even attempt to reign him in. On the very anniversary of that disastrous 2003 invasion, President Obama announced that he was sending US Marines back into Iraq! And not a word from Congress.

  We’ve seemingly learned nothing.

  There have been too many war anniversaries! We want an end to all these pointless wars. It’s time we learn from these horrible mistakes.

  

  

  

  

  

• Goldman Questions Rally, Fears Looming Event Risk Amid Record VIX Longs

  Volatility (VIX) is now at its lowest level since before the August sell-off last summer yet CS Fear Barometer remains elevated leaving the spread between the two options-market-based indicators is at its widest ever.

  

  Credit Suisse sees two main reasons for the difference:

  1) VIX measures just vol whereas CSFB reflects skew (i.e. Demand for puts vs. calls) The skew being elevated is a function of the upside calls being sold broadly in the market plus portfolio hedging; and

  2) CSFB is a 3-month forward look — ie around time of brexit and other potential catalysts)

  But as Goldman Sachs details, with the unemployment rate at 5% the ISM manufacturing index at its current level of 51.8 suggests a VIX level of 19.2. The much higher new orders index (58.3) suggests a VIX level of 16.7. So the VIX is currently pricing further economic improvement…

  

   

  As the market itself seems to shrugg off the collapse in earnings expectations…

  

   

  However, Goldman adds, while volatility may be subdued for the next few weeks, perhaps until the next potential major catalyst, such as “Brexit”, if our economists are correct, Fed chatter may pick up again in H2… which is supported by the fact that investors are pouring money into levered long VIX ETPs.

  

  Investors often chase strong performance but that has not been the case across the VIX ETP space. As the VIX has fallen, investors have been positioning for a rise in volatility via double levered long ETPs.

  

  Levered VIX ETP vega exposure has doubled since the market trough, driven by longs. We monitor vega exposure for a select group of 11 VIX ETPs, with around 4 billion in total market cap. We estimate that the gross vega notional across levered VIX ETPs now stands near a record high at around 244 million vega (in absolute terms), more than doubling since the market bottom in February. The increase has mostly been driven by long and double-levered long VIX ETPs, such as the UVXY and TVIX.

  Volatility investors are often interested in how much volatility exposure (vega) VIX ETPs carry and what percentage of the overall VIX futures market they account for.

  How big is the VIX ETP market? We estimate that the gross vega exposure controlled by the six most active VIX ETPs (VXX, VIXY, UVXY, TVIX, XIV, SVXY) which track the front month future is currently running at 320 million vega, which accounts for about 85% of the outstanding open interest in the VIX futures market.

  

  Simply put, as Goldman sums up, the options market seems to be questioning the quality of the rally and continues to price in more adverse outcomes.

  

  

  

  

  

• Refugees Flooding Italy Surge 80%; Proposed Solution in Single Picture

  Submitted by Mike “Mish” Shedlock of Mishtalk

  Italy’s Interior minister Angelino Alfano warns the refugee “system is at risk of collapse” following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015.

  Alfano fears that Syrians headed for Turkey will inetead head for Libya for an even more hazardous Mediterranean Sea crossing to Italy.

  How many tens of thousands of people can you keep, year after year? Without returns, either you organize real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

  Costs are about to soar. Alfano wants to secure new deals with African nations, offering economic aid in exchange for taking back their citizens. Here’s a picture that explains everything.

  Refugee Crisis in a Single Picture

  

  Taking into consideration fences and walls, boat lifts, airlifts, increase security, border checks, prisons, crime, retention centers, and bribes to countries for taking back refugees: what’s this going to cost?

  Italy Seeks Greek-Style Solution

  The Financial Times reports Italy Pleads for Greek-Style Push to Return its Migrants.
  
  In an interview with the FT, Angelino Alfano, Italy’s interior minister, says the EU should move to secure deals with African nations, which are the source of the vast majority of migrants arriving in Italy, offering economic aid in exchange for taking back their citizens and preventing new flows.

   

  Mr Alfano’s request reflects renewed nervousness in Rome about the migration crisis following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015.

   

  If that increase holds through the warmer spring and summer months, it would smash the record 170,000 migrants who arrived in Italy in 2014, straining resources and creating a political problem for the centre-left government led by Matteo Renzi.

   

  “If Syrians don’t want to stay in Turkey but want to try the trip to Europe, they will go around and try to get here from Libya,” Mr Alfano said. “We still don’t have any evidence that this is happening, but we are monitoring.”

   

  “Irregular [migrants] have to be kept in closed camps from where they cannot escape. So how many tens of thousands of people can you keep, year after year? Without returns, either you organise real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

  Cost Analysis

  Apparently it does take a prophet because Chancellor Merkel still doesn’t get it. And I have yet to see a complete analysis of the cost of these schemes, from anyone.

  New and Proposed Processes

  • Greece will return refugees to Turkey
  • On a one-for-one basis, Turkey will take those refugees and send them to Germany.
  • Turkey, (off the record as the EI looks the other way), will send refugees back to Syria in violation of international law.
  • Seeking news ways to get to the EU, Syrian refugees will attempt to get to Italy instead of Greece.
  • Italy will send those refugees back to Turkey where they presumably will be part of the existing one-for-one swap with the coalition of the willing (Germany).
  • Italy will return non-Syrians to Tunisia, Libya, and Egypt after bribing those countries with money.
  • In an effort to spread around the refugees monetary bribes go out to at least 10 countries.

  One country stands out in these preposterous scheme. Saudi Arabia, where art thou?

  

  

  

  

  

• Was There A Run On The Bank? JPM Caps Some ATM Withdrawals

  Under the auspices of "protecting clients from criminal activity," JPMorgan Chase has decided to impose withdrawal limits on certain ATM transactions. As WSJ reports, following the bank's ATM modification to enable $100-bills to be dispensed with no limit, some customers started pulling out tens of thousands of dollars at a time. This apparent bank run has prompted Jamie Dimon to cap ATM withdrawals at $1,000 per card daily for non-customers.

  Most large U.S. banks, including Chase, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. have been rolling out new ATMs, sometimes known as eATMs, which perform more services akin to tellers. That includes allowing customers to withdraw different dollar denominations than the usual $20, typically ranging from $1 to $100.

   

  The efforts run counter to recent calls to phase out large bills such as the $100 bill or the €500 note ($569) to discourage corruption while putting up hurdles for tax evaders, terrorists, drug dealers and human traffickers.

   

  The Wall Street Journal reported in February that the European Central Bank was considering eliminating its highest paper currency denomination, the €500 note. Former U.S. Treasury Secretary Lawrence H. Summers also has called for an agreement by monetary authorities to stop issuing notes worth more than $50 or $100.

  This move appears to have backfired and created a 'run' of sorts on Chase…

  A funny thing happened as J.P. Morgan Chase & Co. modified its ATMs to dispense hundred-dollar bills with no limit: Some customers started pulling out tens of thousands of dollars at a time.

   

  While it was changing to newer ATM technology, J.P. Morgan found that some customers of banks in countries such as Russia and Ukraine had used Chase ATMs to withdraw tens of thousands of dollars in a single day, people familiar with the situation said. Chase had instances of people withdrawing $20,000 in one transaction, they added.

  Remember Greece?

  

   

  And, in what appears to the start of a war on cash in America, The Wall Street Journal reports,  the bank is cracking down, capping ATM withdrawals at $1,000 per card daily for noncustomers.

  The bank run by Chairman and Chief Executive Jamie Dimon said there doesn’t appear to be fraud involved. But in part due to heightened regulatory scrutiny, banks are paying more attention to large cash transfers that could be a sign of money laundering or other types of shady activity.

   

  The move by the largest bank in the country doesn’t affect J.P. Morgan Chase’s own customers, whose maximum daily withdrawals are set depending on the client’s account type.

   

  J.P. Morgan Chase’s change last month affects roughly 18,000 automated teller machines nationwide and followed an interim step earlier this year limiting noncustomer cash removals at $1,000 per transaction. The earlier move was made as a temporary fix while the bank could make software changes to roll out the more stringent daily limit, said bank spokeswoman Patricia Wexler.

  However, as we noted last night,

  What the story is about is the nebulous world of offshore tax evasion and tax havens, which based on data from the World Bank, IMF, UN, and central banks, hide between $21 and $32 trillion, where registered incorporation agents and law firms in small Caribbean countries (and not so small US states) make the laundering of money and the "disappearance" of the super wealthy, into untracable numbers hidden behind shell companies, possible.

  So, there is more than the total US GDP being laundered in offshore tax havens, but yes, let's eliminate the $100 bill to cut down on corruption and money laundering.

  Of course, we are sure this is just another 'storm in a teacup' as why should anyone question a fine upstanding and trustworthy bank withholding people's money when they are assuredly tax evaders, terrorists, drug dealers and human traffickers.

  

  

  

  

  

• Fed Sees Labor Market Worst Since 2009

  Cast your mind back to Friday – when payrolls confirmed everything for everyone and enabled more crowing from an establishment clinging to smoke and mirrors. It appears The Fed disagrees with the 'awesome' jobs market that BLS proposes as today's Labor Market Conditions Index continues to push to its weakest since 2009, drastically divergent from the seemingly all-impotrant non-farm payrolls data.

  The 19-factor labor market conditions index developed by The Fed is not singing from the same Koombaya "everything is awesome" hymn-sheet that The White House would prefer…

  

   

  This kind of divergence has not been seen before in the lifetime of this data series… so what exactly is going on?

  It appears the market is starting to agree…

  

  

  

  

  

  

• The Other Problem With Debt No One Is Talking About

  Submitted by MN Gordon via EconomicPrism.com,

  Nearly 7 years have elapsed since the official end of the Great Recession.  By now it’s painfully obvious the rising tide of economic recovery has failed to lift all boats.  In fact, many boats bottomed out on the rocks in early 2009 and have been taking on water ever since.

  Last week, for instance, it was reported that U.S. credit card debt topped $714 billion in the third quarter of 2015.  That’s up $34 billion from the year before.  Shouldn’t the economic recovery allow consumers to pay down their debts?

  Indeed, it should, if only the economic recovery was the result of real, economic growth.  To the contrary, the recovery has been faux growth driven by cheap Fed credit and financial engineering.  Mutual increases in prosperity haven’t occurred.

  In particular, those outside the financial services business, and other bubble industries, like government lobbyists, have largely missed out on any increase in income or living standard.  Good paying professional jobs that vaporized during the downturn have been replaced with low paying service jobs.  Consumers have used credit card debt to pick up the slack.

  Unfortunately, this short term solution sets up consumers for pain in the future.  At some point, as debt increases faster than incomes, the ability to pay down the principle becomes near impossible.  Even making the minimum payment becomes more and more difficult as new debt is added to the burden each month.

  Playing with Fire

  “We’re playing with fire now,” said Odysseas Papadimitriou, chief executive of credit statistics and analysis site CardHub.  “Either an unexpected economic downtown or the continuation of current spending and payment trends could be enough to unleash an avalanche of defaults.”

  Papadimitriou is correct in his assertion we are playing with fire and that the continuation of current trends could unleash an avalanche of defaults.  But his statement that there could be an “unexpected” economic downturn doesn’t appreciate the natural rhythms of an economy.  Specifically, economic downturns are normal occurrences – they should be expected, not unexpected.

  From what we gather there has been roughly 12 recessions (assuming the 1980 and 1981-82 recessions were two distinct events) in the United States in the post-World War II era.  The average interval between these recessions has been about 58 months.  Based on the official end date of the Great Recession of June 2009, we are currently 82 months into the current recovery.  In other words, we are due for a downturn.  What’s more, we may presently be entering one.

  According the Atlanta Fed’s March 28 GDPNow model forecast, real GDP growth in the first quarter of 2016 is estimated to be 0.6 percent.  By the time you read this, the April 1 update will likely have been posted.  You can take a look at the Atlanta Fed’s latest forecast here.

  The point is, GDP is meager.  Moreover, present credit card debt is unsustainable.  The potential for an avalanche of defaults is already high, regardless of if there’s a recession.  Yet, at this point in the recovery, the looming potential for a recession is highly likely.  Hence, an avalanche of credit card defaults is practically certain.  But that’s not all…

  The Other Problem with Debt No One is Talking About

  The other problem with expanding consumer debt that is rarely, if ever, mentioned is that it accompanies expanding waste lines.  You can chart the strength of the relationship over time with a near perfect +1.0 positive correlation.  Why is this?

  We don’t know for sure.  We haven’t studied the data.  Nor have we researched the causation.  But gut feel tells us it has something to do with discipline.  More precisely lack of discipline.

  For example, the inclination to charge the purchase of a new flat screen TV complements the proclivity to jumbo size a mega gulp soda pop.  Both are entirely unnecessary.  But they go hand in hand.

  Saving up for a flat screen and resisting the jumbo size option takes the sort of self-restraint that’s absent from our debt saturated society.  Of course, the federal government is the worst offender.  Even with their bloated budgets they still need a half trillion dollar annual deficit to keep the machine humming along.

  No doubt, the promises politicians have made to voters for a comfortable retirement and free drugs are at the heart of matter.  Similar to credit card debt, the promises stack up each month and each year like dead wood in the Angeles National Forest.  At some point all it takes is the strike of a single match and the whole mountain conflagrates in a blazing inferno.

  

  

  

  

  

• In Grotesque Irony Iran Warns Obama Not To Cross "Red Lines"

  Last July, the United States entered into an agreement with Iran with the hopes of limiting their nuclear ability. At a high level, the US would lead the way in lifting oil and financial sanctions imposed due to Iran’s nuclear programs; in return Iran would reduce their stockpile of enriched uranium, storage facilities and centrifuges. What was not negotiated, however, were sanctions on missile technologies and conventional weapons.

  Per the White House:

  

   

  Then, in March 2016, Iran launched a series of ballistic missile tests early in the month that got the world’s attention.

   

  As we reported then, In a testament to the “success” of Washington’s foreign policy towards Iran, Iran’s Brigadier General Hossein Salami, deputy commander of the IRGC said the following: “The missiles fired today are the results of sanctions. The sanctions helped Iran develop its missile program.” Furthermore, the rockets had a quite clear message written on their side:

  The message printed on #IRGC missiles tested recently in #Hebrew :????? ????? ?????? ???
  “#Israel must be wiped off the face of the earth”

  — H.Soleimani (@MashreghNews_ir) March 9, 2016

   

  President Obama’s response? He said Iran was “not following the spirit of the deal.”

  This is what he said according to The Hill:

  “Iran so far has followed the letter of the agreement, but the spirit of the agreement involves Iran also sending signals to the world community and businesses that it is not going to be engaging in a range of provocative actions that are going to scare businesses off”

  While we’re sure Iran didn’t bat an eyelid at the latest hollow rhetoric from the White House, it did seem to get irritated when the Treasury then implemented fresh sanctions. The thought is that as the missiles become even more capable of hitting long range targets, they could eventually be equipped to carry nuclear warheads as well, immediately putting various neighboring countries in danger.

  Fast forward to today, when Iranian Deputy Chief of Staff Brig-Gen Maassoud Jazzayeri was quoted by the Fars News Agency as saying:

  “The White House should know that defense capacities and missile power, specially at the present juncture where plots and threats are galore, is among the Iranian nation’s red lines and a backup for the country’s national security and we don’t allow anyone to violate it”

  Clearly, the Iranian Revolutionay Guard was not particularly concerned how Obama evaluates the “spirit” of the deal as long as he remains utterly helpless to change it, something which Iran is absolutely convinced of at this moment.

  And then the moment of truth: Iran actually used Obama’s infamous “red line” phrase… against him, when “Iran warned the US on Monday that any attempt to encroach on the Islamic Republic’s ballistic missile program would constitute the crossing of a “red line.”

  “The US calculations about the Islamic Republic and the Iranian nation are fully incorrect,” Iranian Deputy Chief of Staff Brig-Gen Maassoud Jazzayeri was quoted by the Fars News Agency as saying.

  Jazzayeri accused US President Barack Obama of making vows and breaking them by saying removal of sanctions on Iran would be conditioned on the Islamic Republic halting its ballistic missile program.

  And with that, the farce was complete.

  * * *

  Incidentally, this latest slapdown back and forth but mostly back didn’t escape the GOP Presidential hopeful Donald Trump, who promptly called Obama a baby for thinking Iran was going to adhere to our guidelines: “I hate seeing President Obama today saying that Iran has violated our agreement. I mean, what did he think? He’s now complaining about Iran violating the agreement. What the hell did he think? He’s like a baby. He’s like a baby.“

  

  

  

  

  

• A Quarter Century Of Monetary Voodoo

  Authored by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  A Witless Tool of the Deep State?

  Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

  Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

   

  

  A coo-coo for the stock market…

   

  “Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

  At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

  But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.

  Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?

   

  

  US monetary base and the effective federal funds rate – the “new normal”. It’s the new normal, because any serious change toward a normal state of affairs as it used to be understood will implode the credit and asset bubble – click to enlarge.

   

  They have burned our bridges… our factories… our savings… and everything else behind them. Now, it is better just to pack up, move out… and keep on going. That is more or less what Charlie Munger sees coming.

   

  Prepare for the Worst

  Asked whether the Fed would reduce its balance sheet to pre-Great Recession levels (by selling back to the private sector the $4 trillion worth of bonds it bought over the last eight years), Warren Buffett’s long-time business partner had this to say:

  I remember coffee for 5 cents and brand new automobiles for $600. The value of money will continue to go down. Over the past 50 years, we lived through the best time of human history. It is likely to get worse. I recommend you prepare for worse because pleasant surprises are easy to handle.

  The “normal” financial world is no longer habitable. Ms. Yellen went on to say that these soupçons of recklessness – her hints about not returning to normal – provided an “automatic stabilizer,” to the global financial system. That’s right (and here is where we begin to laugh uncontrollably).

  Not only does outrageously easy credit help “stabilize” the system, so does the anticipation of more of it! Maybe giving out the news that she will NOT even try to get back to normal helps to settle investors’ nerves. Maybe normal wasn’t all that great anyway.

  Either way, speculators can continue whatever perverted hustles they have going… free from the fear that “normal” will walk around the corner and catch them in the act.

  But what’s this? A complicating factor, the “outlook for inflation,” is “uncertain,” says Ms. Yellen. The Financial Times clarifies: “[I]nflation could take longer to return to the Fed’s 2% target.”

   

  

  5 year inflation breakeven rate – Ms. Yellen sees one thing, but the market apparently sees something different… – click to enlarge.

   

  Ms. Yellen is worried about a lack of inflation in much the same way primitive farmers worried about a lack of rain. Her response is to do more of the ritual dances… and say more of the magic incantations… that have so far only produced more drought conditions.

   

  A Quarter Century of Voodoo

  In Japan, they’ve been doing this voodoo for 26 years. We’ve had our eye on Japan since the mid-‘80s, when everyone was sure that Japan Inc. was the hottest thing in the econosphere.

  The miracle economy blew up in 1989, and liquidity disappeared. Since then, Japan Inc. has been the Sahara of the developed world. QE, ZIRP, NIRP, monumental deficits, Abe’s Arrows… nothing worked to make it rain.

   

  

  Data from the island of the parched: the Nikkei remains nearly 60% below its highs of 26 years ago. Meanwhile, the BoJ’s balance sheet has gone into orbit, in the latest ploy that’s not working – click to enlarge.

   

  Negative interest rates, announced late last year, were supposed do the job. Savers were supposed to throw up their hands, open up their wallets… and spend, spend, spend to avoid paying the tax on saving.

  Instead, savers saved more. What else could they do? With negative rates they needed more savings to get the same financial bang per buck. Result: In January, Japan’s retail sales fell 2.3% over the previous month.

  But the Japanese feds aren’t giving up. And now they turn to two of the world’s most celebrated witchdoctors – Paul Krugman and Joseph Stiglitz – for advice on what to do next.

   

  

  Krugstitz – the closest equivalent the modern world has to witchdoctors and voodoo practitioners. You might call them quacks to the powerful. Nothing of what these geniuses have prescribed over the years has worked, so obviously the Japanese asked them for more advice, which predictably turned out to be “do more of what hasn’t worked”. As snake oil selling goes, these guys are brilliant.

   

  Japan has famously run huge fiscal deficits in an effort to get the economy moving. Thanks to a quarter century of these loose budgets, the island now has gross government debt equal to 240% of GDP and nearly nine times tax revenues.

  Most of the spending is used to fund programs for old people – health care and pensions – making it hard to cut back. Japan’s government finances are nothing more than a huge, compulsory, unfunded, old-age benefit program… one that is sure to go broke.

  But don’t worry, Japan. According to the Financial Times, the two Nobel Laureates went to Tokyo and argued – if you can believe it – that Japan needs more liquidity, that is, “a looser fiscal policy.”

  Yes, like New Orleans needed a shower after Hurricane Katrina.

  

  

  

  

  

• Shocking Footage: Chicago Resident Gunned Down While Live-Streaming

  Over the weekend we reported some shocking gun crime statistics in Chicago: according to a CNN report, gun violence in the windy city is on track to post its worst year in the 21st century, the result of an unprecedented surge in gun deaths in the first three months of the year.  By March 31, 141 people had been killed. Last Thursday, eight were shot and two of them died in one hour alone, Chicago Police said.

  The 141 deaths in the first three months of the year mark a 71.9% jump from the same period in 2015, when 82 people were killed. It’s the worst start to a year since 1999, when 136 people died in the first three months the year, according to the Chicago Tribune.

  At that pace – an average of three killings every two days – Chicago would have 564 homicides by the end of the year. That would eclipse the 468 killings recorded in 2015 and 416 in 2014.

  

   

  However, nothing prepared us for this jarring example of just how bad gun violence in Chicago truly is.

  The following graphic footage shows a Chicago resident gunned down Thursday while live-streaming the entire event on Facebook, as he stood on a street corner. The man falls to the ground as the suspect stands over him continuing to fire shots.

  

  

   

  Viewer discretion strongly advised.

   

  This was one of nine shootings across the city on Thursday that left at least two people dead.

  Cited by BuzzFeed, Chicago Police Officer Thomas Sweeny said that the shooting occurred just before 5:00 p.m. in the 5800 block of South Hoyne Avenue. A suspect approached the 31-year-old man, shot him multiple times, then fled in a vehicle, Sweeney said.

  After the shooting stops, another man can be heard talking about taking the individual to a hospital as a woman wails in the background.

  The New York Daily News reported the victim was in critical condition Thursday night and had sustained multiple gun shot wounds.

  

  

  

  

  

• Allergan Implodes: Pfizer Deal In Jeopardy After Treasury Announces "Action To Curb Inversions, Earnings Stripping"

  As if a million M&A arbs suddenly cried out in terror, and were suddenly silenced.

   

  Moments ago the stock of Allergan imploded, crashing by 20%, plunging to $225 or the lowest level since late 2014, in the process blowing up countless M&A arb deals which were hoping the recently blowing out spread, which as of Friday hit a post announcement wide of $61, is attractive enough to take the risk of a Treasury crackdown on tax inversion deal.

  

  Alternatively, maybe someone knew something.

  Something, such as what the Treasury announced 5pm this afternoon in a release titled “Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping“

  As the title implies, the Treasury has just made it quite clear that any and all tax inversions, of which the Pfizer-Allergan deal is most notable, are no longer welcome. This is what it said.

  Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping

   

  Today, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued temporary and proposed regulations to further reduce the benefits of and limit the number of corporate tax inversions, including by addressing earnings stripping. By undertaking an inversion transaction, companies move their tax residence overseas to avoid U.S. taxes without making significant changes in their business operations. After an inversion, many of these companies continue to take advantage of the benefits of being based in the United States, while shifting a greater tax burden to other businesses and American families.

   

  “Treasury has taken action twice to make it harder for companies to invert. These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home,” said Treasury Secretary Jacob J. Lew. “Today, we are announcing additional actions to further rein in inversions and reduce the ability of companies to avoid taxes through earnings stripping. This will have an important effect, but we cannot stop these transactions without new legislation. I urge Congress to move forward with anti-inversion legislation this year. Ultimately, the best way to address inversions is to reform our business tax system, which is why Treasury is releasing an updated framework on business tax reform, outlining the administration’s proposals to date as a guide for future reform. While that work goes on, Congress should not wait to act as inversions continue to erode our tax base.”

   

  Genuine cross-border mergers make the U.S. economy stronger by enabling U.S. companies to invest overseas and encouraging foreign investment to flow into the United States. But these transactions should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of a parent entity to a low-tax jurisdiction simply to avoid U.S. taxes.

   

  Today, Treasury is taking action to:

  • Limit inversions by disregarding foreign parent stock attributable to recent inversions or acquisitions of U.S. companies. This will prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition.
  • Address earnings stripping by:
    • Targeting transactions that generate large interest deductions by simply increasing related-party debt without financing new investment in the United States.
    • Allowing the IRS on audit to divide debt instruments into part debt and part equity, rather than the current system that generally treats them as wholly one or the other.
    • Facilitating improved due diligence and compliance by requiring certain large corporations to do up-front due diligence and documentation with respect to the characterization of related-party financial instruments as debt.  If these requirements are not met, instruments will be treated as equity for tax purposes.
    • Formalize Treasury’s two previous actions in September 2014 and November 2015.

   Treasury will continue to explore additional ways to address inversions.
   
  Treasury is also releasing an updated framework for business tax reform, which revises the framework released in 2012. This lays out the key elements of the President’s approach to reform and details the specific proposals the administration has put forward, including a comprehensive approach to reforming the international tax system.

  The Allergan-Pfizer spread now is basically to levels as if the deal never happened:

  

   

  We can’t wait to find out how many M&A arbs, who had anywhere between 2x and 5x (or more) leverage on the arb spread (of which the most notable recent arb chaser is none other than Franklin resources whose Dec 31. $1.3BN pure arb stake is now worth 20% less in an instant) just blew up after hours with just this one simple press release.

  The table below shows why Franklin Resources will be short one employee tomorrow:

  

  We also wonder how this will impact the broader, and quite illiquid, market tomorrow.

  

  

  

  

  

• The Inevitable Failure Of The War On Cash

  Submitted by Jeff Thomas via InternationalMan.com,

  Some years ago, when I suspected there would be a War on Cash at some point, everything in the behaviour of the central banks pointed to the idea—it fit exactly into their own informed, yet unrealistic, pattern of logic. I therefore decided that it would be a likely development and would take place at a time when they had tried everything else and had run out of other ideas. As to a date when this might happen…I had no idea.

  When several countries had begun to limit the amount of money that a depositor could take out of a bank, I decided that the first shots in the War on Cash had been fired and began to publish my prognostications as to what shape it would take. First, there were the benefits to the bank (the elimination of cash transactions, which would assure that virtually all monetary transactions, large and small, would have to be passed through banks, allowing them to effectively “own” all deposits, charge for every transaction and even refuse transactions). The governments would also benefit. In approving the banks’ monopoly on monetary transactions, they’d benefit primarily through the new ability to tax people by direct debit, ending any remnant of voluntary payment of taxation.

  What I didn’t anticipate at that time was that, within a few months, the War on Cash would be escalated quickly—more quickly than was safe for them to do, as it could alarm depositors. (As in the old analogy of boiling a frog, it’s always best to turn up the heat slowly, to lull the victim into complacency as he’s being done in.)

  This indicated to me that the central banks had decided that they’d already waited too late and had better hurry up the programme to assure that it was in place before a currency crisis could heat up.

  Since then, someone came up with an excellent name for the phenomenon, one that succinctly describes the plan in a nefarious way, as it deserves to be described—the War on Cash. Today, anyone who is paying attention is aware of the War on Cash and what it might do to him. As each new salvo by the banks and governments is uncovered, attentive observers are publishing such developments on the Internet.

  However, there’s another facet to the War on Cash that no one (to my knowledge) has yet addressed. The war is still new, and those who will be attacked are understandably still scrambling for their muskets and hurrying to the ramparts. (Musing on how a war will play out usually comes later, as it’s winding down and a victor seems apparent. However, in my belief, it’s wise to examine what the landscape will look like after the war is over, as it can serve to inform us as to what battle tactics should be employed.)

  So, let’s have a look. First off, we know that whenever there’s a coming monetary collapse, major banks look forward to employing their political influence to assure that legislation and emergency government measures protect them in a way that results in putting upcoming competitors out of business. We can expect the same this time around. These smaller banks arise during boom times by creating many small branches—the type seen in strip malls and shopping villages. Typically, they have only 1,000 or so depositors per bank—just barely enough to create profit, but, as “convenience banks,” they can count on a steady business from those who live nearby.

  Larger banks also tend to create numerous branches during good times, in order to hold down the rising competition; however, they resent the need to create endless less-profitable entities that tie up funds that could otherwise go out as directors’ bonuses. Consequently, when a monetary crisis occurs and the government steps in to help out the major banks, many of the smaller competitors are driven under, as they don’t receive the same governmental support. At such times, we see the edifices in the city remain, whilst the little banks in the strip mall disappear. The majors can now be rid of them. During a banking crisis, a country returns to 19th-century banking in terms of available institutions. Want to make a deposit? Make a trip into the city.

  In keeping with the War on Cash, ATMs will also be eliminated. All transactions will be by plastic card or smartphone.

  Certainly, as a result of the dangerous position the banks will already be in, we shall witness a steady increase in the charges by banks for the privilege of having them control depositors’ economic worth. Worse, we shall witness the outright confiscation of deposits (as in Cyprus in 2013) and the control of how much a depositor may debit his account in any given week (as in Greece today). It’s at this point that a universal trend to get around the banks’ control will unquestionably take hold. This, I believe, will manifest itself in two ways: top down and bottom up.

  Top Down

  As I write, bank branches—all of them in small towns—are already closing in “lesser” countries like Romania. This will both grow and spread eventually, to more prominent countries. Banking will be increasingly difficult for depositors, as the ability to actually talk to individuals at the bank will dry up. The bank will become more like a faceless authority that holds power over depositors’ money and will grow to be hated in a relatively short time. (Most of the people of the world have already learned to be deeply distrusting of banks and bankers; outright hatred would not be a major next step.)

  Bottom Up

  In the Eastern provinces of Mexico, the Campesinos already eschew banks, choosing instead to store their money privately. (Chiapas Province is in a virtual economic war with Western Mexico. They value the Libertad as East Indians value gold.) Those Mexicans who live further to the west regard their eastern brothers as somewhat lawless and uncivilised at present. However, when the Campesinos prove to be surviving the crisis better than their western neighbours are, the western provinces will, of necessity, follow their lead. Mexico will be amongst the first countries to return to precious metals as the primary (if not sole) currency, setting the stage for other countries.

  Countries such as Romania and Mexico will serve as an early-warning system. The solutions they and other “fringe” countries employ will spread quickly to the larger world. In order to keep from being controlled by banks, the average person in the EU, U.S. and other “civilised” jurisdictions will learn quickly that, if other forms of trade (alternate currencies, precious metals, barter, etc.) allow him to feed his children when the banks restrict him, he’ll resort to any and all forms of black market dealing that he can find.

  The Treaty of Versailles

  Following World War I, the victors decided to economically cripple the losers—the Germans. The Treaty of Versailles was ruthless in its purpose—to strip Germany of all possibility of future prosperity, so that it could never rise again.

  Of course, what happened was the opposite. Following an economic collapse just five years after the war, the German people, now desperate, chose to follow a new leader who promised that he would “make Germany great again.” The more arrogant he became, the more support he received. The oppression of the treaty failed, as Germans, pushed to the wall, came out fighting.

  I believe that the War on Cash will end without such an extreme, but, just as with the Treaty of Versailles, will be stopped by the people of the world as a result of a monetary stricture that is simply too oppressive to be tolerated. This will by no means be a pleasant historical period to travel through. Many people will have their savings wiped out. Many will literally starve. But the anger that’s created in them will reveal the banks as the clear “enemy” in this drama, and those citizens who are presently respectful of the laws of their country will increasingly defy the enemy. They will resort to an alternate system. This is historically what has always occurred when people have been squeezed to this degree, and it will repeat itself this time around.

  

  

  

  

  

• Valeant Tumbles As Lenders Demand Two Pounds Of Flesh For Covenant Waivers

  Two weeks ago, the catalyst that pushed Valeant CDS to record wide levels implying a 55% probability of default over 5 years, while sending the company’s stock plunging, was news that Valeant was scrambling to engage its lenders to obtain a default waiver to its bank credit agreement to eliminate a technical default that arose when it didn’t file its 10-K before March 15.

  As we reported then, “in anticipation of those meetings, owners of Valeant’s senior bank loans are reaching out to investment banks, including Barclays, who will help mediate the negotiations, the sources said. Barclays did not immediately respond for comment.”    

  As was explicitly warned, the lenders’ demands include higher interest payments and a pledge to pay a larger amount of the bank loans from the proceeds of any Valeant asset sales.

  Since then the stock bounced modestly because apparently the algos forgot that when lenders smell blood and a potential default from a debtor without any other recourse, they will demand a pound of flesh. Or maybe two.

  Well, moments ago the market got a harsh reminder that Valeant is effectively negotiating default compliance with a group of banks who realize they are dealing with a company that has a $9 billion market cap and can thus ask for anything and management and shareholders have no choice but to say yes unless that $9 billion to quickly go to $0.

  According to Bloomberg, Valeant, just as predicted,  “is facing push back from some of its lenders as it seeks to waive a default and loosen restrictions on its debt, according to people with knowledge of the matter.”

  The resistance may complicate Valeant’s efforts to win the support it needs before the Wednesday deadline for lenders to respond. The company, which has about $32 billion in total debt, must gain approval from more than half of the investors holding its more than $11 billion of secured loans. Those that are balking are demanding a higher interest rate and a better fee, said the people, who asked not to be identified because the discussions are private. They also want to impose some restrictions on the terms the company is offering on the proposal, they said.

  Also known as a pound of flesh. Or maybe two.

  Bloomberg reports that the initial Valeant “bid” is a 50 basis-point fee and a 0.5 percentage point boost on the interest it pays on its term loans, people with knowledge of the matter said at the time.  Banks, however, want more: “Some lenders might see it as an opportunity to extract better pricing or other terms,” Justin Forlenza, an analyst at independent credit-research firm Covenant Review, said in an interview. “They can meet at a certain point that lenders and the company can get comfortable with.”

  Now this is only for the default waiver. Additionally, as a result of its collapsing business Valeant has to cure a key negative covenant limiting its interest coverage ratio to just 2.25x. Valeant’s coverage is about to jump to at least 3.00x and here again the banks want moar.

  Under the current proposal, the drug maker is also seeking to loosen restrictions on its credit pact that govern a measure of earnings the company needs to maintain relative to its annual interest expense, Valeant said in a statement on March 30. The interest-coverage ratio was set to jump to three times from 2.25 times, with that level set to be tested before the end of June, according to its current agreement with lenders.

   

  Asking lenders to relax loan covenants suggests Valeant may not be able to repay debt as quickly or generate projected earnings, according to Bloomberg Intelligence analyst Elizabeth Krutoholow.

  The good news for the banks is that Valeant still has lots of spare cash to pay out, and more importantly zero leverage. And since there are virtually no recent comps for such covenant waiver deals, the banks know that they can demand anything they want and will get it, since management has no choice but to concede to any demand, as the alternative is an outright default and complete collapse in the equity value of the company.

  This perhaps explains why after jumping into the $30 range last week, VRX stock is once again back just north of its multi year lows.

  

  

  

  

  

  

• Oil is Setting Up for a Massive Short Squeeze before OPEC Doha Meeting (Video)

  By EconMatters

  

  Barclays, BNP Paribas and a bunch of shorts are going to have to cover before the Doha Meeting. Expect the short squeeze to begin sometime this week.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

• Saudis Retaliate To "Oil Freeze" Fallout: Ban Transport Of Iranian Crude In Territorial Waters

  At first, when it announced the terms of its “oil freeze” agreement with Russia one month ago, Saudi Arabia seemed willing to grant Iran a temporary exemption from the supply freeze, at least until it recovers its pre-embargo production levels. That however changed on Friday when the country’s Deputy Crown Prince Mohammed bin Salman, shocked Saudi Arabia’s Arab allies in the Persian Gulf, telling Bloomberg his country would only join the freeze curbe Iran – and all other OPEC member nations – also joined.

  Following the Friday announcement, yesterday Iran’s oil minister Zangadeh made it clear that the country rejects Saudi demands, and would continue ramping up production at will, in the process making the April 17 Doha meeting meaningless.

  And then, in a new and unexpected retaliation by Saudi Arabia for Iran’s intransigence, moments ago the FT reported that Saudi Arabia has taken steps to slow Iran’s efforts at increasing oil exports, banning vessels that transport Iranian crude from entering their waters, according to traders and shipbrokers.

  More details from FT:

  Iranian vessels carrying the country’s crude are restricted from entering ports in Saudi Arabia and Bahrain, according to a circular sent by a shipping insurance company to its members in February.

   

  The notice said ships that have called to Iran as one of its last three ports of entry will also require approval from the Saudi and Bahraini authorities before entering their waters. Shipbrokers and traders have relayed the same messages since.

   

  Iranian oil executives have expressed their concern about the message circulating in the market, saying it is only adding to problems they face in selling their crude.

   

  Saudi Aramco, the state oil company, and The National Shipping Company of Saudi Arabia (Bahri) did not respond to requests for comment.

  It is not clear just how much of an impact this escalation will have because as shown in the map below, Saudi territorial waters are hardly a major factor in Gulf shipping lanes.

  

  However, considering that Iran already faces insurance, financing and legal obstacles despite the lifting of sanctions linked to its oil industry in January, and considering the amount of clout the Saudis have with financial partners, its attempt to make Iran’s oil production more difficult will surely reap at least partial success.

  Indeed, as the FT adds, oil tanker association Intertanko and other industry participants say no formal notice has been given by Saudi Arabia but uncertainty is making some charterers less willing to lift Iranian crude.

  ”It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis.”

  As a reminder, the amount of oil being stored at sea off the coast of Iran has risen by 10 per cent since the start of the year, data from maritime data and analytics company Windward show, and now stands at more than 50m barrels.

  But what is perhaps far more troubling for Iran is that on Friday president Obama criticized Iranian leaders for undermining the “spirit” of last year’s historic nuclear agreement, even as they stick to the “letter” of the pact.

  According to the Hill, in comments following the Nuclear Security Summit in Washington, Obama denied speculation that the United States would ease rules preventing dollars from being used in financial transactions with Iran, in order to boost the country’s engagement with the rest of the world.

  Instead, Obama claimed, that Iran’s troubles even after the lifting of sanctions under the nuclear deal were due to its continued support of Hezbollah, ballistic missile tests and other aggressive behavior.

   

  “Iran so far has followed the letter of the agreement, but the spirit of the agreement involves Iran also sending signals to the world community and businesses that it is not going to be engaging in a range of provocative actions that are going to scare businesses off,” Obama said at a press conference.

   

  “When they launch ballistic missiles with slogans calling for the destruction of Israel, that makes businesses nervous.”

   

  “Iran has to understand what every country in the world understands, which is businesses want to go where they feel safe, where they don’t see massive controversy, where they can be confident that transactions are going to operate normally,” he added. “And that’s an adjustment that Iran’s going to have to make as well.”

  And so a new potential bullish catalyst for oil emerges: If Obama’s anger grows, and if the Iran agreement is ultimately unwound, that would mean that all of the excess oil brought on market by Iran, would promptly be taken off the market once more, in the process eliminating the supply glut overnight.

  It remains to be seen if Obama is ready to sacrifice his foreign “legacy” just to boost the price of oil, and thus, gas at the pump. Then again, considering over the weekend Goldman made a huge U-turn on the “low oil is good for the economy”, and if Obama’s advisors start whipsering in his ear how higher oil prices are critical for US energy companies, that may be precisely what ends up happening.

  

  

  

  

  

• One Junk Bond Analyst's Catastrophic Forecast For What Is Coming

  “cumulative losses over the length of the entire cycle could be worse than we’ve ever seen before”

       – BofA High Yield strategist Michael Contopoulos

   

  While not as quixotic as Morgan Stanley’s Adam Parker piece on market-chasing cockroaches, BofA high yield analyst Michael Contopoulos has moved beyond merely bearish and is now outright catastrophic . That may be a little far fetched, but in his latest note – while he doesn’t call rally chasers “cockroaches” (yet), he seems at a loss to explain the ongoing junk bond rally. His reasoning: fundamentals just keep getting worse by the day, while price action has completely disconnected from reality, and virtually nobody expects what is about to unfold in the junk bond space.

  First, according to his assessment of deteriorating macro and micro indicators, the recent price move makes little sense:

  Despite the strong payroll data the economy still appears to be headed in the wrong direction, as our economist’s tracking model now indicates just 0.6% Q1 GDP growth and a revised 2.0% (from 2.3%) for Q2. Should our team’s figures hold, the period ending March 31st will mark the 3rd consecutive quarterly decline in GDP and the second sub 1% quarter in the last 5. More importantly for high yield investors, however, is that earnings growth continues to be anemic. 2 weeks ago we wrote that too much emphasis has been placed on Adjusted EBITDA, an approximation of cash flow that doesn’t take into account “1-off” charges, working capital, capex, etc. Although we understand the allure of this measure, in our eyes it has the tendency to cover up late cycle problems; namely asset impairments. With the understanding, however, that this measure is likely to be used for some time to come, we highlight the following: Even with 1-off adjustments 6 out of 17 sectors realized negative year-over-year Adjusted EBITDA in Q4, with a 7th sector growing at just 0.5%. On an unadjusted basis, 9 sectors realized negative EBITDA growth for Q4.

   

  

   

  Because one quarter doesn’t tell the whole picture of a company’s earnings momentum, we also calculated both Adjusted and Unadjusted EBITDA by weighting the last 5 quarters 30%, 25%, 20%, 15,%, 10% (Q4 2015 having the highest weight Q4 2014 the lowest). What we find is that the commodities sectors are clearly not the only industries to be experiencing troubles as Capital Good, Commercial Services, Consumer Products, Gaming, Media, Retail, Technology and Utilities are all under pressure. Additionally, on an unadjusted basis Healthcare also doesn’t look like the darling some firm’s spreads would suggest.

  Then he looks at where in the credit cycle the market currently finds itself:

  We’ve written on multiple occasions how the main question mark surrounding the end of this credit cycle is its shape, not whether we’re currently living through it. As mentioned above, fundamentals have been consistently deteriorating even outside of commodities, defaults are rising, new credit creation is becoming difficult, and illiquidity is still a problem. Although technical tailwinds in the form of retail inflows and supportive central bank policies can prolong the market unwind, they do not change its direction as ultimately fundamentals will prevail.

  That is a bold assumption with every central bank having become an activist, but yes: ultimately fundamentals will prevail.

  In terms of the shape of this cycle, absent a recession we expect the pace of defaults to be much closer to the 1998 experience than the 2007 one. In fact, we have coined the phrase “a rolling blackout” to describe the potential for a period of many years where the market experiences general weakness and moderately high defaults as individual sectors take turns realizing their moment of distress. Whether these moments are based on a deterioration of underlying fundamentals, an unwind of crowded trades, or some sort of series of macro-economic incidents is nearly irrelevant, as the uncertainty and consistent underperformance of the overall market will likely frustrate many investors and asset allocators. In our view this is not unlike the 1998-2002 experience, where the very same scenario could played out: years of high yield underperformance, poor returns and moderately high defaults. Recall in those years, high yield returned 2.9%, 2.5%, -5%, 4.4%, -1.9% (and 3 years in a row of negative excess returns) while the default rate slowly crept up from 2% to 8% over the course of 3.5 years before hitting double digits.

  Next, he proceeds to the “apocalyptic part”, stating quite clearly that “the losses over the credit cycle could be worse than we’ve ever seen before.” One reason: central bank intervention that keeps kicking the can instead of allowing the disastrous fundamentals to finally reveal themselves.

  Should the market realize a mid to high single digit default rate for years cumulative losses over the length of the entire cycle could be worse than we’ve ever seen before. A total of 33% of issuers defaulted over the course of the 1987 and 1999 default cycles, higher than the 25% in 2008 as the latter benefitted from unprecedented central bank intervention. But the very same policies which helped alleviate the pain in the last cycle will likely add to the severity of the next one. This is because many of the companies that should have defaulted 7 years ago but instead received a lifeline will likely shutter doors now. As risk premiums have caused yields to jump nearly 400bp, many of these firm’s business models will now likely be unsustainable; especially given the lack of EBITDA growth we have seen this cycle (Chart 1). When these issuers are then coupled with the newest crop of unsustainable businesses from this credit cycle, we could see cumulative default rates approaching 40% this cycle versus the traditional 33%.

   

   

  It’s not just the upcoming surge defaults. Contopoulos also e focuses on product-specific issues which we have discussed before, namely the already record low recovery rates, a unique feature of this particular default cycle. These are only going to get worse.

  However, not only will defaults be higher than in past cycles, but credit losses are also likely to be worse than ever before. That’s because recoveries, even outside of the commodity space have been paltry in the post crisis years. Given where we are in the default cycle, prevailing recoveries are a full 10 points lower than where they should be. Chart 2 highlights historical time periods characterized by low default rates (inside of 4%). Whereas in the past, recoveries tended to surpass 50% in low default environments, the last few years have seen those averaging 40%. This is telling because it means the pressure on recoveries is not being caused by the abundance of assets for sale in the market, which increases as more companies default, but rather because of the quality of these assets as we have discussed in part 1 of our recovery analysis published last year.

   

  

  One reason for the collapse in recovery rates: the extensively documented chronic underinvestment in replenishing the asset base, and instead “investing” in buybacks and dividends.

  So why are today’s assets garnering less enthusiasm than before? One reason, of course, is that a large portion of defaults today are in the commodity space, which are finishing with sub 10% recoveries as investors try to grapple with a market which may not have hit its bottom. However, problems persist even outside of the commodity industries. Take a look at the YoY growth in capex for non-commodity HY issuers (Chart 3). It’s striking how CEOs have invested much less in their businesses this cycle compared to previous ones. In fact, most of the capex growth since 2010 has come from energy issuers on the back of the US energy independence story in the early part of the decade; and we all know not to count on that going forward. On top of that, asset impairments as a percentage of tangible assets are through the roof, chipping away at valuations of an already low asset base. Not surprisingly, non-commodity recoveries reflect the same extent of erosion post 2010 as does overall HY (Chart 4).

  If that wasn’t bad enough, it gets worse: “Given that HY companies have seen hardly any organic growth within last few years, it is of little surprise that recoveries today are so low. The bad news is that we think they are going to decline further.”

  Contopoulos then analyzes various fundamental trends to determine the shape of the upcoming default cycle, and concludes with the following bleak assessment:

  So where does this leave us? According to our model, should the default cycle look similar to the 1999 experience (2yr cumulative DR of 25%), and debt-to-asset ratio touch the highs of that cycle (0.51x), recoveries can be as low as 16c on the dollar. There is also a case to made that if there is no catalyst to total capitulation, and we see a longer flatter default cycle, we could see 2yr cumulative default rates much less than 25%. While this is reasonable, one can also argue that debt-to-asset ratio which today already stands at 0.48x, could ultimately go much further past 0.51x. Additionally, as we have seen in the post crisis years, default rates matter less than debt-to-asset ratios, meaning recoveries even under a rolling blackout scenario could even be worse than we expect.

   

  

   

  Table 3 presents a scenario analysis of the range of recoveries to expect in the next few years depending on one’s forecast of default rates and debt-to-asset ratios. In almost any scenario recovery rates stand to be well below 30% this cycle.

  According to Contopoulos, investors are only slowly starting to appreciate just how bad the future will be for junk bond investors:

  While most investors we have talked to appreciate that recoveries will be lower going forward, we think it’s just as important to highlight just how much. Because, 8% yield may sound attractive if your expected credit losses are 400bps (6% DR*70% LGD). But the picture suddenly becomes unappealing knowing these losses could accumulate to 500bps; suddenly leaving you with an unremarkable excess spread cushion.

   

  And it appears that investors have begun to pay attention, at least as seen from the events in the primary market. It’s no surprise that CCC issuance has cratered in the last year as investors are unwilling to extend credit to low quality issuers. Now it seems they are even rewarding BB issuers for using their newly raised debt judiciously, as can be seen from the lower clearing yields for debt being earmarked for capex investment over anything else

  Welcome to the brave new world of massive default losses and record low recoveries.

  This new world will be one where investors should and will adjust their expected compensation higher to make up for rising defaults, dwindling recoveries, and declining liquidity, all of which are here to stay.

  Come to think of it, we almost prefer Adam Parker’s incoherent ramblings about cockroaches better: at least it gave some sense that there could be a happy ending. If only for the cockroaches that is….

  

  

  

  

  

• Dismal Data Deluge Deletes Dow Dead-Cat-Bounce

  Nothing to see here, move along…

   

  But but but the "great" jobs data… The dead-cat-bounce is over…

  

   

  Trannies had a tough day…

  

   

  But US equities are holding on to some of the gains from Friday's exuberance…

  

   

  Notably there was significant selling at VWAP (suggesting institutional derisking)…

  

   

  Treasuries traded in a worryingly narrow illiquid range today ending very modesly lower in yield…

  

   

  The US Dollar Index ended the day unchanged after weakening from overnight strength after the dismal slew of US data today…

  

   

  Despite the "deadness" of the FX and bond markets, commodities had a volatile day with crude gettin smashed to one-month lows…

  

   

  Finally, as a gentle reminder…

  

   

  Charts: Bloomberg