• Will The American People Succeed In Clawing-Back Their Democracy?

  Authored by Paul Craig Roberts,

  With much help from the failures of neoliberal economic policy and neoconservative foreign policy, we are changing the world.

  Look at Bernie Sanders’ inroads on the corrupt Clintons’ control of the Democratic Party. Look at how easily Donald Trump defeated the Republican establishment’s candidates. Some Americans are catching on, shedding their unawareness. I am not confident that Sanders or Trump could bring change. In The Deep State (2016), Mike Lofgren concludes that powerful private interest groups, such as the military/security complex and the financial sector, have hijacked democracy. Still, voters’ interest in Sanders and Trump, despite the beating they receive in the media, is a positive sign. Voters are supporting them not so much for their positions on issues as for the fact that neither are part of the Washington establishment. Many voters now understand that the political establishment represents the One Percent, not them.

  A New Russia has appeared on the scene and demonstrated to the entire world its power to checkmate the hegemonic ambition of the crazed neoconservatives who have controlled the US government since Bill Clinton. The world now understands that the leadership for peace comes from Russia not from warmonger Washington.

  Washington’s vassals in Europe are in disarray, with the Northern European EU members plundering the Southern EU members, with all of Europe overrun with refugees fleeing Washington’s hoax “war against terrorism.” Europeans are beginning to realize that the establishment political parties that they have blindly supported since World War 2 are nothing but agents of Washington, who serve Washington and not Europeans. Merkel, Cameron, Hollande are puppets of Washington, not leaders of the German, British, and French people.

  The Chinese government is finally beginning to realize that the neoliberal American economic policies that it has so slavishly been copying have led it into economic difficulties. Perhaps China will now cease to follow America into oblivion.

  The Russians have learned that being part of the Western system subjects them to economic sanctions and makes it easy for Washington to interfere in Russian internal affairs. The Russians are beginning to show that their desire for their independence is greater than their desire to be accepted by a corrupt, immoral, decadent, and failing West.

  Donald Trump and Bernie Sanders speak to Americans’ loss of economic opportunity and financial independence. Today the 99 Percent are slaves to their debt burdens and lack of productive employment, while those who deceived them into these burdens and lowly-paid employment in domestic services are reveling in multi-million dollar annual paychecks.

  The US Treasury, Federal Reserve, and financial regulators are corrupted by the private financial interests that control them. The US government serves only the One Percent. Despite this obvious fact, many Democratic Party voters—-traditionally the less well off, union members, and American blacks—-are turning out for Hillary Clinton, a tried and proven representative of the One Percent. The Clintons have been enriched to the amount of $153 million by the ruling One Percent who own the Clintons lock, stock, and barrel. Yet the dispossessed vote for Hillary.

  Clearly, many American voters, as Thomas Frank made clear in his book, What’s the Matter with Kansas?, still have no clue as to their own interests and vote to elect their worst enemies.

  Many Americans are still trapped in The Matrix and kept there by the propaganda that masquerades in the US as “news.”

  Consider the possible implications if Americans were to enable Hillary Clinton to become President. Trump has said that he would work things out with Vladimir Putin, but Hillary has declared the President of Russia to be “the new Hitler.” How can Hillary work anything out with “the new Hitler”? She cannot.

  It is a great irony that the American lower class, traditionally served by the Democratic Party, could put in the White House not only a person who only represents the super-rich but also a person who cannot escape confict with Russia, a country with possibly the most capable military force on the planet.

  The psychopathic Washington neoconservatives who have controlled US foreign policy since the Clinton regime, misintepret Vladimir Putin’s peaceful diplomacy as a sign of Russian weakness. The neocons say: “See Putin is weak. He is pulling out of Syria.” But what Putin says is different. Putin says: “We have created the conditions for peace in Syria.” If Washington abuses these conditions, “Russia can, in several hours, build up its forces in Syria to a size capable of dealing with an escalating situation and use the entire range of means at its disposal.”

  Putin adds: “We hope the parties involved would show common sense.”

  From a position of strength, Putin has rolled the dice. Is there common sense in the West? I fail to see any. I see arrogance, hubris, idiocy, immorality, inhumanity, complete and total stupidity. These are the characteristics of Western governments. They amount to a deranged criminal enterprise organized against humanity.

  In the awards of medals to those Russians who served against ISIS, Putin stated: “Our uncompromising attitude to terrorism remains unchanged.” If we take this statement broadly, it means not merely Muslim jihadists but the terrorism of the West—-the destruction of seven or more countries by the US and its vassals in the 21st century, the long-term sanctions against Iran, Russia, and a number of other countries whose governments do not comply with Washington’s dictates. Putin has told Washington and Washington’s European puppets, Cameron, Merkel, Hollande, that he has had enough of them. They must reform themselves, become honorable governments committed to the welfare of humanity, and abandon self-serving policies of plunder.

  Considering the total failure of the United States to subdue after 15 years a few thousand lightly armed Taliban, the American people need to understand that the US military, corrupted by privatizations to enhance former vice president Dick Cheney’s stock options in Halliburton and by over-cost weapons systems that serve the profits of the armaments industries and not the military competence of the fighting force, has lost its edge in weapons superiority. The latest over-cost American fighter jet, for example, according to the Air Force’s own conclusions cannot match the old figher it is intended to replace, whereas the lastest Russian fighter is said to have the capability to electronically shut down American control systems, track simultaneously 24 enemy fighters and lock on 10 simultanteously for unavoidable destruction. Members of the US military command have expressed concern over the high quality of Russian weapon systems.

  Everyone needs to understand that the establishments of the two American political parties, the Republicans and the Democrats, are less interested in winning the election than in continuing to control the party. Trump and Sanders are hated by the party establishments, because Trump and Sanders are not members of the establishment. Control over the party by the party establishment is so important that we have many members of the Republican establishment declaring that if Trump wins the Republican nomination, they will vote for the Democrat. This has happened before. It was Republicans who denied the presidency to Republican candidate Barry Goldwater.

  The United States is a failing society. Citizens’ hopes are being snuffed out. There are few good jobs or enough jobs of any kind, as the collapse of the labor force participation rate confirms. People are drowning in debts that they have no prospect of ever paying off. Young adults cannot form independent households. The oligarchy that rules and controls the country has committed America to massively expensive wars and privacy invasions for the purpose of establishing a hegemony that enriches elite private interests.

  The corupt and unrepentant financial sector, having survived its mortgage-backed security fiasco without prosecution or correction has repeated its previous folly with a new weapon of potential financial mass destrution. Speculators have bought up distressed properties and rented them. The rental streams are bundled into financial instruments, as were the mortgage payments previously, and sold to investors. Is a renter more committed and better able to pay than a person with a mortgage?

  Jobs offshoring and financialization have drained the US economy of the ability to grow. The ladders of upward mobility have been dismantled, and the service of debt curtails consumer demand for goods and services. The wage saving from offshoring jobs raises corporate profits and brings executive bonuses and capital gains to the One Percent. Financialization divests consumer purchasing power into the service of debt. The result is stagnation and decline.

  Foreign policy based on threats and coercion means constant conflict. The US has been in constant conflict since the Clinton regime overthrew the government in Serbia. Constant conflict is expensive, and Americans have had these expensive costs imposed on them simultaneously with the costs of jobs offshoring and financialization.

  It was 20 months ago that Malaysian Airlines flight 17 was destroyed over Ukraine. Despite the inability of the investigation to come to a conclusion, from the first moment Western propaganda has blamed the loss of 298 lives on Russia. Three days after the airliner’s destruction, US Secretary of State John Kerry set in stone the blame on Russia with his claim that “we saw the take-off [of the Buk missile]. We saw the trajectory. We saw the hit. We saw this airplane disappear from the radar screens. So there is really no mystery about where it came from and where these weapons have come from.”

  If the US has all the evidence, why hasn’t the US government released it? Obviously, there is no such evidence. Why would Washington fail to release evidence that proved Russian responsibility? Kerry’s evidence no more exists than the alleged evidence the US government claims to have from numerous security cameras that a passenger airliner hit the Pentagon on 9/11. If the government had such evidence why has the government refused to release it for almost 15 years? If the government produced this evidence, it would be a death blow to the 9/11 Truth movement. The evidence no more exists than the alleged evidence that Saddam Hussein had weapons of mass destruction, that Iran had a nuclear weapons program, that Assad used chemical weapons, that Russia invaded Ukraine.

  The terms of the last three US presidents have been used to squander trillions of dollars on pointless wars and construction of a domestic police state on the basis of a non-existant “terrorist threat.” This alleged threat has been reinforced with false flag events and a fake history spun from lies repeateded endlessly by government and its presstitutes.

  In 1994 Christopher Lasch wrote in The Revolt of the Elites: “In our time, the chief threat seems to come from those at the top of the social hierarchy.” As Lasch said, the greed of the elites for money and power have undermined the constitutional basis of the United States. The elites have used their power to betray democracy. Will the American people succeed in clawing back their democracy?

  

  

  

  

  

• Soon After We Sounded The Alarm, Canada's Regulator Warns Local Banks Are Underreserved To Energy Losses

  Back in early February, Zero Hedge laid out what was the biggest crisis facing Canada’s banks: a chronic under reserving to potential (and soon, realized) oil and gas loan losses.

  As we said nearly two months ago, “for Canada, it’s not only raining, it’s pouring for the country’s energy industry, a downpour which is about to migrate into its banking sector. Which is why it is indeed time to take a somewhat deeper dive into the Canadian banks’ balance sheets, where we find something very troubling, and something which prompts us to wonder if the time of freaking out about European banks is about to be replaced with comparable panic about Canadian banks.

  The following chart from an analysis by RBC shows that when compared to US banks’ (artificially low) reserves for oil and gas exposure, Canadian banks are…not. Here is the one chart showing why the time to panic about Canadian banks may have finally arrived:

  

   

  Two months later, we are happy to announce that Canada’s regulator has caught up to our warning, and as the WSJ reported, “Canada’s banking regulator is urging the country’s major banks to review their accounting practices to ensure they have sufficient reserves as the commodity-price collapse takes a toll on the economy.”

  As we first suggested in early February, Canada’s Office of the Superintendent of Financial Institutions is now warning local lenders should scrutinize their collective allowances and reserve funds that act as cushions to absorb potential future loan losses, the regulator’s chief said in an interview.

  “We want them to take a good look at their accounting practices,” said Superintendent of Financial Institutions Jeremy Rudin. “They should support loss-absorbing capacity and the ability to manage through difficult times in general,” he added.

  
  

  Some of the banks laughed at us when we suggested they are purposefully masking their exposure to distressed loans; we wonder if they will also laugh when their regulator tells them to do precisely that. As the WSJ further writes, “Canada’s regulator is giving the country’s six biggest banks this guidance on their accounting as they face mounting criticism from some analysts that they haven’t amassed enough reserves to cover soured loans to the energy sector. That criticism was a recurring theme during calls following their fiscal first-quarter results, in which many banks warned of rising provisions for credit losses but assured investors their rainy-day cushions were adequate.”

  Here is the WSJ chart released today which is oddly identical to the one we showed many weeks ago:

  

   

  Next, the WSJ summarizes the details of what is known about Canadian loan exposure:

  Energy loans totaled 49.7 billion Canadian dollars ($38.2 billion) for the country’s six biggest banks during the November-to-January quarter, according to a report by TD Securities Inc.  Bank of Nova Scotia, Canada’s third-largest bank by assets, has the biggest direct oil and gas exposure at 3.6% of total loans.

   

  Some analysts are skeptical about the lenders’ reserving practices in part because U.S. banks, including J.P. Morgan Chase & Co. and Wells Fargo & Co., have set aside millions more for their reserves as they brace for bigger energy-related losses.

   

  Mr. Rudin declined to say whether Canadian banks are under-reserved compared with their U.S. peers. Nor did he offer an opinion on whether analysts voicing such criticisms were misinformed.

  Actually, that is only half the picture: as we explained in “The Next Cockroach Emerges: Including Undrawn Loans, Canadian Banks Exposure To Oil Doubles” if one includes undrawn (but committed) bank exposure, the number doubles. Indeed, when adding “untapped loans in the form of undrawn revolvers and other committed but unused credit facilities, Canadian banks’ exposure to the struggling oil-and-gas industry more than doubles from the current C$50 billion in outstanding loans generally highlighted by Royal Bank of Canada, Toronto-Dominion Bank and the country’s four other large lenders in quarterly earnings calls and presentations, to C$107 billion ($80 billion).“

  We expect the WSJ to catch up with this critical angle of the story in the next 4-weeks, one which would imply the all-in loss reserves are about 50% lower than the already alarming estimates. For now, however, what we do know is that most banks declined to comment, including on how they have responded to the regulator’s guidance. “We have no comment on this specifically, but are confident in our current provisioning practices,” said Ali Duncan Martin, a spokeswoman for Toronto-Dominion Bank, Canada’s No. 2 lender by assets, in an email.

  For their part, Canad’s banks did what they also do: float in a sea of denial. A spokeswoman for an industry group representing the lenders, the Canadian Bankers Association, said that Canadian banks aren’t under-reserved. Well, they clearly are, but admitting as much would unleash the market’s realization just how wrong its valuation of Canadian banks has been. 

  Not only are Canadian banks under-reserved, they are also purposefully opaque to prevent investors from making a comprehensive health assessment:

  Canadian banks tend to disclose their energy exposures as a percentage of total loans, but it is difficult to make a direct comparison with U.S. lenders. For instance, Canadian portfolios include large amounts of insured residential loans that are essentially risk-free because they are backstopped by the federal government.

   

  Canada’s banks have also been criticized by analysts for providing varying degrees of detail about their energy lending books—such as the proportion of reserve-based loans and the amount considered “investment grade”—and about their stress-testing of loan portfolios.

   

  “I’m concerned about this,” said  James Shanahan, an equity analyst with Edward Jones, in a recent interview. “The banks aren’t really saying a whole lot about the true underlying quality of these [energy] portfolios,” he later added. He’s among the analysts calling on Canadian banks to provide more disclosure on their energy exposure, including how much covenant relief is being provided to distressed borrowers.

  He almost certainly won’t get it, unless for some reason, the Dallas Fed make it explicit that Canadian banks have to be more transparent in a few weeks when bank borrowing base redeterminations are made in negotiations which will include not only Canadian and US commercial banks, but the Dallas Fed as well as the US OCC.

  That could prove to be a key issue in the spring borrowing base redeterminations. Mr. Rudin declined to specify what role, if any, OSFI would play in those upcoming reviews, saying only banks are expected to have a “robust credit assessment process” that is frequently reviewed by the regulator. Issues, such as covenant relief, are “business decisions” best left to the individual banks, he added.

  We can tell Mr. Rudin what will happen: the OSFI will play the same role that the US OCC played in recent preliminary, if quite definitive, discussions between US lenders and shale producers, the same discussions which the Dallas Fed denied ever took place even though both Credit Suisse and the WSJ confirmed our story: discussions which made it clear to US banks not to force defaults, but to suspend MTM until the local lenders can force the underlying company to issue debt (just like Weatherford) and use the proceeds to take out the secured lender bank.

  Expect precisely the same in Canada over the next few months as Canada’s lenders are told to quietly, if aggressively, unwind their exposure to all Canadian oil and gas companies.

  

  

  

  

  

• Turkey Is Now Paying The Price For "Creating ISIS Monster It Can No Longer Control"

  Op-Ed via RT.com,

  It was expected ISIS would turn against the Ankara regime at some point, and Turks are now paying the price for creating and training a monster like this, political analyst Roula Talj told RT. The worst has started between Turks and IS, she concluded.

  Turkish Interior Minister Efkan Ala said Islamic State (IS, formerly ISIS/ISIL) is linked to Saturday's terror attack in Istanbul. The suicide bomber, who carried out the atrocity killing four, has been identified as Mehmet Ozturk. The incident happened in a crowded tourist shopping area killing people from a number of different countries.

  

   

  RT: Turkey confirmed it thinks ISIS is behind the bombing in Istanbul? Was this expected?

  Roula Talj: Of course it was expected. When you look at the number of ISIS members who entered Syria in the last few years, and then you see that the number of Turkish members went up to 25,500 fighters, you cannot expect to train a monster like this in Turkey and expect to use it against your enemies alone. One should expect that ISIS would turn against the regime in Ankara and in Turkey at some point.

  RT: Why is Turkey becoming an ISIL target, and how do you expect Ankara to react?

  RTj: Maybe Ankara is under pressure now from the Western community, especially the Europeans who are concerned about the amount of ISIS members trying to escape, or to take over Europe from Turkey. So probably they are under pressure and this is the response of ISIL to put pressure on Ankara. Maybe the worst has started between the Turks themselves and ISIS, and this is coming to the surface now.

  RT: Turkey's been accused of both supporting ISIL by allegedly buying the terrorists’ oil, but also being part of the anti-ISIL coalition. Do you think Turkey's anti-ISIL efforts are genuine?

  RTj: No, I don’t think so. It is known to everyone that the major ISIS training camps were in Turkey. Turkey’s intelligence knew very much [about] the number of ISIS members crossing to Syria and to other borders from Turkey. So, if they were genuine, they would have done something about it a while ago.

  I think Turkey was using ISIS in its proxy war in Syria, and at some point it came under the pressure of Europeans and the international community, who is not going to make it easy anymore on those sponsoring ISIS and other extremist groups in the region, because it is no longer about Syria, it is about the entire world security. So Turkey now is paying the price of playing with a devil and creating a monster that it cannot control anymore.

  ISIS doesn’t need Turkey or anybody, they are self-sustainable. When Turkey was buying the oil from ISIL, it knew very well that was a way… to finance ISIL.

  

  

  

  

  

• FBI "Increasingly Certain" Hillary Broke The Law, Stone-Walled By White House

  Following the granting of immunity to Hillary Clinton's top IT guy, it appears the law – which has so conveniently until now been above – is beginning to catch up to the prospective US president. As The Washington Examiner reports,

  The Federal Bureau of Investigation is losing confidence in Hillary Clinton and her mishandling of a private email server, a New York Post columnist suggested on Sunday.

   

  "FBI chief James Comey and his investigators are increasingly certain presidential nominee Hillary Clinton violated laws in handling classified government information through her private e-mail server," Charles Gasparino said career agents had told him.

   

  "Some expect him to push for charges, but he faces a formidable obstacle: the political types in the Obama White House who view a Clinton presidency as a third Obama term," Gasparino added. "With that, agents have been spreading the word, largely through associates in the private sector, that their boss is getting stonewalled, despite uncovering compelling evidence Clinton broke the law."

   

  Clinton is facing a federal indictment over charges that she mishandled classified information during her tenure as secretary of state by storing it on a personal email server. The FBI earlier this month granted immunity to Bryan Pagliano, a Clinton aide who helped to establish the server in the basement of her Chappaqua, New York home, as part of its investigation into the matter.

   

  "You don't start granting people close to Clinton immunity unless you are seriously looking at charges against your target," Gasparino quoted one former official as saying.

  As we noted previously, intelligence sources described the morale of agents as "very good and nobody is moping around which is the first sign a big case is going south."

  *  *  *

  Keep on running…

  

  

  

  

  

  

• This Critical Consumer Is Buying Gold For The First Time In Three Weeks

  Submitted by Dave Forrest of Pierce Points

  The First Gold Buying In 3 Weeks Happening For This Critical Consumer

  Major news in the gold market over the weekend. With the world’s largest gold-consuming nation reaching an agreement to resume metal sales for the first time in nearly three weeks.

  That’s in India. A critical gold consumer globally, where buying had been idled since the beginning of March by a nation-wide strike by the jewelry sector. 

  But that strike is now officially over. With the president of India Bullion and Jewelers Association, Mohit Kamboj, announcing late Saturday that jewellers have reached an agreement with the government to return to work. 

  Details are still emerging, but here’s one of the most critical takeaways: as part of the back-to-work deal, the Indian government will not roll back the 1% sales tax on gold that it announced in a surprise move as part of its February 29 budget. 

  That sales tax had been the major trigger for the jewellers strike. But it appears that India’s gold sellers have relented on demands that the government shelve the extra levy.

  Instead, reports suggest that jewellers had been appeased by assurances from the government that they would not be “harassed” over the collection of the new tax.

  It’s difficult to know exactly what this means. Although it could suggest that tax officials may not push collection of the sales tax — rendering this more of a cosmetic measure than a practical one. 

  Whatever the case, the good news for the gold market is that India will now be buying again — for the first time since February. Which should give a lift to gold prices — especially with reports suggesting there is a lot of “pent up” demand here after the 19-day strike. 

  Watch for imports into India to rise for the coming weeks, and potentially lift the gold price. And keep an eye out for more details on how the 1% sales tax will be implemented — with this measure having the potential to dampen gold sales here in the longer term.

  Here’s to a triumphant return.

  

  

  

  

  

  

• Whose Bright Idea Was It To Show A Naked Melania Trump In An Attack Ad?

  There is nothing wrong with attack ads: Trump’s first attack ad against Hillary Clinton was creative, original, imaginative – it included Jihadi John, a barking Hillary Clinton and a cackling Putin. It promptly went viral. Hillary’s retort was basically a duller version of the original Trump ad; it was ok although Hillary’s SuperPAC will have to do much better to keep the entertainment level on par.

  However, when a conservative, anti-Trump group decided to run Facebook ads which showcased naked photos of Melania Trump, we wonder: what were they thinking?

  According to Buzzfeed, with Tuesday’s presidential primary contests in Utah and Arizona just one day away, the anti-trumpers are running Facebook ads aimed at rallying Mormon voters against the billionaire frontrunner. Not surprisingly following Mitt Romney’s relentless bashing of Trump, members of the Church of Jesus Christ of Latter-day Saints – a solidly Republican demographic in most elections – have shown a uniquely strong aversion to Donald Trump this year. According to a poll released over the weekend shows Trump running a far-distant third in Utah, garnering just 11% of the vote. And a new Deseret News/KSL poll shows Trump losing Utah, one of the reddest states in the country, to both Hillary Clinton and Bernie Sanders in the general election.

  Ok, so Trump is going to lose Utah. Where it gets strange, however, is that Liz Mair – a Republican strategist whose anti-Trump super PAC Make America Awesome launched a Facebook anti-Trump campaign last week, said each ad is expected to reach around 10,000 Mormons of voting age a day. The goal is twofold: increase turnout among LDS voters, and urge them to strategically consolidate around Ted Cruz, who is close to the 50% winner-take-all threshold in Utah.

  Mair said this is the first time the group has run ads urging voters to back a specific candidate. In Utah and Arizona, polls show Cruz with a much better chance than John Kasich of beating Trump. And Mair, who has Mormon family members, believes she could bring some expertise in the effort to court LDS voters.

   

  “We think the Cruz campaign has turned evangelical outreach into something of a fine art,” Mair said. “We’re not so sure he has LDS outreach locked down, though, and this is an area where we have a little bit of experience and knowledge over and above some Republican operatives, so it’s something we’ve decided to delve into for these contests, at least.”

  To achieve its anti-Trump goals, the group is running three ads:

  • one that features Mitt Romney,
  • one that emphasizes Trump’s past support for pro-choice policies,
  • a third that shows Melania Trump posing nude.

  The Melania ad, which is by far the most provocative, invites viewers to meet “your next First Lady.” Mair said that one is being promoted on Instagram as well, but only to LDS women.

  It is also the one that makes us wonder just what Mair et al were thinking: imagine if someone were to show naked photos of one of the other potential first ladies (or of Bill Clinton for that matter) – the media response would be loud, instant and piercing.

  But the real question is just how badly will this approach backfire: it may come as a surprise to the organizers, but showing a naked Melania Trump, a successful, multi-lingual supermodel and undoubtedly the most attractive first lady America would ever have, is not exactly an attack ad, the moment men end up seeing the ad.

  Here are the ads in question:

  Romney

  

   

  Pro-choice

  

   

  And Melania naked

  

  If anything, this ad could lead to a surprising last minute surge for Trump. And yes, if the democrats (and non-Trump republicans) want to desperately lose the national election, they should certainly show more naked photos of Melania Trump on social networks and/or TV. 

  Source: Make America Awesome

  

  

  

  

  

• Misplaced Confidence In The ECB – Lessons From John Law's Mississippi Bubble

  Submitted by Alasdair Macleod via GoldMoney.com,

  Last week, the ECB extended its monetary madness, pushing deposit rates further into negative figures.

  It is extending quantitative easing from sovereign debt into non-financial investment grade bonds, while increasing the pace of acquisition to €80bn per month. The ECB also promised to pay the banks to take credit from it in "targeted longer-term refinancing operations".

  Any Frenchman with a knowledge of his country's history should hear alarm bells ringing. The ECB is running the Eurozone's money and assets in a similar fashion to that of John Law's Banque Generale Privée (renamed Banque Royale in 1719), which ran those of France in 1716-20. The scheme at its heart was simple: use the money-issuing monopoly granted to the bank by the state to drive up the value of the Mississippi Company's shares using paper money created for the purpose. The Duc d'Orleans, regent of France for the young Louis XV, agreed to the scheme because it would provide the Bourbons with much-needed funds.

  This is pretty much what the ECB is doing today, except on a far larger Eurozone-wide basis. The need for government funds is of primary importance today, as it was then.

  In Law's day, France did not have a central bank, such as the Bank of England, managing the issue of government debt, let alone a functioning government bond market. The profligate spending of Louis XIV had left the state three billion livres in debt, which was the equivalent of 1,840 tonnes of gold. This was about 85% of the world's estimated gold stock at that time, at the livre's conversion rate into Louis d'Or. John Law would almost double that by June 1720, with unbacked livre notes issued by his bank.

  Today, the assets being overvalued for the governments' benefit are government bonds themselves, but the principal is the same. There is no need to use a separate, Mississippi-style vehicle, because there is a fully functioning government bond market.

  Banque Generale created the bank credit for France's upper and middle classes to buy Mississippi Company shares, driving up the price and making yet higher prices a certainty. Law had set up a money-making machine for those with a modicum of wealth, but the ten per cent down-payment required to subscribe for Mississippi shares made speculation available to the servant classes as well. The result was virtually everyone in Paris was caught up in the speculative fever, and Mississippi shares increased from the 15 livres deposit to 18,000 livres fully paid at the peak in June 1720. The term "millionaire" dated from that time.

  Today, the ECB is doing things a little differently, creating money to buy government bonds from the banks, enabling governments to continue to spend without the threat of a funding crisis. Basel III banking regulations, which exempt banks from having to apply a risk weighting to government bonds, ensures that the bonds are also in great demand as collateral, further guaranteeing that the banks will continue to buy them.

  However, in common with Law's scheme, the ECB needs new suckers all the time to keep the market from stalling, so the ECB is extending the scheme beyond sovereign debt by buying up investment grade bonds as well. And since it can conjure up money out of thin air, it will also pay the commercial banks interest to borrow from it, ensuring the yields on all bonds purchased with this finance will continue to fall in line with negative interest rates.

  As was surely the case in 1720, the expansion of credit is commonly believed to be a very good thing, as necessary for the welfare of the Eurozone states today as it was for France three hundred years ago. But don't be fooled. For the scheme to continue, more credit has to be issued, and more bonds bought to stop the bond bubble from deflating. That is the real reason behind the ECB's action. And because it cannot be continued for ever, that is why ultimately the bubble will pop.

  The Mississippi bubble came to an end when France ran out of sufficient buyers to keep it inflating. There always comes a point where the temptation to cash in some profit to buy those other things long desired, such as a country estate and a smart Paris residence, becomes too great to resist. And when the Mississippi bubble lost its mojo, the selling escalated. By late 1720, the Banque Royale, as it had been renamed, faced angry note-holders unable to redeem them for specie. Once the run started, the whole scam rapidly imploded.

  It seems extraordinary that in economics, wishful thinking trumps reasoned analysis and common sense so often. The fallacies that have brought the ECB to implement its delusional policies are broadly the same as those in which John Law believed. In both cases, they started by assuming that the state has a duty to ensure money and credit are freely available, unchaining the population from the constraints of free markets. In both cases, their beliefs inevitably adjusted as a result of problems that subsequently arise as the by-products of monetary expansion. And in both cases, yet further monetary expansion then became the only solution to apply as a cure-all for the problems themselves. Unsound money has come to be deployed simply to keep bankrupt governments going.

  We should put to one side all other reasons, justifications and excuses for what has happened, because it was the French state that employed Law to run its bank, and the Eurozone governments that created the ECB. The servant always serves the master. Banque Royale succumbed to a run, while the ECB is still nursing a banking system, that on a reversal of the asset bubble, will almost certainly collapse. In this respect, the ECB is not quite at the Banque Royale's tipping point, but it is edging closer.

  Everyone in the Eurozone believes that the ECB is all-powerful, because to believe otherwise is unthinkable. This was also true of Banque Royale, until it faltered. It was not a loss of confidence in the bank that was responsible for the collapse, it happened as a result of the difficulties encountered in sustaining the bubble. The lesson is that it need not take a loss of confidence in the ECB to start its destruction.

  Let's imagine for a moment, that the bond-market bubble ends and prices start to normalise. We know that it won't take much to create losses that will wipe out the capital of some critically important commercial banks, but we like to think the ECB is on top of this problem. Very few people seem to be are aware of the crisis that falling bond prices would create for the ECB itself.

  The ECB's equity capital at 31 December 2015 was €7.74bn, supporting a balance sheet of €256.645bn, a gearing ratio of over 33 times. The wider euro-system's accounts, where the asset purchases accumulate, has capital and reserves of €98bn supporting a balance sheet of €2,872bn, a gearing ratio of 29 times and rising. As a rough guide, an interest rate increase of less than two per cent, to as little as one and a half per cent, would undermine the value of bonds and related risks at both the ECB and in the euro-system, to the point where they would require further capital injections. For some context, if the yield to maturity on a five-year bond rises by 2%, the price falls roughly 10%.

  Now we are getting to the truth as to why the ECB's debt bubble must be sustained. It is no longer to support economic growth. A deflating asset bubble will take down the ECB and the wider euro-system, just as the Mississippi bubble took down Banque Royale. And in both cases, the confidence vested in these institutions is reflected in the purchasing power of the money they have issued.

  It may not be long before foreign holders of euros begin to visualise Mr Draghi in a full-bottomed wig, lace jabot and long velvet coat. Their problem will be looking for safety, because the ghosts of eighteenth-century monetary economists can also be imagined at the helm of the other major central banks. In John Law's day, the solution was simple, as the private banker, Richard Cantillon showed. He cashed in early, selling livres for gold.

  Cantillon, who was the equivalent of today's investment banker, not only punted the Mississippi bubble successfully, but he loaned large quantities of fiat livres to the wealthy in Paris, taking in Mississippi stock as collateral. Before the crash, he had the prescience to sell all his own stock for gold. It is said that he also secretly sold all the collateral he had had pledged to him, again settling for gold. Cantillon then removed himself across the border to Italy with his stash of Louis d'Or to await developments.

  After the crash, he returned, and demanded repayment of the outstanding debts from his clients. Cantillon probably became the richest commoner in history, and immensely unpopular in Paris to boot. Rather like the investment bankers of today, he made his fortune while nearly everyone else was impoverished.

  We cannot say for sure what will trigger the end for the ECB and the euro. It could be a member state, like Italy, Spain or even France, running into financial or political trouble. It could be the threatened break-up of the European Union, if the Brexit polls swing in favour of Britain leaving, and the blow that it would impart to European unity. The Muslim immigration problem is often cited as a threat to the European project. It could be developments on the other side of the world, perhaps China driving up commodity prices, leading to future price inflation in the Eurozone, so leaving Eurozone bond markets exposed to the threat of rising interest rates.

  Equally, it might not be an identifiable event. Rather like the Mississippi scam, it could end when the Eurozone's bond markets just run out of steam.

  

  

  

  

  

• Domino's Unleashes Pizza-Delivery-Robot As 2 Out Of 3 Americans Expect Jobs To Be Automated

  The automation of the global workplace is spreading and, as Pew recently found, 65% of Americans now believe their job will inevitably be done by robots.

  

   

  In a low-growth world, every low-skill job is up for grabs by the robot/drone horde as the need to cut costs is core business for every CFO (aside from share buybacks) as minimum wage mandates have forced these cost-cutting CFOs to look for alternatives.

   

  

  Three months ago we warned that it was not just fast-food order-takers and burger-makers that were at risk (a truly terrifying thought for those left in the US economy who are not bartenders or waitresses).

   

  

   

  And while McDonalds has already made the move into automation…

   

  

   

  The latest 'fast food' outlet to snub humans (and their annoying demands and unreliability) is Domino's Pizza which just unveiled it robot-pizza-delivery plans…

  Pizza delivered by a robot? It may seem out of this world, but for one pizza company, the idea may be closer to reality than ever.

  

   

  Meet ‘DRU,’ Domino’s first-ever automated pizza delivery bot that brings your pizza order directly to your door.

  

   

  Domino’s unveiled DRU (short for Domino’s Robotic Unit) in several countries across the globe earlier this week, including Australia, Belgium, France, the Netherlands, German, Japan and New Zealand.

  

   

  The project is a collaborative effort from Domino’s and Australia-based robotic company Marathon Targets, which created the first autonomous robotics for the Australian defense force in the late 2000s.

  As Forbes reports, DRU is reportedly fully autonomous, and sports a water-tight, weather-proof acrylic plastic exterior and aluminum and mild steel interior for keeping orders at their best. Like today’s self-driving cars, it uses LIDAR laser-light sensory technology to detect and navigate around obstacles along its journey, and also has a back-up system of traditional sensors (such as you’d find on home cleaning-bots) to ensure it reaches its destination safely.

  So far, DRU has been tested on approved pathways and roads Down Under–the same territory, incidentally, in which McDonald’s first began testing its own delivery model–and its size, speed, and autonomous navigation mean it won’t be hitting regular streets or highways soon. If the makers of DRU and its autonomous delivery-brethren keep tweaking their tech while pushing to meet food and road safety guidelines, however, the little bot’s Google Maps- and GPS-powered guidance system might soon be delivering it to neighborhoods worldwide before too long.

  

  

  

  

• FBI Cancels Encryption Showdown With Apple After "3rd Party" Showed Them How To Unlock iPhone

  Following a mysterious "third party"'s willingness to show The FBI how to unlock San Bernardino killer Farook's iPhone, court records indicate that the US government wishes to cancel tomorrow's showdown with Apple, filing a motion to vacate the hearing.

  Hours after Tim Cook explcitly told the world (marketed) his firm would never sell out their privacy…

  "For many of us, the iPhone is an extension of ourselves," Cook said, according to USA Today. "We need to decide as a nation how much power the government should have over our data and over our privacy. We did not expect to be in this position, at odds with our own government. But we have a responsibility to help you protect your data and protect your privacy. We owe it to our customers and we owe it to our country."

  "We will not shrink from this responsibility," he added. In case the message wasn’t clear enough, Apple’s music selection spoke for them. At the end of the event, Tom Petty’s “I Won’t Back Down” blasted through the venue.

  

   

  The US government filed a motion on Monday to vacate Tuesday’s hearing against Apple.

  Here's the filing: https://t.co/B4PLFqXBiF https://t.co/oStyEIEgbC

  — Alina Selyukh (@alinaselyukh) March 21, 2016

  "Outside Party" to the rescue – wonder if they were Russian?

   

  

   

  According to the memorandum, “On Sunday, March 20, 2016, an outside party demonstrated to the FBI a possible method for unlocking Farook’s iPhone.” The third party and what the possible methods could be involved are both mysteries.

  *  *  *

  Did Apple fold quietly behind the scenes? Is this how both sides save face with neither side appearing to have given an inch on their defense (or persecution) of personal liberty? Who knows, but if the US Government suddenly places an order for 1 million iPhone SEs, then we have our answer.

   

  

  

  

  

  

• Blindly Dancing At A Top: A Statistical Look At The Rally

  Submitted by Salil Mehta of Statistical Ideas

  Blindly Dancing At A Top

  If it’s too good to be true, then it probably is!  We’ve seen this show before and admonished about it beforehand (here, here).  In the 25 trading days since February 11 (when the S&P closed at 1829), the market surged at an average daily gain of 0.5%.  The S&P fell <-0.5% in just 3 of those 25 days, netting -3% total among those days.  While the S&P rose >0.5% in 10 of those 25 days, netting a whopping 13% total.  The remaining 12 trading days contributed just 0.1% daily to the post-February 11 surge.  And it’s reasonable to state that the market was due for a bounce-back of this nature, after the damage caused earlier in 2016.  The question of course remains: where do we go from here?  Our probability analysis of market patterns forecasts that we are essentially near the top, and the longer we lurch forward at this point, the more grisly an ensuing crash.

  As a quirky statistical coincidence, the market crash in August (here, here) is at the exact midpoint between today and the first trading day of 2015!  And the behavior of markets now don’t statistically resemble anything of grave consequence, prior to the August crash.  We can see in the chart above that the 1st decile S&P levels today are the same as only 6th decile (S&P”6″) price levels of early 2015.  So below average and certainly nothing riveting; and clearly nothing to heavily wager on.

  However ignoring the fact that the S&P is reasonably below the all-time high from early last year, the complacency/euphoria signals that we have today is the same as what we have had at extreme market tops in the past (see the blood colored data on the chart and labeled S&P1, for 1^st decile).  What this suggests is that in our debilitated high-risk regime, there is now only modest upward runway for the markets to run (and wilder choppiness regardless which sometimes may assuredly question your judgment).  But eventually the music stops and the drunkards get bruised stumbling for the exits.  The gravitational weight of excessive frothiness will came back to roost.

  We prefer stability in the markets here.  But if the market momentum continues to bounce higher through the month, then probabilistically we will see another fierce crash that is guaranteed to ensue.

  

  

  

  

  

• IMF Politely Asks China To Explain Exactly How Large Its FX Forwards Book Is

  On the heels of China’s move to devalue the yuan on August 11, the market’s attention abruptly shifted to something we’d been discussing for quite some time. Namely, China’s rapidly depleting FX reserves.

  The problem for China was that they wanted to devalue, but they wanted to do it on their terms and that’s not something that was particularly agreeable to the market. What was immediately apparent to us, but what it took weeks for most observers to understand, was that the PBoC actually transitioned to an FX regime that afforded the market less of a role in determining the exchange rate, not more. Before, China would reset the daily fix to dictate where the spot traded. In the new system, the PBoC simply manipulates the spot in order to dictate the fix, which from August 12 was supposed to “better reflect” the previous day’s trading. But if the previous day’s trading was dictated by PBoC intervention, then the entire endeavor is meaningless.

  Of course daily spot interventions cost money. Lots of it. Especially if the market smells a rat and thinks you may be angling for a larger devaluation down the road but are unwilling to just rip the band-aid off and move to a free float now.

  China blew through nearly $100 billion in the month of August alone supporting the yuan and soon enough, FX reserve data out of Beijing became the market’s new risk on/risk off trigger. The data also became a rather public proxy for capital flight and before long, China got uncomfortable with the amount of attention the headline figure received.

  So, the PBoC decided to find other ways to intervene to both support the onshore spot and ensure that the CNY/CNH spread didn’t widen too much (the weaker the offshore yuan trades relative to the onshore spot, the more depreciation pressure there is). Dabbling in forwards became one of the bank’s go-to strategies.

  What Beijing has been doing actually isn’t all that complicated. The PBoC simply asks policy banks to borrow dollars in the swap market, sell them, and then enter into a forward contract with Beijing which effectively squares the trade for the banks as the PBoC takes everything onto its own balance sheet. 

  

  The problem is that this makes it difficult for the market to get a read on capital outflows and on how much downward pressure the RMB is experiencing (and obscuring those two things is precisely the point for China). And it’s not just the market that’s having a hard time reading the tea leaves, it’s the IMF as well.

  “The International Monetary Fund is pressing China to disclose more data on its currency operations according to the standards the Chinese central bank pledged to follow,” WSJ reported on Monday. Here’s more:

  In recent months, the People’s Bank of China has increasingly turned to the derivatives market to help prop up the currency—a shift from its traditional approach of dipping into its dollar pile to buy yuan.

   

  The new tactic has several advantages for the central bank: It allows it to burn through its foreign-exchange reserves more slowly and drain smaller amounts of yuan from the financial system at a time of economic slowdown. It also leaves less evidence of intervention.

   

  Currency traders and investors, however, complain that the strategy is making it even harder to figure out Beijing’s intentions for the yuan. Now, the IMF is calling on the Chinese central bank to release more data on its holdings of derivatives such as forwards—which have become the main financial instrument used by the PBOC for currency intervention these days, the people said.

   

  The step would be in keeping with China’s pledge in October to adhere to the IMF’s special-data-dissemination standards as part of its effort to win the yuan its long-coveted reserve-currency status. Disclosing the data could also shed more light on how much firepower China has to keep defending the yuan.

   

  The data being sought by the IMF concerns the total holdings of forwards and futures by the PBOC, according to the people. Such data sets reflect future claims to a country’s foreign-exchange reserves; many of the world’s central banks, including those of Thailand, Malaysia and India, have frequently disclosed this data to the fund.

   

  Some market participants estimate that China’s current holdings of forwards range between $150 billion and $300 billion.

  You really needn’t think too hard about all of the above because there are two very simple takeaways: 1) the IMF is going to hold China to its promises of transparency and market oriented reforms now that the Fund has agreed to include the yuan in the SDR basket, and 2) these have to be settled at some point, so just know that the strategy outlined above is just about near-term optics. 

  Perhaps Citi summed it up best last autumn: “If you have a transaction that settles down the road, the actual liquidity impact in the short term may not be as dramatic. Down the road you can’t avoid it.”

  You can see why the IMF and the market more generally want full transparency out of Beijing and given the fear of capital flight, you can probably also understand why China would want to adopt strategies that make the PBoC’s FX intervention as opaque as possible. Unfortunately for the PBoC, the IMF looks set to play the SDR trump card.

  

  

  

  

  

• "Let's Be Honest, Trump Is A Loser!": Elizabeth Warren Loses It, Goes Ballistic On The Donald

  If you’ve ever watched Senator Elizabeth Warren grill a Fed chief on Capitol Hill you know that she’s not one to mince words and she’s not one that’s easily impressed or intimidated. 

  The darling of the liberal Democrats, Warren looms large over the 2016 race which many suspected she would run in. She didn’t, but the Massachusetts Senator casts a long shadow and on Monday, she had apparently seen all she cared to see of GOP frontrunner Donald Trump. 

  In a series of tweets and on a Facebook post, Warren lambasted Trump’s business record and his character before warning Americans that just because “he’s a loser everywhere else doesn’t mean he’ll lose the election.” 

  Here is her message in its entirety: 

  

   

  .@RealDonaldTrump stands ready to tear apart an America that was built on values like decency, community, and concern for our neighbors.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Listen to experts who say @realDonaldTrump might have more money today if he’d put his inheritance in an index fund & left it alone.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Let’s be honest – @realDonaldTrump is a loser. Count all his failed businesses. See how he cheated people w/ scams like Trump U.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  .@RealDonaldTrump knows he’s a loser. His insecurities are on parade: petty bullying, attacks on women, cheap racism, flagrant narcissism.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  But just because @realDonaldTrump is a loser everywhere else doesn’t mean he’ll lose this election.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Many of history’s worst authoritarians started out as losers – and @realDonaldTrump is a serious threat.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  The way I see it, it’s our job to make sure @realDonaldTrump ends this campaign every bit the loser that he started it.

  — Elizabeth Warren (@elizabethforma) March 21, 2016

  Forgive us Senator, but if you feel that strongly about it, perhaps you should have had “the courage to run” – to paraphrase your favorite Fed chair.

  All you’ve done now is guarantee Trump another couple of hundred thousand votes.

  

  

  

  

• Clinton Emails Reveal Google’s Role In Attempting To Oust Syria's Assad

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Eric Schmidt, the former chief executive officer of Google, will head a new Pentagon advisory board aimed at bringing Silicon Valley innovation and best practices to the U.S. military, Defense Secretary Ash Carter said on Wednesday.

   

  Carter unveiled the new Defense Innovation Advisory Board with Schmidt during the annual RSA cyber security conference in San Francisco, saying it would give the Pentagon access to “the brightest technical minds focused on innovation.”

   

  – From the Reuters article: Former Google CEO Schmidt to Head New Pentagon Innovation Board

  It’s been observed for quite some time that Google isn’t just a private corporate behemoth, but that its executives are often times more intricately involved in U.S. foreign policy than most people would find appropriate.

  It’d be one thing if this support was for a sane and humanitarian foreign policy, but we all know it’s precisely the opposite. In fact, certain Google executives have demonstrated a particular interest in overthrowing governments throughout the Middle East, which has achieved nothing but sow chaos and result in the creation of powerful new terrorists groups such as ISIS.

  Two days ago, Wikileaks announced the following to the world via Twitter:

  Hillary Emails: Google tried to boost Assad defections https://t.co/lyma4eJp9a More: https://t.co/ZUfh7WDAT5 pic.twitter.com/nvNG0lFJWt

  — WikiLeaks (@wikileaks) March 19, 2016

   

  This sounds like a pretty huge deal, so you’d think the American media would be all over it. Not quite. In fact, the only story I’ve seen emanating from the U.S. press was published by the Washington Examiner.

  Here are a few excerpts from the story titled, Clinton Email Reveals: Google Sought Overthrow of Syria’s Assad:

  Google in 2012 sought to help insurgents overthrow Syrian President Bashar Assad, according to State Department emails receiving fresh scrutiny this week.

   

  Messages between former secretary of state Hillary Clinton’s team and one of the company’s executives detailed the plan for Google to get involved in the region.

   

  “Please keep close hold, but my team is planning to launch a tool … that will publicly track and map the defections in Syria and which parts of the government they are coming from,” Jared Cohen, the head of what was then the company’s “Google Ideas” division, wrotein a July 2012 email to several top Clinton officials.

   

  “Our logic behind this is that while many people are tracking the atrocities, nobody is visually representing and mapping the defections, which we believe are important in encouraging more to defect and giving confidence to the opposition,” Cohen said, adding that the plan was for Google to surreptitiously give the tool to Middle Eastern media.

  Is this a technology company or the C.I.A.?

  “Given how hard it is to get information into Syria right now, we are partnering with Al-Jazeera who will take primary ownership over the tool we have built, track the data, verify it, and broadcast it back into Syria,” he said.

   

  “Please keep this very close hold and let me know if there is anything [else] you think we need to account for or think about before we launch. We believe this can have an important impact,” Cohen concluded.

   

  The message was addressed to deputy secretary of state Bill Burns; Alec Ross, a senior Clinton advisor; and Clinton’s deputy chief of staff, Jake Sullivan. Sullivan subsequently forwarded Cohen’s proposal to Clinton, describing it as “a pretty cool idea.”

   

  Cohen worked as a low-level staffer at the State Department until 2010, when he was hired to lead Google Ideas, but was tied to the use of social media to incite social uprisings even before he left the department. He once reportedly asked Twitter CEO Jack Dorsey to hold off of conducting system maintenance that officials believed could have impeded a brief 2009 uprising in Iran. Julian Assange, who founded the secret-leaking website WikiLeaks, has for years referred to Cohen as Google’s “director of regime change.”

  Longtime Liberty Blitzkrieg readers will be familiar with the name Jared Cohen, a figure who played a key role in the post: Highlights from the Incredible 2011 Interview of Wikileaks’ Julian Assange by Google’s Eric Schmidt (must read if you missed it the first time).

  Moving along, I want to once again stress the fact that the U.S. media has completely ignored this story. In fact, the only other detailed article I could find on the topic was published earlier today at RT, from which we learn the following nugget, also courtesy of Wikileaks:

  In June 2010, when Syria was a country still at peace, Cohen traveled to the Arab Republic with Alec Ross. “I’m not kidding when I say I just had the greatest frappuccino ever at Kalamoun University north of Damascus,” he tweeted. Ross, in a more serious mood, tweeted: “This trip to #Syria will test Syria’s willingness to engage more responsibly on issues of#netfreedom”.

   

  In an email dated September 24, 2010, entitled ‘1st known case of a successful social media campaign in Syria’, and which was later forwarded to Hillary Clinton, Ross wrote:

   

  “When Jared and I went to Syria, it was because we knew that Syrian society was growing increasingly young (population will double in 17 years) and digital and that this was going to create disruptions in society that we could potential harness for our purposes.”

  Six years later and take a look at Syria. These are the breathtakingly disastrous results you achieve when the U.S. government and Google formulate U.S. foreign policy together behind closed doors.

  Finally, for those of you who remain unaware of the instrumental role the U.S. government and it’s allies played in the creation of ISIS, I leave you with the following excerpts from last year’s post: Additional Details Emerge on How U.S. Government Policy Created, Armed, Supported and Funded ISIS.

  Telling Hasan that he had read the document himself, Flynn said that it was among a range of intelligence being circulated throughout the US intelligence community that had led him to attempt to dissuade the White House from supporting these groups, albeit without success.

  Despite this, Flynn’s account shows that the US commitment to supporting the Syrian insurgency against Bashir al-Assad led the US to deliberately support the very al-Qaeda affiliated forces it had previously fought in Iraq.

   

  The US anti-Assad strategy in Syria, in other words, bolstered the very al-Qaeda factions the US had fought in Iraq, by using the Gulf states and Turkey to finance the same groups in Syria. As a direct consequence, the secular and moderate elements of the Free Syrian Army were increasingly supplanted by virulent Islamist extremists backed by US allies.

   

  It should be noted that precisely at this time, the West, the Gulf states and Turkey, according to the DIA’s internal intelligence reports, were supporting AQI and other Islamist factions in Syria to “isolate” the Assad regime. By Flynn’s account, despite his warnings to the White House that an ISIS attack on Iraq was imminent, and could lead to the destabilization of the region, senior Obama officials deliberately continued the covert support to these factions.

   

  “It was well known at the time that ISIS were beginning serious plans to attack Iraq. Saudi Arabia, Qatar and Turkey played a key role in supporting ISIS at this time, but the UAE played a bigger role in financial support than the others, which is not widely recognized.”

  Springmann says that during his tenure at the US embassy in Jeddah, he was repeatedly asked by his superiors to grant illegal visas to Islamist militants transiting through Jeddah from various Muslim countries. He eventually learned that the visa bureau was heavily penetrated by CIA officers, who used their diplomatic status as cover for all manner of classified operations?—?including giving visas to the same terrorists who would later execute the 9/11 attacks.

   

  Thirteen out of the 15 Saudis among the 9/11 hijackers received US visas. Ten of them received visas from the US embassy in Jeddah. All of them were in fact unqualified, and should have been denied entry to the US.

  For related articles, see:

  Meet “Groundwork” – Google Chairman Eric Schmidt’s Stealth Startup Working to Make Hillary Clinton President

  Former Google CEO Schmidt to Head New Pentagon Innovation Board

  

  

  

  

  

• A Desperate China Begged Fed For "Plunge Protection Playbook" As Its Market Crashed

  Last June, China’s stock market miracle ended in tears.

  The SHCOMP’s inexorable, parabolic ascent was to a large degree facilitated by an explosion of margin debt, the likes of which could not be found in any other major market across the globe. For instance, by the end of June, the outstanding balance of margin transactions as a percentage of the SHCOMP’s free float market cap was nearly 14% compared to just 5.5% for the S&P and less than 1% for the TOPIX.

  A dramatic unwind in the half dozen backdoor margin lending channels that had funneled an additional CNY1.5 trillion into equities brought the party to a thunderous end and by late July, the market was off by more than 30% from its peak.

  Chinese officials had already begun to panic by mid-month and then, on the 27th, the bottom fell out.

  A harrowing bout of late day selling led the SHCOMP to post its worst one-day drop since February of 2007 and its second worst single session decline in history as the market collapsed by 8.5%.

  

  More than two-thirds of stocks in the index traded limit down that day.

  

  At that point, China was out of ideas. It had been nearly three weeks since Beijing announced it would inject capital into China Securities Finance Corp., effectively giving the PBoC a mandate to not only underwrite brokers’ margin lending businesses but in fact to buy A-shares directly, and nothing seemed to be working to arrest the slide.

  Indeed, starting on June 27 (by which time the Shenzhen had fallen by more than 20% from its peak) the PBoC unleashed an eye watering array of measures that encompassed everything from an RRR cut to the easing of regulations to state mandated investments by pension funds to verbal interventions in the form of threats against “malicious” shorts. Nothing was working.

  At a loss, the PBoC’s New York-based chief representative for the Americas, Song Xiangyan fired off an e-mail on the morning on July 27 to the institution China figured knew the most about propping up markets: the Fed.

  Just after 11 a.m. ET, the e-mail appeared in the inbox of senior Fed staffer Steven Kamin. The subject line read as follows: “Your urgent assistance is greatly appreciated!”

  “My Governor would like to draw from your good experience,” Song told Kamin, the director of the Fed’s International Finance Division. “Could you please inform us ASAP about the major measures you took at the time?,” Song asked.

  Song was referring to what the Fed did to try and allay market fears in the wake of Black Monday when the S&P collapsed 20% on October 19, 1987. Reuters obtained the messages between Song and Kamin via an FOIA request.

  “We’ll try to get something to you soon,” Kamin told Song.

  “What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession,” Reuters writes, adding that “Kamin also sent notes to guide PBOC officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.”

  Those documents, Reuters goes on to note, had all been publicly available on the Fed’s website for years and “detail how the Fed began issuing statements the day after the market crash, pledging to supply markets with plenty of cash so they could function.”

  Apparently, Song was especially interested in the Fed’s use of repos to inject cash. “In 1987, the Fed contacted banks directly and encouraged them to meet legitimate funding needs’ of their customers,” Reuters continues, recounting more details from Kamin’s email to Song. “In addition to its pledges and cajoling, the U.S. central bank in 1987 eased collateral restrictions on Wall Street and tried to calm markets by intervening in trading earlier than normal.”

  But US officials did more than that. They also created the PWG or, “the President’s Working Group on Financial Markets,” or, as we know it, the “Plunge Protection Team.” The group was created by an executive order from the Reagan White House in the wake of Black Monday and officially serves as a kind of consortium of top officials who advise the White House on markets when something goes horribly awry. Unofficially, the group directs, facilitates, and otherwise engineers futures buying to support the market. Or so “conspiracy theorists” believe. 

  As Reuters concludes, “it is unclear if [the Fed’s help] played a role in shaping Beijing’s actions.” Right. But what is clear is that when it comes to central bank intervention, the PBoC thinks the Fed has plenty of experience from which to draw dating back specifically to the 1987 crash that precipitated the creation of the body which nowadays operates from 33 Liberty and directs its barely-arm’s-length trading division at Citadel when someone needs to step in and “provide” a bit of ES liquidity.

  If these were the messages exchanged between lowly “senior staffers” at the Fed and PBoC, one can only imagine what higher level talks might have come later because as you might recall, things got much, much worse for China after July 27. If China’s subsequent plunge protection efforts in any way reflect something they learned from the Fed, then there may be a book full of equities sitting around on a secure server in the basement of the Eccles Building that no one’s ever seen. But as noted above, Yellen and Dudley have plenty of leveraged proxies when they think the market might be a bit short on “liquidity.”

  Finally, we would note that if China intends to adopt the post-Black Monday Fed playbook, we’re in for two decades of lunatic monetary policy characterized by unnecessarily low rates and the deliberate perpetuation of the myth that fantastic wealth is simply a matter of multiple expansion. Perhaps we’ll even see the institution of the “Zhou put.”

  *  *  *

  For those who might have missed it, here’s Deutsche Bank’s note from last summer discussing the “mythical” plunge protection team and comparing 1987 to China’s market rout

  The ’87 US plunge protection team: sweet & sour lessons for China

  Unlike 1987 when Greenspan was a one-man plunge protection team using rate cuts to support the market, China has fewer constraints to substantive direct price keeping operations, but there are strong arguments against actions going beyond smoothing activity.

  The PBOC is struggling with ‘the holy trinity’ – maintaining a currency peg for stability, targeting interest rates and RRR directed at the real economy, providing equity support, and all this while attempting to liberalize interest rates and open the capital account. It’s a tall ask. Internationalization of the currency should be slowed. 

  The sweet

  1) The slide in Chinese equities has some characteristics of the US 1987 crash in so much as ’the October crash’ in 1987 unwound relatively short-term gains mostly established in the prior 10 months. As per Figure 1, the one-year prelude to the 1987 US crash showed a similar pattern to China equity gains, albeit Figure 2 also shows how China’s equity appreciation was much larger than the US gains that immediately preceded the 1987 crash. The important point is the equity surge was relatively shortlived, so there never was quite enough time for a feedback loop to develop from higher asset prices driving a stronger real economy driving the asset bubble ever higher. The real economy implications are not as acute when a short-lived bubble pops.

  2) Remember the mythical ‘plunge protection team’. The market has consistently spoken about how the 1987 crash prompted the creation of a ‘crisis group’ of senior US officials that would draw up lines of support for the equity market if faced with a similar collapse in equity prices. For better and worse, China is much more willing and has fewer constraints on official intervention, and the role of the PBOC funding China’s Securities Finance Corp as a source of support notably for a small cap stocks, at a minimum has the prospect of smoothing any price decline.

  

  

  The sour

  1) The flip side of any official equity intervention, and as important the recent suspension of trading in some shares, is the obvious lack of transparency. This has resulted in good stocks/assets being sold to hedge illiquid asset exposure that itself destroys confidence even as it creates good value for select equities. China has the resources to support the equity market in the shortterm, but there are inherent problems in artificially supporting prices. It undermines the markets confidence that a base has been reached, and in the long-term further distorts the allocation of capital. These are arguments why plunge protection should be no more than a smoothing facility to encourage fair price discovery. 

  2). The US substituted a late 1990s equity bubble with a housing bubble which did not end well. China’s experiment in substituting housing froth with equity froth, is plainly not succeeding.This all falls under the title: ‘troubles with policy traction’ that adds to China’s growth risks. 

  3). Collateral damage. The problems of credit creation dominated by bank lending is compounded by the sizable part of lending that is backed by property and a much smaller but substantial amount of collateral comprised of ‘movable’ assets like equities, commodities, and receivables. There is then more scope for contagion to work across asset classes and intercede directly into the banking system via the impact on collateral. This space needs to be watched closely. 

  4). ‘Proof’ that the PBOC is not omnipotent. Greenspan’s rate cuts immediately after the 1987 crash did seem to stabilize the situation. He was a one man plunge stabilization team, and this was in retrospect the early stages of the ‘Greenspan put’. Even this ‘put’ distortion was ultimately seen having huge costs. The PBOC is already much more stretched than the Fed ever was. They are struggling with ‘the holy trinity’ – maintaining a currency peg for stability, interest rates and RRR directed at the real economy, equity support, and all this while attempting to liberalize interest rates and open the capital account while maintaining fiscal discipline. It’s a tall ask. It would suggest that some objectives like the internationalization of the Rmb be deferred.

  *  *  *

  Bonus: Text of Executive Order 12631

  Executive Order 12631–Working Group on Financial Markets

  Source: The provisions of Executive Order 12631 of Mar. 18, 1988, appear at 53 FR 9421, 3 CFR, 1988 Comp., p. 559, unless otherwise noted.

  By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:

  Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:

  (1) the Secretary of the Treasury, or his designee;

  (2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;

  (3) the Chairman of the Securities and Exchange Commission, or his designee; and

  (4) the Chairman of the Commodity Futures Trading Commission, or her designee.

  (b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.

  Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:

  (1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and

  (2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.

  (b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.

  (c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.

  Sec. 3. Administration. (a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.
  (b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.
  (c) To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.

  *  *  *

  Summary of China’s efforts to prop up the market

  
  

  

  

  

  

  

• Connecticut Credit Risk Spikes To Record High

  Amid cuts in aid and surging taxes, it appears the market remains less than impressed at Connecticut’s debt sustainability. Following last week’s disappointing bond auction, CT bond risk has spiked to 65bps over the benchmark – a record spread demanded by investors to take CT repayment risk. CT becomes the 4th riskiest US state after NJ, IL, and PA.

  

   

  As Bloomberg notes,

  The likely culprit was the state’s $550 million general-obligation sale on March 17, which included debt due in 2026 that priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index.  

   

  The state’s office of policy and management said last week that the budget deficit for the current fiscal year is $131 million, an increase of $111 million from the prior month’s estimate.

   

  Moody’s Investors Service dropped its outlook on the state to negative earlier in March.

  Is it any wonder more people than ever are looking to leave the increasing tax burden of this troubled state?

  

  

  

  

  

• Toward A Grand New Bargain: How Donald Trump Can Clear The Field And Realign American Politics

  Submitted by David Stockman via Contra Corner blog,

  It’s actually pretty easy. At an apt moment very soon, Trump should offer Governor Kasich the VP slot and Senator Cruz the vacant Supreme Court seat.

  Such a grand bargain would not only clear the primary field and quash any backroom hijacking of the nomination by the Washington GOP establishment; it would also permit each man to play his highest and best role at this great inflection point in the nation’s history.

  That is, Donald Trump’s job is to destroy the Republican/Neocon establishment and bring working class America back into a modern version of a McKinley-style Republican Party. Ted Cruz’ task is to spend a lifetime bringing strict constructionism back to the high court, thereby helping to restore constitutional restraints on a leviathan state that fundamentally threatens personal liberty and economic freedom and prosperity in America.

  And, yes, there really isn’t much for a washed-out, me-too Republican pol like Kasich to do at all. Except to get out of the way and exercise his apparent talent for preacherly uplift as America’s eulogist-in-chief at foreign state funerals.

  Beyond the rightness of it, there’s some pretty potent logic for the politics of the deal, too, There would be lots of of winners all around—–most especially the long-suffering American people.

  Mitch McConnell and his rudderless Senate wheels, for example, would not need even a ten minute caucus to hand down to young Ted Cruz a life sentence to the Supreme Court.

  At the same time and more importantly, however, the American public would score a twofer——a more faithful high court and one less warmonger on Capitol Hill.

  As to the former, Ted Cruz is about as close to the next Antonin Scalia as exists in America today. It goes without saying that he could do far more for the cause of liberty as a Justice than as a gadfly Senator.

  But there is an angle even more important. Cruz was a top student and debater at Princeton, a distinguished editor of the Harvard Law Review and a clerk on both the DC Court of Appeals and for the great Justice William Rehnquist on the Supreme Court. During the primary debates, he erudition on constitutional matters towered far above the pack.

  He was also described as “off the charts brilliant” by no less an admirer of his own brilliance than Alan Dershowitz. With a prospective long lifetime of service on the high court, Ted Cruz could bring a level of scholarly narrative and intellectual passion and acumen that is sorely needed by the constitutionalist cause.

  At the same time, the American people would be spared of another bellicose politician hell-bent on extending Washington’s imperial depredations. Cruz seems to have the Ronald Reagan disease. That is, his belief in small government does not extend to the Pentagon side of the Potomac; and his high regard for liberty does not appear to encompass innocent foreigners dwelling in the vicinity of desert sands he would cause to glow in the dark.

  As for Kasich, it is hard to think of a more inapt messenger with a more wrong-headed message. America does not need another compromiser, reconciler and wizened Washington ranch hand who can split the difference.

  It needs, instead, a force of nature who can rain shock and awe on the Imperial City. And, so doing, overturn its vast network of prosperous racketeers who feed off the military industrial complex, the health care cartel, the education monopolies, the Wall Street and banking mafias and the legions of other crony capitalist rackets.

  Governor Kasich’s specious claim to be a fiscally prudent budget balancer is especially telling. One of the most outrageous Washington wastes is right under his nose. Namely, the Lima Ohio M-1 tank line that he and the Ohio politicians keep open despite 10,000 such lethal machines already in inventory——-and notwithstanding that no other nation has tanks of this advanced capability or, more dispositively, the means to land them on these shores.

  Actually, M-1 tanks were originally designed to fight the Red Army on the central front——said army and said front having disappeared from the pages of history 25 years ago.

  Since then they have been used for neocon wars of invasion and occupation that did nothing for the safety and security of citizens in Dayton OH or Danbury CT except foster vengeful blowback in the cities and towns they turned into rubble. Even then, the Imperial City’s racketeers offered this folly as proof of the need for more iron and electronic monsters from Lima, while Kasich and his pols lip-synched the sales pitch.

  In truth, Kasich is exactly the kind of political lifer that needs to occupy the Joe Biden chair of policy irrelevance during the monumental reckoning ahead. He has indulged in double talk for so many decades that he no longer even knows when his lips are synching or even moving.

  His victory speech after the Ohio primary, for example, was laced with pious rhetoric about devolving government back to the states and localities.

  C’mon. He took a 90% bribe from Obama to drastically expand Medicaid in Ohio at the expense of taxpayers in Idaho and Texas, whose faithful governors didn’t. Yet he has the nerve to call himself a champion of decentralization?

  Kasich’s brand of phony Federalism goes back to Nelson Rockefeller, who wore thin the patience of New York taxpayers with his out-sized building, spending and other notorious appetites. So looking enviously at the untapped citizens of Nebraska and Oregon, Rocky then cooked-up the idea of revenue sharing and sold it to Nixon. It was actually just a form of interstate larceny.

  As a young Capitol Hill staffer at the time, I saw how the old-fashioned conservative and legendary ruler of the House Ways and Means Committee, Wilbur Mills, had it killed dead as a doornail. His was virtually the last voice of authority and power in Washington during the past half century who insisted that such tax monies should never leave home in the first place; and that the round-trip through Washington was just an opportunity for sticky fingers to skim the pot and for disingenuous politicians to bring home the pork while pretending it was free money.

  If they want to spend it, said Mills, let them tax it first. But sound Federalism was not to be. LBJ’s Great Society had broken the dam and soon Wilbur Mills stumbled into submission on the eve of the 1972 Nixon landslide——perhaps in a foreshadowing of his final stumble two years later into the Tidal Basin with Fanne Foxe.

  The rest, as they say, is history. With Mills’ iconic defense of the old order out of the way, the Nixon-Ford White House massively expanded the Federal grant-in-aid system. At length, a whole generation of GOP politicians became house-trained in Kasich style fiscal doublespeak and hypocrisy.That is, in the art of decrying Washington’s fiscal profligacy on the rubber chicken circuit by night while devoting their day jobs to scrapping for hometown pork from Medicaid and thousands of like and similar Federal gravy trains.

  I have no idea whether Donald Trump will see through this Kasich style fiscal hypocrisy or not. But I do believe him when he decries our $19 trillion national debt and when he says that he is going after Washington’s fiscal profligacy with hammer and tongs.

  In this instance, and much else, Trump’s principal virtue is that his only acquaintanceship with the Imperial City is attendance at an occasional Kennedy Center gala. Accordingly, Trump is unschooled in the self-serving rationalizations that keep the rackets going, even as he is endowed with such ample self-confidence that he is sure to go charging into the nation’s fiscal mess like a bull in a china shop.

  And that’s much to be welcomed after years of a bipartisan conspiracy of silence and Washington’s perfidiously orchestrated regime of fiscal can-kicking. Broken furniture and bombastic challenges are exactly what the fiscal doctor ordered. Indeed, what a President Trump could actually do is prove that the way to shutdown Washington’s budgetary rackets is by means of an insurrectionist-in-chief inside the White House, not furtive threats to close the Washington Monument lobbed down Pennsylvania Avenue from Capitol Hill.

  Say what you will about Trump’s controversial business history, the four bankruptcies and the rest. Yet it is absolutely certain that he knows at least this much: You don’t stop a flood of budgetary red ink with a 25-year plan to get to a balanced budget by 2038!

  That’s Speaker Paul Ryan’s particular contribution to the GOP establishments’ noxious form of fiscal duplicity and doublespeak. Like in the movie “Dave”, The Donald is likely to dive into the budget himself and then there will be fear and trembling all around the Imperial City.

  Big Pharma and the health insurance cartel are already in Trump’s gun sights, but once he gets to 1600 Pennsylvania Avenue he will quickly discover the target rich environment on the Pentagon side of the Potomac, too. The hideously expensive, technically plagued and completely unneeded trillion dollar F-35 fighter would be the ideal place for him to start.

  And that goes to the larger point. All the swells in the mainstream media are furiously cackling about The Donald’s answer on morning TV about the identity of his top foreign policy advisors. Yet the apparent fact that he has none and is doing his own thinking is why the think tanks and neocon lobbies are in full frontal panic:

  I’m speaking with myself No. 1 because I have a very good brain and I’ve said a lot of things,” he said in an interview on MSNBC. “I talk to a lot of people and at the appropriate time I’ll tell you who the people are.”

  Actually, there is more, and it has to do with one of the many character flaws that self-evidently afflict the man. We speak of his monumental capacity to carry a grudge and seek revenge upon those who personally offend him.

  Here’s the thing. Mitt Romney’s viscous public attack on Trump is only the beard. It is merely the censored for-family-TV-version of what the entire neocon establishment and War Party is saying every day in the corridors of Imperial Washington.

  Needless to say, the Donald is taking names and will not be reluctant to do far more than kick offending posteriors. He will make it his business to hound, denounce, denigrate and dispatch the entire passel of neocon power brokers who have declared war on his candidacy.

  And, yes, an Imperial City purged of Bill Kristol and his gang of bloodthirsty provocateurs would already be on the road to redemption.

  Indeed, if America’s foreign policy could be seized from the grasp of the Washington War Party and its AIPAC subsidiary, the fiscal equation would be instantly transformed. Over and again, Trump seems to grasp that the real security of the homeland has nothing to do with being the world’s policeman and defense sugar-daddy.

  In fact, that’s pretty obvious to any one who hasn’t been mis-educated by globe-trotting harpies of war like Senators Lindsay Graham and John McCain. Trump has had no trouble figuring out that Ukraine, for example, was always part of the greater Russian sphere of influence and geographic propinquity.

  If he had time for an honest briefing, he surely would have no problem at all seeing that it was the meddling, incompetent apparatchiks of the State Department, CIA and National Endowment for Democracy which fostered, funded and facilitated the coup against the constitutionally elected government of Ukraine in the first place.

  Or that Crimea was the equivalent of a Gadsden Purchase which had been unwound by Kruschev in the midst of post-Stalin politburo maneuvers and intrigues; and that its re-annexation by Moscow after the illegal putsch in Kiev was accomplished far more peacefully and consensually than had been the territorial rearrangement of Kosovo by the US Air Force 15 year earlier.

  But whether he has had all the true facts or not, Trump has had no trouble seeing that the solution to the conflict between Ukraine’s Russian speaking minority in the east and the rest of the country was a negotiated deal with Putin, not the demonization of this leader of a country that has no beef with America and a GDP the size of the NYC metropolitan area.

  You can go from that insight straight to a $200 billion cut in the nation’s bloated $600 billion defense budget. When the US economy slides into recession, as it surely will, before the next White House inaugural ceremony has commenced, the Federal deficit will soar back above the $1 trillion mark; it has only been in temporary hibernation, not permanent remission.

  So The Donald will need massive spending cuts in Washington at the very same time that desperate socialist governments in Europe will face  a global recession induced outbreak of red ink in their own fiscal accounts. That will be the Donald’s moment——the opening to disband NATO, slash defense spending across both continents and negotiate the kind of global disarmament deals that Eisenhower unsuccessfully sought and Warren G. Harding actually achieved.

  And that brings us to the supreme irony of this fraught political season. The Washington and New York chattering class has been nearly busting a spleen over the prospect of Trump’s (alleged) stubby fingers on the nuclear button. I haven’t heard such full-throated hysteria since they worked up a similar campaign against Ronald Reagan in the fall of 1980.

  The man did go on to help end the cold war and remove the nuclear sword of Damocles that hung over the planet, even if it was the inherent contradictions and impossibilities of totalitarian socialism that finally brought down the Soviet regime.

  Likewise, in a world heading into the fiscal dumpster, Donald Trump is more likely to negotiate an end to today’s monumental waste on arms and thereby win the Nobel Peace Prize than he is to start a war.

  Stated differently, Trump can lead the world back to the 1991 status quo ante for one salient reason. He never got the War Party memo that proclaimed an American Imperium that has now failed horribly; and he will relish doing unstinting battle against it Imperial City architects——the Clintons and the neocons.

  Still, redemption for the US economy and the nation’s wage and salary earning households will require more than the recovery of fiscal rectitude, as crucial as that is to avoiding a calamitous national bankruptcy during the next decade.

  What is actually needed is a modern rendition of President William McKinley’s “full dinner pail” economics of circa 1900. McKinley was a hard money Republican who impaled William Jennings Bryan twice on his own cross of anti-gold populism by selling the gospel of free enterprise and mild protectionism to the laboring classes of America’s flourishing interior.

  Donald Trump is on to that. But what he needs to better understand is that it was the gold standard and free enterprise elements of the McKinley formula that carried the day, not the moderately protectionist tariffs. The latter had actually been designed a decade earlier by McKinley himself as an Ohio industrial belt Congressman to insure wage equivalence with the principal industrial centers of England and Europe.

  In fact, it was the honest money discipline of the gold standard that kept transatlantic industrial wages in equilibrium, consumer goods inflation non-existent and real living standards steadily rising. Stumping for the protectionist tariff was just the McKinley GOP’s way of emphasizing its solidarity with the wage earning producers of the day.

  To be sure, free trade is always better for real living standards and societal wealth than the deadweight cost of tariffs, but in truth the McKinley tariff was as much a revenue tariff as it was an modern style instrument of statist protectionism.  After all, it was not until 1913 that the nation even had an income tax on individuals and corporations.

  And that gets us to a segue to The Donald’s well-intended but incomplete stance on global trade, the massive loss of full-pay productive jobs in America during recent decades and his claim that we are “losing” $500 billion a year to China, $59 billion to Mexico and so forth.

  He is right. But it’s not just, or even mainly, due to bad trade deals negotiated by stupid bureaucrats in the state department and the USTR office.

  It’s mainly owing to bad money created by stupid Keynesians at the Federal Reserve. They have enabled the rise of a virulent form of export mercantilism and currency manipulation throughout the entirety of East Asia and much of the EM world which drafts in its economic wake.

  Stated differently, the two decade long regime of central bank driven free money has destroyed the possibility of free trade. What passes for “free trade” today has nothing to do with the real thing.

  So-called free trade arrangements like NAFTA and the pending TPP are essentially statist deals negotiated among corporate, labor, environmentalist and other interest groups. If they actually result in increased global trade, the impact is marginal and largely incidental.

  The whole trade calamity that Trump is declaiming goes back four and one-half decades; and can be laid at the doorstep of Milton Friedman and his acolytes in the White House who convinced Nixon to default on America’s obligation to redeem unwanted dollars for gold, and to instead float the dollar at Camp David in August 1971.

  What the well-intended but hopelessly naïve free market professor failed to reckon with is that once the Fed was freed of the shackles of even the flawed Bretton Woods gold exchange standard, it would only be a matter of time before statist professors and Washington policy apparatchiks would open the monetary floodgates in the name of taming the business cycle or achieving the mythical Keynesian nirvana of full-employment.

  Worse still, Friedman was clueless about the probability that this monetary profligacy would prove to be virulently contagious, especially among the developing economies of East Asia where free market capitalism had never really existed. What happened is a relentless, long-lasting and destructive “dirty float” that continues to this day.

  The recipients of the Fed’s flood of dollar liabilities after Greenspan took the helm in 1987 engaged in massive currency intervention and manipulation in order to promote their export industries, and avoid what would have otherwise happened under Friedman’s theoretical fiat money regime. To wit, the dollar would have collapsed and Asian exporter exchange rates would have soared, halting America’s 25 year borrowing spree before it really got started.

  The truth is, had Alan Greenspan and his successors maintained even a modicum of monetary restraint and permitted money and capital markets to clear under the laws of supply and demand, nominal US interest rates would have remained unusually high in the face of deep negative US trade balances stemming from the post-1994 mobilization of cheap labor in China and East Asia.

  American households would not have lived high on the hog by borrowing from foreigners in order to consume more than they produced. Under honest money in the 1990s and thereafter, wages and productivity in the US would have sweated themselves back to competitive levels as they did during the McKinley era of full dinner pail economics.

  Needless to say, that is all water over the dam now in 2016. American labor is hopelessly over-priced and the American standard of living teeters precariously on a debt-swollen economy that has no capacity to grow or create what used to be called middle class jobs.

  I call them breadwinner jobs and there have been no net new ones formed in America since the turn of the century. The new jobs heralded on bubblevision every month are mainly born-again from the last cyclical downturn or low pay, part-time jobs in bars, restaurants, theme parks, nursing homes, home health outfits, temp agencies and student loan dependent for-profit tuition mills.

  

  Yet Trump’s relentless harping on trade might provide an avenue to reset a hopelessly impaired domestic labor market. In brief, the prospective GOP nominee should embrace Ted Cruz’s business flat tax as he sends its author on his way to the Supreme Court.

  But rather than replacing the income tax, which over half of US households do not pay anyway, the Cruz flat tax should be calibrated at a rate which will permit elimination of the payroll tax entirely. Lifting the roughly 16% employer/employee wedge off the cost of labor in America—–a burden of some $1.4 trillion annually—- would do more to restore full dinner pail economics to main street than any other conceivable measure.

  In truth, the Cruz business flat tax is just a  gussied up value added tax (VAT). And that’s exactly what America needs—notwithstanding decades of caterwauling against it by the Washington business lobbies and their GOP bag carriers—–because it taxes consumption, not labor and enterprise.

  Better still, it would fully tax the $2.4 trillion of goods imports which come into the country every year while being rebated on the $1.7 trillion of US exports which fight for foreign markets with their arm tied behind their back—-owing to systematic foreign protectionism and the blatant currency pegging and manipulation that Donald Trump has rightly called out.

  Indeed, a Trump administration would not need to start any trade war at all. It only needs to fire Janet Yellen and her merry band of money printers and replace them with sound money proponents who will stop pegging interest rates and allow the money and capital markets to clear at free market levels.

  In no time the dollar would strengthen and China’s $30 trillion house of cards would come crashing back to earth. The comrades in Beijing would have no choice except to shutdown the Peoples Printing Press of China in order to prevent an outward stampede of flight capital like the world has never seen.

  Even then, a Trump VAT could be calibrated to bring the one sided trade flows of the world back into more favorable balance. It would simply involve a surtax on the basic VAT rate for the goods of any country that continued to abuse its access to US markets via state export subsidies and exchange rate manipulations designed to artificially lower the price of its exports.

  To be sure, in an ideal world the US should welcome the foolishness of any foreign government which subsidizes its exports. That is actually a form of foreign aid to American consumers.

  But like the mild McKinley tariff, the harm from taxing foreign goods would be far outweighed by the good that would come from relieving the existing payroll tax burden on domestic labor and enterprise. Likewise, the urgent necessity to close the nation’s disastrous fiscal gap would be far better accomplished by raising whatever revenues are required—– after a thorough fiscal housecleaning on both sides of the Potomac—–by taxing consumption, not production.

  Call it a revenue tariff, if need be. It brought full dinner pail economics to the McKinley era and could again.

  It also brought the laboring classes to the Republican party and that’s essential. There is no hope for capitalism, fiscal solvency and constitutional governance and liberty in America if the Republican party remains in thrall to the War Party and the crony capitalist racketeers who occupy its commanding heights in the Imperial City.

  No wonder they will stop at nothing to stop Trump.

  But they won’t succeed. The American public is finished with the corruptions and destructions of the Imperial City. The Grand Old Party Is done.

  So just maybe the door is open for The Donald to usher in a Grand New Bargain.

  

  

  

  

  

• It's Not Over Yet – Moody's Put Deutsche Bank On Review For Downgrades

  In a worryingly coincidentally timed move, Moody's has put Desutche Bank on review for downgrade, citing "execution challenges" in its new strategic plan. The worrying aspect comes from the fact the timing is entirely fitting with the ratings downgrade that started the last and most painful down-leg in Lehman's collapse…

  Full Moody's statement:

  Moody's reviews for downgrade Deutsche Bank's ratings (senior debt at Baa1)

   

  New York, March 21, 2016 — Moody's Investors Service has placed on review for possible downgrade the ratings of Deutsche Bank AG ("Deutsche Bank") and affiliates, including the bank's long-term deposit rating of A2, its senior unsecured debt rating of Baa1, its standalone baseline credit assessment ("BCA") of baa3, its counterparty risk assessment of A2(cr), as well as its short term ratings and short term counterparty risk assessment of Prime-1 and Prime-1(cr), respectively.

   

  Also placed on review for downgrade were the long-term ratings of US-based Deutsche Bank Trust Corporation and its trust company affiliates, considering the close linkages of the franchise value of these operations to those of the parent Deutsche Bank. Principal ratings affected include the long-term deposit ratings of A1, issuer ratings of Baa1, the standalone baseline credit assessments of a3, and the counterparty risk assessments of A2(cr) and Prime-1(cr). The Prime-1 short-term deposit ratings of the trust companies were affirmed.

   

  For Deutsche Bank's subsidiary Deutsche Postbank AG, Moody's placed the entity's main ratings on review for downgrade, with the exception of the bank's ba1 BCA which was unaffected by today's rating action. The Postbank ratings placed on review for downgrade include the bank's A2 long-term deposits ratings, its (P)Baa1 senior unsecured programme rating, the bank's Prime-1 short-term debt and deposits ratings and the A2(cr)/P-1(cr) counterparty risk assessment. Each of these ratings benefit from one notch of affiliate support, based on the BCA of Deutsche Bank.

   

  RATINGS RATIONALE

   

  The review for downgrade is prompted by the rising execution hurdles facing Deutsche Bank in its efforts to strengthen and stabilize profitability over the next three years. The firm recently indicated weak performance within its capital markets operations in the first two months of 2016 (typically the strongest quarter in the year for this business), and this follows on a weak fourth quarter 2015 performance. "Deutsche Bank's diminished performance in the most recent two periods is a function of both environmental and firm-specific factors" said Peter Nerby, a Moody's Senior Vice-President.

   

  Since changing leadership last June and recalibrating its strategic plan last November, the operating environment has worsened for Deutsche Bank. This is increasing the already high level of execution challenges the group faces in addressing its structural cost issues and achieving its new strategic plan. Moody's forecasts that revenue and expense headwinds may delay an improvement in profitability and achievement of Deutsche Bank's interim cost-to-income targets (principally a cost-to-income ratio of approximately 70%) for 2018. The scale of the firm's reengineering task, the potential for further weak revenue, and the risk of incremental litigation charges also create uncertainty, further increasing the execution challenge.

   

  Despite the near-term earnings challenges, the firm's overall solvency and liquidity profiles support its creditworthiness and provide the firm time and flexibility to adjust the plan as conditions warrant. Deutsche Bank's solvency is supported by a solid overall capital and litigation reserve position, as well as its asset risk profile. Deutsche Bank also maintains a strong liquidity profile. As such, Moody's expects that should there be a downgrade of Deutsche Bank's Baa1 senior debt and A2 deposit ratings, it would be limited to one notch.

   

  Furthermore, the ultimate objectives of the new strategic plan are credit positive. The business mix of the bank will be tilted away from more volatile and capital-intensive capital markets activities, with a greater emphasis on more stable, annuity franchises, including transaction banking and asset and wealth management. As a result, Deutsche Bank is committed to having a simpler and more stable business mix, operating with lower leverage and targeting a more conservative return-on-equity. However it is not clear whether the revenue attrition from shrinking the balance sheet and streamlining the client base can be quickly offset by growth in new areas.

   

  The review will focus on the details of the execution plan for 2016 and 2017, in particular, and the extent to which it will have to be adapted given challenges in the operating environment. The review also will focus on details and timing of the plan to renew the technological platform of the bank, a key enabler of future revenues and cost efficiencies.

   

  Moody's will also review Deutsche Bank's Additional Tier 1 securities (Ba3) to evaluate whether its execution challenges increase the risk of a coupon deferral on them. This could warrant additional, wider notching for these securities and result in up to a two notch downgrade for these securities.

  But it's different this time…

  

  May/June 2008 – S&P downgrades major US banks including Merrill, Lehman, and Morgan Stanley (all after the banks raised additional equity capital, sparking the bounce).

  It's not over yet.

  

  

  

  

  

• Stocks Edge Higher Despite Dismal Data & Hawkish Fed As Bonds & Bullion Slide

  To sum up: China car sales crash by most on record (boom goes the overseas growth meme), US existing home sales plunge most in 6 years (boom goes the domestic housing strength supporting consumption meme), Williams and Lockhart go full hawk-tard (positing April as "live" and suggesting everything is hawkishly awesome), and one of our most succeesful 'innovative' tech firms unveils the worst product launch ever… and investors buy stocks with both hands and feet…

   

  Futures show the flip-floppiness of the day best…A ramp in the afternoon session of China (thanks to eased margin requirements) which gave way as Europe traded weak then was slammed by Fed's Williams "April live" comments… a ramp back into the US open was then slammed by crappy housing data… which the machines ramped into Europe's close… Then Fed's Lockhart reiterated "April live" warnings but early weakness just spurred USDJPY to ignite momentum in stocks to overnight high stops…

  

   

  Leaving Nasdaq the winner as cash equities rallied into the European close and sold off after NYMEX close despite extended gains from oil…

  

   

  Post-Fed, things are back to normal as they should be… stocks #winning over gold and bonds… (buty silver is still in the lead)

  

   

  AAPL disappointed…

  

   

  It appears last week's apparent "QE Trade" – buy stocks, buy bonds, buy gold, sell USDs – is fading…

  

   

  Treasury yields rose 4-5bps on the day with some modest steepening…(japanese markets on holiday) Notice that the buying was between US open and EU close..

  

   

  The USD gained ground for the 2nd day ion a row – best gain in March…

  

   

  Commodities dropped as China closed, rallied into US open, then flatlined…

  

   

  But once again Crude was up and down faster than a whore's drawers…

  

   

  Charts: Bloomberg

  

  

  

  

• If Hillary Isn't Indicted, The Rule Of Law & The Republic Are Dead

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  Once the Oligarchy is above the law, the Republic is already dead.

  To paraphrase Ernest Hemingway: How did you lose your Republic? Two ways, gradually and then suddenly. The Romans experienced this when their Republic was extinguished by Empire.

  The erosion of the Republic was gradual: slowly but surely, the lower classes' representation in governance was curtailed; the Oligarchy of the wealthy and powerful cemented their privileges at the expense of the many; Oligarchs rose above the laws that were supposed to apply to all, and executive power was consolidated in top administrators and the wealthy at the expense of the Senate.

  When Caesar crossed the Rubicon with his army to seize control of Rome, the Roman Republic ceased to exist. Gradually and then suddenly: this is how Republics become Empires.

  We find ourselves in a parallel moment in history: the American Republic has been hollowed into a shell that is maintained for PR purposes. Beneath the propaganda, the Establishment runs the nation for its own benefit. The people are ignored, because they are powerless in this hollow shell of democracy: their only role is to provide bodies, talent and blood for the Imperial armed forces, pay taxes if they have any money, and be content with their food stamps if they don't.

  Here's the proof:

  Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens

  Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.

  Here are two articles in the same vein:

  America the Banana Republic

  The Quiet Coup

  The United States has reached a crossing the Rubicon moment: either Hillary Clinton is indicted for knowingly violating statutes regarding State Department security, or the rule of law and the Republic are dead. This is a binary moment: we either let Hillary evade the laws that were established to protect the security of the nation and confess there is no rule of law now for the Oligarchy, or the agencies tasked with defending the nation indict her.

  There is no middle ground. If Hillary isn't indicted, the rule of law, i.e. no one is above the law, is dead.

  

  If you believe Hillary that she didn't really do anything to violate the spirit or the letter of security laws, please review these statutes:

  U.S. Department of State Foreign Affairs Manual Volume 12 – Diplomatic Security
  12 FAM 531.1 Top Secret Storage
  12 FAM 531.1-1 Domestic
  (CT:DS-185; 01-31-2012)
  (Uniform State, USAID, OPIC, TDP)

  2 FAM 558 CRIMINAL LAWS
  (TL:DS-70; 10-01-2000)

  Incidents involving intentional or grossly negligent release or mishandling of classified information may be subject to criminal penalties. An illustrative list of criminal statutes establishing penalties of fine and imprisonment for the release of classified information is set forth in 12 FAM 558 Exhibit 558.

  Once the Oligarchy is above the law, the Republic is already dead. Once the people have lost the ability to influence the central state's policies and decisions, the Republic is dead. Once the elected officials can no longer impose the nation's statues on the Oligarchy (or have lost interest in doing so because they are all corrupted cronies), the Republic is dead. Once the nation's agencies of law enforcement are stayed from indicting, prosecuting and jailing members of the Oligarchy, be they super-wealthy politicos like Hillary or super-wealthy Wall Street bankers, the Republic is dead.

  The Democratic Party bosses and special interests have already selected Hillary as their shoo-in candidate for the Presidency, and these Oligarchs and special interests won't let any pesky details like laws protecting the security of the nation stand in the way of their Not So Quiet Coup.

  The nation's Deep State, which I have covered extensively, has at least grudgingly approved Hillary as the next neo-conservative (never met an Imperial entanglement or drone strike she didn't like), neocolonial (we're going to put the "little people" in their rightful place, i.e. under our management) Imperial President.

  A vote for Hillary, unindicted Oligarch, is a vote in favor of the destruction of the rule of law and the Republic. This is the Rubicon every voter must decide to cross or refuse to cross: vote for Hillary (destroy the Republic and surrender to Imperial Oligarchy) or refuse to vote for an unindicted Imperial Oligarch.

  

  

  

  

  

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• Supply and Demand Report, 20 Mar, 2016

  Early on Monday morning (Arizona time), silver began to rise. From its close on Friday of $15.46, it ran up to $15.82. Then it began to slide, eventually dropping to $15.17 by midmorning on Wednesday. Then…

  *BAM*

  The Fed said not a lot. It will go on manipulating the rate of interest rate to the same level as it had been previously. This was not what the market was expecting, as many believed the Fed was on the war rate-hiking path. Lower interest means more quantity of money dollars which means more rising prices which means gold and especially silver should go up.

  And go up, silver did. At least, if you measure it using muggle money. Silver ran up 44 cents on the Fed announcement. Then consolidated before running up over $16. It finally exhausted itself $16.15.

  It ended the week at $15.78, about 30 cents higher than it began. As the muggles would reckon it, gold went up $5.

  As always, we’re interested not so much in the price chart as the fundamentals of supply and demand. We like to know if a move was just leveraged speculators buying or selling futures, or if it was buyers or sellers of actual metal. The latter can tell us if a move will likely be durable or not.

  This is a segue into an interesting question asked by a reader last week. He noted that the speculators are trying to predict the next price move. What if they’re right? Then a speculative move may lead a fundamental move.

  That is true enough—if they’re right. The catch is knowing if they’re right, on a case by case basis. We have lost count of the number of times silver speculators have gotten excited and falsely predicted a breakout. There have been many corrections as the price of silver has dropped over the three years that we have been publishing our analysis, and the period before that when we had a private email letter. And when each of those corrections has exhausted itself, the downward price trend continued.

  Have we seen the price bottom? We think it’s likely. At least, there is no fundamental reason for silver to go back to a 13 handle. On the other hand, if silver speculators became as depressed about their metal as gold speculators are, then that is exactly what would happen.

  On the other, other hand—quick, somebody get me a one-handed economist!—we think it is more likely that bearish gold sentiment will slowly fade than that bearish sentiment will bleed over from gold to silver.

  Price bottom aside, is there any reason to expect a skyrocketing silver price? Read on for the only true picture of the gold and silver supply and demand fundamentals
  (For an introduction and guide to our concepts and theory, click here.)

  But first, here’s the graph of the metals’ prices.

         The Prices of Gold and Silver
  
  

  Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio was down again. 

  The Ratio of the Gold Price to the Silver Price
  

  For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

  Here is the gold graph.

         The Gold Basis and Cobasis and the Dollar Price
  

  The green line is the price of the dollar, measured in gold terms (i.e. the inverse of the price of gold). As it falls (i.e. the gold price rises) gold becomes less scarce. The red line is the gold cobasis, our measure of scarcity of the metal. From last week:

  Gold is becoming less scarce as its price is rising.

  It’s almost eerie how well the gold scarcity tracks the dollar price, as they both descend. Almost as if there was a connection. Or something. 😉

  The uncanny tracking of gold scarcity with the price of the dollar continues.

  Our calculated fundamental price of gold fell a few bucks again, but it’s still well over $1,400.

  Now let’s look at silver.

  The Silver Basis and Cobasis and the Dollar Price
  
  

  Last week, we noted that the silver fundamentals firmed up a bit. That was last week.

  This week, scarcity synced back up with the price of the dollar again. Note the big drop in the cobasis, and big rise in the basis. Silver for May delivery is in a nice contango, though the 38 bps you could earn to carry silver is a bit under LIBOR.

  The silver fundamental dropped over a nickel this week. It’s more than a buck below the market price.

  Will the speculators be right this time? Is silver headed to $20, much less $50? We would not put our money in harms’ way (to borrow a phrase that Kevin O’Leary has used on Shark Tank) to bet on that thesis.

  Monetary Metals will be in Hong for Mines and Money, and in Singapore for Mining Investment Asia. If you will be in town for either conference, and would like to meet, please drop us a line.

   

  © 2016 Monetary Metals

  

  

  

  

• Currency Debasement & The Death Of Roman Emperors

  Correlation does not necessarily imply causation.

  In other words, just because two sets of data may follow a similar pattern, it does not mean there is any direct causal relationship.

  However, as VisualCapitalist's Jeff Desjardins was assembling our previous research on Currency and the Collapse of the Roman Empire, we noticed something that was too uncanny to skip past: during the 113-year stretch of time from 192 to 305 AD, an astonishing amount of Roman emperors (84%) were either brutally murdered or assassinated.

  This, of course, was a particularly troubled period for the Romans. During the Crisis of the Third Century (235 to 284 AD) specifically, the combined pressures of invasion, civil war, plague, and economic depression threatened to bring down the Empire.

  Coincidentally, during this same time frame, the silver denarius went from having 2.7 grams silver to being “silver” in name only. Base metals such as bronze and copper were added to the silver coins to debase the currency, and by the year 300 AD, a silver denarius (or its equivalent) had only a trace of silver left.

   

  

  Courtesy of: The Money Project

   

   

  Notes on the Data

  Data on Roman Emperor deaths is from this resource, and the debasement of silver coinage was previously covered by Armstrong Economics.

  Roman Emperor deaths or abdications included in the visualization are ones that occurred between the birth of the Empire (27 BC) to the fall of the Western Roman Empire (476 AD). It’s also worth noting that, according to the source, there is a significant amount of emperors who had fates that are unclear or died under mysterious circumstances, and therefore the list may not be entirely accurate.

  

  

  

  

  

• Judge Jeanine's Warning To The GOP: "Your Scorn For The Will Of The American People Is Mindboggling; Be Very, Very Careful"

  Two weeks ago, Judge Jeannine Pirro hit it out of the ballpark with her stunningly honest and frank monologue that “there’s an insurrection coming” and that “the American people are sick and tired of crony capitalism.”

  Overnight, she followed it up with another striking rant, this time explaining why the Republican Party’s mantra has suddenly become that “Donald Trump must be stopped. “Why?” she asks rhetorically:”why would Republicans try to sabotage their own front-runner and risk a Democrat winning the White House?” Her answer, which is absolutely accurate: “The Republican establishment, elected officials and party leaders are in bed with the Democrats!”

  She explained:

  “If Hillary wins, nothing is lost for them, it’s business as usual. The lobbyists keep their offices on K Street, the pharmaceutical companies keep paying them, the unions keep adding to their pensions and the lawmakers get their reelection bribes – I mean contributions – while we the underclass work two and three jobs and rack up a debt our children and grandchildren will have to pay for generations!”

  Instead of supporting Trump – “the guy who keeps winning” – party leaders have talked about creating a so-called “‘unity ticket’ of other candidates to make sure he doesn’t win,” said Judge Jeanine. “To scare you into submission, they predict Trump cannot win the general election.”

  It’s because “party elders are petrified of Trump,” Judge Jeanine explained. “The man is beholden to no one. He wins, and it’s game over for the elite.”

  Her latest clip is below:

  * * *

  And the full transcript:

  So, you don’t like Donald Trump. You’re going to create a “unity ticket” of other candidates to make sure he doesn’t win.

  Say again? You want to stop one of the biggest vote-getters in your own party’s Republican Party primary history?

  Yet ‘Donald Trump must be stopped’ is the Republican Party’s mantra! Hey, I didn’t always like my party’s choice for president, but I generally supported him.

  Good that Trump is a white male otherwise they’d be accused of being racist, and lucky Trump’s not gay otherwise the Republican Party would be accused of being homophobic.

  So let me see if I understand this. The guy who keeps winning, despite his being called a misogynist, a racist, and a xenophobe, who has more than 50 percent of the delegates,  with even as many as 17 other Republicans in those primaries and the Republican Party’s mission is to block Trump’s nomination?

  What are you guys smoking?

  Okay, you like Ted Cruz. Good for you. But he needs to win 80% of the remaining Republican delegates. Keep dreaming guys – it ain’t gonna happen.

  John Kasich. Nice guy. Absolutely no path to the nomination.

  So I say to myself, ‘Self, why?’ Why would Republicans try to sabotage their own front-runner and risk a Democrat winning the White House? And I keep coming up with the same answer: the Republican establishment, elected officials and party leaders are in bed with the Democrats!

  So if Hillary wins, nothing is lost for them, it’s business as usual.

  The lobbyists keep their offices on K Street, the pharmaceutical companies keep paying them, the unions keep adding to their pensions and the lawmakers get their reelection bribes – I mean contributions – while we the underclass work two and three jobs and rack up a debt our children and grandchildren will have to pay for generations!

  To scare you into submission, they predict Trump cannot win the general election. If not, pray tell why does he keep winning primaries and drawing crowds like we’ve never seen in American primary history?

  An election note primer: Trump already has 678 delegates. He needs 1237 to win. He’s won 6 closed and 13 open primaries and caucuses – one where Independents and Democrats – or just Independents vote. Why is this important?

  It tells you Trump, besides winning the base, appeals to Independents and Democrats as well. Does that not bode well for the general election, especially against an establishment politician most consider untrustworthy and dishonest.

  They say he’s divisive. Yet the looting and burning and riots in Ferguson happened long before Trump!  Black Lives Matter, Occupy Wall Street, moveon.org – all before trump. The ‘what do we want – dead cops, when do we want them – now’ chant, all before Trump.

  It’s astonishing, Republicans plotting against their own front-runner!

  If the establishment had exercised this energy to get evangelical votes to Romney in 2012 he might have won! But then again, it wasn’t that important because either way, either party the establishment wins – their jobs, their offices, their lifestyles intact – as they continue on their treadmill of DC money and power.

  The party elders are petrified of Trump.  The man is beholden to no one. He wins and it’s game over for the elite. With Hillary, the game goes on.

  Heads up, Washington. We’re not listening to you anymore because we’re fed up. You haven’t fixed a damn thing. We can’t take it anymore: the lies, the corruption, the debt, the taxes, the invasion, the freebies, the lack of accountability, sanctuary cities, religions forced to violate their own faith, by providing birth control and abortifacts at the altar of Obamacare and your saying one thing and doing another.

  The patronage games and the free ride on our backs are over. You’re not listening. For us, it’s not just an election – it’s the selection of Supreme Court justices and the direction our country takes for generations. 

  We don’t want anything more than what our Founding Fathers intended. The slippery slope into socialism doesn’t work for us. We want an America where law enforcement, the military and our allies are not the enemy.

  Boys, your arrogance is astonishing. And your condescension and scorn for the will of the American people is both mind-boggling and reminiscent of another time in our history.

  From the beginning, we knew this would be a political revolution. Be careful boys, be very, very careful.  You don’t want to make this a different kind of revolution.

  

  

  

  

  

• It's Moved Beyond Vancouver: "Downtown Seattle Has Entered The Phase Of Ponzi Financing"

  By Charles Mudede Of The Stranger’s Slog

  Occupancy Rate Becoming Less of a Concern for Downtown’s Real Estate Investors

  I was recently informed by local economist and manager of IDEAeconomics, a website that promotes post-Keynesian views (and post-Keynesian must not be confused with neo-Keynesians), Alan Harvey that a significant shift has occurred in the market for commercial property in Seattle’s downtown area.

  In the past, the value of a commercial property was “the capitalized value of the stream of rents from that property.” In this order of things, occupancy rates (content) mattered. Now, commercial properties are not selling content and value but merely value. Meaning, they are selling a “projected increase in price.” Meaning, downtown Seattle has entered the phase of Ponzi financing.

  “My speculation is that this has been caused by people looking to move their money into the US,” Harvey explained. Where did he get this information? From a source within the CBRE Group, a “commercial real estate company based in Los Angeles.” This source confirmed that global surplus capital is behind this transition. “It’s much more lucrative to build or buy with the hope of selling at an inflated value rather than actual revenue.”

  Again, it’s really hard for many Americans to understand that we actually live in a world not with a scarcity of cash (it looks like that from the bottom) but a huge surplus of the stuff—or a “savings glut,” to use the words of Martin Wolf, whose most recent book The Shifts and the Shocks: What We’ve Learned-and Have Still to Learn-from the Financial Crisis explains this situation in very clear, if not repetitive, terms (I also recommend reading Other People’s Money: The Real Business of Finance by John Kay. These writers, Wolf and Kay, are not at all radical—for a treatment along those lines, read Costas Lapavitsas’ brilliant and meaty Profiting Without Producing: How Finance Exploits Us All).

  Nor does any of this have anything to do with the old and much-admired laws of supply and demand, which is why accelerated development will not weaken the force that’s pushing property values up. Finance operates outside of those laws. For example, what motivated the European Central Bank’s recent decision to expand quantitative easing (buying bonds from investment institutions in the hope that they will then invest in the real economy) from 60 billion euros a month to an astounding 80 billion euros had little to do with events in the real economy but with credit spreads, which when wide, as they have been lately, generate little or no profits for investors.

  Now, what does this decision have to do with recent developments in downtown Seattle? Simply this: It’s not about economics (supply and demand) but politics. The ECB is helping investors because they are the ones with political power (that’s how finance always works). The problem of inflated asset values will not be solved by building more and more but by direct political action and increased construction—in short, by political economy.

  

  

  

  

  

• "Can Trump Win The General Election?" Goldman Answers All Your Election Questions

  It’s probably fair to say that there are more question marks swirling around the 2016 US presidential election than any race for The White House in recent memory.

  Normally, Americans have a choice between two candidates, a Republican and a Democrat, who purport to hold vastly divergent views on everything from the economy to foreign policy to societal values. One is a “liberal” and one is a “conservative” and for a few short months towards the end of every election cycle, the electorate suspends disbelief and pretends as though who they vote for actually matters in the grand scheme of things.

  Four years later little, if anything at all, will have changed and voters resign themselves to the sad reality that their faith has once again been sold down the river, that American politics is only a duopoly on the campaign trail, and that the only time the difference between Republicans and Democrats is evident to everyday Americans is when something important needs to get done and it is always at that exact moment that the partisan divide keeps Congress from doing its job.  

  The takeaway for most voters: inside the Beltway all politicians are the same. They do the bidding of vested interests, lobbyists, and whoever else has the money.

  No one knows that better than Goldman Sachs, a firm which has its fingers (or “tentacles” as it were) in every political pie that matters.

  The firm has given extensively to Hillary Clinton over the years and has been quite generous when it comes to offering the former First Lady and her husband six figure speaking engagements. Employees of the firm donated to the campaigns of Jeb Bush and Marco Rubio before they dropped out of the race while Ted Cruz’s wife Heidi actually used to work for the bank. Cruz has used (sometimes undisclosed) loans from the firm to finance his political career.

  So if there’s anyone who should be able to field questions about the 2016 election, it’s Goldman. And there sure are a lot of questions. Below, find excerpts from a Q&A put together by Jan Hatzius and crew and note that while the bank still thinks their own bought and paid for Democratic frontrunner Hillary Clinton has an advantage over Trump in the national election, Goldman thinks the current head-to-head polls are giving her far too much credit.

  *  *  *

  From Goldman

  Will Trump win the nomination?

  It appears to us to be the most likely outcome but far from guaranteed. To win the nomination, a candidate needs to win votes from a majority of the delegates to the convention. This is distinct from winning a majority of delegates in the individual contests in states and territories, since some delegates could vote for a different candidate than they have been pledged to support, as described in detail below. However, since nearly all of the 2,472 Republican delegates are at least nominally bound to a particular candidate based on the results of primary elections, caucuses, and conventions, the simplest path to the nomination is to win a majority of delegates prior to the convention.

  

  Trump must win about 65% of the remaining pledged delegates. While this seems like a high bar, the delegate allocation methods used in the later contests make it attainable. More than 2/3 of the remaining delegates come from states that award delegates to the winner of the state popular vote or to the winner of the popular vote in each congressional district. To put this in perspective, during the competitive period of the 2008 and 2012 nomination contests, the top-placing candidate in each state won an average of 45% or so of the popular vote—not far from the share of votes Trump won in the March 15 contests—which translated into just over half the delegates awarded in proportional and “winner take more” states, but 85% and 100% of delegates in states that award delegates using winner-take-all by district or statewide.

  

  While the remaining contests include a greater share of closed primaries (where Cruz has generally done better), the remaining schedule also has fewer caucuses and fewer Republican-leaning states, where his support has been stronger (Exhibit 4). So while there is a clear possibility that the dynamic could change again, for now it appears to be a three-way race in which Mr. Trump has the advantage.

  

  What about a contested convention?

  The arcane rules of the Republican nomination process consist of four general stages:

  1. The nomination contests themselves. Many primaries and caucuses held by various states award delegates based on the election results as if they were points on a scoreboard; i.e., they allocate delegates based on the share of votes cast in the state or in a congressional district (often both), rounding up or down to get to whole numbers of delegates awarded. But only about 15% of delegates are elected on the ballot as representing a given candidate. The rest are selected in some other way, creating the potential for slippage between the official primary/caucus results and the actual delegate allocation. In addition, three states (Colorado, North Dakota, and Wyoming) do not bind their delegates to support any particular candidate, nor do three territories (American Samoa, Guam, and the US Virgin Islands).
  2. The delegate selection process. Since many of the delegates awarded over the last six weeks do not yet represent actual individuals, the Republican party in each state must select delegates to travel to Cleveland in July to represent the state at the convention. The process differs by state, but typically involves conventions at the congressional district level and then again at the state level, usually several weeks after the primary or caucus. The goal for the campaigns will be to ensure that the delegates selected to represent them actually support their candidate and are not arbitrarily chosen members of the party who might shift support when given the opportunity. Some states like California allow candidates to file their own slate of delegates who will represent them if they win, but these states represent less than 10% of delegates by our estimates.
  3. Pre-convention strategy and rulemaking. Once the delegates for each state have been selected, the state parties must then choose two delegates per state to represent them on the various committees that will meet prior and during the convention. The “Rules Committee” will meet the week before the convention to decide the rules for the convention. Their starting point will be the current rules (discussed below), but the delegates to the committee are empowered to change the rules as long as they receive majority support from the delegates to the convention as a whole. A second committee deals with challenges to the eligibility of individual delegates, which could be an important tactic if the delegate count is close. Challenges must be filed by mid-June, or roughly one week after the last primaries in California and New Jersey.
  4. Votes on the convention floor. Delegates from most states are bound by state party rules or, in some cases, state law to support that candidate. A few—under 10%—of the delegates arrive to the convention unbound, or not formally associated with a particular candidate. During the Republican convention in July, all delegates will cast their vote for the party’s nominee, and nearly all delegates will be required to vote for the candidate to whom they were pledged. If a candidate wins the majority of delegates on that first vote, the process ends and he wins the nomination. If no candidate wins a majority on the first vote, a second round of voting is held. Around half of the delegates will represent states that bind their delegates to vote as instructed only on the first ballot, but allow them to switch their vote thereafter. Another 20% of delegates may switch after the second ballot, and nearly all delegates become unbound after the third vote. The remaining delegates may not switch until they have been released by their candidate, which could come at any point during the process.

  So who would a contested convention favor?

  It would probably give Sen. Cruz a better chance at the nomination than he currently has, but it seems less likely to result in the nomination of an “establishment” candidate and could still end in Mr. Trump’s nomination.

  Will Clinton win the nomination?

  It seems very likely, but it might take a while. Secretary Clinton currently has 1,606 delegates to Senator Sanders’ 851 but, unlike the Republican nomination process, there are no winner-take-all states so, even with her large lead in “superdelegates,” she will need to win 38% of the delegates through June 7 to win the nomination.

  Can Trump win the general election?

  While Secretary Clinton appears to have an advantage in the general election, it would surprise us if the public (and markets) remained as confident of the election outcome as seems to be the case currently. Prediction markets imply around a 70% probability that the Democratic candidate will win the general election. In the longest-running prediction market still in operation, run by the University of Iowa, such an expectation reflects greater certainty about the general election outcome at this stage in the race than any other election going back to the start of the data in 1992.

  

  While it seems likely that the race will look closer at some point over the next few months than it does today, the Democrats nevertheless have several advantages. Most important is the Electoral College itself, where Democrats start with roughly 250 electoral votes from states that have consistently voted Democratic in the last several elections and have been generally trending more Democratic over that time. This suggests that Democrats would need to win only one large swing state—Ohio (18 electoral votes) or Florida (29)—or a few smaller ones to win the election, whereas the Republican candidate will need to win nearly all of them.

  *  *  *

  And before anyone suggests that Goldman hasn’t contributed to Donald Trump’s run at The White House, don’t forget about Luke Thorburn, the Goldman financial advisor who was put on paid leave last month for selling hats inspired by the billionaire’s “Make America Great Again” campaign slogan on a homemade website…

  

  

  

  

  

• Sweden's Refugee 'Crisis' Has "Gone Past The Breaking Point"

  Sweden is too generous for its own good as the country most beloved by Bernie Sanders is pressured by huge migrant flows. As Bloomberg reports, when it comes to wealth, health and hospitality, Sweden has few rivals. But the same qualities that make the country a beacon of hope for the world’s huddled masses are straining it at the seams.

  To see how close to the limit a record inflow of refugees is pushing Swedish generosity, visit Halmstad, a 14th century gateway to the North Sea known for its pristine beaches and golf courses. With no vacant apartments, the welcome wagon here is a double row of shabby, stifling trailers hauled in to house the overflow from the nearby Arena Hotel. There, almost 400 asylum seekers from Syria, Afghanistan and beyond live four to a room, all but forbidden from working until their claims are adjudicated. The process can take years.

  

  Men with little to do but sleep and smoke crowd the lobby as kids careen down corridors on bikes. The sports bar, once busy with locals, is now a halal dining hall, the outdoor pool fenced-off and abandoned. It’s a scene increasingly common across Sweden, which welcomed 163,000 refugees last year alone, or about 1.6 percent of its population, a ratio equivalent to 5.1 million in the U.S.

  Three years after Sweden and its Nordic neighbors were declared “The Next Supermodel” of fiscal prudence by The Economist, the welfare system pioneered in Stockholm is starting to buckle under the weight of Europe’s biggest migration wave since World War II.

  Even dovish politicians concede the pace of refugee spending, which is on track to surpass that for national defense in Sweden for the first time this year, can’t be sustained without revisions to a social contract based on high taxes, cradle-to-grave entitlements, tight regulation and AAA credit.

  

  Few know the perils and promise of Scandinavian welfare better than Aida Hadzialic. She fled Yugoslavia with her family at the age of five and settled in Halmstad, where she served as deputy mayor before being named Sweden's minister for secondary education in 2014. And what worries her most is the viability of a model that literally saved her life.

  “If we don’t make the changes needed to maintain trust that our tax money goes to the right thing, people may start wondering if it’s worth paying,” said Hadzialic, 29. "Then we’d create a new gap between people. That’s not the Swedish model, that’s not the Sweden we know.”

  It’s a debate raging across the European Union as the human tide of mainly Muslims adds to crises eating away at the bloc’s cohesion and encouraging extremist parties. Even in Sweden, where centrists have ruled for decades, discontent is on the rise. Polls show backing for the governing Social Democrats hovering near the 50-year low of 24 percent it reached in January, while support for the anti-immigrant Sweden Democrats has risen five points since the 2014 election to 18 percent.

  Investors have already registered their alarm.

  As the inflow of refugees peaked late last year, the yield bond-buyers demand to hold Swedish debt over that of Germany, the European benchmark, surged to a nine-month high. Though that spread has narrowed, the government has warned that outlays for migration will further squeeze the $110 billion national budget. Ethnic tensions are adding to the strain, with a rash of fires and threats of mob attacks at refugee centers across the country.

  

  For most Swedish citizens, though, there’s little question their welfare state — as much an anathema for U.S. conservatives such as Donald Trump as an inspiration for left-wingers like Bernie Sanders — is worth protecting.

  Today, Swedes can consider themselves among the luckiest people on Earth. At 82, their life expectancy is two years longer than Americans’ and their net disposable income, $29,185 per household, exceeds the U.K., France and Japan. What they lose with a top income tax rate of about 60 percent, they gain back with free, high-quality hospitals and schools, a vast program of subsidies for childcare and housing, and some of the world’s safest and most modern cities.

  But providers of public services say they can’t keep those standards up if refugees, the vast majority young and male, keep coming.

  Building new housing for immigrants at a time when half a million Swedes are waiting eight years on average for rent-controlled apartments around Stockholm is becoming a flash point, said Joakim Ruist, an economist at Gothenburg University. The only “logical” way to stimulate new construction is to lift price controls so developers have more incentive to build, a move that won’t be popular with voters, he said.

  “No modern welfare state has had an inflow of refugees per capita that’s equivalent to Sweden’s," Ruist said. "We’ve gone past the breaking point for the housing situation.”

  

  Fearing a public backlash over housing and handouts, which can be worth $28,000 a year for a single mother of two, almost what the average American worker earns, Sweden is trying to walk back its open-door policy. Citing an "unsustainable" pace of arrivals, Prime Minister Stefan Loefven has re-imposed border controls and pledged to step up deportations of rejected asylees. Family reunifications are also being drastically curtailed.

  Until recently, there was little question Sweden, with debt far below the European average at less than half of gross domestic product, had the resources to successfully integrate its newcomers. Hadzialic, the schools minister, and Hanif Bali, an IT entrepreneur and member of parliament for the Moderate Party, are living proof of that.

  But like Hadzialic, Bali, who arrived from Iran without parents as a toddler in the 1990s, is starting to think his adopted homeland may just be too generous for its own good.

  “If we don’t act soon we’ll have a large group of refugees who won’t be able to enter the labor market,” said Bali, 28.

  Just the thought of being a burden on society makes Hasan al-Bundok sigh.

  The 45-year-old lawyer fled Syria’s war in search of a better future, first to Turkey, then across the Mediterranean to Greece and eventually Halmstad. The plan was to find a job, establish a home and then send for his wife and four children back home. But that was nine months ago and he’s still languishing in legal limbo at the Arena Hotel.

  "In my country, I’d wake up at six o’clock, have breakfast with my children and go to court,” Bundok said. “But here, I’m like an animal, just eating and sleeping. I don’t want to be a second-class citizen. I want to work.”

  

  

  

  

  

• China Car Sales Suffer Biggest Crash On Record To Start 2016

  The dream of transition to a 'consuming' economy just crashed into the wall of excess debt and leverage. 2016 has started with a 44% collapse in China passenger car sales. This is the biggest sequential crash and is 50% larger than any other plunge in history.

  

  While there is a seasonal effect here obviously, the sheer scale of this 2-month drop – which removes the new year holiday affect – indicates something is terribly wrong in China.

  Coming at a time when vehicle inventories are near record highs relative to sales with a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years…

   

  

   

  And worse still, used car prices starting to fade rapidly (biggest Feb drop since 2008)…

  

   

  Falling used car prices means pressure on new car prices as well, which would be a shock to America's booming auto market.

  Obviously, the scariest part about all of the above is that consumers still have the pedal to the metal (pun fully intended) when it comes to leases, which means there's no end in sight to the off-leases and thus no way to determine, at this juncture, how big the residual writedown wave and deflationary auto industry calamity will ultimately end up being.

  So, you know… "buckle up."

  *  *  *

  Simply put, the world's automakers – all toeing the narrative line that growth will be from China – now face a harsh reality of massive mal-investment deja vu. And furthermore, any pricing power is lost (no matter how long the credit terms are extended) as they are forced to halt production and dump inventories in a vicious deflationary cycle…

  

  

  

  

  

• China's Latest Problem: Half A Trillion Dollars In Unpaid Bills

  It’s no secret by now that China has a rather serious debt problem.

  Although getting a precise read on it is next to impossible, all told the debt pile probably sums to something like $30 trillion. Various reports put the figure at between 250% and 300% of GDP all-in and as we reported back in January, that may have swelled to more than 340% by the end of 2015.

  Corporate debt-to-GDP was around 125% in 2014 and probably sits above 150% now. Depending on what business you’re in, servicing that debt has become all but impossible. As Macquarie discovered last autumn, more than half of all debt for commodities firms was EBIT-uncovered in 2014 and heaven only knows what that figure looks like now.

  

  Things have gotten so bad that in 2015, Chinese firms issued $1.2 trillion in new debt just so they could service their existing loans. In other words, China’s entire corporate sector is quickly becoming one giant ponzi scheme.

  

  “Chinese companies are struggling to generate the cash flow needed to service their obligations,” Bloomberg said last November, summing up the situation in the absolute simplest terms possible.

  And it’s only going to get worse. On Sunday we learn that median days sales outstanding for mainland domiciled companies now sits at 83 days – the highest in nearly 17 years and double the average for EM as a whole.

  

  As you can see from the above, it now takes 50% longer for Chinese firms to get paid than it did just five years ago. As you might imagine, the problem is particularly acute for industrial firms who are waiting 131 days to convert sales into cash. “A reading of more than 100 days is typically a red flag,” Amy Sunderland, a money manager at Grandeur Peak Global Advisors in Salt Lake City told Bloomberg. 

  Yes, Amy it certainly is. Especially considering the median for companies in the MSCI Emerging Markets Index is just 44 days.

  “Accounts receivable at the nation’s public firms have swelled by 23 percent over the past two years to about $590 billion, exceeding the annual economic output of Taiwan,” Bloomberg goes to write before summing up the situation as follows: “With corporate bankruptcies projected to climb 20 percent this year, more Chinese businesses may be forced to choose between two unpleasant options: keep extending credit to potentially insolvent customers, or cut off the taps and watch sales sink.”

  Needless to say, this is just another way of looking at the same problem. That is, if I’m an industrial company and you’re my customer, and you can’t pay me for four months, then I can’t service my debt, and thus my loans end up in the special mention bucket at the bank. If you never pay me and there are enough customers like you included in my accounts receivable, then eventually I’m screwed and assuming the Politburo allows it, my loan moves from special mention at the bank to the NPL line.

  Unless of course I borrow more money to service my existing debt while simultaneously extending you more credit to “buy” what I’m selling, in which case the entire charade continues for another few months while the amount of leverage embedded in the system grows even larger.

  Of course this can only go on for so long. “There is a knock-on effect through the economy,” Fraser Howie, author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise,” tells Bloomberg. “Part of the end game is default and closure.”

  Right. Because what the chart above suggests is that even healthy companies will start to have working capital problems sooner or later and before long, the proverbial can simply will have been kicked as far into the future as possible and when the breaking point finally comes, every weak hand across the entire supply chain will be shaken out, triggering a cascade of defaults, a resultant banking crisis, and finally, a sharp reduction in excess capacity until the market finally clears. Millions of Chinese will lose their jobs in the process and the PBoC will likely be forced to keep the banks from collapsing, but that’s another story.

  Meanwhile, on Sunday, PBoC Governor Zhou Xiaochuan warned that China’s corporate sector is weighed down by far too much debt. “Lending as a share of GDP, especially corporate lending as a share of GDP, is too high,” he said at the China Development Forum in Beijing. Highly leveraged economies are more susceptible to macroeconomic risks, he added, in a fantastic example of stating the obvious. One does wonder however, if the PBoC was so concerned about excessive debt, how Beijing managed to let the country add a half trillion in TSF during the month of January alone:

  

  One thing that would help, Zhou innocently suggested, is if more savings were channeled into equity markets so that companies could reduce their dependency on debt. “[We need] more robust capital markets,” he said. He might have put it another way: “It would be nice if everyone would just pour their savings into equity, that way, companies wouldn’t have to take on more debt.” 

  As FT notes, “about one-third of listed Chinese companies owe at least three times as much in debt as they own in assets, according to figures from Wind.”

  You’d be forgiven if, upon reading all of the above, you come away feeling a bit uneasy about China’s ability to manage this “transition.” But really, you shouldn’t worry because when it’s all said and done, you’ll be thanking China for providing the world with a template for how to do something that’s absolutely impossible: deleverage and re-leverage at the same time. Here’s IMF chief Christine Lagarde: “The world will be watching closely to learn from China as it deftly manages the delicate balance between economic transformation and deeper global integration.”

  We’re not sure about the whole “deftly manages” part, but the world will certainly be “watching closely”, that’s for sure.

  We’ll give the final word to Vice Premier Zhang Gaoli: “There will be no systemic risks — that’s our bottom line.”

  If you say so.

  

  

  

  

  

• Regardless Of Who Wins In November, Freedom & Liberty Both Lose

  Submitted by Richard Ebelong via EpicTimes.com,

  Let us be clear. We are living, right now, in a time of emotional fear, hysterical anger, illogical demands, and dangerous temptations. In other words, liberty and prosperity are at risk. A decent and tolerant society is threatened. Common principles of humanity are being undermined.

  All of this is concentrated and has been brought to a head in the rhetorical clamor and campaign conflagrations of a presidential election year. To try to understand what is going on, a mountain of words have been spoken by serious think tank scholars, by Sunday morning talk show pundits, or by evening television news 15-second “in-depth” interpreters, as well as miles of written commentaries that have been offered in hardcopy or on the online media and blog sites.

  Pandering and Plundering Politicians, Left and Right

  On the Democrat Party side, how can a corrupt, manipulative, lying, life-long power-lusting insider like Hillary Clinton be taken seriously and to be, seemingly, riding high to her party’s presidential candidate? How can a self-proclaimed “democratic” socialist, who has praised and apologized for communist dictatorships in Latin America and who chose to honeymoon with his bride in the former Soviet Union, arouse the mass enthusiasm of millions who see him as the deliverer of a transformative “political revolution” in America?

  On the Republican Party side, how can a bombastic, rude and crude user of government privilege and favoritism for his business interests, like Donald Trump, who speaks most of the time in empty phrases and wrong-headed illogic on numerous economic and social issues, victoriously steamroll through state primaries and garner the support of millions merely because, many of those multitudes say, “he says it like it is”?

  How can we explain the fate of the field of other Republican candidates, heralded in the summer of 2015 as the finest group of minds offered by the GOP for the office of the presidency in several decades? As the autumn began, one of them after another, first in the debates and the public opinion polls, and then in the primaries, failed to inspire or distinguish themselves. Each fell victim to voter indifference and then to Donald Trump’s meat grinder. Until, now, hardly any remain standing.

  And what of the voters? Facing an uncertain employment future, experiencing seeming stagnant or low wage improvements, disoriented by a changing cultural environment; angered by political promises unfulfilled by those elected to high political office, as well as burdensome taxation and heavy-handed regulation; frustrated by crony “insiders” close to politicians and bureaucrats who “rig the game” for the benefit of special interests while leaving the costs and lost opportunities on the shoulders of ordinary citizens Sam and Sally, who have none of the “pull” to influence things their way, now insist: “We’ve had enough and we’re not going to take it any more.”

  

  Broken Constitutions and Noses to Get What You Want

  This is the sentiment and insistence of a sizable number of voters. And if it takes a socialist with utopian dreams dancing in his head, or a boorish billionaire who says he knows how to fix a broken system because he’s been playing it for decades for all its worth, then so be it. Put the “strongman” in charge to shake things up and give the ordinary guy an even break.

  If it takes bending the Constitution or tearing down the wealth and position of some, well, those insiders and fat cats, those “establishment” types, have been rigging the rules for as long as can be remembered. So its time someone stuck it to them with some of the same political power, just in “the people’s” direction for a change.

  And if some people have to be “roughed up,” if their words need to be shouted down or shut up, again, we’ve had enough of what they have had to say. Of course, who the “we” are and who the “they” are all depends upon who the “you” is.

  Are you referring to the radical college professor who calls for some “muscle” to drive away a news reporter covering a campus demonstration against freedom of speech? Or a presidential candidate who gets cheers from his followers when he suggests that a physical altercation against protesters at their meeting is a lot more fun than listening to a boring campaign speech?

  What we are witnessing are the latest episodes in the continuing bankruptcy of the modern American political system. These millions of voters all along the political spectrum wrap their frustrations and demands in rhetoric of either restoring or establishing “real” and “true” American values.

  Long Down the Road of Lost Liberty

  The fact is the original or traditional premises and values of the American system have been eroding away for almost a century, now. Several decades ago, the libertarian social analyst and critic, Garet Garrett, penned an essay with the title, “The Revolution Was.” He pointed out that too many people concerned with the preservation of the American constitutional system of government and a free society failed to appreciate how much of the ideas and institutions for a society of liberty had already been eroded away by forces opposed to its preservation.

  We are a lot further along this path today from when Garet Garrett tried to point out how far away from a free society we had already moved. To appreciate this, we must first remind ourselves what are the premises and institutions upon which a free society ultimately stands or falls.

  The philosophical foundations were expressed, of course, in the Declaration of Independence, when the authors in 1776 insisted that all men are created equal and are endowed with certain unalienable rights, among which are life, liberty and the pursuit of happiness. And that government is formed among men to secure these rights from their violation by private individuals and groups or from government itself.

  To guard against such violations by government, the very political institution meant to secure liberty is formally restrained in how it may use and apply its legitimized use of force in human affairs by constitutional rules. The American Constitution was meant to clearly demarcate the limited and enumerated functions of the federal government, with the additional restraining device of “divided government” between the branches of the federal government and then between the federal government and the duties and responsibilities of the individual state governments.

  The restraining of government was meant to assure that political power remained a servant of the citizenry and their individual rights, and not a threatening master taking away or reducing their liberty. Secondly, federal government in terms of divided responsibility among national, state and local political decision-making was meant to reflect functions needing to be performed at different horizons of importance to the citizens, and to keep government control and decision-making as close to those citizens as those different governmental tasks allowed.

  

  Freedom Needs Habits of the Heart and Mind

  But pieces of paper upon which are written the administrative duties and responsibilities of different levels and branches of government is not sufficient in itself to maintain a society of individuals secure and protected in their rights. As the famous French social philosopher, Alexis de Tocqueville, pointed out in his Democracy in America, written after his extended visit to the United States in the 1830s, the free society is more than elections, and legislative procedures, or a written constitution. It is based upon “habits of the heart” and “character of the mind.”

  That is, it is dependent upon a wide network of “structures of shared meaning” and values among the members of a society. They must believe in human worth, that is, the dignity of each individual, and a respect for and tolerance of the diversity of men’s dreams, wishes, hopes and values. And most importantly, that each and every individual has a “natural” or inviolable right to their own life, to be lived peacefully and honestly in whatever manner and form that the individual considers most likely to bring him meaning, happiness and fulfillment of the goals and purposes that he sets for himself.

  There must be a shared view that human relationships should be based on voluntary consent and mutual agreement. Coercion and physical threat or intimidation in any and all forms should form no part in the patterns of human association and relationship. And that government’s own use of force should be reserved and restricted to its “negative” application, that is, always and only in defensively protecting people’s rights to their life, liberty and honestly acquired property and not any types of violation or weakening of these rights.

  There needs to be at least an implicit agreement among the members of such a free society that what a man has honestly and peacefully earned through his mental and physical labors and his voluntary exchanges with others is rightfully his. Accumulated wealth and income, as long as it has been honesty and peacefully acquired, is not a mark of injustice or unfairness or unethical conduct, but rather an indication of the industry, energy, and successful effort in improving an individual’s own circumstances through mutually beneficial production, trade and association with others.

  And more broadly, there needs to be a spirit and sense that whatever differences may exist among individuals due to accident of birth or social and historical circumstances, the idea and ideal is that each person is looked at, judged and evaluated as an individual in terms of his distinct qualities, characteristics, talents, abilities and achievements as an human being and not as a member of a collective group. Political and economic individualism should be matched with ethical and social individualism as we look at, interact and treat others in the community of mankind.

  These principles and ideals when shared in common, again to use de Tocqueville’s phrases, the “habits of the heart” and “character of the mind,” gives unity to the members of a free society, while at the same time providing the respect, tolerance and “space” for diversities of among men as expressed in their individual and social interactive goals, purposes, ends, values and meanings for life and happiness.

  American History an Incomplete Reflection of Its Own Ideals

  America, of course, has never fully lived up to this conception of man, society and government. Slavery deprived humanity to millions during the first half of the country’s history; this was followed by legally imposed discrimination laws and practices that contemptuously treated those who were equal citizens of the nation as less than fully human as peaceful associative relationships and economic opportunities were closed to them in the name of explicit and implicit racial inequality.

  Government, even in the early days of the nation’s history, never confined itself within the constraint of protecting rights rather than plundering them. Corruption, political special interest pandering, and misuse of the fiscal purse strings resulted in state and federal regulations and favoritism benefiting some at the expense of many others. Tariffs, subsidies, land grants, monopolies, and financial contracts awarding government money to companies undertaking “internal improvements” (public works projects in the more modern language) assured that the peacefully and productively earned income and wealth of many were politically transferred into the hands of those close to and influential over those holding political office.

  However Incomplete, American Practice Gave Liberty to Multitudes

  But however imperfect and hypocritical in practice, it remained nonetheless the fact that the idea and ideal of political, economic and social individualism were more believed in and implemented in the United States in the nineteenth century and into the 20^th century than anywhere else on the face of the globe.

  It generated a spirit of optimism, hope and effort that fostered multitudes to live and experience the fruits of those ideas and ideals to a degree never known before in human history. It gave Americans – even with the contradictions, inconsistencies and corruptions – a higher standard of living and a greater degree of actual individual freedom and opportunity than in any other part of the world.

  The older or “classical” liberalism of the nineteenth century had called for the end of these various political privileges and forms of favoritism, that is, to abolish these remaining governmental inconsistences and exceptions. And it called for the social spirit of individualism and free market competition to overcome those attitudes and actions by people in contradiction with a full respect and tolerance of the dignity of men as individuals.

  

   The Collectivist Counter-Revolution Against Liberty

  But before these forces of liberal individualism could complete the liberation of humanity from plunder and prejudice, a counter-revolution emerged, a counter-revolution of new forms of collectivism, statism, and socialism. They rejected the individualist ideal and insisted that the group and the tribe came before the individual human being; that any person’s sense of identity and position in society was determined by and dependent upon into what “social class,” or racial group, or nation-state the individual was born and lived.

  Any hardship, disappointment and sense of mistreatment or frustration experienced by an individual was the result of the exploitive, or oppressive, or “socially unjust” actions of those in some other social or racial group or nation-state other than the one to which he belonged.

  Individual responsibility was replaced by group status and privilege. Rights were not something unalienable and belonging to individuals; instead, “rights” were “entitlements” belonging to members of a categorized group, and for the provision of which individuals in other groups were obligated to provide and supply.

  The idea of a common humanity among all men as individuals was slowly but surely replaced with the notion of group “identities” based upon which the individual’s sense of self-esteem or social position and belonging was dependent.

  Politics and the political process was not a restrained and limited institutional method for finding the most effective and efficient ways of delineating, protecting and enforcing the individual rights of each citizen to their life, liberty and honestly acquired property. Instead, politics and the political process was conceived as the arena in which the power of the government was captured and used to “redress grievances” by using legal force to redistribute wealth, reorder social and other status positions of privilege and favor for the benefit of “deserving” groups in place of “undeserving” groups.

  Freedoms Curtailed for Controlled Entitlement

  Freedom of speech and the press, the right of peaceful assembly and association were no longer considered the avenues through which each individual’s right to express, share, debate and manifest his ideas and ideals was guaranteed by limiting government’s ability to interfere with such peaceful acts and interactions.

  Instead, freedom of speech and the press and freedom of association came to be considered tools of intellectual and ideological control and exploitation by the “powerful” against the social, racial or gender “under-privileged.” And as such, the spoken and written word and any forms and types of permitted association had to be modified, molded and controlled to assure collective social, racial and gender equity and balanced access and privilege through governmental regulation and planning.

  Collectivist “Rights” Through Political Action

  The individual was, now, portrayed as too weak and inconsequential to find his own way to betterment and happiness in such a setting of social, racial and gender oppression. Personal liberty and free association in the marketplace and other voluntary settings were declared to be “illusionary” notions of freedom.

  “True” freedom and opportunity could only come through the advancement of the social, racial and gender group to which one belonged in a political competition for entitlement “rights.” In this circumstance, each group had to have leaders and leaderships that expressed and represented the “real” and “just” interests of the group for which they claimed the right, duty and responsibility to speak and act.

  This road from political, economic and social individualism to collectivist identity and privilege through group competition for political power is what has brought us to our current political crisis as captured in this year’s presidential campaign.

  Your job security is uncertain? Your income has not increased the way you had wished and desired? Your social status and acceptance by others has not matched your expectations and personal sense of deservedness? The ideas you want accepted by others and the actions and attitudes you want others to follow and express have not materialized?

  Then the task is to use the government to give you what you want, and to force and compel others in society to conform to your vision of the good, right and just. If mouths have to be shut when you consider them to be speaking evil or “hurtful” words, if people must be coerced to act in the way you want them to, if wealth and opportunities of life must be redistributed by government’s police power so you and others in our group may have what you consider that which you rightful deserve, then so be it. That is the means and methods of “true” democracy, since if you and your group do not use government to get what you want, some other groups will do so at your expense.

  This is the new America system: a democratic politics of power, plunder and privilege in a perpetual social conflict of social classes, racial groups and gender identities. It is a system in which the individual seems weak, small and powerless; and needing “leaders” who will use politics to bring them to the social, economic, racial and gender “promised lands” that are laid before the constituent-voters, if only this or that political candidate is elected to set the world right for the benefit of a coalition of collective groups who want certain things and to which they are told they are entitled.

  This the outcome of the journey from liberal individualism to political collectivism that has placed before us Hillary Clinton, Bernie Sanders, Donald Trump and a cast of other remaining candidates who sometimes speak the language of liberty but do so interwoven with inconsistencies and contradictions that leave the message of freedom with no fully principled spokesman in this year’s race to the White House.

  The path back to and forward towards liberty, therefore, will have to be journeyed far beyond the outcome of this November’s election.

  

  

  

  

  

• Is There A US-Russia Grand Bargain In Syria?

  Submitted by Pepe Escobar via SputnikNews.com,

  It’s spy thriller stuff; no one is talking. But there are indications Russia would not announce a partial withdrawal from Syria right before the Geneva negotiations ramp up unless a grand bargain with Washington had been struck.

  Some sort of bargain is in play, of which we still don’t know the details; that's what the CIA itself is basically saying through their multiple US Think Tankland mouthpieces. And that's the real meaning hidden under a carefully timed Barack Obama interview that, although inviting suspension of disbelief, reads like a major policy change document.

  Obama invests in proverbial whitewashing, now admitting US intel did not specifically identify the Bashar al-Assad government as responsible for the Ghouta chemical attack. And then there are nuggets, such as Ukraine seen as not a vital interest of the US – something that clashes head on with the Brzezinski doctrine. Or Saudi Arabia as freeloaders of US foreign policy – something that provoked a fierce response from former Osama bin Laden pal and Saudi intel supremo Prince Turki.

  Tradeoffs seem to be imminent. And that would imply a power shift has taken place above Obama — who is essentially a messenger, a paperboy. Still that does not mean that the bellicose agendas of both the Pentagon and the CIA are now contained.

  

   

  Russian intel cannot possibly trust a US administration infested with warmongering neocon cells. Moreover, the Brzezinski doctrine has failed – but it’s not dead. Part of the Brzezinski plan was to flood oil markets with shut-in capacity in OPEC to destroy Russia.

  That caused damage, but the second part, which was to lure Russia into an war in Ukraine for which Ukrainians were to be the cannon fodder in the name of “democracy”, failed miserably. Then there was the wishful thinking that Syria would suck Russia into a quagmire of Dubya in Iraq proportions – but that also failed miserably with the current Russian time out. 

  The Kurdish factor

  

   

  Convincing explanations for the (partial) Russian withdrawal from Syria are readily available. What matters is that the Khmeimim air base and the naval base in Tartus remain untouched. Key Russian military advisers/trainers remain in place. Air raids, ballistic missile launches from the Caspian or the Mediterranean – everything remains operational. Russian air power continues to protect the forces deployed by Damascus and Tehran.

  As much as Russia may be downsizing, Iran (and Hezbollah) are not. Tehran has trained and weaponized key paramilitary forces – thousands of soldiers from Iraq and Afghanistan fighting side by side with Hezbollah and the Syrian Arab Army (SAA). The SAA will keep advancing and establishing facts on the ground.

  As the Geneva negotiations pick up, those facts are now relatively frozen. Which brings us to the key sticking point in Geneva – which has got to be included in the possible grand bargain.

  The grand bargain is based on the current ceasefire (or "cessation of hostilities") holding, which is far from a given. Assuming all these positions hold, a federal Syria could emerge, what could be dubbed Break Up Light.

  Essentially, we would have three major provinces: a Sunnistan, a Kurdistan and a Cosmopolistan.

  Sunnistan would include Deir ez-Zor and Raqqa, assuming the whole province may be extensively purged of ISIS/ISIL/Daesh.

  Kurdistan would be in place all along the Turkish border – something that would freak out Sultan Erdogan to Kingdom Come.

  And Cosmopolistan would unite the Alawi/ Christian/ Druze/ secular Sunni heart of Syria, or the Syria that works, from Damascus up to Latakia and Aleppo.

  

   

  Ankara’s response, predictably, has been harsh; any Kurdish federal system in northern Syria represents not only a red line but an “existential threat” to Turkey. Ankara may be falling under the illusion that Moscow, with its partial demobilizing, would look the other way if Erdogan orders a military invasion of northern Syria, as long as it does not touch Latakia province.

  And yet, in the shadows, lurks the possibility that Russian intel may be ready to strike a deal with the Turkish military – with the corollary that a possible removal of Sultan Erdogan would pave the way for the reestablishment of the Russia-Turkey friendship, essential for Eurasia integration.

  What the Syrian Kurds are planning has nothing to do with separatism. Syrian Kurds are 2.2 million out of a remaining Syrian population of roughly 18 million. Their cantons across the Syria-Turkey border —Jazeera, Kobani and Afrin – have been established since 2013. The YPG has already linked Jazeera to Kobani, and is on their way to link them to Afrin. This, in a nutshell, is Rojava province. 

  The Kurds across Rojava – heavily influenced by concepts developed by imprisoned PKK leader Abdullah Ocalan — are deep into consultations with Arabs and Christians on how to implement federalism, privileging a horizontal self-ruled model, a sort of anarchist-style confederation. It’s a fascinating political vision that would even include the Kurdish communities in Damascus and Aleppo.

  Moscow – and that is absolutely key – supports the Kurds. So they must be part of the Geneva negotiations. The Russian long game is complex; not be strictly aligned either with Damascus or with the discredited “opposition” supported and weaponized by Turkey and the GCC. Team Obama, as usual, is on the fence. There’s the “NATO ally” angle — but even Washington is losing patience with Erdogan.

  The geopolitical winners and losers

  Only the proverbially clueless Western corporate media was caught off-guard by Russia’s latest diplomatic coup in Syria. Consistency has been the norm.

  Russia has been consistently upgrading the Russia-China strategic partnership. This has run in parallel to the hybrid warfare in Ukraine (asymmetric operations mixed with economic, political, military and technological support to the Donetsk and Lugansk republics); even NATO officials with a decent IQ had to admit that without Russian diplomacy there’s no solution to the war in Donbass.

  In Syria, Moscow accomplished the outstanding feat of making Team Obama see the light beyond the fog of neo-con-instilled war, leading to a solution involving Syria’s chemical arsenal after Obama ensnared himself in his own red line. Obama owes it to Putin and Lavrov, who literally saved him not only from tremendous embarrassment but from yet another massive Middle East quagmire.

  

   

  The Russian objectives in Syria already laid out in September 2015 have been fulfilled. Jihadists of all strands are on the run – including, crucially, the over 2,000 born in southern Caucasus republics. Damascus has been spared from regime change a la Saddam or Gaddafi. Russia’s presence in the Mediterranean is secure.

  Russia will be closely monitoring the current “cessation of hostilities”; and if the War Party decides to ramp up “support” for ISIS/ISIL/Daesh or the “moderate rebel” front via any shadow war move, Russia will be back in a flash. As for Sultan Erdogan, he can brag what he wants about his “no-fly zone” pipe dream; but the fact is the northwestern Syria-Turkish border is now fully protected by the S-400 air defense system.

  Moreover, the close collaboration of the “4+1” coalition – Russia, Syria, Iran, Iraq, plus Hezbollah – has broken more ground than a mere Russia-Shi’te alignment. It prefigures a major geopolitical shift, where NATO is not the only game in town anymore, dictating humanitarian imperialism; this “other” coalition could be seen as a prefiguration of a future, key, global role for the Shanghai Cooperation Organization.

  As we stand, it may seem futile to talk about winners and losers in the five-year-long Syrian tragedy – especially with Syria destroyed by a vicious, imposed proxy war. But facts on the ground point, geopolitically, to a major victory for Russia, Iran and Syrian Kurds, and a major loss for Turkey and the GCC petrodollar gang, especially considering the huge geo-energy interests in play.

  It’s always crucial to stress that Syria is an energy war – with the “prize” being who will be better positioned to supply Europe with natural gas; the proposed Iran-Iraq-Syria pipeline, or the rival Qatar pipeline to Turkey that would imply a pliable Damascus.

  Other serious geopolitical losers include the self-proclaimed humanitarianism of the UN and the EU. And most of all the Pentagon and the CIA and their gaggle of weaponized “moderate rebels”. It ain’t over till the last jihadi sings his Paradise song. Meanwhile, “time out” Russia is watching.

   

  

  

  

  

  

• Florida Man Tries To Buy $60,000 BMW SUV With Food Stamps

  The farcical American welfare-state has a new posterchild. Meet Florida-resident Nicholas Jackson, who tried to purchase a brand new $60,000 BMW X-6 SUV with his Electronic Benefits Transfer (EBT) card…

  

  That's not what Food Stamps are for!!

  But, as New York Daily News' Sasha Goldstein explains, after failing to use his us-taxpayer-funded credit card to buy the high-end German luxury car, he decided to steal it…but was caught when he ran out of gas (according to police).

   

  

  Nicholas Jackson, 36, showed up to a Pompano Beach dealership with little in the way of currency and was sent away, the Martin County Sheriff’s Office said. But the next day, the business was burglarized, and the owner found the $60,000 BMW X-6 and 60 sets of keys missing, police said.

  

  Cops later caught up to Jackson in Palm City, some 70 miles north of Pompano, where authorities say he drove until the car ran out of gas. They also found the BMW with the gas tank on empty.

  Jackson got a ride to the Martin County Jail, where he’s charged with grand theft auto and held on $20,000 bond.

  *  *  *

  Of course, in this new socialist norm in which we live, the Bernie-ites will defend the arrogance and ignorance of Jackson since why should he not 'take' from the rich? It's only fair!

  

  

  

  

  

• Black Cop Exposes Anti-Trump Protesters As "Most Hateful, Evil People Ever"

  Unfortunately for the establishment, the ongoing acts of sponsoreds civil disobedience are not creating the groundswell of anti-Trump terror they had hoped would bring down the anti-establishmentarian. In fact things have gone so far that even Arizona cops questioned their safety among Soros' puppet-protesters. As African-American police officer Brandon Tatum exclaims, the profane-language-using demonstrators "were the most hateful, evil people he has ever seen."

  As EndingTheFed.com reports, Brandon Tatum, an officer in the Tucson Police Department, shared a video Saturday night giving his perspective on Donald Trump’s campaign rally in Tucson, Arizona — and the disruptive protesters who hurled obscenities at the Republican candidate.

  As he explains, Tatum says that as a black man, he did not feel unsafe around Trump’s supporters but was ready to fight protesters in self-defense. He calls them the most hateful, evil people he has ever seen. The demonstrators, who he recalls chanting the phrase “Black lives matter,” used profane language and gestures, leading a mother to cover her child’s ears.

  One protester, he recounts, got beat up, but Tatum says that the man instigated a fight either by spitting on or assaulting a rally attendee. He hopes that his message makes it into the news so that typical CNN coverage of just the retaliation against the agitator doesn’t become the prevailing narrative about the rally.

  As for Trump himself, Tatum says he went to the rally to decide for himself what he thought of the candidate rather than trusting someone else’s word. He states that he gained respect for the businessman and didn’t hear anything bigoted from his stump speech. “His character’s a lot different than what you would perceive it to be in the media,” he says.

  * * *

  Once more the tried and tested efforts of the 'management' to disrupt the democratic process in favor of their wealth-maintaining status quo is suffering unintended consequences are everywhere amid the blowback from these organized protests.

  

  

  

  

  

• Why The True Cost Of Living Is Much Higher Than We're Told (Or Sold)

  Submitted by Adam Taggart via PeakProsperity.com,

  Over the past decade, we've been told that inflation has been tame — actually below the target the Federal Reserve would like to see. But if that's true, then why does the average household find it harder and harder to get by?

  The ugly reality is that the true annual cost of living is far outpacing the government's reported inflation rate. By nearly 10x in many parts of the country.

  This week, we welcome Ed Butowsky, developer of the Chapwood Index, to the program. His index is a 'real world' measure of how prices are increasing much faster than the wages of the 99% can afford:

  In my business, I wanted to make sure that I was building portfolios that weren’t just efficient but got people the rate of return that they needed. I thought: My goodness, what I need to do is give people a list of everything they spend money on and have them track quarter by quarter exactly their increases, so I can do a better job as a financial advisor in determining what return I need to target.

   

  I got a hold of a list of 50 major metropolitan areas and found people in every city and I gave them a job: I asked everybody to send me what items they spend their after-tax dollars on. I got about 4,000 different items. Then I took the 500 that most frequently appeared on the list and we've been tracking specifically these same items in every city since that period of time. I weight this list based on what percentage of a normal income people spend on each item.

   

  The purpose of this index is to let people know that, if you live in California, your cost of living increase goes up somewhere between 12-13.5% a year. And if you're not making 13% more in salary, then you're losing purchasing power; and that's why people fall further and further behind. If you are in New Mexico, it's about 7%.

   

  Basically, over the last five years, the average increase for all 50 major cities is 10% vs the average CPI of 1.5%. So it's easy to see that for people who are in the middle income, lower income or people who are living off of a pension that's adjusted based on the CPI, they've lost 8.5% of their purchasing power if everything was adjusted to the CPI year over year. Do that over five years, over 10 years — now you know why there's such a separation between wages and wealth. 

  Click the play button below to listen to Chris' interview with Ed Butowsky (38m:05s)

   

  

  

  

  

  

• These Flowcharts Show How Trump Could Get Robbed At GOP Convention

  On Saturday, Donald Trump made the rounds in Arizona, rallying supporters with his trademark, off-the-cuff stump speech.

  At this juncture, the billionaire has become something of a master when it comes to feeling out crowds. He shows up, takes the stage, and proceeds to deliver various riffs on the same set of amorphous themes depending on what he thinks any one particular set of supporters wants to hear. There’s the customary mention of protesters (“Bernie people”), the obligatory jabs at GOP rivals (“lyin’, lyin’ Ted”), an insult or three for the media (“crazy Megyn”), a poke at the establishment bear (“Mitt’s a chokin’ dog”), a brief mention of trade (“we make terrible deals”), a promise on immigration (“we’re gonna build a big beautiful wall”), and of course, a thundering reiteration of a promise that, at its heart, has absolutely no meaning whatsoever (“make America great again”).

  And it works. Like a damn charm.

  In fact, it works so well that you wouldn’t know anyone else was even running – Republican or Democrat. If you watched CNN on Saturday there were a couple of brief moments where a Bernie Sanders rally appeared on screen and other than that… nothing. It was a Trumpfest from morning to night.

  But even as it appears increasingly likely that the billionaire will get to 1,237 delegates by July thus obviating the need for a contentious convention in Cleveland, the GOP is holding out hope that the establishment can still steal the nomination from the frontrunner.

  Trump has threatened warned of “riots” if he’s robbed, but the party probably doesn’t care. Keeping Trump from getting the nomination is the only thing that matters at this point. For those interested in more granular detail on how the establishment may still be able to stop the Trump juggernaut, see here and here. For those interested in a simpler, visual explanation, see the following three helpful flowcharts from Reuters and The New York Times, respectively.

  

  

  

  

  

  

  

• Must Watch Video – "The Veneer of Justice in a Kingdom of Crime"

  Submitted by Michael Krieger of Liberty Blitzkgrieg

  

   

  All government, in its essence, is a conspiracy against the superior man: its one permanent object is to oppress him and cripple him…The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is very apt to spread discontent among those who are.

       – H.L. Mencken

  It does not take a majority to prevail but rather an irate, tireless minority, keen on setting brushfires of freedom in the minds of men.

        – Samuel Adams

   

  Fiat justitia ruat caelum
  “Let justice be done though the heavens fall.”

  I believe it is the duty of every single American citizen to sit down and watch the following mini-documentary. In just 45 minutes, you will learn more about the state of the union and the the world around you than decades of schooling and mainstream media could ever provide. Ignorance is not bliss, and if it weren’t for the blinding levels of ignorance pervasive in modern society, we wouldn’t find ourselves in this current deplorable state we’re in — on a knife’s edge between manageable serfdom and total tyranny.

  No one in American society is supposed to be immune from criminal prosecution, yet the Justice Department in the Obama administration took it upon themselves to grant such immunity to the mega banks and their employees. This is a tale of the traitors operating within the highest levels of the U.S. government, and it is a saga of how the rule of law was openly torched in front of our very eyes.

  Readers often ask me “what can I do to help.” Here’s what you can do. You can watch this video, then send it to every single person you know and plead with them to watch it. If necessary, make it a point to to sit with them and watch it. That’s how important this is.

  Until justice is served, this nation will never heal. Economically, culturally or spiritually.

  Now without further ado.

  

  

  

  

  

• What’s The Frequency Janet?

  Submitted by Mark St. Cyr

  What’s The Frequency Janet?

  Once again, in spectacular fashion, the financial “markets” have miraculously rebounded from the aptly moniker’d “Bullard Bottom” and without pause has traversed in a near vertical assent to recapture the levels where all the uncertainties began. In other words, after all the gyrations over the last 14+ months we are once again only back to the levels (as scored by the U.S. financial markets e.g., Dow, S&P, et al) where the Fed stood confidently in their economic policy acumen.

  Remember those confident proclamations during that time? (paraphrasing) “The economy has recovered quite admirably as to allow the QE (quantitative easing) program to end.” That was a good one, no? Remember what happened next? Nothing, as in the “markets” basically went nowhere up, nor down for months on end.

  Sure there were some great headlines made of this path to nowhere as the market screamed sideways in a pattern much like a cardiac reading with blips and spikes that allowed headlines such as “New Never Before Seen In The History Of Mankind Highs!” on a near weekly basis. Yet, although those headlines were true, all they did was mask the fragile, ever deteriorating economy those “meters” were hooked to.

  The one thing that never changed during that whole period? The implied fortitude of resolve that the Fed would indeed strike the path towards normalization of monetary policy and begin raising interest rates away from the zero bound. After all, it was implied at near infinitum: The economy had shown great signs of improvement. e.g., employment at near “full” status and others.

  So, with that “mission accomplished” narrative as the wind beneath their wings the table was surely set that in September of 2015 the Fed would indeed raise rates. Remember what happened next?

  Ah yes: China. It seemed just like any prudent U.S. investor or market aficionado might infer; a rate hike here means trouble there. After all, did anyone not understand just how interconnected these “markets” are with currency funded carry trades and more? Oh yes, sorry, it seems the Fed either forgot or, never realized the obvious inherent risk and consequences. The result?

  The U.S. financial markets fell is such a spectacular, as well as, cascading manner that for the first time in the history of the markets all three of the prominent futures markets were halted. Only after stick save inspired shenanigans as those delivered by CNBC™ fame Jim Cramer and his now infamous “Is that a pencil in your pocket or a note from Tim Cook?” reveal did the markets seemingly recover and stabilize.

  Then, reality once again set in as the markets collectively held its breath near those lows as it awaited the Fed’s implied: “You’ve been warned we’re going to raise rates.” Then, as the markets reacted to this implied “fortitude” and drifted lower back towards that “bottom.” The Fed with all its proclamations for faith in forward guidance and clarity did the exact opposite and punted. The result?

  Once again in a near vertical assent the markets screamed upwards with barely a respite to recapture the same levels where it all began – again.

  Now nearly a year later the Fed stood poised to do what it said it would. i.e., raise rates. (Talk about mulligans!) So, with data points in hand which the Fed proclaimed proved their well placed guided hand of interventionism monetary policy had worked effectively, they once again reiterated that they indeed were going to raise rates – and this time they did. The result?

  Once again in a near carbon copy of the previous selloff the markets lunged downward in a fashion resembling a luge sled on a one way course. And how and where did the “markets” once again seem to find a stopping point? You guessed it: the “Bullard Bottom.”

  And why this level appears so aptly named is for the fact that once again it was non other than St. Louis Fed president James Bullard who took to the airwaves and threw a Fed narrative over the decline of prices in oil. Result? (Need I say for I think you are seeing the pattern here.) The decline halted precisely at the level that bears his moniker. But the similarities don’t stop there.

  Just like in Aug/Sept of 2015 as the markets began to once again rollover there was an announcement on February 12th. But this time it was not by a Fed official. No, this announcement came from non-other than one of the Fed’s too big to fail recipient’s of the financial crisis J.P. Morgan Chase™ as its CEO Jamie Dimon announced he was buying 500,000 shares or some $26 million in stock of JPM. It seemed the market took that as “with confidence like that – we should be on board also!” and just like the prior the markets were off to the races skyward. After all, if a bank CEO is buying it surely must be a good time to buy also, right? And so they did.

  So, one would garner such a display of “confidence” would give the Fed the necessary backbone as to follow through on what they’ve implied through their rate hike projections via the Dot Plots. After all, the economic measures they state over ,and over, and over again as their “touch stones” of economic health as well as measurement (i.e., jobs, inflation, etc., etc.) are all within the tolerant values that define “success.” Surely they would continue on their path to monetary normalization. Guess what? Hint: Nope.

  Not only did the Fed punt once again. Both the metrics and language of the press release, as well as, the presser itself given by Fed Chair Janet Yellen was so convoluted, obtuse, as well as defensive even many of her staunchest defenders or cheerleaders couldn’t make heads or tails out of what should be easily and readily addressable answers.

  Dot plot projections that implied 4 rate hikes now imply 2, which to even the most casual Fed observer now more likely means – zero. All that great data that was used for a “data dependent” Fed? Sorry, no data for you. Well; data that represents the U.S. that is.

  You should now infer that all “data” is “international.” i.e., what’s happening elsewhere supersedes data the Fed keeps repeating its mandated to oversee and foster. (e.g., U.S. employment and inflation.) Again, even some of the most lenient critics of the Fed were themselves struck by the fact that the once stated goals which the Fed communicates ad nauseam as desired levels for policy normalization once again decided inaction – as action. When in fact these levels have been either hit or, are within meaningful “mission accomplished” parameters. And when it came to answering about the Fed’s credibility issue? Well, see here for yourself.

  All I’ll state for those still confused about Fed policy is the following: When in doubt – just move the goal posts. Problem solved. In theory anyways. However, isn’t that all that all that economics truly is? e.g., Theory.

  However, you know what is no longer theory nor a “data” point that’s fungible? What level the U.S. financial markets are currently trading at.

  To now dismiss Fed policy causation as “correlation theory” is laughable. The markets are now so intertwined and Fed dependent the observation of whether correlation is causality has been rendered moot. Without the Fed – there is no market. That’s now a proven fact. Period.

  Everything, Every market, every stock, every currency, is correlated and dependent of its very existence or viability as former Dallas Fed president Richard Fisher once implied: on a “diminutive woman” to play Atlas.

  And exactly where are these markets once again? Hint: Right where it all began. Where the Fed declared “mission accomplished” twice before when they announced QE was over, and where rate hikes were warranted. So, what happens at this third rendition? Is three times a charm? Who knows. All we can do is wait, see, and hope everyone is on the same wavelength the Fed Chair states it’s on as well.

  It’s also quite possible we now have two new concrete “data” points or metrics far more impervious to movement which have supplanted the once Congressional mandated “data” points current Fed watchers once looked upon as “gospel.” Those data points?

  Policy action or inaction is dependent on either a break of the “Bullard Bottom” (i.e. 1800ish SPX, 15,500ish Dow) or surge back to “fortitude central” (i.e. 2050ish SPX and 17,500ish Dow) where we once again stand, and await what monetary dictate the Fed will deliver next. The only issue now is…

  Is the Fed still on the same page? Reading from the same playbook? Or, even on the same wavelength as the markets? And probably more importantly: with all the missteps and confusing commentary emanating from the Fed – will the “market” continue to respond as it always has? (Look to the EBC and BoJ decisions of late for clues)

  Right now it’s anyone’s guess. And in my opinion, there’s no one guessing more about what to do next – than the Fed itself.

  

  

  

  

  

• JPM: The Short Squeeze Is Largely Over

  Two weeks ago, before first the ECB first and then, the Fed, unleashed two massive dovish surprises, we warned – citing JPMorgan – that the most painful part of the short squeeze “may be yet to come.”

  As a reminder, this is what JPM said on March 5:

  The covering of short equity positions continued over the past week. The short interest in US equity futures declined over the past week.  But its level remains very negative suggesting there is room for further short covering. The short interest on SPY, the biggest equity ETF, at 4.75% stands below its recent peak of 5.43% but it remains elevated vs. its level of 3.54% at the start of the year. Equity ETFs have not yet seen any significant inflows, suggesting that ETF investors have done little in actively reversing the almost $30bn of equity ETFs sold over the previous two months. CTAs, which have been partly responsible for this year’s selloff, are still short equities and they have only covered a third of the short position they opened in January. In contrast, Discretionary Macro hedge funds, Equity L/S, risk parity funds and balanced mutual funds, appear to be modestly long equities, so they are currently benefitting from the equity rally.

  Actually, if one uses the latest Goldman Sachs data, this is not at all true because those long positions which benefited from the market surge were more than offset by pair-trade shorts which soared even more and wiped out all gains.

  

  We won’t cry for hedge funds, however, and instead are much more interested in what current and future flows will look like.

  According to the same JPM team which expected a continuation of the short squeeze half a month ago, as a result of central banks once again pandering to stock markets with the Fed shocking even the “Liesmans” of the world by going full dove even as the Fed has already met its labor and inflation mandates, the move has led to a significant “impact on investors’ sentiment and behavior is evident in flows. ETFs, a universe almost equally shared between retail and institutional investors in terms of ownership, saw another big inflow this week meaning that three quarters of the previous selling of equity ETFs during January and February has been reversed over the past three weeks.”

  

  What is more notable from JPM’s note, is that CTAs – one of the most important marginal price setter on the way down when only CTAs were profitable at the expense of all other hedge funds, continued to cover their loss-making short equity exposures. By JPM’s equity beta measure, CTAs appear to have fully covered their shorts as shown below.

  

  But while CTAs may be out, the short base in US equity futures remained elevated as of last Tuesday, March 15th, a day before the FOMC meeting,  perhaps held by money managers outside CTAs.

  

  JPM also suggests that there was even more short covering in the post-FOMC period not covered by the chart above, which certainly has collapsed the net short exposure but JPM believes that “given the size of the shorts as of last Tuesday, we doubt that the negative net spec position on US equity futures has been fully covered by this week. In total, by looking at Figure 1 and Chart A16 together, we conclude that the short covering phase that started a month ago is very advanced” but, as JPM hedges “it is not yet fully completed.”

  That may be, but a far bigger catalyst for fund flows in the coming days is the end of corporate buybacks for the next 6 weeks as DB warned on Saturday morning:

  

  … a warning which is especially poignant when one considers that BofA’s “smart money” clients have now been selling stocks for 7 consecutive weeks, leading Bank of America to admit the bitter truth that “clients don’t believe the rally, continue to sell US stocks.”

  So why would anyone else, unless pressured by a short squeeze, buy… especially when as the central banks explicitly admitted, absent more liquidity support the market is set to tumble. A short squeeze, which as JPM admits, is almost over.

  Finally, a major driver of market upside this past week was Quad Witching, the S&P rebal and OpEx, which as JPM’s head quant Marko Kolanovic warned last week, may now catalyze near-term weakness: “in the next week, we could see some downward pressure as the impact of option hedging is reversed. Historically, we have found that the market develops positive momentum during the 3rd week of the month (when there is a call imbalance), and this often reverses during the 4th week of the month.”

  But what may ultimately determine the direction of market may also be the most boring one of all: Q1 earnings, which begin in earnest on Momdah, and are expected to be the worst since the financial crisis.
  

  

  

  

  

  

• Brazil Needs A Stronger Currency Like It Needs A Hole In The Head, Goldman Warns

  To say that the last seven days have been tumultuous in Brazil would be a laughable understatement.

  The country – which is on the fast track to “banana republic” status – plunged into chaos this week after a Sao Paulo state judge said a decision on the arrest of former President Luiz Inácio Lula da Silva should fall to federal judge Sergio Moro, the firebrand “rockstar” leading the prolonged car wash probe into corruption tied to Petrobras.

  Sensing that Lula’s detention was imminent, embattled President Dilma Rousseff sought to save her mentor by offering him a ministerial position which would effectively make him immune from prosecution – at least in the near term. Lula still has legions of supporters in the country, but the millions upon millions who want to see the Rousseff government ousted saw through the President’s gambit immediately. And so did Moro, who tapped the President’s phone and subsequently released several dozen recordings, at least one of which appears to prove that she did indeed offer Lula the cabinet position to shield him from legal trouble. Cue the street protests.

  

  Lula was sworn in during a farce of a ceremony which not even the PMDB bothered to attend and meanwhile, a committee was assembled to push forward with impeachment proceedings for Rousseff. A series of legal maneuvers from both sides set off a kind of “will he be minister or will he not” seesaw until finally, on Friday evening, Supreme Court judge Gilmar Mendes blocked Lula’s Lula’s appointment.

  “Tensions also grew between the government and the federal police after Eugênio Aragão, justice minister, threatened to remove federal police teams from investigations, including the task force investigating corruption at Petrobras,” FT wrote on Sunday. “If there is even a hint that information has been leaked from one of our agents, the whole team will be changed and I don’t need proof — the federal police is under our supervision,” Mr Aragão told Folha over the weekend.

  “Justice Gilmar Mendes’s ruling bars Mr. da Silva, who was sworn in Thursday as Ms. Rousseff’s chief of staff, from serving in the cabinet until a panel of Supreme Court justices makes a final ruling following an appeal by the government,” WSJ wrote, adding that “As a private citizen, Mr. da Silva, who is under investigation in the corruption case, can be tried in any court.”

  In other words, Moro is now free to arrest him.

  “Formally, Judge Moro could issue the arrest warrant,” Ivar Hartmann, a law professor at Getúlio Vargas Foundation in Rio de Janeiro told The Journal. “I don’t know if he will, but he could.”

  Yes “he could” and if he does, you’ll likely see more BRL strength. As we’ve documented extensively this month, the BRL is now trading pretty much exclusively on Lula, as his fate is seen as a proxy for whether Rousseff will ultimately be forced from office. The market apparently believes that anything would be better than the current political arrangement when it comes to shoring up the country’s flagging economy which last year plunged into what might as well be a depression. Here’s a look at how the currency is trading Lula news flow:

  

  Of course Brazil’s problems aren’t going to be fixed if Lula and Rousseff are kicked to the curb. On the political front, 26% of Congress faces active criminal investigations. On the economic front, we could rattle off any number of data points but really, this is all you need to know:

  

  So while the market may be forward looking, the BRL rallies that invariably accompany any and all bad news for Lula are not just premature, they’re ludicrous. In fact, in order for the country’s structural problems to dissipate, the currency needs to shoulder some of the burden. Goldman has more on why “the last thing Brazil needs now is to go back to BRL over-valuation.”

  *  *  *

  From Goldman

  Brazilian asset prices repriced significantly since late February on the back of a number of developments in the political and judicial spheres that were perceived as having significantly increased the probability of a near-term political transition.

  Due to a combination of external factors and a number of domestic events the BRL was the best-performing currency across the EM universe in the year through March 17. In the process, the BRL moved back into over-valuation territory, something that in our assessment is at odds with the current extremely debilitated macroeconomic picture and highly uncertain political backdrop.

  Part of the asset price rally observed during the first two weeks of March reversed on March 14-16, with Brazilian asset prices selling off with the appointment of former president Lula da Silva as Chief of Staff of the Rousseff administration (Exhibit 1). This was perceived by the market as having reduced the probability of a near-term political transition, and as having increased the probability of a shift back to heterodox policies. However, new “car-wash” investigation developments, spontaneous mid-week street protests, and a dovish FOMC surprise, were met by rallying markets towards the end of the week (March 17-18).

  

  Due to a combination of external factors and a number of domestic events related to the car-wash judicial probe into corruption, sentiment towards the BRL improved significantly despite still-high implied and realized volatility.

  

  We have long argued that given the very weak domestic macro fundamentals, namely, high domestic inflation, very deep and prolonged recession (Exhibits 7 and 8), and lingering political risk and uncertainty, the economy would benefit from a currency that is noticeably cheap to fair-value for a while.

  

  Hence, we are of the view that the central bank could and should be more assertive in reducing the still very large US$108bn stock of Dollar-swaps, in order to prevent further currency appreciation. That is, leaning against the wind of currency appreciation would be fully justified by the current weak macro fundamentals (2-year-long, deep economic contraction).

  

  In summary, to increase the efficiency of the macro adjustment and lessen the output/employment loss of the required rebalancing, the authorities should restrain BRL/USD appreciation below 3.70, in order not to short-circuit the ongoing expenditure switch, and to cement the current account adjustment.

  

  

  

  

  

• Thousands Of "Elated, Wet" Migrants Land On Lesbos, As Refugee "Deal" Fails To Stem Flow

  On Friday, the EU and Turkey came to an agreement on a set of proposals to stem the flow of Mid-East asylum seekers into Western Europe.

  The focus of the discussions in Brussels was cutting off the sea route to Greece. On the front lines is the Greek island Lesbos where at least half of the 144,000 refugees who have entered Greece in 2016 have landed. More than a million people crossed the Aegean to Greece last year.

  The new deal between the EU and Turkey calls for Ankara to take back all refugees arriving in Greece by sea after their asylum claims are processed. For every refugee that is sent back, Europe will take refugees directly from Turkey in a kind of one-for-one swap. The point is to discourage people smugglers by effectively making the sea trip pointless. “If returns begin migrants won’t want to pay $1,000-2,000 to a smuggler,” Antonis Sofiadelis, head of the coastguard operations on Lesbos explains.

  As part of the deal, Turkey will also get as much as €6 billion in aid and will have its EU membership application fast-tracked. Here are the specifics (on which the deal is notably short) for those who might have missed it:

  • Sending Migrants Back to Turkey From Greece
    • All migrants who travel to Greece from Turkey using irregular means after an agreement is reached will be returned to Turkey, in what the agreement calls “a temporary and extraordinary measure, which is necessary to end the human suffering and restore public order.”
  • A One-for-One Swap of Syrians
    • For each Syrian migrant returned to Turkey, the European Union will directly resettle another Syrian from Turkey, with priority given to Syrians who have not previously entered, or tried to enter, the European Union, up to a total of 72,000.
    • If that number is reached — as it almost certainly will be — a new round of negotiations will be held.
  • Stricter Controls of Turkey’s Borders
    • Turkey will take “all necessary measures” to prevent migrants from opening new sea or land routes to the European Union from Turkey in a measure aimed at assuaging concerns in Bulgaria that migrants will stream into the country.
  • Concessions for Turkey
    • The European Union will speed up the disbursement of the €3 billion it pledged in November, and provide another €3 billion by the end of 2018, once Turkey meets its commitments.
    • The European Union will waive most visa requirements for Turkish citizens by the end of June, provided that Turkey meets certain requirements.

  But while the deal is effectively in place now, sending refugees back to Turkey from Greece won’t be possible until April, the deadline for setting up the administrative infrastructure that will allow for the swift processing of asylum applications.

  In the meantime, the flow continues. “They waved, cheered and smiled, elated to have made it to Europe at dawn on Sunday in a packed blue rubber motor boat,” Reuters writes, recounting the scene on Lesbos as dawn broke on Sunday. Here’s more:

  The 50 or so refugees and migrants were among the first to arrive on the Greek island of Lesbos on day one of an EU deal with Turkey designed to close the route by which a million people crossed the Aegean Sea to Greece in 2015.

   

  Exhausted but relieved, the new arrivals wrapped their wet feet in thermal blankets as volunteers handed out dry clothes and supplies.

   

  Reuters witnesses saw three boats arrive within an hour in darkness in the early hours of Sunday. Two men were pulled out unconscious from one of the boats amid the screams of fellow passengers and were later pronounced dead.

   

  Twelve boats had arrived on the shoreline near the airport by 6 a.m, a police official said. A government account put the number of arrivals across Greece in the past 24 hours at 875 people.

   

  Among the early morning arrivals on the seaweed strewn beach on the south of Lesbos was Syrian Hussein Ali Muhammad, whose studies were interrupted after the war began. He said he wanted to go to Denmark to continue university. Asked if he was aware of the European decision, he said:

   

  “I know that. I hope to cross these borders. I hope I complete my studies here (in Europe), just this. I don’t want money, I just want to complete my studies. This is my message.”

   

  Doubts remain about whether the deal is legal or workable. It was not clear what would happen to the tens of thousands of migrants and refugees already in Greece.

  No, it’s not clear. And as we’ve seen over the past several weeks, there’s now a crisis in Idomeni where more than 15,000 refugees are stranded in makeshift camps now that Macedonia has closed its borders. 

  On Friday, Greek Interior Minister Panagiotis Kouroumplis compared the camps to Dachau. “I wouldn’t hesitate to say that this is a modern Dachau,” he said, lamenting what he called “the awakening of a kind of nationalism against persecuted people.” This should give you an idea of what life is like in Idomeni:

  Those arriving on Lesbos Sunday said they were aware of the deal between Brussels and Ankara, and you can bet they’re also acutely aware that the Macedonian border is closed. But they don’t care. “I know the decision,” a 30-year old computer engineer from Syria told Reuters. “I hope to (meet with) my wife and children [who are in Germany].”

  As we’ve said repeatedly, the scope of the “problem” simply defies any attempt on Europe’s part to cope – especially when Brussels is dependent upon Erdogan to be the first line of defense. Refugees didn’t leave Syria to be blown up or persecuted in Turkey. They left to get to Europe. Threatening them with expulsion if they decide to use the sea route to reach Greece isn’t going to deter anyone. They already know they can be expelled. They likely also know that the new plan will be virtually impossible to implement. 

  And so, as we look on while the Schengen dream dies amid a nationalistic furor not seen in Europe for more than seven decades, we bring you the following images from Reuters which depict the scene just this morning on the Greek island of Lesbos.

  

  

  

  

  

  

  

  

  

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• KKK-Dressed, Nazi-Saluting Protester Beaten Up By Black Trump Supporter At Arizona Rally

  Violence at a Trump rally? Hardly unexpected. However, make that violence between by a black Trump supporter who unloaded on an abusive, KKK-dressed, Hitler-saluting white protester who was being escorted out of the building, and the absurd shock value suddenly evolves to such surreal proportions one would expect a Salvador Dali portrait of Trump in the oval cabinet to emerge any day now.

  The protestor was wearing a hood while saluting, presumably referring to KKK/Hitler, before he was punched & kicked https://t.co/BfioarhaBR

  — Noah Gray CNN (@NoahGrayCNN) March 19, 2016

  As the Hill first reported, a Trump protester was punched and kicked several times while being escorted out of a rally in Tucson, Ariz., by police.  Videos show a protester in an American flag shirt holding up a picture of Trump before being punched. Another protester walking right behind him is seen wearing a white KKK-style hood. Police immediately handcuffed the attacker, a black man.

  Trump called out the hooded protesters early on in the rally.  “He’s a disgusting guy,” Trump said. “That is a disgusting guy, really disgusting.”

  This is a clip of what happened:

  VIOLENCE at another Donald Trump rally, this time in Tucson, AZ. Man hits and kicks protester: pic.twitter.com/7FWuSeE0Jt

  — Frank Thorp V (@frankthorpNBC) March 19, 2016

   

  And now we wait for the “impartial” media (whose CTR and CPM is through the roof in the past few months thanks to the Trump phenomenon) to accuse Trump of racial violence and somehow blame him for this latest embarrassing incident.

  

  

  

  

  

• Why Trump Triumphs

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

  Dow up again yesterday! According to Wall Street analysts, investors were front running a non-event. The Fed is in a credit “tightening cycle”, but without the tightening. On Wednesday, it announced it was leaving short-term rates unchanged at 0.5%.

  

  (One was already too much…we simply cannot have too many of these sad scenes. Cartoon by Richard Cline)

  Since not tightening is what investors are counting on, stocks rise… at least a little… in anticipation. But investors should watch out… We may be in a tightening cycle that goes way beyond the Fed’s control.

  

  (The Dow Jones Industrial Average, daily – still creeping higher after concerted cooing by assorted central bankers)

  “Germany is a disaster right now,” says Donald J. Trump A lot of Europeans would agree with him. Chancellor Angela Merkel’s open-door refugee policy is leading to widespread discontent. Her political position is “becoming weaker,” says the Financial Times. Why?

  Because she represents the spirit of a different age. Once the most popular leader in Europe, if not the world, Ms. Merkel is now the Lady for Whom Time Stopped. She is an anachronism from a more optimistic era, when people believed in free trade, democratic government, and ever-rising prosperity.

  

  (Angela Merkel: out of touch, out of style… Photo credit: Markus Schreiber / AP)

  Now, the zeitgeist has changed. Ms. Merkel is out of style and out of step. In Britain, France, the Netherlands, Slovakia, Hungary, and the U.S., the candidates getting the most enthusiastic support are those who urge closing borders, restricting trade, and looking to protect themselves from all that is threatening, different, or new.

  Forget free trade! Forget freedom of travel! Stop immigration… especially of the Muslims and Mexicans! Build a wall! Torture your enemies! Stop trying to expand the empire!

  Empire’s Destiny

  Gone is the brave optimism of the 1980s (remember “Morning in America”?)… and the bumptious corruption of the 1990s (remember Monica Lewinsky?). Now, we are old, tired, fearful, cowardly, and cranky. We want a strong leader to protect us – one who promises to take us back… to make us strong again… to make us young again.

  Here at the Diary, we do not believe the “Great Man” theory of history. Look closely at the great men of history… and they don’t look so great. They are just as flawed as the rest of us – bumbling along from victory to disaster, with little real insight into what they are really doing or what role in history they are playing.

  But a democracy must find a leader to express its soul. Unwittingly, he moves the country in the direction it was going anyway. Then, unaware of his limits, he goes too far. Marcus Licinius Crassus (the richest man in Roman history) attacked the Parthians… and died at Carrhae. Napoleon had Europe at his feet… and invaded Russia. Japan rolled over Southeast Asia… and bombed Pearl Harbor.

  

  The battle of Carrhae (53 BC) cost Rome seven legions plus one Marcus Licinius Crassus, member of the first triumvirate and the richest man in Rome.

  We all breathe in and breathe out. Economies. Markets. Societies and human beings. Now, after at least a generation of globalism, imperial expansion, and EZ money, the world is ready to exhale.

  Trump may be fulfilling the empire’s destiny… helping us retreat from promises that can’t be kept, delusions that can’t be financed, and commitments that never should have been made.

  Butterfly on a Wall

  It has taken us a long time to understand The Donald. We have been studying him, reading his books, listening to him talk… He is not a conservative… but he is the conservatives’ choice. He is not a religious man… but he is getting the born-again Christian vote.

  He is a Republican in name only… but the Republicans have him as their standard bearer. Go figure. We think we have figured him out… and now we have him… like a butterfly pinned to the wall.

  In France, Britain, Japan… and to a lesser extent the U.S… populations are getting older. They no longer want more; they just want to hold onto the privileges and benefits that they feel they have earned.

  Some of those benefits are purely monetary, and some are not. Pensions need to be protected. Drugs need to be affordable. Borders need to be stiffened. Tomorrow needs to be kept in its place – in the future. 

  

  (There is actually a Trump caterpillar, here seen ambling about in the rainforest in Peru)

  Selling Out

  Tuesday brought news that “U.S. drug prices doubled in five years.” How could that happen? No voter is going to think too hard about it… or connect it to the real cause: the insiders’ control of the pharmaceutical and medical service industries.

  Instead, he is going to look for someone to blame… and someone strong enough to fix the situation. Ms. Clinton was quick to jump on the case. Calling aggressive pricing by drug-maker Valeant “predatory”… adding: “I’m going after them.”

  But voters know Hillary will cozy up to anyone – Wall Street, the NSA, the military, Big Pharma – if it gains her money or power; they know she will sell them out.

  Donald Trump, on the other hand, appears to be a man who can’t be bought. He’s got enough money already. And his “straight-talking” style suggests he might shoot straight, too. When he talks, voters believe he means business. 

  

  (Valeant no longer needs Hillary Clinton to “go after it”…it has somehow managed to go after itself)

  The End of Growth

  The typical voter has no way of knowing what is going on. He is a ball ricocheting off the bumpers. When hit by a contraction… he shrinks, too. We all come to think what we must think when we must think it. And when it is time to sink, we are ready to drown.

  In the U.S., median incomes are lower today than they were 10 years ago. In his book, The Rise and Fall of American Growth, economist Robert Gordon argues that it’s over. The growth spurt that began in 1870 has ended. It can’t be repeated.

  But it is not just a matter of money. The temper of the times has changed. The credit system is just part of it. We want what we have lost: a growing economy, growing wages… growing hair! Give up our liberty… and our dignity… to get it?

  It seems a small price to pay! Says The Donald: “Make America Great Again.” Yeah… just like it was before.

  

  One has to hand it to Trump…it is simple, and yet, it is the most effective election slogan of any of the candidates. Can you remember any of the others? 

  Charts by: StockCharts

  Chart and image captions by PT

  
  

  

  

  

  

  

• A Strange Pattern Emerges When Trading The US Dollar In 2016

  One of the more surprising market developments of 2016 has been the violent obliteration of those who had taken part in the biggest consensus trade of 2015, namely long the USD. As the Fed finally admitted earlier this week, the US economy is sputtering and is woefully incapable of handling 4 rate hikes, or 3 for that matter. In fact, the Fed will be lucky to push through even one more rate hike without the Chinese Yuan collapsing and unleashing even more capital outflows (which precipitated the major market swoons in the summer of 2015 and early 2016) arguably the main topic during the alleged Shanghai G-20 “central bank accord.” The result: this week saw the biggest two-day USD collapse against a basked of foreign currencies in years, and currently the DXY is trading at a lower level than a year ago.

  However, to say that the dollar selloff is a development would be incorrect: as Bank of America points out, Dollar selling has been going on for the past three months. 

  But what is more curious is when during the day this selling has taken place.

  As Bank of America’s FX quant strategist, Vadim Iaralov writes, “ahead of the Fed, the USD was already trending lower against 8 out of 9 G10 currency pairs with GBP being the only exception. The surprisingly-dovish Fed has only further accelerated the decline in the US dollar. The decline started in late January and has occurred during the critical local New York trading hours. The US hours downtrend looks likely to continue in the near future.”

  What becomes immediately visible when one looks at the chart below is that all of the USD selling in 2016 has taken place during US hours.

  

  This, according to BofA chief FX strategist, Athanasios Vamvakidis means that “the market moves would be consistent with EM central bank interventions.“

  Perhaps: if true it would suggest that some very notable “EM” central banks (a polite euphemism for the PBOC) have been dumping the USD during US hours, which in turn would explain the coordinated attack against the USD – now with Fed participation – ever since the Shanghai G-20 meeting (although it would not explain why Japan or Europe would be willing to piggyback on this trade as while China wants a weaker dollar, Europe and Japan want the USD as strong as possible).

  Whatever the reason, and whoever may be causing this odd temporal divergence, thanks to BofA’s observation an interesting arb emerges: buy the USD during Asia and UK hours, and sell during the US day, sit back and collect the profit.

  Then again, now that this trade has been exposed and every FX trader sure to jump on it, we would expect precisely the opposite to take place: dollar strength during US hours offset by weakness during the rest of the trading day. We will update readers when the temporal regime changes, which we are confident it will in the not too distant future.

  

  

  

  

  

• Another False Oil Price Rally: Crossing A Boundary

  Authored by Art Berman

  Another False Oil Price Rally: Crossing A Boundary

  The oil-price rally that began in mid-February will almost certainly collapse.

  It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long.

  WTI prices have increased 47%  over the past 20 days from $26.21 in mid-February to $38.50 last week (Figure 1).

  

  Figure 1. NYMEX WTI futures prices & OVX oil-price volatility, 2015-2016. Source: EIA, CBOE, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).

   

  A year ago, WTI rose 41% in 35 days from $43 to almost $61 per barrel. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 per barrel in late August. Much lower bottoms would be found after that all the way down to almost $26 per barrel at the beginning of the present rally.

  Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average (Figure 2). Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing.

  

  Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge).

   

  International stocks reflect a similar picture. OECD inventories are at 3.1 billion barrels of liquids, 431 mmb more than the 2010-2014 average and 359 mmb above the 2015 level. Approximately one-third of OECD stocks are U.S. (1.35 billion barrels of liquids).

  For 2015, U.S. liquids consumption shows a negative correlation with crude oil storage volumes (Figure 3). During the 2015 false price rally, consumption began to increase in April and May following the lowest WTI oil prices since March 2009–response lags cause often by several months. First quarter 2015 prices averaged $47.54 compared to an average price of more than $99 per barrel from November 2010 through September 2014 (44 months).

  

  Figure 3. U.S. liquids consumption, crude oil stocks and WTI price. Source: EIA, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).

   

  This coincided with the onset of declining U.S. crude oil production after April 2015 (Figure 4).

  

  Figure 4. U.S. crude oil production and forecast. Source: EIA March 2016 STEO and Labyrinth Consulting Services, Inc. (click image to enlarge).

   

  Net withdrawals from storage continued until consumption fell in July in response to higher oil prices that climbed to $60 per barrel in June. Production increased because of higher prices from July through November before resuming its decline after prices fell again, this time, far below previous lows. This complex sequence of market responses shows how sensitive the current market is to relatively small changes in price, production and consumption.

  Most importantly, it suggests that a price variation of only $15 per barrel was enough to depress consumption a year ago. That has profound implications for the present price rally that is now $12 per barrel above its baseline and has already increased by a greater percentage than the 2015 rally.

  Why Storage Matters

  Although most analysts pay attention to storage volumes, market balance is generally thought of as a simple balance between supply and demand. But U.S. production is difficult to measure with confidence until several months after-the-fact and the EIA reports crude oil production but not supply. Likewise, EIA reports consumption but not demand.

  That’s because supply and demand can only be determined by evaluating stock changes and how storage modulates production and consumption. Production plus available storage equals supply. In today’s over-supplied market, consumption plus withdrawals from storage equals demand.

  Since April, U.S. production has declined 583,000 barrels of crude oil per day. With 163 mmb of crude oil in storage, that net production decline could be eliminated and April levels of production maintained by storage withdrawals for more than 9 months. That is why storage volumes must fall probably into the 2011-2014 range before a meaningful price rally can be maintained. That assumes that demand can tolerate those higher prices.

  Oil is accumulating in storage because of low demand and low prices. It makes more sense to pay the monthly storage cost (~0.65 per barrel) and sell the oil forward with ongoing futures contracts until the spot price increases and, hopefully, demand also increases.

  Many people think that the strip of futures contract prices are a reasonable guide to future prices. They are not. Futures prices mostly reflect the supply and demand of futures contracts.(1)

  That in no way discounts the profound effect that futures trading has on oil prices. The WTI futures market is one of the biggest  gambling casinos in the world. Bets are often made on sentiment that in turn is related to world events. Price fluctuations that are based primarily on sentiment, however, have little chance of lasting longer than the sentiment or related events that produced them.

  Crossing A Boundary

  The current oil-price rally is based partly on a weaker U.S. dollar but mostly on hope that OPEC and Russia will cut production. For now, that is not even on the table. Rather, a somewhat meaningless production freeze is possible. Some rightfully believe that a dialogue about a production freeze may lead to a production cut some time in the relatively near future. I agree with that but it is a rather empty reason for oil prices to increase by almost 50%.

  Traders are “following the tape,” meaning they have covered previous short bets and are following the momentum testing increasingly higher price thresholds as long as someone is willing to take the other side of the bet.  That’s the way the market works.

  It would not surprise me if this price rally lasts awhile like the 2015 rally. I am interested in the requisite conditions that would allow a meaningful and sustainable price rebound. Early in the 2014 oil-price collapse, I thought it was a relatively straight-forward matter of reducing production so that the market could balance.

  As low prices persisted, I recognized that a boundary had been crossed and that somehow, the principles that seemed to govern oil markets before September 2014 no longer applied in the same ways. I now believe that the world economy has been substantially weakened and injured by debt following the 2008 Financial Collapse and the easy-credit monetary policies that followed.

  At some time in the not-too-distant future, the relentless depletion of legacy production and underinvestment in current exploration and production will result in much higher oil prices. The global economy will have to be much stronger to adjust to that.

  The investigation I have presented here about the possible similarities between the present increase in oil prices and the false price rally of March-June 2015 reinforces my sense that a return to higher oil prices is not at all straight-forward. Oil markets are a leading indicator for the broader economy because the economy runs mostly on energy and not so much on money. (2)

  It seems that price and demand may be range-limited. Small changes in demand move prices up and down until those price changes feed back to changes in demand. Production has been like a machine working tirelessly in the background as easy money has kept it moving regardless of low prices and the absence of profit. That is how distorted the market has become.

  World production now appears to be falling and that is certainly a necessary step in the right direction toward market balance. I anticipate an OPEC plus Russia production cut in 2016 and that will unquestionably move the market to some kind of balance. I suspect, however, that the new balance may be one in which prices and demand both remain lower than on the other side of the price-collapse boundary that was crossed in 2014.

  _______________________________________________________________________

  (1) J.M. Bodell (personal communication). Mike has taught me most of what I know about storage and comparative inventories.
  (2) Nate Hagens (personal communication). Nate has taught me most of what I know about the relationship between energy and the economy.

  

  

  

  

  

• Latest Thoughts on the Campaign

  Back at the start of the year, when the market was plunging every day and I had the time and mental energy to devote myself to topics besides charts, I wrote this post called My Presidential Election Prediction. The core thesis was, “Status Quo means Hillary. Financial Mayhem means Bernie. Fear means Trump.”

  So far, it seems Status Quo is winning. The status-y quo-ish stuff that’s happening is:

  + No terrorist activity or threats;

  + Ridiculous amounts of calm and optimism in the financial markets;

  + Yellen is large and in charge of the stock market

  + Absolutely nothing going on with the whole Hillary/FBI/Email scandal thing;

  + The establishment mounting a divisive campaign against Trump

  I know there’s a certain bloc of folks, particularly large on the likes of ZH and Slope, which feels that it doesn’t matter, it’s all rigged, and so on and so forth. I’ll be the first to admit that the occupant of the oval office doesn’t really affect my personal life much at all. Whether the past 8 years had been Obama, Mitt Romney, or Yosemite Sam, the stuff that matters in my life (my family, my home, Slope, my dawgs, etc.) would have been pretty much the same.

  The unfortunate thing is that if the status quo does more-or-less persist, the person who’s going to be sworn into office in January is going to be cankles Hillary, in spite of the fact that pretty much everyone, including her supporters, hates her guts, and that she makes Nixon look like an innocent choirboy. It’s stunning that someone so obviously venal and corrupt would be screeching her way into office relatively effortlessly.

  The one truly moral man, Bernie Sanders, is still fighting tooth and nail, and part of me hopes that by some miracle cankles Hillary will be perp-walked off the national stage, her enormous rear end completely engulfing television screens across this once-great land of ours.

  There is one and only one good thing about the near-inevitable Trump/Clinton match-up. It’s going to be endlessly entertaining. Seeing her fume, squirm, and hiss for months on end as Trump brings a whole new meaning to ad hominem attacks will almost make up for the fact that we’ll soon have to endure 4 years of the most instantaneously-despised president in the history of the United States.

  

  

  

  

  

• "Nobody Is Making Money" – Hedge Fund "VIP Basket" Obliterated, Plunges To Record Low

  Exactly one month ago, when we learned that Goldman was looking to package its Hedge Fund VIP basket of stocks into an ETF we said, half jokingly, that we have discovered a “guaranteed way to make money: Short Goldman’s “Hedge Fund VIP” ETF“, adding that “with 5 of their Top 6 trades for 2016 already stopped out, and their recent heavy losses from swing-trading Gold,  one might question the demand for an ETF that tracks Goldman Sachs’ hedge fund research tips, but, as Bloomberg reports,  David Kostin’s “Hedge Fund Trend Monitor” report – tracking the 50 companies that matter most to hedge funds – is about to be launched.”

  But more importantly we said that given the dismal performance, “one can only imagine that creating this ETF enables Goldman Sachs’ clients to offload huge blocks of their positions into a muppet-friendly investment vehicle that every Tom, Dick, and Day-Trader will scoop up.  For now the ETF has not been assigned a ticker symbol – may we suggest ‘LOSE’ or ‘MUPT’ or ‘FUKT’?”

  And then, just for good measure, we added that “this being Goldman – the company which brought you the Made for Shorting Abacus CDO – the guaranteed way to make money with this ETF would be to short it.“

  It wasn’t a joke.

  While already a month ago this Hedge Fund VIP basket was imploding as we showed at the time…

  

   

  … since then things have gone from terrible to absolutely abysmal, and as of this moment the GSTHHVIP index which tracks the performance of these “most popular” among hedge fund stocks, has never been lower despite the dramatic rebound in the broad market!

  

  So yes, anyone who shorted this index one  month ago as we suggested, has made money. Unfortunately for Goldman’s hedge fund clients, the “basket” is still not available in ETF format, which means hedge funds are forced to pass these hot potato stocks among each other.

  It also explains why while the most popular hedge fund stock basket has never done worse, its alternative, the least concentrated basket of stocks has never done better.

  

   

  In other words, and as we also said last time around, the only winning trade is to do precisely the opposite of what the hedge funds are doing, none of whom have any clue as to what is going in this market anymore.

  For those curious which stocks make up Goldman’s “hedge fund VIP basket”, so they can avoid them of course, here they are again.

  

   

  Unfortunately for hedge funds it is too late to unwind exposure at this point, which is why despite the market rebounding to just modestly green on the year, most hedge funds remain deep in the red, because as Kostin puts it “the violent factor reversals have offset most efforts to generate alpha.” More:

  Mutual funds and hedge funds have faced a difficult start to the year. High return dispersion is typically associated with increased stock-picking opportunities but the violent factor reversals have offset most efforts to generate alpha. Large-cap core mutual funds and hedge funds have lagged the S&P 500 YTD by 90 bp and 280 bp, respectively. 32% of large core funds has outpaced the S&P 500 YTD, close to the 10-year average of 33%. Large-cap growth funds have fared the worst with only 9% of funds beating the Russell 1000 Growth index so far in 2016.

   

  Unfavorable stock selection has also hurt fund performance. Our basket the most popular hedge fund positions (GSTHHVIP) has lagged our very important short position basket (GSTHVISP) by 700 bp YTD (-5% vs. 2%). Similarly, our mutual fund overweights basket (GSTHMFOW) has trailed mutual fund underweights (GSTHMFUW) by 820 bp (-5% vs. 4%).

   

  Mutual funds and hedge funds favor high growth, consumer-facing technology stocks such as Facebook (FB) and Alphabet (GOOGL). Eleven stocks appear in both our mutual fund overweights and popular hedge fund positions baskets. The median return of the 11 stocks was 19% during 2015 compared with -10% YTD. The median stock has higher expected 2016 sales growth (16% vs. 3%) and EPS growth (17% vs. 6%) vs. the market but a higher valuation (forward P/E of 19x vs. 17x for S&P 500).

  Visually:

  

  Said simply, what the above means is that in their scramble to save the stock market, central banks who succeeded in generated the latest artificial rebound across global stock markets, have once again crushed hedge funds, whose hedges were only just starting to generate alpha before they were all eviscerated in the latest unprecedented short squeeze/stock buyback ramp.

  All of this goes back to a point we made back in 2011: why pay hedge funds 2 and 20 for the “privilege” of underperforming the market? After all, the “market” is so manipulated now, it can’t withstand even a modest 10% correction before global, coordinated central bank intervention is unleashed as has been the case over the past month. In this environment, why hedge? Yes, short hedges may work for a while, but then it is these most shorted stocks that will soar and crush the most hedge funds in the process.

  Finally, if hedging the loss of central bank credibility, one can not possibly do that using stocks as an unwind of the “central-bank model” by implication means the total obliteration of every form of existing capital markets; in fact any asset that has counterparty risk would be annihilated. As such, the only assets worth holding on to would be those with zero counterparty risk… such as silly pet rocks, which for some odd reason have preserved their value for over 5,000 years…

  

  

  

  

  

• Mystery Of New York Fed Robbery Has Central Banks Asking Who's Next

  Bangladesh has learned a valuable lesson over the past two months: Do. Not. Trust. The. New. York. Fed.

  On a quiet Friday morning in early February, a series of instructions using authenticated SWIFT codes was sent to 33 Liberty allegedly from the Bangladesh central bank requesting the transfer of nearly $1 billion from the country’s FX reserves.

  Now, the first thing that should jump out at you there is that Friday is a weekend in Bangladesh, a fact which probably should have set off alarm bells. But alas, it didn’t and by the time the hackers who sent the transfer instructions screwed the pooch by spelling “foundation” wrong in one of the requests, more than $80 million was sent to the Philippines where it landed in four accounts and eventually ended up transferred to at least two casinos and one unidentified man “of Chinese origin” who has since been named as a Weikang Xu. For those who might have missed the story, here are our three previous accounts of what is truly a Hollywood-esque plot line:

  • Plot Thickens In New York Fed Heist As $30 Million In Cash Said Delivered To Mystery Chinese Man
  • The Incredible Story Of How Hackers Stole $100 Million From The New York Fed
  • Chinese Hackers Break Into NY Fed, Steal $100 Million From Bangladesh Central Bank

  You’re reminded that the stolen funds ended up in the Jupiter Street, Makati City, branch of Rizal Commercial Banking Corp where the branch manager is one Maia Santos Deguito. Here she is:

  

  According to testimony from a Rizal executive heard at a Senate hearing in the Philippines late last week, some $427,000 in cash was withdrawn from one of four accounts that received the illicit funds. That money was promptly deposited – into the back of Deguito’s car.  

  “On February 5 – the day when RCBC said $22 million was put into [the accounts] – Deguito’s assistant, Angela Torres, requested P20 million from the bank’s cash center, which was delivered by armored car,” PhilStar reports. “The teller then put the money in a box, which was brought to Deguito’s office. The branch messenger, a certain Jovy Morales, then looked for a paper bag to put the money in and then brought it to the branch manager’s car.”

  

  Deguito then ignored a direct order from the Bangladesh central bank and the Rizal head office to freeze the accounts. “Instead, she moved the money to a foreign-currency account opened Feb. 5 under the name of Centurytex Trading, a local brokerage firm owned by businessman William Go,” WSJ writes. “$15 million of the stolen money on Feb. 5 was remitted from the account to a local money-transfer company called Philrem [and] then, about another $66 million was transferred to Philrem on Feb. 9.” From there, it found its way to the casinos and to Weikang. Here’s a diagram from FT:

  

  Mr. Go is apparently innocent according to a private investigation conducted by Truth Verifier Systems Inc who says the accounts were forged. However, Torres (Deguito’s assisstant) insists that Go picked up cash in a “Lexus SUV” and that he signed the withdrawal slip personally.

  Go is now suing both Torres and Deguito.

  Apparently, the hackers used malware to infiltrate the central bank’s computers and monitor daily activity. “They were counting on the likelihood that there wouldn’t be any direct communication between the banks over the weekend,” an official who spoke to WSJ said. And they were correct. As we documented earlier this week, Bangladesh was unable to contact the New York Fed on Saturday and Sunday.

  Bangladesh hired FireEye to investigate the incident. According to what Bloomberg describes as an “interim report,” the hackers “sought to cover their tracks by deleting computer logs as they went [and] before making transfers they sneaked through the network, inserting software that would allow re-entry.”

  The report allegedly describes the operation as something that would normally be the purview of nation-state hackers. “Malware was specifically designed for a targeted attack on Bangladesh Bank to operate on SWIFT Alliance Access servers,” Bloomberg quotes the report as saying. “The security breach of the SWIFT environment is part of a much larger breach that is currently under investigation.”

  Suspect log-ins at Bangladesh central bank began on January 24 and ran through at least February 6, two days after the illicit transfers. “The report,” Bloomberg says, indicates that the “hackers have already hit other FireEye clients, though it’s unclear if those include other central banks.”

  Meanwhile, Bangladesh’s finance minister AMA Muhith told the Bengali-language daily Prothom Alo that this was 100% an inside job involving officials at the central bank. He later claimed the daily published off the record comments without his permission. “It has come to light through this interview that I cannot always remain alert because of my age,” he said. Muhith has called the central bank “very incompetent” for their handling of the incident.

  “Bangladesh, including its government institutions and its banking system, is notoriously corrupt and prone to bank frauds, and neither the Bangladeshis nor the Fed have ruled out the possibility the hackers were assisted by someone on the inside,” FT wrote this week. “But there is so far no evidence of an insider, nor do cyber security experts think such a person would have been essential for a crime that could have been committed from outside by sophisticated criminal hackers from eastern Europe or elsewhere.”

  Bangladesh at least in part blames the Fed. “Since they have asked for your opinion, they should have waited for that,” one official told FT, referencing the fact that the Fed asked for clarification on some of the transactions but ok’d them before getting a response. “They could have been patient,” the same official said. 

  “[The Fed] cannot avoid their responsibility in any way,” Muhith says. 

  We imagine the well meaning FinMin may be surprised what the NY Fed can and can’t do. 

  As indicated by the diagram shown above, there’s no telling where the money went after the casinos. “It was Chinese new year,” Bloomberry’s Silverio Benny Tan said. “So the expectation was for more play, so it was not unusual.” As we mentioned on Wednesday, casinos are not subject to the Philippines anti-money laundering laws (because who would think of laundering money through a casino).

  But don’t worry, the culprits will soon be ferreted out. How do we know? Because Bangladesh has enlisted the help of the FBI. “We sought the FBI’s assistance when a group of FBI met with me for investigating the central bank heist last month,” Interior Minister Asaduzzaman Khan told Reuters. 

  What seems likely here is that this is part of something far larger and it could very well be that none of the people along the paper trail (Deguito, Go, whoever was or wasn’t involved at the Bangladesh Bank, etc.) actually knows who is ultimately pulling the strings. The fact that the total request was for nearly $1 billion suggests that whoever is at the end of the rabbit hole here either, i) has their sights set far higher than $80 million, or ii) swung for the fences to ensure they at least got to first base. If it’s the former, then we may see more inadvertent experiments with helicopter money in the very near future – and on a much larger scale. 

  Now if only physical cash were banned, then the “culprits” wouldn’t be able to launder their illicit proceeds. Hey, wait a minute…

  

  

  

  

  

• Another Major Index At A Crossroads

  By Dana Lyons of J. Lyons Fund Management

  As with many indices we’ve mentioned recently, the NYSE Composite has rallied up to a potentially significant convergence of resistance.

  Continuing with the weekly theme yet again, another major index – the NYSE Composite – has seen its rally reach a potentially consequential area of resistance. It’s actually been 2 weeks now that we’ve been on this series highlighting various indices reaching a potential stalling point in their post-February rally. Of course, this is based strictly on chart-based analyses, which now appear poised to do battle with the still positive forces that we’ve noted in breadth, momentum and sentiment.

  This resistance theme that we’ve focused on seems to have been validated as, for the most part, the indices which we’ve highlighted have struggled to make much headway since hitting the identified areas on their charts. This includes some broader and small-cap indices that we noted 2 weeks ago which, despite the large-cap indices continuing to make rally highs this week, have themselves been unable to make much progress. Next in line in this battle appears to be the NYSE Composite. Similar to prior indices covered this week, the NYSE is just now reaching the convergence of its broken post-2009 Up trendline and the post-May Down trendline.

  

  Will these trendlines prove to be the resistance that potentially puts a pause – or end – to the post-February rally? Only time will tell. We will note that over the past 24 hours, we have begun to see some indices make an attempt at breaking out above their aforementioned lines of resistance. So bulls can argue that the scales may be tipping toward the side of positive breadth, momentum and sentiment winning out over price resistance. However, it’s too early to definitively make that call.

  Furthermore, if these breakouts do occur, it will be crucial to monitor the indices to see if they can maintain their breakout levels for more than a day or two. Should they fail to hold for more than that, it will be just as damning, or more so, than had they failed at resistance in the first place.

  Either way, next week promises to be another interesting one in the market.

  

  

  

  

  

• Trump "Would Be Impeached" Over China, Mexico Tariffs, Chamber Of Commerce CEO Says

  Donald Trump is going to make America great again. But you already knew that.

  The question many voters have, is how exactly he plans to do it. The frontrunner has thrown some rather vague ideas out there, some of which focus on trade. Everyone has by now heard the “Trump stump”: “We don’t win anymore. We’re getting killed on trade. We make terrible deals. We’re losing to China.”

  Trump’s solution – at least as it relates to China and Mexico – is to impose tariffs. Specifically, he’s suggested he would slap a 35% import tax on goods from Mexico and a 45% tax on goods from China. 

  As The New York Times noted earlier this month, Trump’s trade policy is a throwback to the mercantilism of a bygone era. It’s a simplistic way of looking at trade wherein running a deficit is equivalent to running a money losing company.

  Of course to call it simplistic isn’t necessarily to call it misguided or completely wrong. The US manufacturing sector has been gutted. It’s one thing to build a services-driven economy wherein consumer spending accounts for the majority of economic output. It’s another entirely to create a kind of feudal society wherein the labor market becomes a waiter and bartender creation machine that exists to serve the 1% and in which breadwinner jobs all but vanish along with the country’s capacity to actually produce anything tangible.

  “I will call the head of Carrier and I will say, ‘I hope you enjoy your new building,’ ” Trump said in February, referring to Carrier’s decision to eliminate 1,400 jobs in Indianapolis (see here). “‘I hope you enjoy Mexico. Here’s the story, folks: Every single air-conditioning unit that you build and send across our border — you’re going to pay a 35 percent tax on that unit.’”

  “Critiques like Mr. Trump’s resonate in part because economists have oversold their case. Trade has a downside, and while the benefits of trade are broadly distributed, the costs are often concentrated,” The Times writes. “Everyone can buy a cheaper air-conditioner when Carrier debarks for a lower-cost country, but a few hundred people will lose their livelihoods.”

  Right. But the problem is that when you look out across US manufacturing, it’s more than “a few hundred.” US manufacturing has simply vanished, leaving behind nothing but rust, poverty, and despair in America’s once thriving industrial centers. And therein lies part of Trump’s appeal (and Sanders’ appeal by the way).

  But a return to a kind of draconian protectionism probably isn’t the answer and if you ask Tom Donohue, CEO of the U.S. Chamber of Commerce, Trump’s tariffs would get him impeached. Here’s the clip from Bloomberg:

  

  

  

  

  

• Obama Administration Sets Record In Lack Of Transparency: Denies Information In 77% Of FOIA Requests

  Submitted by Michael Krieger of Liberty Blitzkrieg

  Least transparent administration ever. The Associated Press reports:

  WASHINGTON (AP) — The Obama administration set a record for the number of times its federal employees told disappointed citizens, journalists and others that despite searching they couldn’t find a single page requested under the Freedom of Information Act, according to a new Associated Press analysis of government data.

   

  In more than one in six cases, or 129,825 times, government searchers said they came up empty-handed last year.Such cases contributed to an alarming measurement: People who asked for records under the law received censored files or nothing in 77 percent of requests, also a record. In the first full year after President Barack Obama’s election, that figure was only 65 percent of cases.

   

  The new data represents the final figures on the subject that will be released during Obama’s presidency. Obama has said his administration is the most transparent ever.

  What a joke.

  “It seems like they’re doing the minimal amount of work they need to do,” said Jason Leopold, an investigative reporter at Vice News and a leading expert on the records law. “I just don’t believe them. I really question the integrity of their search.”

  Mr. Leopold should know a thing or two about the topic. In case you missed it, read his blockbuster article published by Vice News last week: It Took a FOIA Lawsuit to Uncover How the Obama Administration Killed FOIA Reform.

  In some high-profile instances, usually after news organizations filed expensive federal lawsuits, the Obama administration found tens of thousands of pages after it previously said it couldn’t find any. The website Gawker sued the State Department last year after it said it couldn’t find any emails that Philippe Reines, an aide to Hillary Clinton and former deputy assistant secretary of state, had sent to journalists. After the lawsuit, the agency said it found 90,000 documents about correspondence between Reines and reporters. In one email, Reines wrote to a reporter, “I want to avoid FOIA,” although Reines’ lawyer later said he was joking.

  What the AP fails to mention is what was discovered in the eventual release of those emails. Here’s a hint: America’s Corrupt Media – How Reporters Took Direct Orders from Hillary Clinton’s Staff.

  Now wonder they “couldn’t find anything.”

  The AP’s annual review covered all requests to 100 federal agencies during fiscal 2015. The administration released its figures ahead of Sunshine Week, which ends Sunday, when news organizations promote open government and freedom of information.

   

  Overall, the Obama administration censored materials it turned over or fully denied access to them in a record 596,095 cases, or 77 percent of all requests. That includes 250,024 times when the government said it couldn’t find records, a person refused to pay for copies or the government determined the request to be unreasonable or improper. The White House routinely excludes those cases from its own assessment. Under that calculation, the administration said it released all or parts of records in 93 percent of requests.

  Gotta love that government math.

  For additional articles on the “most transparent administration ever,” see:

  Least Transparent Ever – IRS Used “Wholly Separate” Instant Messaging System to Hide Communications|
  Least Transparent Ever – Obama Administration Fighting to Prevent Release of C.I.A. Torture Report
  Obama Administration Sets New Record for Censoring and Denying Access to Government Documents
  Meet OIRA – The Secretive White House Office with Disturbing Regulatory Powers

  

  

  

  

  

• Putin Looks For "Someone To Hang" In Case Road To Crimea Bridge Isn't Finished On Time

  Friday was the second anniversary of Russia’s annexation of Crimea from Ukraine.

  To mark the event, Vladimir Putin paid a visit to the island of Tuzla, where he checked in on a construction project aimed at bridging the Black Sea peninsula with the Russian mainland. The bridge, which is expected to cost somewhere in the neighborhood of €3 billion, will be the first direct link between Crimea and Russia and will span about 12 miles across the Kerch Strait.

  

  Putin called the effort “a historical mission,” that will boost Crimea’s economic growth. It’s expected to be completed by December of 2018. Also in the works is an undersea power cable meant to help prevent the types of blackouts that have beset Crimea due to its dependence on Kiev for power. 

  “State-sponsored concerts and public festivities took place across Russia to commemorate the March 2014 takeover that Moscow insists followed a referendum in which Crimea residents voted overwhelmingly to swap countries,” AFP writes, adding that “in Moscow, thousands gathered just off Red Square for a concert featuring pro-Kremlin pop stars including 78-year-old crooner Joseph Kobzon, who was blacklisted by the EU last year after he performed for rebels in eastern Ukraine.” Here are a few images from the (freezing cold) festivities: 

  

  

  

  “[The bridge] will be yet another symbol of our unity,” Putin said in a televised address, after congratulating the country on the annexation. “We will confidently move forward together, and only forward,” he promised.

  Yes, “forward and only forward.” That is of course unless someone forgets to build the road that will link the bridge to Crimea’s capital, Simferopol. “Officials keep passing responsibility for the work to colleagues in different ministries,” Bloomberg writes. And Putin isn’t happy about it. In fact, if winter of 2018 rolls around and the road isn’t built, he’s going to “hang” someone – he just needs to know who it’s going to be.

  “There should be a specific person who can be hanged if it’s not done,” he said on Friday. “A specific entity, a specific person responsible for the whole project is needed, so I wouldn’t have to call all government phones or regions.”

  

  (“Are you him?”)

  “The president’s comments were figurative,” the Kremlin later said, dryly.

  The US and the West have said that Putin will eventually have to leave Crimea and return the peninsula to Ukraine. Somehow, we think all of the above seems to suggest that Moscow isn’t about to be “returning” anything to anyone anytime soon.

  Meanwhile, the fate of Ukraine still “hangs” in the balance, so to speak.

  

  

  

  

  

• Profit Margins Tumble To Lowest In Four Years… And It's Not Just Oil's Fault

  One week ago, we were surprised to see that none other than data aggregator Factset has joined the “crusade” against fabricated non-GAAP numbers. This is what it said:

  For FY 2015, 20 of the 30 companies in the DJIA (or 67%) reported non-GAAP EPS in addition to GAAP EPS for the fiscal year. For 18 of these 20 companies, non-GAAP EPS was higher than GAAP EPS. On average, non-GAAP EPS exceeded GAAP EPS by 30.7% for these 20 companies. For FY 2014, 19 of the 30 companies in the DJIA (or 63%) reported non-GAAP EPS in addition to GAAP EPS for the fiscal year. For 15 these 19 companies, non-GAAP EPS was higher than GAAP EPS. On average, non-GAAP EPS exceeded GAAP EPS by 11.8% for these 19 companies. Thus, there was a wider gap on average between non-GAAP EPS and GAAP EPS in FY 2015 compared to FY 2014 for companies in the DJIA.

   

   

   

  Due in part to this wider gap between non-GAAP EPS and GAAP EPS, companies in the DJIA on average reported a much smaller year-over-year decline in year-over-year EPS on a non-GAAP basis than on a GAAP basis for the year. For FY 2015, the 20 companies in the DJIA that reported non-GAAP EPS reported an average year-over-year decline in non-GAAP EPS of -4.8%. These same 20 companies reported an average year-over-year decline in GAAP EPS of -12.3%.

   

  

   

  Today, we are just as impressed that in another weekly dose of accurate reporting, Factset takes aim at another just as important aspect of corporate profitability, namely profit margins, which according to its calculations, are set to tumble to just 9.3%, down from 10.0% last quarter, below the 10.2% high reached in Q2 2015, and the lowest since Q2 2012. While much of this is the result of a collapse in energy margins, it appears that this weakness is spilling over and starting to impact many other sectors as well.

  From FactSet:

  Lowest Net Profit Margin (9.3%) Projected for S&P 500 since Q4 2012 (8.9%)

   

  For Q1 2016, the estimated net profit margin for the S&P 500 is 9.3%. If 9.3% is the actual net profit margin for the quarter, it will mark the lowest net profit margin for the S&P 500 for a quarter since Q4 2012 (8.9%). What is driving the weaker projected profit margin for the index relative to recent quarters?

  

   

  Five of the ten sectors are projected to see lower net profit margins in Q1 2016 relative to the 3-year average for each sector, led by the Energy sector (0.1% vs. 6.5%). The estimated net profit margin of 0.1% for the Energy sector is based on estimated aggregate earnings of $263 million and estimated aggregate revenues of $182 billion for the quarter.

   

  Excluding the Energy sector, the estimated net profit margin for the S&P 500 would be 10.0%. However, this would also mark the lowest net profit margin for the index excluding the Energy sector since Q1 2014 (9.9%). Thus, other sectors are also contributing to the expected lower than average net profit margin for the index for Q1 2016. After the Energy sector, the other four sectors projected to report net profit margins below the 3-year averages for Q1 2016 are the Industrials (7.9% vs. 9.1%), Information Technology (17.2% vs. 18.0%), Consumer Staples (5.6% vs. 6.1%) and Consumer Discretionary (6.5% vs. 6.6%) sectors.

   

  

   

  Based on current earnings and revenues estimates, however, the estimated net profit margin for Q1 2016 will reflect a low for the index. Over the next three quarters (Q2 2016 – Q4 2016), the estimated net profit margins for the S&P 500 are 10.1%, 10.5%, and 10.4%. Eight of the ten sectors are projected to see higher average net profit margins over the next three quarters relative to Q1, led by the Energy, Industrials, and Information Technology sectors.

  Needless to say, without the bounce in oil, none of this forecast rebound in margins will take place.

  But it’s not just oil. As Goldman pointed out in a report from earlier this week, one surprising source of margin weakness could be a company that is about as far away from oil as possible: AAPL, where the future of iPhone sales could have a dramatic impact on S&P profit margins. To wit:

  We expect that Information Technology margins will fall from 17.9% in 2015 to 17.7% in 2016, as both Apple margins and sector margins outside of Apple decline. Technology margins excluding Apple will continue to decline modestly through 2017 in our view, but a rebound in Apple’s margin will more than offset the decline, pushing overall sector margins up by 6 bp to 17.8% in 2017 (see Exhibit 20).

   

   

   

  On its own, Apple (AAPL) has contributed more than 25% of the aggregate S&P 500 margin expansion since 2009 (see Exhibit 21). Roughly half of the Information Technology margin expansion may be attributed to AAPL. Looking forward, Goldman Sachs Hardware analyst, Simona Jankowski, expects that AAPL margins will fall by 40 bp to 22.5% in 2016 before rebounding back to 22.9% in 2017. Without margin expansion leadership from AAPL, Information Technology margins and overall S&P 500 margins will come under pressure. Information Technology sector margins are reduced by 140 bp when AAPL is excluded (16.5% vs. 17.9%).

   

  

  Appropriately enough, the future of S&P fundamentals is in the hands of oil and iPhones. Note we did not say the price of the S&P – that, as everyone knows by now, is entirely in the hands of central bankers.

  

  

  

  

  

• New CCTV Footage Shows Moment Of Deadly Istanbul Suicide Attack

  Update: Here is the latest CCTV footage of the attack. Caution: graphic.

  Earlier:

  

  

  

  

  

• Caught On Tape: Turkey Shoots At Kurds Waving White Flag In Cizre

  As a string of suicide attacks on Ankara and Istanbul have made abundantly clear, Turkey is in a state of turmoil. In fact, one might fairly say that the country has descended into outright chaos.

  Today’s bombing of Istiklal Caddesi was just the latest tragedy to strike one of Turkey’s urban centers. Images from the aftermath of the blast are, much like those that appeared on social media in the wake of last Sunday’s TAK attack on a transit hub in Ankara’s Kizilay, horrific.

  It’s important that the world consider why this is happening. Whether these are false flags or actual PKK/TAK attacks is irrelevant. The critical thing to understand is that Turkish President Recep Tayyip Erdogan is allegedly committing genocide against the country’s Kurdish population. Does that excuse suicide attacks staged by Kurdish militants? Obviously not, but what’s happening in the country’s Kurdish southeast is appalling.

  “Between August and February, the Turkish army -which has mobilised 10,000 troops to smoke out PKK militants – has imposed 59 curfews in the cities of Diyarbakir, Sirnak, Mardin, Hakkari, Mus, Elazig and Batman, affecting 1.3 million people,” France 24 writes, adding that “in Cizre, where a curfew was lifted earlier this month, 80% of the city has been destroyed.”

  We’ve profiled Cizre before (see here). Here’s how Vice put it last summer when hostilities between Ankara and the PKK began anew:

  “Cizre has spent years on the fringes of war. The unremarkable-looking town of just over 100,000 lies on the Tigris River, around 30 miles from the tripoint where Turkey meets conflict-ravaged Syria and Iraq, and violence regularly strays over the national boundaries. Now, the cycle of airstrikes and renewed PKK attacks on Turkish troops threaten a return to the three-decade-long struggle between the two sides that claimed more than 40,000 lives. And here, residents feel like they’re at the heart of the fight.”

  Last month, allegations emerged that Turkish soldiers had encircled a burning apartment building in the city. Hundreds of people were trapped inside. According to some reports (see here and here to suggest a few) they were burned alive. Below, find footage from January which appears to show the Turkish military firing on a group of Kurds in Cizre who look to be crossing the street waving a white flag. 

  Warning: Graphic

  Two days ago, the Obama administration accused ISIS of committing genocide. Where, one might ask, is the accountability for Washington’s NATO ally Erdogan?

  

  

  

  

  

• Trump Video From 25 Years Ago Will Shock You: "I’m Tired of Seeing This Country Ripped Off"

  Submitted by Mac Slavo of SHTFplan

  Trump Video From 25 Years Ago Will Shock You: “I’m Tired of Seeing This Country Ripped Off”

  The Donald has completely taken over the news cycle.

  His path of victory after victory in GOP primary states has the establishment freaking out, and every major media outlet scrambling for a way to stop Trump, or at least to damage his reputation.

  But why is he being compared to Hitler and inducing aneurysms among the political elite?

  Obviously it isn’t the name-calling or fiery rhetoric that has the system’s minions losing sleep and openly-plotting his demise.

  No. It is for one basic reason: his rhetoric and campaign promises have centered around restoring American sovereignty.

  Economically, he has talked about undoing globalism and free trade, bringing back good American jobs, protecting the border (and yes, building the 10+ foot high wall) and saying no to a culture of exploiting illegal immigrant workers at the expense of American employment.

  Never mind if he can keep any of those promises, because just hyping them up has been enough to cause mass panic and hysteria in the corporate halls of Washington, Wall Street and the lapdog media.

  But what might surprise you, even shock you, is that he has been talking this way for decades.

  Just listen to what he told Oprah and her audience more than 25 years ago (circa 1987):

  “I’d make our allies pay their fair share” “I’m tired of seeing what’s happening with this country.” “I’m tired of seeing this country ripped off.”

  And there’s much more than that. The Daily Caller rounded up several examples of his consistent appeals for a “strong negotiator” on trade and foreign affairs.

  Promising to balance trade and fight for American workers is NOT what the prevailing elite – who are losing control of the political establishment – want to happen.

  Their plan, as voiced at exclusive think tanks and confabs like Davos, Bilderberg, the Council on Foreign Relations and many others, has been to level the prosperous American middle class and force workers in the United States to whittle their way down to complete serfdom – and absolute dependence upon government handouts and a meager place in the grand pecking order of world domination.

  Trump won’t be a savior, but things now are looking like they might bump him off just for even reminding the American people of how far things have fallen and little anyone else on the political stage has done to stop the free fall of the American Dream.

  To the contrary, most of the political tools on stage have been only too willing to play a hand in the destruction of this once strong and vibrant country in exchange for favors and kickbacks.

  2016 is about one thing: how fed up and angry people are at the system which has operated on behalf of the interests of a handful of insiders and the expense of everyone else.

  

  

  

  

  

• Buyback Blackout Period Starts Monday: Is This The Catalyst That Ends The S&P Rally?

  Last week, one day before the Fed unleashed a statement that stunned Wall Street by its dovishness and admission that the Fed had been far too optimistic on the state of the US (and global) economy, when it slashed its forecast on the number of rate hikes from 4 to 2, we said that “while everyone’s attention is on the Fed, the biggest danger to the S&P500 has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being put into a state of forced hibernation”, namely the start of the stock buyback blackout period during Q1 earnings session.

  As a reminder, even Bloomberg recently acknowledged the unprecedented role corporate stock repurchases play in the current market when it penned “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” Of course,  our readers have known the identity of the “mystery, indescriminate buyer” for two years.

  Today, it is Deutsche Bank’s turn to warn about the imminent end of buybacks for the next 6 weeks. From Parag Thatte’s latest Asset Allocation and Flows report:

  Buyback blackout period starts Monday. An increasing number of S&P 500 companies will enter into their blackout period starting next week, about a month before the earnings season kicks into high gear in the third week of April

  Deutsche Bank tries to spin it as not necessarily a source of downside:

  The blackout period means a slowing in the pace of buybacks which leaves equities vulnerable to negative catalysts. However it does not automatically imply downside and as we have emphasized before it is the total demand-supply gap that is key. So flows are critical and data surprises suggest the recent flow rotation into US equities can go further

  There are two problems with this assessment.

  First. as DB’s own chart below shows, traditionally US equity flows have seen substantial and sharp declines during the buyback blackout period during the past three calendar years. It is unclear why this time will be any different.

  

  Second, and more important, is that as Bank of America reported earlier this week, in the latest week “during which the S&P 500 climbed 1.1%, BofAML clients were net sellers of US stocks for the seventh consecutive week. Net sales of $3.7bn were the largest since September and led by institutional clients (where net sales by this group were the second-largest in our data history). Hedge funds and private clients were also net sellers, as was the case in each of the prior two weeks, but a different group has led the selling each week. Clients sold stocks across all three size segments, and net sales of mid-caps were notably the largest since June ’09.”

  

  BofA’s summary: “clients don’t believe the rally, continue to sell US stocks” and they were selling specifically to corporations whose repurchasing activity is near all time highs: “buybacks by corporate clients accelerated for the third consecutive week to their highest level in six months, which is also above levels at this time last year.“

  Next week this “accelerating” buyback activity ends, and the question will be whether the S&P at a high enough level to give institutional investors comfort that without the buyback bid, in fact the only bid for the past seven weeks, they should now buy on their own, or will the selling, which took place as the market has soared from its recent lows in its biggest quarterly comeback ever…

  

   

  … continue, only this time with a cheap debt-funded, price indiscriminate buyer on the other side to absorb all the selling. We will have the answer in just about one week’s time.

  

  

  

  

  

• This Is How Venezuela Exported 12.5 Tonnes Of Gold To Switzerland On March 8, 2016 Via Paris

  Submitted by Ronan Manly of Bullionstar Blogs

  Following on from last month in which BullionStar’s Koos Jansen broke the news that Venezuela had sent almost 36 tonnes of its gold reserves to Switzerland at the beginning of the year, “Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January“, there have now been further interesting developments in this ongoing saga.

  It has now come to light that on Tuesday 8 March, the Banco Central de Venezuela (BCV) sent another 12.5 tonnes of gold by air freight to Switzerland (via Paris), and fascinatingly in this instance, the exact details of the transfer are already available, including the cargo manifest, courtesy of Venezuelan newspaper El Cooperante which broke the news on 11 March.

  As per the January gold exports to Switzerland, which most likely were part of a gold swap to generate much-needed financing for the crisis-ridden Venezuelan economy, this latest shipment appears likewise.

  Air France flight AF 385 and Brinks Switzerland

  The BCV’s 12.5 tonne gold shipment was flown out of Caracas International Airport (Maiquetia Simon Bolivar) on Air France flight AF 385 to Paris, leaving at 5:49pm local time on Tuesday 8 March, and arriving into Paris Charles de Gaulle Airport at 7:54am on Wednesday 9 March.

  FlightAware screenshot of Air France flight 385 on 8 March 2016 – Source: El Cooperante

  The sender of the shipment was Banco Central de Venezuela, and the consignee (initial receiver) was Brinks Switzerland. Given that Brinks Switzerland was listed as the consignee for a flight arriving into Paris Charles de Gaulle at 8am, then there would have been a second flight from Paris to presumably Zurich in Switzerland which is the main destination airport for gold arriving into Switzerland. As giant Swiss refiner Valcambi says under Transportation Services, it provides “Import services and transportation from Zürich airport to Valcambi“.

  The 3 immediate direct flights from Paris Charles de Gaulle to Zurich after 8:00am are Swiss Air flight LX 655 at 09:55, Air France flight AF 1614 at 12:55, and Swiss Air flight LX 639 at 15:05. Brinks has its operations centre headquarters in Zurich at Zurich Airport (and also a Geneva office at Geneva Airport).

  The Cargo Manifest

  The Cargo Manifest from Maiquetia Airport (Caracas International Airport) shows that the BCV’s gold shipment was described as ‘GOLDS BARS’, with tracking number 057-91145645, and comprised 12,561 kilos,  packed in 318 packets, which are listed somewhat surprisingly as being ‘caja de carton’ (which translates as cardboard box). Super-strong cardboard presumably.

  

  Cargo Manifest for 12.5 tonnes of gold on Air France flight 285 from Caracas to Paris – Source: El Cooperante
  

  If each bar weighed approximately 400 ozs, there would have been about 1,009 or 1,010 bars in the shipment. With 318 packets, and with 12,561 kgs = 403,845.53 troy ounces = 12.56 tonnes, then on average there were 39.5 kgs per packet (12561 / 318 = 39.5), which is a little but more than 3 bars per packet. But since gold bars can’t obviously be divided, then these gold bars may have been slightly larger US Assay Office bars weighing more than 400 ozs. Remember that the London Bullion Market Association (LBMA) Good Delivery specification for gold bars ranges from 350 oz up to 430 oz. Alternatively, most of the packets could have contained 3 bars each and the remaining packets 4 bars each.

  Air France has a web-based cargo tracking number website but unfortunately, it does not return any information on tracking number 057-91145645. See screenshot:

  

  However, the Air France website doesn’t return any data on other known gold shipments of Venezuelan gold, for example Air France tracking number 057-53208470 from late 2011, which was actually displayed on Venezuelan TV (see below bar code).  Therefore, tracking information on gold shipments may not be publicly available for security reasons.

  

  Some of the repatriated gold (inbound to Venezuela) was flown in on Air France in late 2011, tracking number 057-53208470
  

  Swiss Refineries

  It’s important to consider the extent to which this latest  BCV gold shipment may be scraping the barrel in terms of the BCV’s remaining unencumbered gold reserves. My theory at this stage is that the gold bars being sent to Switzerland are being sent to Swiss refineries to be refined into modern Good Delivery bars, and not to be refined into 1 kilo gold bars for the Asian market. This would be the case if all of the 160 tonnes of gold (in modern good delivery form) that had been repatriated during late 2011 / early 2012, was already in play (i.e. encumbered, under lien or claim or pledge).

  This is assuming that the gold in transit are the gold legs of USD – gold swaps, whereby the gold is then held (and used) by a commercial bank counterpart or via some gold swap arrangement between the BCV and a commercial bank facilitated by the Bank for Settlements (BIS) in Basel. Furthermore, the legal wording of gold swaps would normally stipulate that gold held as part of a gold swap would need to be deposited into the gold vault of an institution such as the Bank of England, FRBNY, or the BIS’ storage facility at the Swiss National Bank etc.

  Consider some facts about the BCV’s gold reserves and the gold swap activity and rumoured gold swap activity by the BCV in the recent past, using a reverse timeline:

  • The BCV exported 12.56 tonnes of gold to Switzerland on 8 March 2016

  • Venezuela (assumed to be the BCV) exported 35.8 tonnes (specifically 35.835 tonnes) of gold to Switzerland in January 2016 (from Swiss Customs Data)

  • The BCV agreed a gold swap with Deutsche Bank in late 2015 (Reuters February 2016)

  • Venezuela exported 24 tonnes of gold to Switzerland in 2015, nearly 35 tonnes in 2014, and approximately 8 tonnes in 2013, after exporting far smaller amounts in any of the 7 prior years (about 0-4 tonnes per annum over 2006 -2012). See chart from Nick Laird’s www.sharelynx.com below.

  

  • The BCV had carried out gold swaps with the Bank for International Settlements ‘in recent years’, with up to 7 swap transactions (Reuters February 2016). These swaps would have to have used gold held outside of Venezuela, i.e. either at the Bank of England or using gold that was exported from Venezuela to Switzerland in 2013-2015

  • The BCV shipped an unspecified quantity of gold out of Caracas airport to an international destination on 2nd, 3rd and 7th July 2015 (re-exported for pledging)

  • BCV’s gold reserves fell by 60 tonnes over the period March – April 2015

  (For the above 2 points see “Venezuela says Adiós to her gold reserves“)

  • The BCV entered into a 4 year gold swap with Citibank (announced in April 2015). This Citibank swap most likely used the 50 tonnes of Venezuelan gold that had been left at the Bank of England in 2011.

  • Venezuelan opposition leader, Maria Corina Machado, had information in March 2015 that suggested the BCV was engaging in an even larger gold swap that the Citi bank swap: “¿Es cierto que estarían negociando una segunda operacion de empeño similar a la anterior por un monto aun mayor?“

  (For the above points, see “Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation“)

  • 12,819 good delivery bars (160 tonnes) were repatriated to Venezuela in late 2011 / early 2012

  • About 4,089 bars (about 51 tonnes) of Venezuela’s gold was left in London after the 2011/ 2012 repatriation

  • There were 12,357 bars (about 154.5 tonnes of gold) held in the BCV vaults in Caracas before the gold repatriation started in late 2011. These bars that were originally in Caracas are mainly if not exclusively US Assay office bars since they were repatriated from the FRB in New York in the late 1980s

  •  There were 25,176 bars (about 315 tonnes) in the BCV vaults when the repatriation to Caracas completed (in early 2012)

  (For the above bar number quotes, see “Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes“).

  Conclusion

  Approximately 50 tonnes of BCV gold has been exported from Venezuela to Switzerland within the first 10 weeks of 2016. How much longer can this outflow continue? This gold is being exported by the BCV in order to participate in swaps (or maybe even outright sales) in order to provide external financing to the Venezuelan Government. The fact that the gold is being picked up by Brinks Switzerland suggests it is being brought to a Swiss gold refinery. The main reason gold is sent to Switzerland is so that it can be refined or recast.

  At least 3 entities have been associated with this external financing so far, namely Citibank, Deutsche Bank and the Bank for International Settlements. Bullion banks and the BIS hold gold in long-term holdings in the form of Good Delivery Bars, and enter into gold transactions using Good Delivery bars, not kilobars. With 50 tonnes of Venezuela’s gold left behind at the Bank of England in 2011, there were only another 160 tonnes of gold bars at the BCV vaults that were not old US Assay Office bars. The gold now going from the BCV to Switzerland is, in my view, old US Assay Office bars. This would suggest that more than 200 tonnes of Venezuela’s gold is already in play, as well as the 50 tonnes from Q1 2016.

  With the BCV being totally opaque about the real state of its gold holdings, and with the IMF / World Gold Council still reporting the fantasy that the BCV  / Venezuela holds 361 tonnes of gold in its official reserves,  some speculation is in my view acceptable, and the above information should go someway towards illuminating a truer state of Venezuela’s gold holdings, but what that true state of play is, only the BCV, Venezuelan Government and associated insider bullion banks and central banks know.

  Note, that it’s also possible that Venezuela exported gold to Switzerland (or elsewhere) in February 2016. Swiss customs data, which shows (non-monetary) gold imports and exports, including de-monetised gold, is available each month but with a lag of 3 weeks. Therefore the February 2016 data is available on Tuesday 22 March, on the Swiss Customs website.

  

  

  

  

  

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• The Government Actually Has A Zombie Apocalypse Plan – And It's Just Been Declassified

  Submitted by Jake Anderson via TheAntiMedia.org,

  A few years ago, the Center for Disease Control launched a zombie preparedness initiative that drew significant attention. The Department of Defense followed suit and developed an entire training course intended for the Joint Operational Planning and Execution System (JOPES). The complete response plan, called CONPLAN888, was recently declassified, and it’s just as weird and creepy as you might imagine.

  The Black Vault posted two documents retrieved from the NSA using the Freedom of Information Act.

  The purpose of the plan, according to the United States Strategic Command (USSTRATCOM), was to use a fictitious scenario to prepare for real-world emergencies.

  “[The training focused on how to] undertake military operations to preserve ‘non-zombie’ humans from the threats posed by a zombie horde. Because zombies pose a threat to all ‘non-zombie’ human life (hereafter referred to as ‘humans’), USSTRATCOM will be prepared to preserve the sanctity of human life and conduct operations in support of any human population-including traditional adversaries.”

  The objective of the three-fold plan includes the neutralization of zombies through “denial, deception, disruption, degradation or destruction,” though with the exception of ‘destruction,’ it is unclear what is meant by these terms with regard to fighting zombies.

  Reading at times like the treatment to a campy science fiction script, CONPLAN888 categorizes eight classes of zombies:

  1. Pathogenic zombies — Zombie life forms created after infection by a viral or bacterial contagion.
  2. Radiation zombies — Zombie life forms created after infection from electromagnetic or particle radiation.
  3. Evil Magic Zombies — Zombie life forms created by occult experimentation, or “evil magic.”
  4. Space Zombies — Zombies that come from space or are created by extraterrestrial toxins (this also includes Zombie Satellites that could pose a threat to SATCOM services like DirecTV)
  5. Weaponized Zombies — Zombie life forms engineered through bio-mechanical technology for the purposes of attacking another nation.
  6. Symbiant-Induced Zombies — Zombie life forms created after the “introduction of a symbiant life form into an otherwise healthy host.”
  7. Vegetarian Zombies — Zombie life forms that cause no threat to humans because they only eat plant life (could nevertheless “cause massive de-forestation or elimination of basic food crops essential to humans [rice, corn, soybeans])”
  8. Chicken Zombies (yes, this is real)— Zombies that are essentially old hens that can no longer lay eggs. Farmers euthanize them with carbon monoxide and stack them in piles; however, some of the hens are still alive and crawl out. Though they ultimately die of organ failure, chicken zombies are “simply terrifying to behold” and are likely only to make people become vegetarians in protest of animal cruelty.

  CONPLAN888 consists of multiple striking passages, given this is a government agency assessing a fictitious zombie uprising. More practical factors concern environmental issues such as groundwater contaminated with zombie pathogens.

  Other, more ominous notes, include references to the government declaring martial law within the United States. There is also a reference to epidemiologic surveillance for the purposes of watching changes in disease vectors.

  The government response to a zombie uprising unleashed by a nation-state, large corporation, or terrorist group includes the following additional measures: HAND SANITIZER, which, marketing materials say, kills 99% of germs (they note that hand sanitizer has never been tested on biohazard level 4 pathogens like ebola); and FIREPOWER TO THE HEAD (“the human brain will still be functioning in the zombie state, but it is universally agreed that the only part actually active will be the brain stem”).

  The document’s assessment of zombies states that they are “undead and thus feel no pain or fear of death, (therefore) riot control counter-measures would be completely ineffective.”

  CONPLAN888 references the books and articles The Zombie Survival Guide, World War Z; An Oral History of the Zombie War, and “Zombie Chickens Taking Over California,” among others.

  CONPLAN 8888 by JDStuster

  

  

  

  

  

• Greek Banks Admit To Charging Customers To Exchange Big Bills For Smaller Ones

  Earlier this month, a reader noticed something rather disturbing. Piraeus Bank seemed to have added a new line item in one of its reports and that new line item appeared to suggest that the bank was set to charge customers for exchanging €500 notes for smaller bills.

  And it wasn’t just Piraeus. Other Greek banks looked to be doing something similar.

  

  Now it would be bad enough if this was just another example of banks making up for lost margins by passing ZIRP and NIRP onto customers via fees or if this were simply Greek banks being forced to squeeze a little extra out of their retail business because they are still wholly insolvent. But it’s the timing of these new exchange taxes that raises eyebrows.

  Remember, reports began to circulate earlier this year that the ECB was considering doing away with the €500 note. That was distressing news for many Greeks who last year, fearing the troika may one day threaten to essentially confiscate their savings (again), eschewed the bank in favor of the mattress. Obviously, much of that mattress money is denominated in €500 notes – notes which Draghi is now set to phase out.

  Upon hearing the news, “many in Greece – especially older people – rushed to deposit the money in their accounts,” eKathimerini wrote last month, adding that “bank officials say depositing the 500-euro notes at a bank is the only way for people to rid themselves of them without losing the money, as it is not possible to exchange them for smaller notes.”

  Or at least it wouldn’t be once they’re taken out of circulation, but in the meantime it is possible, and as it turns out, Greek banks are indeed doing precisely what we suspected they were doing: they’re charging to exchange the €500 notes for smaller denominations.

  Here’s eKathemirini again:

  Banks collect a commission of 1.5 percent on average when changing 500-euro bills for notes of lower denominations, citing the administrative costs of keeping their branches stocked with notes of smaller value.

   

  When exchanging one 500-euro note for smaller bills, the charge is 3-5 euros (depending on the bank), while the maximum charge comes to 200-250 euros regardless of the amount a customer wishes to exchange.

  Right. Greek banks need to offset “the administrative costs of keeping their branches stocked with notes of smaller value.” Normally that would translate roughly to this: “we need to offset the administrative costs of being a bank,” but because this is Greece, the banks get to blame the ECB and Brussels: 

  In response to criticism about the commission they charge, banks counter that the administrative cost of supplying their branches around the country with smaller banknotes is unusually high at present with the capital controls still in place and a 420-euro cap on the weekly amount that can be withdrawn in cash.

  It’s not immediately clear why that makes sense, but we’re sure they’d have an answer should anyone care to ask.

  As eKathimerini continues, “people started going to banks to exchange top-denomination euro bills after it was reported that the European Central Bank intends to withdraw them as a measure against money laundering.” So if you are Greek and you were effectively forced to take your money out of the bank because after last summer you feared a depositor bail-in might be right around the corner, you now have the distinct pleasure of having to pay a fee to exchange your large bills for smaller ones at the very same banks where you withdrew the money in the first place. But that’s all part of living in a debt colony of Germany we suppose.

  

  The question now is how long before banks in countries that aren’t Greece adopt the very same fees? And what will their excuse be? Does the ECB really intend to to allow banks to make a profit off of the gradual phasing out of physical bank notes?

  There’s no fee in Greece, of course, if you simply deposit the €500 notes in your account. Just like they’ll be no fee when the final push to a cashless society begins and everyone is forced to turn in all their physical money in exchange for 0s and 1s on a computer screen. Or at least they’ll be no initial fee. But trust us, you’ll pay later when the economy starts to slow down and, without the option of resorting the physical cash, you’ll be forced to choose between swiping your debit card or seeing the bank confiscate a portion of your deposits once central banks cut rates to -20%.

  

  

  

  

  

• Illinois College Will Stop Arresting Students For Passing Out Constitution

  Submitted by Robert Gehl via DownTrend.com,

  An Illinois college has reversed its position and will allow students to pass out copies of the U.S Constitution on campus.

  It’s a good move, since the Alliance Defending Freedom threatened to sue them if they didn’t.

  Under the old policies, students were threatened with arrest if they passed out the founding documents on the campus of the College of DuPage.

  The exchange between a police officer and student Joseph Enders, captured on video, shows the officer telling Enders that, under campus policies, he needs a permit to offer the Constitution to passing students.

  The revised policies respect the constitutional freedoms of students by allowing them to pass out literature in outdoor areas of campus without prior permission, as the old policies required.

  “It makes no sense for a public college to censor distribution of the very document that ensures free speech for all Americans,” said ADF Senior Counsel Tyson Langhofer. “The college has done the right thing in revising its policies so that the school can once again function as the marketplace of ideas that an institution of higher education is supposed to be.”

   

  Enders, a political science major, has been working to start a Turning Point USA chapter at the college. TPUSA is a non-partisan student organization dedicated to promoting the principles of fiscal responsibility, free markets, and limited government. He was standing on a campus sidewalk, handing out copies of the Constitution and asking fellow students if they would be interested in joining the group, when he was approached by the officer, who stated that his actions were against school policy and that he would have to go to the Student Life office to acquire a permit for his activities.

   

  “The First Amendment does not tolerate this blatant suppression of speech,” ADF wrote in its letter to the college on behalf of Enders in October of last year. “The College’s…policy is unconstitutional because it requires prior permission before students are allowed to exercise their First Amendment rights, and it grants unfettered discretion to College officials in determining whether to grant permission to speak. To its credit, it is my understanding that the Board indicated that it would be reviewing and revising the College’s policies to ensure that they no longer restrict the First Amendment rights of students on campus.”

   

  In response to the ADF letter, the college invited Langhofer to attend a meeting of the Board of Governance “to make a presentation concerning free speech policies at public universities.”

   

  “With these changes, the college has taken a big step towards truly being a marketplace of ideas, where students of all different backgrounds and beliefs will be free to communicate their opinions and ideas without fear of censorship or punishment,” said ADF Senior Counsel David Hacker. “We hope that other colleges will follow DuPage’s example and ensure that the constitutionally protected freedoms of their students are thoroughly protected.”

  Still…

  

  

  

  

  

  

• Meet Two Of The Men Who Will Determine Whether Trump Becomes President

  One of the things that seems to have never sunk in for Donald Trump’s GOP rivals (or at least until they were either sitting back at home on the couch reflecting on why they were beaten so badly or else talking sheepishly to reporters on Capitol Hill about their plans to retire from politics after being trounced in their home state) is that he feeds off of controversy and publicity. The more you talk about him – good or bad – the larger he looms in voters’ minds.

  Although certainly adept at whipping crowds into a frenzy and clearly a much more savvy politician than probably even he suspected going into the campaign, the Trump juggernaut is to some extent a monster of the GOP field’s own making. The more they focused on Trump, the more voters did too, and before you knew it, he was the frontrunner. At that point, it became self-fulfilling – they had to focus on him because he was at the top of the polls.

  But alas, they never learned. He was best left alone from the start to fizzle out or, more likely, to self-destruct of his own accord. Instead, by creating an “us versus him” dynamic, the other Republicans made an anti-establishment candidate out of a billionaire who probably didn’t even know what “anti-establishment” meant when he entered the race. Before you knew it, Trump was Mr. Anti-Washington and from that point forward he could do no wrong.

  So oblivious to this are Republicans that they’re about to make the very same mistake with the GOP convention. If you were to have gathered an arena full of Trump voters in January and asked them to raise their hands if they could explain what a “contested convention” was, our guess is that you would have come up with a stadium full of full pockets.

  But that’s not the case now. The media, the Republicans, the Democrats, indeed damn near everyone is talking about what strategies the GOP can employ in Cleveland to steal the nomination away from Trump. Well guess what? Just like that, everyone has virtually guaranteed that they’ll never be able to get away with it.

  Now, Trump will make absolutely sure that his millions of rabid supporters know there’s a chance they may be effectively disenfranchised in July and thanks to the fact that America’s political establishment still hasn’t learned anything about why they’re losing to Trump, those same supporters will be able to turn on the nightly news and hear all about how the Republican party plans to screw them.

  Indeed, CNN was gullible enough to actually ask Trump what he thought would happen if the nomination were stolen from him, effectively affording him an “inception” opportunity which he jumped on immediately by saying in as innocent a voice as he could muster, “I think there’d be riots.”

  If there was any chance of pulling the wool over Trump’s eyes and duping his followers with backroom, old school politics in Cleveland, there sure as hell isn’t now. Just the same as if there was any chance of shutting down Trump’s campaign in the first GOP debate by effectively ignoring him and treating him as though he didn’t belong on stage, that chance was lost immediately when Fox’s Megyn Kelly made him a political star by asking him if he thought it was befitting of a President to call women “disgusting animals.”

  It’s been a comedy of errors on everyone’s part but Trump’s and now, by alerting the billionaire to just how real the threat of a convention coup truly is, he may actually end up turning the tables on them and stealing their delegates.

  With that as the backdrop, we bring you the following excerpts from a Reuters piece out today entitled “Meet The Man Who Will Help Determine Trump’s Fate In 2016 Race.”

  *  *  *

  From Reuters

  Mark Strang spends his days delivering farm equipment, listening to politics on the radio during cross-country drives. But in July, the 63-year-old could have an outsized voice in choosing the Republican nominee for president of the United States.

  For the first time in 40 years, Republicans could arrive at their national convention in Cleveland without a nominee. If front-runner Donald Trump fails to lock up the nomination before then, as some pollsters are predicting, Strang will have a chance to make history.

  Strang, from Illinois, is one of 2,472 delegates to the convention who will ultimately determine the party’s choice for the White House this November. In recent elections, the delegates have simply rubberstamped the presumptive nominee. But this year the convention could become a brutal fight in which every delegate vote will count.

  If the convention becomes a fight because no candidate has the needed 1,237 delegates on the first round of voting, most of the delegates would eventually be released. States are still sorting through some rules governing how long delegates are bound to candidates. Strang said if he found himself a free agent, he would be open to switching his vote.

  Interviews with Republican state party officials and some delegates who have already been selected reveal widespread soul-searching in anticipation of a potential fight. Officials and delegates described weighing their personal preference with the need to rally around a candidate going into the general election.

  Party faithful are steeling themselves for a battle, not just for the nomination, but also for the party’s core values.

  A contested convention would pose a major test for Trump’s campaign, which thus far has eschewed a traditional grassroots organization. His rivals, Cruz and Ohio Governor John Kasich, are already trying to lobby delegates who might be open to changing sides once they are allowed to become free agents in the convention.

  In every state, the party chair and two national committee members, a man and a woman, are automatically selected to be delegates. But from there, state parties use a wide variety of procedures to pick delegates, most of whom won’t be named until late spring or summer.

  “These are the base of the party,” said Michigan Republican Party chairwoman Ronna Romney McDaniel. “The delegates are not the establishment. They are the base. And I think that’s a great misunderstanding.”

  Often sporting outfits with homemade decorated hats or jackets weighed down with dozens of buttons, delegates who show up every four years include everyone from lawmakers to homemakers, and from those who write million dollar checks to retirees who make phone calls.

  Many states use small conventions to pick delegates, many of whom are long-time party activists and elected office holders. Not all of them personally back the candidate they are pledged to support in the first round of convention voting, said Virginia Republican Party chairman John Whitbeck. 

  Jim Carns, a state representative from Alabama, where delegates are selected in the primaries, signed up to represent Trump last fall — when many still viewed the rise of the New York real estate mogul as a temporary phenomenon.

  He sees no circumstance in which he would switch candidates. 

  *  *  *

  Right. Jim Carns, who pledged himself to Trump last year wouldn’t drop his support “under any circumstances.” 

  And how about Mark Strang, the Cruz delegate? Well, let’s go to Mark himself for the answer: “I am going to be loyal to Ted Cruz, and I will stick with him until I see if there’s no hope. And if there’s no hope for Ted getting in, as I understand it I can pledge my votes to somebody else, and I would hope Ted would understand.“

  We’re sure he will Mark. We’re sure he will.

  

  

  

  

  

  

• Gawker Ordered To Pay Hulk Hogan $115 Million In Sex Tape Lawsuit

  In a closely watched trial by the media community, shortly after 7pm on Friday night, and less than six hours after starting deliberations, the jury sided with ex-pro wrestler Hulk Hogan and awarded him $115 million in his sex tape lawsuit against Gawker Media. The trial lasted two weeks. The award consists of $55 million for economic injuries, and $60 million for emotional distress.

  According to CBS, Hogan, dressed all in black including a black bandana, cried when the verdict was announced, CBS affiliate WTSP said while members of Gawker’s team listened in shocked silence as the verdict was read.

  

  The trial, which has been years in the making, has major implications not only with its potential “chilling effect” on the freedom of speech, but also focuses on the grey space of “what is public news”, and finally has potentially terminal implications for the future of Gawker which will likely be forced to go out of business unless it miraculously lowers the damages on appeal.

  For those who are unfamiliar, Hogan, whose given name is Terry Bollea, had sued Gawker for $100 million for publishing an edited video of the wrestler having sex with the then-wife of a radio shock jock named Bubba the Love Sponge. Hogan contended the 2012 post violated his privacy.

  

  In spirited closing arguments on Friday, lawyers for Hogan and Gawker discussed themes of personal life versus celebrity, and freedom of speech versus the right to privacy.  Hogan’s attorneys told jurors this is the core of the case: “Gawker took a secretly recorded sex tape and put it on the Internet.”

  They said Hogan didn’t consent to the video, that Gawker didn’t follow usual journalism procedures before posting it and that the video wasn’t newsworthy. Gawker did not try to contact Bollea or the woman in the video, and nor did the website contact the woman’s husband, DJ Bubba The Love Sponge Clem, who recorded the video.

  It was never conclusively determined during trial who leaked the video to the media.

  Hogan didn’t ask for any of this to happen, lawyer Kenneth Turkel said, adding that Bollea, the private man, expected privacy during an intimate moment. Much was made during the trial of Hogan’s celebrity persona versus Bollea’s privacy.

  “I want you to imagine the fact that for 35 plus years he is essentially an actor, an entertainer, who has played the same role,” said Turkel. He said Hogan “has every right, every right, to keep whatever precious private moments in his life, which for this gentlemen are very few.”

  Hogan’s lawyers also said Gawker’s value increased by $15 million due to the post, while Gawker contends it made $11,000 in ad revenue.

   

  Hulk Hogan took the stand in court over a leaked sex tape of him, and some of the testimony got explicit.

   

  Gawker’s attorneys told the jury that the video is “not like a real celebrity sex tape” and urged them to watch the video, which contains nine seconds of sexual content.  They pointed out that news of the sex tape first appeared on at least two websites: TMZ and The Dirty. Hogan went on TMZ’s TV program to talk about it, and later appeared on the Howard Stern show.

  “He has consistently chosen to put his private life out there, for public consumption,” said attorney Michael Sullivan. He also criticized Hogan’s claim that he was in Hulk Hogan persona when he was doing interviews.

  “An actor playing a character does that on set, but when they go on a talk show, they’re themselves,” Sullivan said. Sullivan called into question whether the tape was all a celebrity stunt to drum up publicity for Hogan’s career. He suggested that although the jurors might find the video, Gawker and Hogan’s sex life distasteful, they must protect the First Amendment right to free speech.

  “We ask you to protect something that some of you may find unpleasant,” he said. “To write, to speak, to think about all topics, to hold public figures accountable. It is right in the long run for our freedoms.”

  The jury disagreed.

  Putting the $115 million award in context, according ro previously disclosed information, Gawker’s operating income for 2015 amounted to $6.5 million, 18 times less than the awarded damages. The website generated around $24 million in profit in the past 5 years. The company’s revenue in 2014 was $44.2 million.

  

  Previously Nick Denton, Gawker’s CEO, had indicated that Gawker’s future hung in the balance if the jury ruled in Mr. Hogan’s favor for the full amount. “It’s a $100 million lawsuit,” Mr. Denton told The New York Times earlier this month. “We don’t keep $100 million in the bank, no.”

  According to Gawker’s release, the company, which has never taken outside investment, has had five years of steady, if not eye-popping, growth. But for a media company, not losing money is good. Making some is even better. Many media companies would be very pleased with a profit growth of almost 10 percent. Gawker had also disclosed that its very expensive legal fees came out of its $6.53 million operating income but the company did take an $8 million loan from Silicon Valley Bank to pay for its new flatiron office, which the company is scheduled to move to later this month. That loan may now be impaired.

  “With the possibility of an initial judgment against Gawker Media at the forthcoming trial in Florida, there’s been interest in the company’s underlying financial health,” Denton said in a statement. “Our journalists and I stand for open discussion of true and interesting stories, and our finances have become part of the story. So we intend to be open about them, both in the media and in the St. Petersburg courtroom. I am as proud of our business track record as I am of our writers’ reputation for journalistic boldness.”

  He may now be regretting his writers’ journalistic boldness.

  And while the implications of this trial will reverberate in online media and the interpretation of what content is and what isn’t subject to the First Amendment, some early media comments suggest that for the time being schadenfreude is winning over concerns over the trial’s chilling effects on the media.

  Ordinarily I’d be very concerned about the effects of this Gawker verdict on chilling of press freedom, but it’s Gawker. Fuck em.

  — Popehat (@Popehat) March 18, 2016

  In retrospect it probably wasn’t a good idea for Gawker to sell ads on their live coverage of the trial, but then they wouldn’t be Gawker.

  — Popehat (@Popehat) March 19, 2016

  

  

  

  

  

• The New New 'Deal' – "Markets Are Too Important To Be Left To Investors"

  Submitted by Ben Hunt via Salient Partner's Epsilon Theory blog,

  Five Easy Pieces for the World-As-It-Is

  

  Our story so far…

  In the second half of 2014, export volumes in every major economy on Earth began to decline, the result of divergent monetary policies that crystallized with the Fed’s announced tightening bias in the summer of 2014. This decline in trade activity – which is far more impactful than a decline in trade value, because it means that the global growth pie is structurally shrinking – accelerated in 2015 and 2016 as Europe and Japan intentionally devalued their currencies to protect their slices of the global trade pie. In game theoretic terms, Europe and Japan have been “free riders” on the global system, using currency devaluation to undercut the prices of competing US and Chinese products in a way that avoids domestic political pain.

  But if there’s an iron law of international politics, it’s this: once the strategic interaction between nations begins to shift from cooperation to competition, once a principal player decides to defect and go for free rider benefits, then the one and only equilibrium of the new game has ALL principal players abandoning cooperation and competing with each other. Moreover, once one principal player begins to compete with a new and terrible weapon (i.e., mustard gas in World War I or negative interest rates in monetary policy or Trump-esque debate tactics in a Republican primary), then all principal players must adopt those tactics or lose the game. Universal competition is a highly stable equilibrium, both on the international stage and the domestic stage, particularly in the way it plays out in domestic politics, where there is never a shortage of populist politicians ready and willing to blame global trade for a host of ills. And because universal competition is such a stable equilibrium, typically only a giant crisis – one that shakes the principal players to their domestic political cores – gets you back, maybe, to a Cooperative game.
   
  Yikes, that sounds pretty dire, Ben. Are you sure? What about some prominent sell-side economists who recently published notes saying that you’re wrong about global trade? While it’s true, say these voices of consensus, that global trade values as measured in dollars are declining as commodities slide and the dollar gets stronger, aggregate global trade volumes are not contracting, so we really don’t have anything to worry about.

  Hmm … here’s what the World Trade Organization (the gold standard in the field) says about seasonally-adjusted quarterly export volumes in the four economies that matter for international relations. The chart below starts with the low-water mark of all four geographies in Q1 2009, draws a line to the respective high-water marks hit in the second half of 2014, and then connects to the current index value. I find this sort of minimum-to-maximum-to-current data representation to be a very effective way of isolating inflection points in data series that should (if all is well with the world) grow at a pretty steady linear clip. And no, that’s not an error in the Japan and China graphs. Both countries' export volumes peaked more than 5 years ago, essentially flatlined (a dip and recovery around the European crisis of 2012 not shown), and rolled over in late 2014. It’s pretty stunning, right? This is the primary reason why I think Japan gets no respect with their monetary policy experiments, and why I think we are already past the event horizon for China to float or otherwise devalue their currency. China has been trying to jumpstart industrial production growth for years now, nothing has worked, and the downturn since Q3 2014 not only puts them embarrassingly behind both the US and Europe in export activity, but also gives the lie to the idea that they can stimulate their way out of this.

  
  Source: World Trade Organization, as of 12/09/15. For illustrative purposes.

  To paraphrase George Soros, I’m not expecting a shrinking of the global trade pie and an expansion of competitive, protectionist domestic policies; I’m observing it. Something derailed the global trade locomotive in the second half of 2014, and it doesn’t take a genius to figure out that this something was divergent monetary policy, with the Fed embarking on a public quest to tighten, and the rest of the world doubling down on monetary policy easing. This is Exhibit 1 to support the case that we've entered a new, more competitive international political environment, as all four major global economies suffer a simultaneous contraction in trade volumes. I'm often asked what would need to happen for me to change my structurally bearish views about the world. So here you go. If this chart changes, then my views will change.

  As you can see, the published WTO data currently goes through Q3 2015. Now maybe the Q4 2015 WTO data will come out and show a new high-water mark for these principal players in the global economy. But I don’t see how. First, I've looked at Q4 year-over-year trade values in local currency. Not a perfect measure of volumes, but indicative. The US, Japan, and China are all clearly down year-over-year in Q4; it’s hard to tell for the EU without including intra-EU trade. Second, I've looked at the raw data of container volume in the major ports in the world. 2015 data isn’t available for China and Japan, but partial data is available for the largest EU port (Rotterdam) and full data for the largest two US ports (Los Angeles and Long Beach). Rotterdam is down a little in 2015 total volumes; Los Angeles and Long Beach are down a lot in export volumes, with the declines accelerating in Q4 (partially labor issues, but still). Want more? Read this FT article on structural shifts in global trade. Read this WSJ article on the expanding January US trade deficit driven by disappointing exports, or this WSJ article on enormous new US tariffs on Chinese cold-rolled steel (while you're at it, look who the biggest direct beneficiary of these tariffs is: Indian mega-billionaire Lakshmi Mittal … I swear to god, you can't make this stuff up … and you wonder why Bernie Sanders strikes a chord with his message?). Take a look at Chinese electricity consumption data for 2015 (highly correlated with industrial production) and tell me that we're not seeing continued declines.

  How, then, do consensus sell-side analysts claim that global trade volumes are increasing? Two ways. First, they include countries that don’t matter, like Canada and Brazil. Sorry, my friends to the north and south, but you can increase your export volumes all you like and it matters not to the Great Game. Second – and this is the really egregious data interpretation mistake – they report global trade growth by including intra-EU trade! It’s a statistic that the WTO reports (as they should), and they include it in their aggregated global trade number (as they should). But if you can’t see that you need to back this number out if you’re trying to understand the strategic interaction between central banks … if you can’t see that intra-EU trade is as extraneous to this analysis as trade between Texas and California … well, I really don’t know what to say.

  Now even though I think it's totally disingenuous to claim that all is well with global trade volumes, I will be the first to admit that all is not lost. Yet.

  First, export volumes have rolled over since the second half of 2014, but they haven't collapsed, certainly not in the US, anyway. Export values, on the other hand, have taken a nose dive, particularly in the US (the total value of merchandise goods exported by the US is currently off more than 15% from its high-water mark). Keep in mind, though, that I don’t think that a decline in export values is as much of an emergency alarm as a decline in volumes. Why? Because a decline in export values impacts industrial sector earnings, while a decline in export volumes impacts actual industrial sector production. I think this is exactly why we’ve seen an earnings recession in the US, particularly in any sector with a connection to trade, but not a jobs recession. When export values decline, companies are missing their revenue targets. When export volumes decline, companies are shutting down factories. This is the big question I have for the US economy: will export volume declines start catching up to export value declines? If yes, then I think we’re going to have a “real” recession. If no, then I think we’re likely to muddle through in the real economy.

  Second, it’s not like you can hide the fact that this enormous barge called global trade has reversed course over the past year and a half, and it’s not like central bankers or the IMF are oblivious to what’s going on. They’re going to respond, and who knows, maybe they’ll be successful in turning this barge back around. I don’t think they have the proverbial snowball’s chance, for reasons I’ll talk about in a second, but they’re certainly going to try.

  Here’s a chart of the CDS spread (the premium you have to pay to insure your bond against default) for a senior credit index of the 33 largest European financial institutions as of February 8. I used this chart in the Epsilon Theory note “Snikt” to show what it looks like when the claws of systemic risk pop out.

  
  © Bloomberg Finance L.P., as of 02/08/16. For illustrative purposes.

  But now here’s a chart of the same CDS spread as of March 11. We’ve retraced the entire move.
  
  © Bloomberg Finance L.P., as of 03/11/16. For illustrative purposes.

  What happened? Exactly what happened in August 2012, the last time Draghi built up huge expectations for a miracle cure, blew the press conference, and had to be bailed out by the Powers That Be. In short, I suspect that the allocation heads at one or two European mega-insurance firms were informed that they would be supporting risk assets, I can observe how the Narrative machine got into gear, and I am certain that real world investors do what they always do, they play the Common Knowledge Game. Hopefully, if you’ve seen this movie before, you traded around the spike in February, got out of the position entirely, and are looking for a reprise.

  Is there some reality to what the Narrative machine is pumping out? Sure, there always is. I think we have to take seriously the idea that the G-20 Shanghai meeting of the world’s central bankers and finance ministers in late February was more productive than anyone thought, and that maybe the joint communiqué calling for fewer beggar-thy-neighbor currency devaluations is a temporary truce of sorts. What would this truce look like? China agrees to give it the old college try one more time with domestic credit expansion and money printing, in an effort to replace feeble foreign demand for their products with goosed-up domestic demand and fiscal deficit spending. Europe agrees to lower its negative rates as little as humanly possible, and instead concentrate on good old-fashioned asset purchases. The US agrees to sit on its hands for a while with any more rate hikes, and Japan agrees to sit on its hands for a while with any more rate cuts. Sounds like a plan to me.

  So we’re in the early days of a perfectly investable rally, driven by a plausible Narrative of central bank cooperation on currencies. Reminds me for all the world of September 2007, right after every quant-oriented multi-strat fund in the world was gob-smacked in July and August (and if you’ve seen the returns for quant-oriented multi-strat funds this January and February you’ll get my point). We had a perfectly investable rally then, too, driven by the Bernanke Narrative that the sub-prime crisis was “contained” and that the real economy was just in a “mid-cycle slow-down”. All good, until Bear Stearns was taken out into the street and shot the following March. Which was itself followed by a perfectly investable rally from April to mid-summer 2008, under the pervasive Narrative that “systemic risk was off the table.” Until it wasn't.

  So forgive me if I call this a temporary truce, an investable rally before the next “shock” that no one sees coming. Forgive me if I note that yet another FT puff piece on the unappreciated genius of Mario Draghi is ultimately small comfort given that we are smack-dab in the middle of an endemic of political polarization and anti-liberal sentiment (that’s small-l liberalism, of course, the Adam Smith and John Locke sort), the sort of political plague that the world hasn’t seen since the 1930s.

  

  We are now in a world where principled politicians are called fascists, and fascist politicians are called principled. In most Western countries, we are one Reichstag Fire away from a complete up-ending of the core liberal principles of limited government and individual rights. At least the ascendant candidates on the right have the guts, for the most part, to wear their authoritarianism on their sleeves. The other side of the political spectrum, equally ascendant, is no less anti-liberal, they’ve just adopted the façade of smiley-face authoritarianism.

  Politics always trumps economics, and until someone can show me that the structural advance in anti-liberal politics is any less pronounced than the structural decline in global trade volumes, I can’t get away from my structurally bearish views about this market. Or about this world, for that matter.

  So what do we do about it?

  

  After all, as fictional gangster Hyman Roth, patterned after real-life gangster Meyer Lansky, would say, “This is the business we have chosen.” It’s all well and good to bemoan the thin gruel we are served in modern politics and markets, but it’s the only food we’ve got, and we have a responsibility to make the most of it. I've got some ideas, but to be useful, these ideas need to fit the reality of the investment world and the business we have chosen. Let's talk about that for a minute.

  I think that many investors, allocators, and financial advisors today find themselves in the position of Bobby Dupea, the character played brilliantly by a young Jack Nicholson in “Five Easy Pieces.” In that movie's iconic scene, Bobby just wants to get a side order of wheat toast with his breakfast at the local diner. But he is faced with what game theorists call a Hobson's Choice, which is part of a more general class of games that includes ultimatums and dilemmas. A Hobson's Choice is best understood as a strategic interaction where you are presented with what at first glance seem to be multiple opportunities for free will and free choice, but where in truth you only have a single option. Bobby has an entire menu to choose from, and the diner makes toast for sandwiches all day long, but it is impossible – despite a smart proposal of pair trades and long/short exposures that would isolate the wheat toast factor – for Bobby to get what he wants. He can have an omelet with a roll, or he can have nothing. Those are his true choices.

  A Hobson's Choice is Henry Ford telling you that you can have your Model-T in whatever color you like, so long as it's black. A Hobson's Choice is a Klingon telling you to surrender or die. A Hobson's Choice is Vito Corleone making you an offer that you can't refuse.

  Today we have what appears to be a wide-ranging menu of investment strategies and ideas to choose from. But like Bobby Dupea, our true range of choices turns out to be terribly limited if we show the least preference for something that goes against the grain of conventional wisdom. Specifically, the dominant conventions of modern investment are "stocks for the long haul", "you can't time markets", "focus on the fundamentals", and "buy quality". Everything you order from the investment menu has these conventional items embedded within them, and the more you question the conventional wisdom (not that it's all wrong or a big lie, but simply to inquire whether the conventional wisdom is perhaps less useful in unconventional times, and maybe – just maybe – you might want to have some wheat toast with your omelet) the more you risk getting kicked out of the diner.

  The Hobson's Choice that nearly every investor, allocator, or financial advisor faces today is always some variation of the famous quote from John Maynard Keynes: it's better for your reputation (i.e., your business) to fail conventionally than to succeed unconventionally. Every investment professional I've ever met – every. single. one. – wrestles with this dilemma. So do I. We've all seen examples in our portfolio results that the conventional tools aren't working. We know that the words we hear from our Dear Leaders and the articles we read from our Papers of Record are designed to manipulate and entertain us, not inform us. We want to succeed, and we feel in our gut that we should be trying something new and (maybe) better. But not if it means losing our clients or losing the support of our Board or losing the support of that little voice of convention inside each of our heads. It's that last bit that's probably the most powerful. As George Orwell so correctly observed about human psychology, the most terrifying part of hearing Big Brother say that two plus two equals five isn't that they might kill you for believing otherwise, but that you think they might be right!

  And make no mistake about it, our Hobson's Choice is getting worse. Investing according to conventional wisdom has always been the reputationally safe decision, but in the policy-controlled markets to come, investing according to conventional wisdom may well be the only legally safe decision.

  So here's what I'm not going to do. I'm not going to discuss "alternative strategies" that are always set off to the side in a little section of their own on an investment menu, intentionally organized and presented as if to say "Careful now! Here are some exotic side dishes that you might use to spice up your core portfolio a bit, but you'd be crazy to make a meal out of this … not that we'd let you do that anyway." I'm not going to perpetuate the Hobson's Choice game and its charade of false choices and hidden ultimatums. Instead, I'm going to recommend alternative thinking about your portfolio here in the Silver Age of the Central Banker. I'm going to recommend five specific ideas – Five Easy Pieces – that challenge conventional wisdom and (I hope) will spark readers to think differently about their entire portfolio and investment process, not just whatever small slice of the pie is reserved for "alternative strategies".

  Five Easy Pieces for the World-As-It-Is
  

  Because this is how we escape a Hobson's Choice. We must look beyond the false choice. We must reject the ultimatum (act conventionally or risk your business) and find a new dimension that avoids the false choice entirely. This was the genius of Mad Men's Don Draper: "If you don't like what's being said, change the conversation." Or to use a far more trite and shop-worn phrase, this is what "thinking outside the box" means – expanding our field of vision to incorporate not only the specific choice we're presented with, but also the act of choosing. To escape a Hobson's Choice we can't look at the world as (x) OR (y), as a series of choices we make from a menu that's handed to us. We have to step back and see the menu itself as a choice, that what we thought was (x) OR (y) is really (x OR y), and there's a big world outside of (x OR y). Expanding our perspective and changing our conversation changes everything. It allows us to re-engage in an entirely new way with whatever investment menu we might have in whatever our World-As-It-Is might be, such that whatever investment decisions we make are truly OUR choices, not THEIR choices. Maybe for the first time.
   
  

  This is a good example of what I'm talking about. Investment convention holds that you should be fully invested throughout a market cycle. Otherwise you must be—gasp!—a market timer. Boo! Hiss! If there's a worse insult in the investment world or a quicker way to get fired by your client than to be called a market timer, I'm not aware of it. And god forbid that you actually propose an "alternative strategy" that embraces market timing. But of course, we're ALL market timers, we just do it in a conventionally acceptable way by "shifting to defensive sectors" or "keeping our powder dry" or "managing risk" (whatever that means). We're all hypocrites when it comes to our professed faith in full investment, because we don't really believe in it. We all want to get out of markets when they're going down, we all want to get into markets when they're going up, and we all think that we have some insight into what's next.

  And that, of course, is the source of the actual wisdom in this conventional wisdom. We really don't have a crystal ball to predict whether the market will be up or down tomorrow or over the next week or over the next month or over the next year. We really do have biologically evolved social behaviors that push us to sell low and buy high. Whatever you think you should do as a short-term trade, you're probably wrong. Left to our own devices, almost all of us are almost always better off to put our investments in a drawer, close our eyes, and walk away.

  So here's the question. How do we change the conversation so that a rigorously conceived adjustment in portfolio exposure to risk assets isn't characterized as market timing? Because as soon as a strategy is characterized as market timing, then it's a Hobson's Choice situation, where you don't really have a choice but to reject it. Now I'm not talking about reading ZeroHedge and selling because you got all freaked out by an article, and I'm not talking about watching CNBC and buying because you got all bulled up by a talking head. That IS market timing, of an indefensible sort. But is there a defensible sort of portfolio exposure adjustment, one that has a foundation strong enough to allow a non-Hobson's Choice implementation? My answer: yes. In fact, I think there are two such approaches.

  First, markets are more volatile when countries are playing a Competitive game than when they're playing a Cooperative game. Now granted, this is a prediction of a sort, but it's a prediction of political dynamics – which is exactly what the game theory toolkit is designed to do – as opposed to a market prediction like whether the S&P 500 will be up or down next week. I think this is where Epsilon Theory can make a unique analytical contribution. The international political regime matters to markets. It matters a lot. I am convinced that we have entered a new, analyzable, competitive regime of domestically stressed nations, and that means that we have a deflationary hurricane brewing. What I don't know (yet) is whether this is going to be a Category 1 hurricane, a Category 3 hurricane, or a Category 5 hurricane. If China floats the yuan – and that's the big catalyst I think has a decidedly non-trivial chance of occurring – then it's Category 5. If they don't, it's something less. But regardless, a Competitive global trade game is going to be a big storm. Trim your sails. Whatever that means to you and your investment process, whether it's increasing cash, reducing net or gross exposure, shifting to long-dated Treasuries … whatever … that's what I think you should do when the world plays a Competitive game. Does that make me a market timer? Well, if that's the conversation you're stuck in … yes. But it's not the conversation I'm having, either with others or myself.

  Second, although I can't predict future market returns, I can observe how volatile the market has been in the short, medium, and long-term past. It's that George Soros quote again: I'm not predicting; I'm observing. I can also tell you about my personal appetite for risk and volatility. Put these two items together and you have the foundation for a new conversation about investing, a conversation based on observable risk rather than predicted reward. Is observed volatility going up above a level where I am personally comfortable? Well, let's take my market exposure down. Is observed volatility going down below that level? Well, let's take my market exposure up. There are a dozen variations on this theme: call it risk balancing or risk parity or volatility targeting or whatever. But whatever you call it, I think it is a better way of staying invested in markets through thick and thin. Just less invested when thick and more invested when thin.

  A systematic risk balancing strategy is at the core of what I have been describing as Adaptive Investing over the past two years. That and an appreciation for the political dynamics that underpin markets, creating different investment regimes as the game-playing moves from one equilibrium state to another. There is zero crystal ball gazing in a risk balancing strategy – zero. In that sense it is entirely compatible with the investment convention of not trying to time markets. But the alternative thinking I'm suggesting here is that "full investment over a market cycle" works better if it's risk being fully invested over a market cycle, not dollars. It's a new twist on an old idea, and once you start thinking of risk budgets first and dollar budgets second, everything changes.

  

  The usefulness of the game theory toolkit isn't limited to understanding the dynamics of strategic interactions between international political players like central banks. It's also useful in understanding the dynamics of strategic interactions between market players. It's also the rigorous foundation for changing the conversation about another market convention: focus on the fundamentals. Are fundamentals important? Of course they are. Knowing the fundamentals of an investment is like knowing how to play the cards you're dealt in a poker game. But as any successful poker player will tell you, it's not enough to play the cards well. More importantly, you also have to play the player.

  

  Wall Street players today aren't like a historical Jay Gould or a fictional Gordon Gecko, ruthless seat-of-their-pants robber barons with a great eye for arbitrage and leverage. To be sure, it's not the ruthless part that's missing today, or the eye for arbitrage and leverage. No, what's changed from the past and what Hollywood still doesn't get is that the whole instinctive, seat-of-the-pants thing is totally dead.

  

  Wall Street players today are creatures of process. They are Bill Belichick and Nick Saban, seemingly joyless automatons who do nothing but win (Roll Tide!) because they are monomaniacally focused on efficient process in every aspect of their organization and constant incremental adaptation to new information. It's not just the quants that have uniformly adopted a process-focused business strategy, but every successful investment firm, regardless of discipline or market focus. Ray Dalio at Bridgewater, certainly the most out-there proponent of Belichick-ian process discipline in the investment world, is best known for creating the largest hedge fund in the world. More interesting to me, though, is how the meme of process and incremental adaptation – principally authored by Dalio – is now part of the internal Narrative of every investment firm on Earth. Note that I'm saying this meme is part of the Narrative of these firms, not their investment DNA. Like all good memes, the belief in process and incremental adaptation is principally an instrument of internal social control, part of the modern day Panopticon ("what, you don't believe in process? hmm, not sure that you're going to fit here."), as well as an instrument of external social expression ("you can trust us … we're process-oriented!").

  Why is this primacy of process so important for understanding market dynamics? Because it means that while there is no single mode of market participant behavior, no single way of playing the market game, there is an underlying dimension – a common behavioral denominator, if you will – of prioritizing process and incremental adaptation. To torture the poker analogy a bit more, you have tens of thousands of poker tables in operation every day, with hundreds of different poker variations being played … No Limit Texas Hold 'Em here, 5 Card Draw there, etc. Some players have big stacks, some have small stacks, some play tight, some play loose. But they are ALL process-oriented players. They are ALL watching each other and the cards closely, they are ALL reacting to each other and the cards in an incremental process-oriented way, and they are ALL "learning" in an incremental process-oriented way.

  I don't think you have to be a poker expert to recognize that there's game-playing power to be found in the recognition of a common behavioral denominator, no matter how deeply it runs. In truth, the deeper it is, the more powerful it is. This is the structural reason why the Common Knowledge Game is such a useful way to analyze market dynamics in the modern age. The market-playing crowd is always looking at the market-playing crowd, and the crowd is hardwired – not by biology but by business process – to "learn" a similar reaction to similar Missionary statements.

  This is also the structural reason why I believe trend-following strategies are so interesting and effective in modern markets. In a very real sense, all of these process-focused and iteratively-learning investors are themselves augmenting whatever initial stimulus they're all looking at, creating trends where none was present before. If you've never read George Soros's "Alchemy of Finance", now might be a good time to start. What's perhaps even more interesting – and this will have to be a tease because it deserves several Epsilon Theory notes on its own – is whether it's possible to design a learning-following investment strategy. Now that would be something.

  

  Okay, this is a big one. What is negative carry? It's time working against you. It's the price you pay to carry or hold a position. Investors HATE negative carry, because almost all investment conventions are based on the assumption that time works for you, not against you. What's the basis of "stocks for the long haul"? Time working for you. What's the basis of compounding, which is nothing less than the most powerful investment idea in all of human history? Time working for you. What's the basis of retirement planning, saving, and – in a very real sense – the entire concept of investment? Time working for you.

  The damaging impact of negative interest rates on bank earnings and all that is very true and very real. But far more damaging is the impact of negative interest rates on these basic IDEAS about what it means to be an investor in public markets. If you see the world as principally a market of ideas and memes, rather than as a market of capital and labor – and this is exactly the perceptual lens I'm trying to explore with Epsilon Theory – then I don't see how you can't be freaked out by what's happening today. Certainly it's why I've gotten much more alarmist over the past few months in what I write. We are seeing huge chunks of stone being taken out almost daily from these central idea pillars of public markets. As market participants lose faith in the idea that time is on your side, as they start to question the idea that there's an inherent up-and-to-the-right arrow to any price-over-time chart … the entire financial advisory world is going to burn.

  So what do you do?

  I suggest we start thinking like a short seller. We don't have to BE short sellers, but we all need to THINK like short sellers. Why? Because short sellers naturally live in a negative carry world, both in their investments and their ideas. Dividends and yield-bearing securities constantly chip away at the value of a short seller's portfolio. Similarly, the long-biased information flow promoted by corporate management and the sell-side constantly chips away at the investment theses embedded in a short seller's portfolio. Time always works against a short seller (particularly in a zero or negative interest rate world … boy, do I miss the 5% interest paid on the cash generated from borrowing shares), and successful short sellers have learned to think differently as a result.

  1) If you're wrong on timing, you're just wrong. A successful short seller focuses on near-term catalysts, and that's exactly the focus that I think most investors could adopt, or at least incorporate, in this environment. If there's no catalyst to force investors to recognize the value that you think exists in a stock, then it doesn't exist. When a short seller reads a sell-side buy recommendation that begins with something like "For the patient, long-term investor…" they almost always look to short the stock, because it almost always means that the near-term catalysts are very negative for the company. But by the same token, a long-biased investor who thinks like a short seller is happy to buy a company with positive near-term catalysts even if the long-term prospects don't look so great. In fact, that's exactly how I would characterize risk assets in general today – structurally awful in the long-term as global trade and global cooperation and the idea of a positive risk-free rate and the liberal tenets of free markets die a little more every day, but with positive short-term catalysts as central bankers and their sell-side apologists rally the troops one more time. Every position is a rental if you're thinking like a short seller. Nothing is owned.

  A catalyst-oriented, everything-is-a-rental way of thinking sounds easy, but it's the hardest thing you'll ever do. It's hard because it's utterly unforgiving. Meaning, you can never forgive yourself. Here are the two thought processes that have ruined more catalyst-oriented investors than anything else:

  "Huh? No price reaction yet to this realized catalyst that I so brilliantly anticipated? Well, I suppose the market just needs a little more time to absorb its importance."

  "Golly, the earnings call just ended and the company didn't make the announcement I thought they would. Oh, well, I'm sure they'll announce it next quarter."

  Bzzzzt! Sorry, that's our tacky buzzer and you've just been eliminated from the game. When the catalyst happens – whether or not it impacts the price of the stock or bond like you think it should – you get out. If the time frame or event frame for the catalyst expires – whether or not the catalyst actually occurs – you get out. Thinking like a short seller means no excuses, particularly in the easiest place to make excuses – inside our own heads.

  2) The question that really matters: is the story broken? I've written about this at length, so I won't repeat all that here. But I'll give you an example of a story that ALWAYS breaks in a squirrely market: financial engineering. If you're long a company because "management is buying back lots of stock" or "there's a tax-advantaged spin-out possible here" or something similar … well, good luck with that in a risk-off environment. I'm not saying that financial engineering is bad. On the contrary, I love financial engineering. Seriously. It's an incredibly powerful tool for potentially making money. What I'm saying is that a financial engineering STORY is inherently pro-cyclical – it always works better than you expect in a rising market and worse than you expect in a declining market. A stock with a broken story will go down a lot more than what's "fair", and that's a very unpleasant ride. Fortunately, all stories heal and all stories evolve, which makes for some potential buying opportunities. But you won't recognize those opportunities (or you'll probably butcher the timing) unless you're focusing on what really matters – the story.

  So what strategies inherently "think" like a short seller? Managed futures and trend-following, for sure. Everything is a rental for a trend follower, by definition, and trends – because they are created by market behaviors, not the underlying qualities of a company – are inherently linked to the stories and narratives that shape behavior. More basically, any trader and any trading strategy tends to think like a short seller, and I believe there's room for these strategies to work in markets dominated by a Competitive international game. Ditto for some global macro strategies. Doesn't mean any of these strategies will work, of course, only that they possess what I think are some of the necessary qualities (as opposed to the sufficient qualities) to succeed.

  But when I say it's important to think like a short seller in a negative carry world, I don't mean that we have to go out and hire short selling managers. Because I will tell you that there are plenty of short sellers who think like long-only guys, and are thus the worst possible discretionary managers to turn to in this environment. The really crucial action, though, and it's an action we can all take inside our own heads even if we're not able or not allowed to actually do short selling, is to step back and reconsider all of our investment menu choices if time no longer works so clearly in our favor. That's the existential issue every investor, allocator, or advisor needs to wrestle with, no matter how painful that is. Otherwise, to use Ken Kesey's phrase from "One Flew Over the Cuckoo's Nest," you're choosing to let yourself be lost in the fog. And that's a Hobson's Choice of an entirely different sort.

  

  I’m pretty sure that I was the first to come up with the phrase “Central Bank Omnipotence.” It was in one of my very first notes – “How Gold Lost Its Luster, How the All-Weather Fund Got Wet, and Other Just-So Stories” – back in the summer of 2013, a note that even today remains one of the most popular in the Epsilon Theory canon. For the next six months or so, however, I would go around and talk with institutional investors about the Narrative of Central Bank Omnipotence – that markets acted as if central bank policy determined market outcomes – and I got enormous pushback. No, no, I heard, we’re on the cusp of a self-sustaining real economic recovery here in the US, and whatever the Fed and other central banks are doing, whatever the market reaction might be, it’s just a bridge to the happy days of “normal” markets ahead. And this is after the Taper Tantrum, mind you. It really wasn’t until the spring of 2014 that the steady drip, drip, drip of the Central Bank Omnipotence meme became a tsunami, and by the fall of 2014 it was impossible to find anyone who didn’t believe in their heart of hearts that Central Banks, for good or for ill, determined market outcomes.

  I bring this up because I've read lots of suggestions, particularly after the one day half-life of effectiveness for Kuroda’s negative rates announcement on January 28 and the one hour half-life of effectiveness for Draghi’s negative rates announcement on March 11, that the Narrative of Central Bank Omnipotence is dying. But then you get a day like March 12, where the Narrative engine springs to life in support of Draghi's "bold move", and now I read that the Narrative of Central Bank Omnipotence is alive and well.

  Here's what I think. As the strategic interaction between the four largest economies in the world shifts from self-enforced cooperation to self-enforced competition, from a Golden Age to a Silver Age, so does the market's Common Knowledge or Narrative regarding that strategic interaction. But it doesn't die, any more than the strategic interaction dies. Think of it as the same song, but now in a minor key. So long as every CNBC talking head genuflects in the direction of central banks in every single conversation, so long as front page articles about central banks dominate every day's issue of the WSJ and FT … then the Narrative of Central Bank Omnipotence is alive and well. The power of the Narrative is that we believe that all market outcomes are somehow the result of central bank policy, not that central bank policy necessarily generates a good or even intended market outcome. It's a narrative of Omnipotence, not Competence or Omniscience. The day that central bankers give up, the day that Yellen or Draghi appears on stage and says, "Well, there's really nothing more we can do. It's just out of our hands now. Sorry 'bout that." … that's the day that we lose our religion and the Narrative dies.

  Ultimately, we’re no closer to “normal” markets driven by fundamentals here in the Silver Age of the Central Banker – the age of strife and competition – than we were in the Golden Age of the Central Banker – the age of cooperation and great deeds. In fact, we’re farther away than ever. It’s a policy-driven market just as far as the eye can see.

  Policy-driven markets change the rules, both the formal rules of regulation and – more importantly – the informal rules of correlation, and they change these rules in predictably surprising ways. That is, the regulatory rule changes will always be surprisingly to the left or surprisingly to the right, never what you might expect by a central tendency theorem. That goes for correlation surprises, too. Both tails are equally fair game for a shock. I mean, the euro had a four percent trough to peak move on March 11! Two percent down and then two percent up. You think that didn’t blow up some correlation and volatility trades?

  When I say don't trust the models – and by models I mean pretty much of all mainstream portfolio and investment analysis, basically anything that says "Here's a pattern we observe from some period of time over the last 40 years, and now we're going to extrapolate what the future holds because of that observed pattern." – I mean two things. First, we haven't had a policy-driven market like this since the 1930s, so whatever historical data was used to power whatever model you're using needs to be taken with a grain of salt (read "I Know It Was You, Fredo", "Inherent Vice", "Funny How?", and "Ghost in the Machine" for more, and of course you can read anything by Nassim Nicholas Taleb or Benoit Mandelbrot for the same message presented in book form). Second, investors are not only risk/reward maximizers, but they are also regret minimizers. Almost all of modern econometrics, particularly portfolio analysis, is an exercise in risk/reward maximization and thus fails to connect with investors who are focused on concerns of regret minimization (read "It's Not About the Nail" for more).

  What this means in practice is that most portfolios are too flabby in what I’ll call the Big Middle – the large portfolio allocation that most investors, large and small, maintain in large cap stocks. The easy way out when it comes to investment conventions and the Hobson's Choice we all face when it comes to portfolio construction is always to add more S&P 500 exposure. The old IT saying used to be that no one ever got fired for buying IBM, and the current financial advisory saying should be that no one ever got fired for buying more Apple. Although maybe they should.

  I'm not saying that capital invested in the Big Middle must always be reallocated to make for a more convex, more diversified portfolio. But I am saying that every bit of your portfolio should be purposeful. I am also saying that there's a lot of wisdom for investing in what Plato said about politics almost 2,500 years ago (and he was quoting a guy who lived 400 years earlier), that the half is often greater than the whole. Meaning? Meaning that you get better outcomes when half of your citizens or half of your investments are organized efficiently and with right purpose than if all your citizens or all of your investments are organized haphazardly or without common purpose. Or for a more modern slant, I like George Carlin's take, that while some see a glass half-full and some see a glass half-empty, he sees a glass that's twice as big as it needs to be. Many portfolios are twice as big as they need to be. Not in dollars, of course (may your portfolio get much larger in that regard), but in terms of inefficient, mushy allocation to low risk, low reward, highly correlated investments.

  What goes into a purposeful portfolio in the Silver Age of the Central Banker? A lot of optionality, for one thing, which does not necessarily require expression through options and derivatives (although that certainly makes it easier) and is another way of saying convexity. A keen sense of correlation and correlation change, for another, which does not necessarily require expression through covariance matrices (although that certainly makes it easier) and is another way of saying diversification. While the terms can be daunting, the logic and practice aren't so much. Like thinking in terms of a risk budget instead of a dollar budget, it's more of a matter of perspective than anything else.

  One exercise I find useful is to think of different future scenarios for the world (not because I'm trying to predict which one will happen, but precisely because I can't!) and then to consider how my current exposures and strategies are likely to fare in those futures. My goal isn't to figure out the scenario where I think I'll do the best, because then I'll start hoping for it and consciously or unconsciously will start to assign a higher probability of it occurring, but to figure out the scenario where I'll do the worst (both in absolute terms and relatively to whatever I compare myself to). I'm trying to minimize my maximum regret – minimax regret, a powerful game theoretic tool for dealing with technical uncertainty, where you're not sure that you've identified all the potential outcomes and you're certainly not sure of the probability distribution to assign to those outcomes – and I do so by planting seeds (buying exposure with either embedded or overt optionality) in that least happy scenario. I find that this iterative, new information-friendly exercise changes the conversation you can have with others or yourself, away from a needlessly daunting conversation on risk/reward maximization and towards a more fruitful conversation on being an investment survivor in a decidedly dangerous time.

  

  And now for the big finish.

  Last summer I wrote a note called “The New TVA”, which made a direct comparison between the political dynamics of the 1930s and the political dynamics of today. What amazes me (still), is how the political conversations then are almost identical to the political conversations now.

  

  Just switch out FDR for Obama and you could easily imagine this cartoon being about healthcare or some such rather than New Deal legislation.

  Here's the skinny for that note: in the same way that FDR had an existential political interest in generating inflation and preventing volatility in the US labor market, so does the US Executive branch today (regardless of what party holds the office) have an existential political interest in generating inflation and preventing volatility in the US capital markets. Transforming Wall Street into a political utility was an afterthought for FDR, a nice-to-have but not a must-have, as Wall Street was not yet a Main Street phenomenon. Today the relative importance of the labor markets and capital markets have completely switched positions. Wall Street is now decidedly a Main Street phenomenon, and every status quo politician – again, regardless of party, and let's remember that the Fed is part of the Executive Branch – keenly desires to keep the genie of unfettered fear and greed firmly stopped up in its bottle. Georges Clemenceau, French Prime Minister before and after World War I, famously said that "war is too important to be left to the generals." Today, the quote would be "markets are too important to be left to investors."

  But it was only after Draghi's ECB announcement last Thursday that I think I see how a policy-driven market becomes a policy-controlled market. The ECB took a page from the Bank of Japan's playbook and announced that they would now buy non-bank investment grade corporate credit as part of their QE asset purchases, and that's at least as big of a deal as the BOJ taking a page from the ECB playbook in January and adopting negative interest rates. When two of the Big 4 adopt any policy, a point becomes a line and an idiosyncrasy becomes a pattern. The direct purchase of corporate securities by central banks is now in the official tool kit of every central bank. You cannot un-ring this bell. It is a "Goodfellas moment" of enormous consequence.

  In one fell swoop, Draghi has essentially made useless the most effective portfolio hedge I know against systemic risk – shorting investment grade credit through the CDS market. And he conceived this plan when senior bank debt CDS spreads (the best indicator of systemic risk levels I know) were only 120 bps wide! Imagine what's going to happen the next time spreads blow out to 200 bps wide, much less if we ever got close to the 350 bps spread of 2011. My point, of course, is that Draghi isn't going to allow CDS spreads to blow out again. Ever. Not even a little bit. The ECB will intervene directly in credit spreads from here to eternity, first in sovereign debt, now in non-bank corporate debt, tomorrow in bank corporate debt. That's how a policy-driven market becomes a policy-controlled market, not by outlawing short sales or credit default swaps, but by sitting down at the poker table with an infinitely large stack of chips relative to any other player. The ECB can now run over anyone who sits down at the European corporate credit poker table. Thanks, but I'd rather not play, no matter what cards I'm dealt.

  So if I can't protect my portfolio through effective shorts, and the Powers That Be are determined to turn public markets into political utilities, but I'm structurally bearish on the ability of the Powers That Be to prevent domestic political shocks and international political conflict of 1930-ish proportions, what's to be done with public market investing other than the occasional short-term trade? Two things, I think.

  First, I think it makes sense to use public markets for their liquidity and for tapping whatever this utility-like rate of return the Powers That Be have in mind. But I also think it makes sense to tap global beta through risk balancing strategies, because I really do think we're in for a bad storm, and I don't trust Captain Yellen or Captain Draghi to guide the ship for my benefit rather than their own political benefit. As for any effort to find alpha in public markets? Forget it.

  But, Ben, what about stock picking? Yeah, what about stock picking? You can read the S&P scorecard here. How did that actively managed US equity fund work out for you last year? Or the last 5 years? Or the last 10 years? Here's my issue with stock picking. Most stock pickers look at companies pretty much exclusively through the lens of "quality" – a quality management team, a quality earnings profile, a fortress balance sheet, etc. Unfortunately, this is the worst possible investment perspective to use in a policy-driven market, much less a policy-controlled market. It does not outperform a broad passive index. It does not generate alpha. Again with the George Soros quote: I'm not expecting it; I'm observing it. I know, I know. Heresy. But ask yourself this. Do you really think that the mandarins of the Fed or the ECB or the BOJ care one whit about whether this company or that company has a higher stock price? Of course not. They want ALL companies to have a higher stock price, and as a result the policies they are going to implement will inevitably help the weakest, lowest quality companies the most. Now if investing in quality-uber-alles is the conventional conversation you need to have to justify participating in public markets, I get it. But to me it's just another form of fighting the Fed, and for me it's always a losing conversation.

  Second, I think it makes sense to use public markets if that's the best way to own real assets. Why real assets? Because while nothing is immune to the predation of illiberal governments and the capricious rule-making and rule-breaking of central banks, real assets are at least insulated from both. What real assets? I have a very broad definition, including not only the obvious suspects like real estate and infrastructure and commodities, but also gold and intellectual/digital property. Actually, I think of gold as very similar to many forms of intellectual property, as its worth is found in behavioral preferences and affect, not in some intrinsic or commercial use case.

  All real assets are not created equal, of course. I'd much rather own an asset that generates some sort of cash flow than one that just sits there, but price will usually (although not always) take care of that differentiation. The most important consideration, I think, particularly when using public markets, is to get as close as you can to the fractional ownership share in the asset itself and as far away as you can from the casino chip. What that means in practice is getting as high up in the capital stack as you can while still having an equity claim on assets. For a highly levered or distressed company that probably means being in the senior secured debt. For a more typical company that might mean being in the preferred equity shares, if they exist, or choosing between this company's equity and that company's equity. It's making this sort of evaluation where I think that active managers, whether it's in equity or in fixed income, can prove themselves, and where I think there's a role for fundamentally-oriented, stock-picking active managers. It's not because I think they can stock pick their way to outperformance versus a passive index while we're in a policy-driven or policy-controlled market, but because I think they can identify a margin of safety in my public market ownership of real assets and real cash flows better than a passive index. Now that's a conversation worth having with active managers here in the Silver Age of the Central Banker.

  

  

  

  

  

• Here Is The Math: Trump "Almost Certain" To Win Republican Nomination Before Convention

  First it was all a joke. A media sideshow. A publicity stunt that no one really understood the purpose of.

  Donald Trump was actually going to run for President. His campaign slogan: “Make America Great Again.” It was laughable.

  Soon after the billionaire announced his candidacy, his nascent bid for the White House took on a more serious tone, but not because anyone was taking him more seriously. Rather, because his comments about Mexican immigrants were so inflammatory that it was difficult to dismiss them with derisive humor.

  From that point on, it was all downhill for the GOP establishment. Trump racked up popular support, defying every law of conventional politics along the way.

  Each and every time analysts and pundits doubted him, he prevailed and that unlikely momentum carried right over into the caucuses and primaries and now, after Super Tuesday 3, Trump has effectively knocked out every Republican challenger except Ted Cruz (let’s face it, Kasich isn’t going to get the nod).

  Still, all commentators and political “experts” want to talk about is a contested Republican convention in Cleveland. While that’s certainly an interesting outcome to consider as it forces us to look back at political history to understand the precedent and what that precedent might mean come July, it’s as if no one has learned anything from the past nine months.

  That is, the assumption should probably be that Trump is going to lock up the nomination before the convention, not that they’ll be some kind of historic bid to rob him in four months. The media – both liberal and conservative – act as though it’s virtually impossible for him to make it to 1,237 delegates. We’re talking about a guy here who no one thought would even register in terms of poll numbers and now he’s the overwhelming favorite.

  All of this is not to say that we – or anyone else for that matter – should necessarily believe that a Trump nomination is a good thing for the GOP let alone for America, but it is to say that all of the talk about a contested convention may be wishful thinking.

  As this simple graphic from The NY Times shows, if Trump simply maintains his current level of support, he’s “almost certain” to secure the nomination:

  

  (click here for interactive version)

  “After Tuesday’s contests, no other candidate retains a real chance of capturing the delegates required to win the nomination outright. Mr. Rubio dropped out, Gov. John Kasich of Ohio is too far behind, and Senator Ted Cruz of Texas would need to win the vast majority of the remaining delegates — a near impossibility,” The Times writes.

  “Crunching the latest numbers, Donald Trump needs to win 54% of the remaining delegates to obtain a majority [and] that’s doable, but not necessarily a slam dunk,” NBC adds, before noting that “Trump won 60% of the available delegates from the March 15 contests.”

  Trump currently leads Cruz by 261 delegates

  • Trump 683 (47% of all delegates won)
  • Cruz 422 (29%)
  • Rubio 172 (12%)
  • Kasich 143 (10%)

  Trump needs to win 54% of the remaining delegates to hit the 1237 magic number

   

  Cruz needs to win 80% of the remaining delegates to hit the 1237 magic number

   

  Kasich needs to win 107% of the remaining delegates to hit the 1237 magic number

  As Trump himself pointed out in his victory speech in Florida, the fewer candidates, the better his chances to win. Or, as NBC concludes, Trump won 60% of the delegates on March 15, “and that was with four candidates in the GOP field; now [that] there are three you could argue that the map only gets better for Trump.”

  Yes, you certainly could.

  

  

  

  

  

• Crude Oil Fractals & Funding Fears

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  From June 2014 until late January 2015, oil prices (WTI) fell about 60%. From June 2015 until late January 2016, oil prices (WTI) fell about 60%.

  

   

  The exact track each annual trading history took to achieve those results is different (2014-15 much more straight ahead and persistent; 2015-16 jagged and irregular), but you can’t deny the repetition in both the amount of time and the ultimate scale of the collapse.

  To my personal view, such self-similarity (fractal) is funding and “dollar.” The rebound after the latest “dollar” run is so far more quick and intense, but it remains to be seen whether that will make any difference.

  

  

  

  

  

• Where Does The Future Lie? Orwell Or Huxley

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  Are you more worried about a 1984-esque future or 'A Brave New World'-esque future?

  

  Unfortunately, the two go hand in hand. George Orwell simply took the past and laid out what government ALWAYS gravitates toward – total control. We live in a delusion with our brains filled with propaganda. Over the years, I have encountered comments from people who ask, “Why would anyone want to live outside the USA? We are the greatest nation on earth!” I typically reply, “Have you ever traveled outside the country?” The response is telling: “No. What’s the point?”

  Perhaps I am the doubting Thomas. I went through Checkpoint Charlie into East Germany before the wall fell because I really wanted to see what was true and what was false. You cannot just accept the indoctrination of society as it is systemic.

  So what George Orwell wrote was not pure fiction; no more than “Star Wars” being based on nothing. “Star Wars” is the epic battle between the Republic and Imperialism that dominated the Roman period going into the 1st century AD. They just changed it to planets and updated the swords to light sabers. In the case of Orwell, he took history and postulated what would happen in a modern context. He was only off in terms of technology advancement.

  

  So the bottom line is both will unfold.

  However, you cannot reach the second without causing pain with the first. With the NSA and socialism, you have seen terrorism used as the excuse to further the control of society so we cannot buy or sell anything ultimately without government approval. The IRS can revoke your passport if it even THINKS you owe more than $50,000 in taxes, fines, or penalties. You cannot travel on a train, plane, or ship, no less stay in a hotel without providing photo ID or in many cases possess a passport. So why do we need a passport, which can be revoked if we owe taxes, to travel? Well, passports were invented by the Romans and appeared in the 3rd century AD when government was in fiscal ruin. If everything was the Roman Empire, what was the purpose of a passport? It was to prove you paid your taxes and were free to travel.

  

  History repeats because the passions of humanity never change from one century to the next. We MUST move closer to absolute oppression in order for the silent majority to get angry and demand change. So until that tipping point is reached, be prepared to lose any concept of human rights you thought you once had. We are not living the “dream” but the nightmare of history.

  Only when it gets bad enough will we see the change toward the light of the second. Hence, this is why I do what I do, and it is why I say we first must crash and burn. Open your eyes. It is happening. If you understand the pattern, you will survive. If you want to leave a better world for your children, that is ONLY possible by identifying the trend in order to change it. History is our map to the future.

  

  

  

  

  

• Feeling Underpaid? This Is What Wage Inflation Around The World Looks Like

  Eight years of unconventional monetary policy, NIRP, ZIRP, QE, and asset bubbles as far as the eye can see, but where is that all important product of successful monetary policy – at least in a conventional Keynesian sense, where a steady increase in the cost of living and the loss of purchasing power is defined as success – namely inflation?

  For the answer we go to Deutsche Bank’s “Inflation Sensation” global inflation monitor. According to DB “it includes more than 150 time series covering consumer prices, producer prices, inflation surveys and wages across the G10. It uses PCA analysis to provide a global snapshot of where different countries stand on inflation.”

  Here is DB’s finding verbally:

  At a global level, our monitor remains a “sea of blue”. Little progress has been made in generating inflation in recent months. The most notable downward price pressures are in the Euro-area, Switzerland, New Zealand and Australia.

  And in graphic terms, here is the full G-10

  

  the U.S.

  

  Euro Area

  

  U.K.

  

  Canada

  

  Japan

  

   

  Or as Deutsche puts it: “a sea of blue.”

  * * *

  But why? Why this grand failure to achieve the central bankers’ only goal? One simple reason: they have been unable to create wage inflation: without rising wages there is no pickup in end demand, and instead what central banks create are bubbles after asset bubbles.

  Per Deutsche: “Wage developments are striking across the G10. While there are tentative signs of producer and consumer price disinflation bottoming in some countries, wage growth remains particularly weak.”

  That a mild way of putting it, because one look at global wage inflation, or the lack thereof, and it all becomes immediately clear.

  Presenting Exhibit 1, and only:

  

   

  And that is why central banks have failed. However, nearly a decade later, they continue to mask their inability to boost wages and living standards for everyone, but making the life of the 1% better than ever, and where they have certainly succeeded, is to reflate the S&P500 back to within a few percentage points of its all time high.

  

  

  

  

• The Two Worlds Of Precious Metals: East And West

  Submitted by Jeff Nielsen via SprottMoney.com,

  For five thousand years, gold and silver have been humanity’s premier form of money; real money, not the faux-money manufactured by our central banks. During that same period of time, these metals have been our premier instruments of wealth preservation and therefore our “safe havens.”

  There is nothing accidental about this phenomenon. Gold and silver have obvious aesthetic appeal. Indeed, silver is actually the more brilliant of the two metals. It is their aesthetic appeal that makes these metals “precious.” But more than simply their aesthetic appeal, they are also (relatively) rare.

  If diamonds were as common as pebbles, it would be impossible to impress one’s potential bride-to-be with such stones, even in a setting of gold. Diamonds have their value, both real and sentimental, not only because of their aesthetic qualities but also because of their perceived scarcity.

  The situation is the same for gold and silver. If gold and silver were as common as iron, zinc, or even copper, they would not be coveted as greatly, regardless of their aesthetic appeal, because of their abundance. It is the qualities of being “rare” and “precious” which are essential in order for any commodity to be considered a suitable currency. It is these properties that make a commodity a source of value. There will always be demand for these metals; therefore, they will always have value. For these reasons, gold and silver preserve and protect wealth.

  Gold and silver are both precious and rare, but they are more than that. As metals, they also exhibit uniformity. Once refined, any gold or silver coin is indistinguishable from any other. Conversely, diamonds lack uniformity, therefore they are not a good candidate to be used as “money.” Venders would complain that a particular buyer was using “low-grade” diamonds for payment. On the opposite side of the ledger, purchasers with stones of superior size or quality would seek to negotiate premiums on their “money.” It would wreak havoc for commerce.

  Gold and silver are perfect money, but they are also more than that. They are forms of money that are available at what must be termed near-optimal quantities and fulfill two separate but equally important functions. Silver is rare enough to be valued for its scarcity yet plentiful enough to be the ideal Peoples’ Money. It can be the wages of the workers; the payment used in basic commerce.

  Gold is more scarce than silver. Because of its greater degree of scarcity it derives greater value, yet it is still plentiful enough to be a tool of commerce. However, gold is not the Peoples’ Money. Rather, it is the money of nations or, alternatively, the wealthy. It is the money of investment and industry. This additional level of prestige makes gold ideal as a “standard” for a national or global monetary system.

  A White Paper previously released on this topic explained how and why “a gold standard” was the optimal basis for a monetary system in our modern economy. That same paper then provided extensive empirical evidence documenting the horrific economic carnage that resulted from the loss of our gold standard in the early 1970s.

  When our nations had gold as the money of governments and silver as the money of the people, we enjoyed a level of prosperity and economic stability that we have not seen either before or since that era. In the four and a half decades since these metals have lost their official monetary status, our economies have been destroyed, our governments have been bankrupted, and the currency in our wallets is fundamentally worthless.

  Decades of relentless brainwashing in the West have convinced the vast majority of our populations that there is no longer a place or role in our modern economy for Perfect Money. Consequently, the masses in the West generally shun gold and silver by storing and protecting only a tiny percentage of their wealth with these metals, in comparison with any other era in our society’s history.

  This is how gold and silver stand today from a Western perspective. What is continually forgotten beneath the veneer of our cultural arrogance is that the rest of the world, and the vast majority of humanity’s population, have a fundamentally opposite perspective regarding the world’s only Perfect Money.

  Unexposed to the decades of monetary brainwashing directed at Western populations, Eastern populations have never forgotten the important role of precious metals in our societies and economies. Even the most humble peasant understands why we store our wealth in gold and silver money – not the diluted and debauched paper currencies of bankers.

  Real money is a store of wealth. Mere paper currency is only a tool of commerce. As a store of value, these currencies are the equivalent of a “leaky bucket.” Over a period of thousands of years, gold has perfectly preserved the wealth of its holders. In the mere century in which the Federal Reserve was entrusted with “protecting” the dollar, it has lost 99% of its value and the wealth contained.

  Now that is a big leak. And it’s getting worse. Thanks to the ever-increasing rate of Fed money printing, and thus U.S. dollar dilution, 75% of that loss in value has occurred over just the last quarter-century of Federal Reserve fraud and mismanagement.

  We needed gold and silver for our financial protection a century ago. We really needed gold and silver 45 years ago when Paul Volcker assassinated the last vestige of our gold standard. And we really really need gold and silver to protect our wealth today – as the monetary crime of “quantitative easing” has rendered these faux currencies fundamentally worthless.

  In the East, China and Russia are relentlessly accumulating gold, observing a “rule” which is now forgotten by the arrogant oligarchs of the Corrupt West: the Golden Rule. He who has the gold makes the rules.

  Conversely, the Corrupt West has squandered its own once-vast reserves, both officially and surreptitiously. For the better part of two decades, Western governments were dumping hundreds of tonnes of gold per year into the market to suppress the price. Meanwhile, the central banks of these regimes were secretly dumping at least that much gold onto the market.

  This process was done via what these crooked bankers call “bullion leasing”: (supposedly) ‘lending’ their gold. Regular readers are already somewhat familiar with such frauds. “Gold generates no income.” The bankers tell us this all the time. Thus there can be no legitimate commercial purpose to so-called bullion-leasing.

  Instead, this “borrowed” gold is also dumped onto the market (i.e. sold), with much or most of that gold gone forever. Yet our corrupt central banks continue to register every ounce of gold on their books – pretending to continue to have legal title and possession of this gold.

  No one has seen any of this gold in decades. In the case of the United States’ mythical “gold reserves,” there has been no public accounting of this gold in over 50 years. The farce has grown to such an extreme that any time any significant quantities of this Western “gold” is transported, it is done secretly so that no one outside of these corrupt regimes ever gets even a glimpse of this myth-gold, let alone a touch or an official audit.

  The West’s gold is gone. Yet out of one side of their mouths, these rancid governments boast of supposedly gigantic reserves, while out of the other side of their mouths they continually denigrate its importance as a monetary asset. “Gold is a barbarous relic.” One would never hear such ignorance and idiocy emanating out of the East – or anywhere outside of the Corrupt West.

  Western governments and their deluded populations are about to get a history lesson and economics lesson all rolled into one. It could and should also be a lesson in humility, though that is likely too much for us to hope.

  Clearly China and Russia are not accumulating vast reserves simply to engage in idle boasting, as does the West. Both of these nations are deliberately understating their total reserves – significantly – though not declaring the gold they acquire domestically. With any gold acquired from domestic sources (i.e. gold mining) such declarations are entirely voluntary.

  The purpose of such massive stockpiling can only be with the intent of resurrecting “the gold standard.” The difference would be that these Eastern nations could and will occupy the drivers’ seat of the new system, which will replace the fraudulent Western system of un-backed and totally debauched paper currencies.

  He who has the gold makes the rules. The “world” in the East has never ceased to recognize the Golden Rule. The “world” in the West now contemptuously scorns this eternal wisdom. Another expression long forgotten in the arrogant West: pride cometh before a fall.

  

  

  

  

  

• "Only Bad Choices" Left For GOP: Trump, Supreme Court Put Party In Turmoil

  “Man, you guys cannot stop talking about him. He is a dangerous presence and, you know, it’s just like candy by the bushel.”

  That’s what Hillary Clinton – who possibly didn’t know her mic was live – told MSNBC last Monday night. The former First Lady was of course talking about Donald Trump, and the media’s interest is a byproduct of the public’s fascination.

  But if the media and voters “can’t stop talking about him,” America’s entrenched political aristocracy (on both sides of the aisle) wishes everyone would just shut up. While Democrats fear Trump as a kind of threat to the ideals and values that supposedly underpin American democracy, for the GOP this is an existential threat. Trump’s success has sent the establishment back to the drawing board and if he wins the nomination outright, the party will die.

  That’s not to say it won’t be resurrected, but it would be an enormous blow in the short-term.

  This is complicated by the fact that Republicans are facing a tough choice with Obama’s Supreme Court nomination. Here’s NBC outlining the GOP’s set of “Sophie’s Choices”:

  On Trump:

  • Acquiesce/surrender to Donald Trump, who is on track (though it’s not a slam dunk) to obtain a majority of Republican delegates. The problem here? Almost every poll we’ve seen shows Trump to be the weakest GOP candidate to face Hillary Clinton.
  • Fight Trump to stop him from getting the 1237 delegates he needs. The problem? Trump has talked about “riots” if he’s leading in delegates but is denied the nomination, and we don’t think he’s kidding.

  On SCOTUS:

  • Oppose the older and more moderate Garland (even hearings and consideration of his nomination), and hope that Republicans don’t lose the 2016 election, which would result in, say, a President Hillary Clinton nominating younger and more liberal replacement.
  • Relent on Garland, knowing the opposition hurts your vulnerable Senate incumbents up for re-election (Kelly Ayotte, Mark Kirk, Ron Johnson, Rob Portman, Pat Toomey), but welcome the wrath of the GOP base.

  Bear in mind, this isn’t a criticism of the GOP. Those are the choices they actually face in the months ahead, and there are no right answers. 

  Not mentioned are other concerns. For instance, if the Republicans “surrender” to Trump, they risk reputational damage. That’s not a comment on Trump – clearly he’s struck a (loud) chord with large swaths of the electorate – but the simple fact is that most establishment Republicans do not want to be associated with him and it’s not out of some petty jealousy. Well maybe it partly is, but part of it is that the GOP doesn’t believe that in the long-run, what Trump says should represent the party line. Perhaps the party should look at Trump’s spectacular numbers and consider where they went wrong in terms of connecting with voters because as the soon to be “private citizen” Marco Rubio will tell you, “we misjudged some folks.”

  On top of that, fighting Trump at the convention could be a disaster – and not just because of Trump’s “riots.” If the GOP stands up and essentially tries to nullify the people’s will, the party will make a fool of itself going into the national elections. That is, they would be playing from a position of weakness, especially if they end up nominating someone who didn’t even run. That could hand the election to Hillary which, if you’re a conservative, is the worst outcome possible.

  As it turns out, some Republicans are war-weary when it comes to the frontrunner. Here’s Politico with more:

  While some Republicans insist on standing firm against the businessman, more and more are contending that it’s time to reach a point of acceptance — and that a drawn-out primary or convention battle could be worse.

   

  “I’m soul-searching right now,” said Penny Nance, president and CEO of Concerned Women for America, who last year explored the possibility of launching an anti-Trump campaign. “There’s still a pathway to defeating him, but it’s getting harder to see that.”

   

  “We’re at a turning point,” conceded Randy Kendrick, wife of Arizona Diamondbacks owner Ken Kendrick and a major contributor to the stop-Trump effort.

   

  “It’s a fork in the road — a political fork.”

   

  
  

   

  At a posh resort in Palm Beach, Fla. — just minutes from Trump’s Mar-a-Lago estate — many of the Republican Party’s biggest donors discussed whether to continue shelling out millions on an anti-Trump offensive that so far has done little, if anything, to halt his rise. Many of those gathered, including New York hedge-fund manager Paul Singer and members of the Chicago Cubs-owning Ricketts family, have been the primary funders of Our Principles, a super PAC that spent heavily to defeat Trump, plastering Florida and other states with TV ads that portrayed him as a heartless businessman. Several of the donors reiterated their hope that Cruz or Kasich could still somehow win, sources familiar with the gathering told POLITICO. But others indicated they would be open to supporting Trump in the general election.

   

  Another factor: Though Trump remains wildly unpopular with the establishment, many in the party hierarchy now lack a figure to support. While Kasich has a virtually impossible path to the nomination, Cruz, who has devoted his Senate career to poking his finger in the establishment’s eye, is seen as an unpalatable choice.

   

  The confusion in the party’s top ranks has left Republicans divided about whether to keep up the anti-Trump offensive at all, or line up behind him.

  Again, there are no “right” answers and every political party faces existential threats at one time or another. But the Trump “problem” is particularly vexing for the GOP. 

  Perhaps the best move for Republicans would be to embrace the candidate American voters have chosen for the nomination and watch gleefully as a GOP “problem” quickly becomes a “problem” for Hillary Clinton and the Democrats in the national election. Something tells us the polls which show Trump faring worse than any other Republican candidate against the former Secretary of State might be just turn out to be wrong come November.

  

  

  

  

  

• 9 Signs That 2016 Looks Ominously Like 2008 (Just Before The Crisis)

  Submitted by Simon Black via SovereignMan.com,

  If you haven’t seen the 2015 Best Picture nominee, The Big Short, I strongly recommend it.

  The Big Short is based on Michael Lewis’ book which examines how such an extraordinary financial crisis gripped the world in 2008, and the handful of people who saw it coming.

  The movie opens asking a very simple question about the global financial meltdown:

  Wall Street missed it; the Federal Reserve missed it; the government missed it; every major financial institution missed it; the homebuilders missed it.

  So how is it that a handful of people were able to see it coming? How could they see what nobody else saw?

  Easy. They looked.

  For anyone who actually looked, it was obvious that the banking and housing boom in the early 2000s was built on a house of cards. The data was all there.

  Given the financial establishment’s astonishingly short-term memory and capacity to make even bigger mistakes than ever before, we now find ourselves in a very similar position today.

  Once again, the financial system is in desperate condition. And the data is all there for anyone who cares to look.

  Let’s look at a few of the numbers together.

  Back in 2008, much of the calamity was caused by an implosion of “subprime loans” in the housing market.

  These were frequently no-money down loans at teaser interest rates made to people with poor credit and limited income.

  Banks made these toxic loans with your money.

  The best example of this was probably Johnny Moon, a homeless man with no income or employment history who was able to borrow more than $600,000 to speculate in real estate.

  The total value of these subprime loans was a whopping $1.3 trillion.

  Not much has changed.

  In 2016, instead of loaning money to subprime home buyers, the financial system is now loaning money to bankrupt governments.

  They’ve even managed to go beyond “no-money down”, and are actually paying governments to borrow money at negative interest rates.

  Japan is as great example.

  Even though Japan’s national debt exceeds 200% of GDP, and it takes over 25% of tax revenue just to pay interest on the debt, the Japanese government is able to borrow money for ten years at negative interest.

  This means that investors are GUARANTEED to lose money. It’s worse than no money down. And it’s total madness.

  The bigger issue is that the size of this bubble is an astounding $7 trillion, far bigger than the subprime bubble in 2008. And it grows larger by the day.

  To expect that this will turn out any differently is foolish.

  Back in 2008, US government debt was “only” $9.5 trillion. The Federal Reserve’s balance sheet was $850 billion. Interest rates were over 4%.

  So at least they had some capacity to slash interest rates and fight the crisis using traditional policy tools.

  Today, US government debt exceeds $19 trillion, well in excess of 100% of GDP.

  They have to borrow money just to pay interest, and they have entire pension funds that are on the brink of bankruptcy.

  The Federal Reserve’s balance sheet has exploded to $4.5 trillion, and interest rates are barely above zero.

  The government has no means to bail anyone out, including itself. And the Fed has no capacity to print more money and expand its balance sheet without causing a major currency crisis.

  Simply put, the bubble is just as insane as in 2008, but much bigger. And the financial establishment has no ammunition to fight it.

  If you want a more detailed comparison of the 9 most ominous similarities between 2008 and 2016 click here to watch today’s video podcast.

  

  I’ll even tell you about the Danish sex therapist who was actually paid interest to borrow money.

   

  

  

  

  

  

• You Are Here

  Presented with no comment…

  Well almost none… wow!

  

   

  It’s different this time though – at least from here, right?

  

  

  

  

  

• Marc Faber: "I Will Vote For Trump, Because Hillary Will Destroy The Whole World"

  Whenever Marc Faber appears in the financial media, in this case Bloomberg TV, one can expect the usual fire and brimstone sermon of how micromanagement of the global economy by central bankers will lead to disastrous results, something which we agree with wholeheartedly and as of two months ago, so did virtually every billionaire at Davos. Recall that just at the end of January, the WSJ when reporting from Davos said that “The world’s central banks can’t save us anymore. That was the message from some of the world’s most prominent investors at the World Economic Forum in Davos, Switzerland, on Friday. Their mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long.”

  Somehow we doubt these same billionaires are quite as irritated, or quite as negative on central bank intervention two months later when thanks to, drumroll, central bank intervention, the Dow Jones has staged the biggest quarterly rebound from its lows since 1933.

  Anyway, back to Faber, who – sure enough – ponders the idiocy of the IMF’s counterfactual statement today, when Lagarde said the world economy would be worse off without negative interest rates:

  … they will always say, if we hadn’t done this and hadn’t done that, it would be much worse.  They have no proof for this assertion.  In my view, it would have been better to let the crisis, already the first one in 2000, run its course and prevent the colossal credit bubble that was built up that then led to an even bigger crisis, and now they’re doing the same mistake.

  He then goes on to slam NIRP and the upcoming helicopter money:

  … the magicians at central banks, they always come out with a new trick and these negative interest rates that we have today, this is for the first time in recorded human history from the times of Babylon up to today that we have negative interest rates, and it’s not going to end well.  That, I can tell you.  But the sequence of how it will not end well, I’m not so sure.  But they still have a lot of ammunition.  What they can do is helicopter money.  In other words, they can send you and Mr. Bloomberg and me and everybody, say a check for $10,000, and that is like throwing gasoline into a fire…. will it help the economy?  That is the question.  It won’t help in the long run.  You cannot grow an economy by just throwing money at people.

  On what policies he would prefer instead:

  … the less policies, the better it would be.  We all learned at school that the free market and the capitalistic system is the best allocator of resources, and now what we have is the worst allocation of resources because it’s the government that tells you how these resources are allocated and they continuously expand their interventions, and I can tell you, I started to work in 1970.  In the 70’s and early 1980’s, central banks actually never came up in discussions.  They have now become like the messiah, and everybody watches what the central banks do and in the end, in my view, they will have, from a long term perspective, no impact whatsoever.  Now can they move markets short term?  Yes, but maybe not in the direction they want to.

  None of these are necessarily new as Faber’s position on these topics has been well known in advance. However, what surprised us was how clear Faber’s political outlook is.

  This is what he said:

  You can buy the Singapore stock market with a four percent dividend yield. Well, Singapore is a relatively sound economy.  It’s diversified and it’s well run, unlike the U.S., unless, of course, the U.S. is run by Mr. Trump.  Then the U.S. will improve.

   

  HYDE:  But Mr. Faber, I mean, we’re seeing from Donald Trump’s potential policies that he wants to slow international trade between the United States and other countries.  Surely that’s going to be a block upon free markets.

   

  FABER:  Well, I agree that it is negative if you have restrictions on a free market.  That, I agree entirely.  But you have to equally see that the U.S. has essentially given in on a lot of things that benefit other countries.  If you look at, say, the growth, 2000 to today, which countries have done relatively well?  The emerging markets have done fantastically well.  Their GDP has gone up substantially.  The standards of living have gone up substantially.  They have accumulated large reserves, and so forth.  The U.S. and Europe and Japan, relatively speaking, have been declining, and that, the statistics are visible from industrial production in emerging economies.  It’s doubled in the last 12 years.  Global trade, you look at the share of emerging markets, it’s gone up.  The developed world, the U.S., Europe, Japan, it’s gone down and so forth.  So I think that maybe we have to find a way to have a more balanced approach to global trade.  I’m not saying protectionism, but the more balanced approach that is fair to the developed world.

   

  BARTON:  Are you really a fan of Mr. Trump, Marc?  Do you really believe…?

   

  FABER:  It is all relative.  Given the alternatives, I would vote for Mr. Trump, because he may only destroy the U.S. economy, but Hillary Clinton will destroy the whole world. Look at her nation building in the Middle East, how successful that has been. 

  He is right.

  (If the video below does not work, click here)

  

  

  

  

  

• Subprime Auto Delinquencies Soar Past Crisis Levels, Now Highest In 20 Years

  On Thursday night, we brought you a first-hand account of what’s really going on in subprime auto.

  According to a reader who works in the industry, the securitization machine may be grinding to a halt for deals that are stuffed with loans to borrowers with low (or no) FICOs. Here’s an excerpt:

  “I work for a smaller but fast growing auto finance company [and] we grew from opening the doors in 2013 to having a $250 million portfolio as of today. Things for the last 3 years have been booming and it seemed like there would be no end to our growth. We were rated by S&P in January and were ready to start securitizing our portfolio.

   

  On March 1st I came into the office to find out that they had started layoffs. These people were fairly new and were in departments that the executive staff has now deemed unnecessary.

   

  I had a meeting with my boss who told me my job is safe but due to us not being able to securitize we were freezing hiring going forward but we were hopefully done with layoffs.”

  So why would a company not be able to securitize the loans on its book? Well presumably because someone, somewhere gets the feeling that demand for auto-backed ABS is going to dry up in the months ahead.

  There’s evidence from both Experian and the NY Fed (see here) to suggest that the market is getting riskier. More auto loan originations are going to borrowers with shoddy credit and loan terms are looking more and more stretched by the quarter. Investors may fear that the credit cycle is about to turn and when it does, you don’t want to be anywhere near the double B tranches in subprime auto – even if you can get 9%.

  With all of the above in mind, we bring you the following chart from Deutsche Bank which shows that 60+ day delinquencies for subprime auto ABS have now risen above crisis levels to 5.16% – levels we haven’t seen since 1996.

  

  But don’t worry, even though Deutsche Bank does admit that it “raises eyebrows” when delinquencies for subprime are at their highest levels in two decades even as unemployment has plunged (so maybe those “jobs” people are getting aren’t that great after all), you shouldn’t worry, because it’s all about overcollateralization these days:

  While it does raise eyebrows to see delinquencies exceed levels seen during the financial crisis at a time when unemployment is below 5%, we think subprime auto ABS structures remain well protected due to robust levels of hard credit enhancement, and structural features that increase credit enhancement as the transactions pay down.

  For reference, 2015 saw about $25 billion in subprime auto ABS supply.

  

  

  

  

  

• This Simply Does Not Compute: If Caterpillar Data Is Right, The Industrial Depression Has Never Been Worse

  It has been over half a year since we first downgraded the industrial recession to an all-out global depression by using Caterpillar retail sales data, which have been so counterintuitive to what the company’s earnings have been reporting that last September we had to ask “What On Earth Is Going On With Caterpillar Sales?.”

  Today, we must admit that something simply does not compute.

  On one hand, CAT stock has soared by over 30% from its 2016 lows….

  

  … despite warning just yesterday that the pain will continue after the company guided even lower to already depressed expectations.

  But what makes no sense at all is that according to the just released CAT retail sales data, the industrial recession since downgraded to a depression, just fell out of the bottom, when the heavy industrial equipment company reported that February world sales crashed by 21%, after falling “only” 15% in January, led by double digit drops in every single market:

  • US down 11% after sliding 7% in January
  • China and Asia/PAC down 26% after being down 22%
  • EAME down 23% after sliding 14% the month before
  • Latin Marica imploding by 45% after a 36% drop one month ago, and one of the worst monthly drops on record.

  Visually, this is as follows:

  

  And what is more confusing is that CAT has not only not had a positive monthly increase in retail sales in a record 39 months, or more than double the length of the Financial Crisis’ 19 months and the longest in history, but the February drop was the biggest one month decline in 5 years!

  

  Of course, on its face, this data would explain why over the past month first the BOJ, then the PBOC, then the ECB and finally the Fed all surprised with not only more dovishness but much more outright easing as central banks panic to halt what at least according to this one indicator confirms the global economy has not been worse in nearly half a decade.

  Source

  

  

  

  

  

• Fed Sparks "QE Trade" As Stocks, Bonds, Gold Soar

  What happens next?

   

  Well it's been another week… As Goldman said this was the 4th most dovish Fed surprise since 2008

  Surprises at FOMC meetings with the “dot plot” in the Summary of Economic Projections have on average been almost twice the size of pre-crisis norms.

  Which enabled the 5th weekly S&P rise in a row – just like into the Nov 2015 highs…(before it all collapsed) – Trannies up 5% on the week!!

  

  Perfect close:

  • S&P 2049.46
  • Dow 17,599.42

  Trannies are up 9 weeks in a row – and this was the biggest week since the Bullard Bounce in Oct 2014.

  Financials are up 5 weeks in a row for the first time since Sept 2014 right before plunging only to be saved by Bullard…

  

   

  But we just wonder…

  

   

  Post-Fed, Silver soared but gold was coincidentally marked down the last 2 days to ensure it did not make stocks look terrible and signal policy error…

  

   

  Most-Shorted stocks were monkey-hammered higher after The Fed – back to unch ish on the week…

  

   

  Note that the "weakest momo" stocks have soared in this rally…

  

   

  Crushing market-neutral funds once again… the worst Quarter for Market-Neutral funds since Q3 2011

  

   

  Treasury yields tumbled post-Fed with a yuuge 17bps plunge in 2Y Yields…(the biggest 2Y yield drop since Bullard Oct 2014)

  

   

  The USD Index tumbled on the week – driven by The Fed and follow through in Asia – but notably stable again now for the last 24-36 hours..

  

   

  This is the lowest weekly close in 5 months… and USD is down 3% YoY

  

   

  The entire week for commodities pivoted around The Fed, with everything higher…

  

   

  Crude managed its 5th weekly rise in a row, but things fell apart a little into the week's close (April back below $40)…

  

   

  And finally, as a reminder – You Are Here…

  

   

  Charts: Bloomberg

  

  

  

  

• Weekend Reading: Did The Fed Just Cage The Bear?

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

   

  

  The past two week’s have been full of Central Bank interventions starting with the ECB last week and culminating with a more accommodative Fed and BOJ interventions this week.

  As stated earlier this week:

  “The Fed currently finds itself in a tough spot from a “data dependent” standpoint. Last December, when the Fed Funds rate was increased, the Fed discussed the potential for further rate hikes in 2016 as inflation and employment data strengthened. With that data improving, along with the strong rebound in the financial markets, the Fed runs the risk of losing credibility if they DO NOT hike rates again on Wednesday OR give a very strong indication they will do so at the next meeting.”  

  I was wrong. The Fed jumped into the boat with the ECB this week by not only ignoring the recent spate of stronger employment and inflationary pressures, but by lowering economic forecasts and reducing the number of rate hikes this year from 4 to 2. This was, in effect, “Yellen’s Bazooka.” Given the more “accommodative posture,” it is not surprising the financial markets decide to jump into the boat with her.

  With the markets currently trading above the 200-dma, the next big resistance levels will be the downtrend that started last summer as shown below. Not surprisingly, this rally is occurring with both fundamental and economic data substantially weaker which continues to restrain the Fed from a further tightening of monetary policy. Or, “bad news” is “good news” for now.

  

  With that, this week’s reading list takes a look at various the Fed’s recent actions and whether Yellen has been able to “cage the bear” for now.

  ---

  1) Janet Yellen Still Operating In Denial by Stephen Gandel via Forbes

  “On Wednesday, the Federal Reserve decided to keep rates where they were for another month, and indicated that it was only likely to raise rates twice in the next year and four times in 2017. The change brings the Fed’s own rate expectations closer in line to what the market was predicting before this week’s FOMC meeting.

   

  Nonetheless, the Fed has a history of tricking it self into believing the economy is stronger than it really is—something that has happened a lot during this recovery. And there is reason to believe it is doing so again. If that’s the case, the Fed could be living in denial about its ability to raise interest rates.”

  

  • But Also Read: FOMC Doesn’t Believe Own Data by Jeffrey Snider via Alhambra Partners
  • And Read: Is The Fed’s Tightening Cycle Almost Over? by Matthew Klein via FT AlphaVille
  • Don’t Miss: Yellen’s March Madness by Macro Man
  • More: Was There A G-20 Accord Or What Spooked The Fed by Guy Haselmann via ZH
  • Interesting: Currency War Relief From Fed by Randall Forsyth via Barron’s

  ---

  2)  Private Sector Debt & Slowing Economy by IronMan via Political Calculations

  “The U.S. Federal Reserve released its latest Flow of Funds report for the U.S. economy on 10 March 2016. Let’s run through a short checklist to see what it tells us of the relative health of the U.S. economy….

   

  Falling or negative acceleration of private sector debt?

  Check.

   

  Falling real GDP growth rate?

  Check.

   

  Let’s go to the chart….”

  

  • But Also Read: Stock Crash Coming by Ken Goldberg via The Street
  • And Read: Earnings Estimates Are Still Falling by Eric Bush via GaveKal Research
  • Further Reading: Recessions Lead To Prosperity by John Tamny via Forbes
  • Interesting: Economic Growth Reaching Limits by Gail Tverberg via Our Finite World

  ---

  3) Markets Are Quiet…Too Quiet by Russ Koesterich via Blackrock

  • Over the past four weeks, stocks have staged an impressive rebound from their February lows. The equity rebound of the past month is a classic “relief rally,” where investors are relieved conditions are not as bad as they previously feared.
  • This one has been partly predicated on hopes that China is stabilizing, which helps explain the sharp rise in commodity prices given that China is the biggest commodities consumer.
  • Unfortunately, signs of real improvement in China are scant. While the U.S. appears to be stabilizing, the Chinese economy remains challenged.
  • Given the still uneven pace of global growth and tighter financial market conditions, volatility may too be low. This, in turn, suggests the potential for a rise in volatility — which would imply another bout of stocks selling off.

  • Also Read: Things Aren’t That Bad by Philip Van Doorn via MarketWatch
  • But Also Read: World Headed For Bear Market by Nomi Prins via Daily Reckoning
  • Interesting: Fear Indicator Surges To Record High by Josh Lukeman via ZH

  

  ---

  4) El-Erian: The Road We Are On Is Coming To An End by Ben Moshinsky via BI

  “Policymakers will either watch helplessly as the world sinks into a mire of financial volatility and political collapse, or they’ll find a way to unlock the piles of corporate cash sitting on the sidelines, reinvigorating growth.

   

  At the moment, it’s a coin flip. ‘The road we’re on is coming to an end,'”

  • Also Read: A Look At The Latest JOLTS Report by Tyler Durden via Zero Hedge

  ---

  5) Is The Oil Correction Over by Marc Chandler via Real Clear Markets

  “The losses in the May sweet light crude oil futures today have not done much technical damage to the near-term outlook. The contract has been struggled most of the last week to sustain gains above $40.

   

  A break of last week’s low of $38 a barrel could be an early indication of the three-legged correction since mid-January has run its course.

   

  The first downside target is near $36.75 and then $35.60. Note that the May contract is set to close below the five-day moving average (~$39.40) for the first time since February 24. The RSI is turning, and the MACDs may turn lower in the coming days.“

  

  • And Read: Oil Prices Should Fall, Possibly Hard by Art Berman via Forbes

  ---

  OTHER GOOD READS

  • What Happened To The Invisible Hand by Vitaliy Katsenelson via Contrarian Edge
  • Huge Hendry On China Devaluation by Julia La Roche via Business Insider
  • The Behavioral Aspects Of Planning & Investing by Victor Ricciardi via SSRN
  • Bearishness Strictly For Informed Optimist by John Hussman via Hussman Funds
  • The Fed’s Folly Festers Further by David Stockman via Contra Corner
  • High-Risk Regime’s 6-Month Anniversary by Salil Mehta of Statistical Ideas
  • A Broadening Market Top In Place by Doug Kass via Real Clear Markets
  • Increasingly Inefficient Bubbles by Jeff Snider via Zero Hedge
  • Bridgewater: Biggest Mistake In Investing by Rupert Hargreaves via ValueWalk
  • Robo-Advisors Clinging To Dangerous Dogma by Jesse Felder via The Felder Report
  • Calmer Days Ahead For Oil Prices via Dana Lyons via Tumblr

  ---

  BONUS: INVESTORS INTELLIGENCE GUIDE TO TECHNICAL ANALYSIS

  ---

  “The four most dangerous words in investing: This time is different” – John Templeton

  

  

  

  

  

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• U.S. Dollar Index – Is Rising Inflation The Fed`s Nightmare Scenario (Video)

  By EconMatters

  

  Is a rising inflation problem going to force the Fed`s hand into raising interest rates faster than the financial markets currently have priced in with many asset classes from bonds, the U.S. Dollar, and equities.

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

  

  

  

  

• "Free Trade Agreements" Used to Help American Workers … Now They Hurt Them

  Trump and Sanders have whipped up a lot of popular support by opposing “free trade” agreements.

  But it’s not just politics and populism … mainstream experts are starting to reconsider their blind adherence to the dogma that more globalization and bigger free trade agreement are always good.

  UC Berkeley Economics professor Robert Reich – Bill Clinton’s Secretary of Labor – wrote last month:

  Suppose that by enacting a particular law we’d increase the U.S. Gross Domestic Product. But almost all that growth would go to the richest 1 percent.

   

  The rest of us could buy some products cheaper than before. But those gains would be offset by losses of jobs and wages.

   

  This is pretty much what “free trade” has brought us over the last two decades.

   

  I used to believe in trade agreements. That was before the wages of most Americans stagnated and a relative few at the top captured just about all the economic gains.

   

  Recent trade agreements have been wins for big corporations and Wall Street, along with their executives and major shareholders.

   

  ***

   

  But those deals haven’t been wins for most Americans.

   

  The fact is, trade agreements are no longer really about trade.

  Indeed, while it’s falsely called a “trade agreement”, only 5 out of 29 of the Trans Pacific Partnership’s chapters have anything to do with trade.  And conservatives point out that even the 5 chapters on trade do not promote free trade.

  Reich continues:

  Worldwide tariffs are already low. Big American corporations no longer make many products in the United States for export abroad.

   

  ***

   

  Google, Apple, Uber, Facebook, Walmart, McDonalds, Microsoft, and Pfizer, for example, are making huge profits all over the world.

   

  But those profits don’t depend on American labor – apart from a tiny group of managers, designers, and researchers in the U.S.

   

  To the extent big American-based corporations any longer make stuff for export, they make most of it abroad and then export it from there, for sale all over the world – including for sale back here in the United States.

   

  The Apple iPhone is assembled in China from components made in Japan, Singapore, and a half-dozen other locales. The only things coming from the U.S. are designs and instructions from a handful of engineers and managers in California.

   

  Apple even stows most of its profits outside the U.S. so it doesn’t have to pay American taxes on them. [Background.]

   

  This is why big American companies are less interested than they once were in opening other countries to goods exported from the United States and made by American workers.

   

  They’re more interested in making sure other countries don’t run off with their patented designs and trademarks. Or restrict where they can put and shift their profits.

   

  In fact, today’s “trade agreements” should really be called “global corporate agreements” because they’re mostly about protecting the assets and profits of these global corporations rather than increasing American jobs and wages. The deals don’t even guard against currency manipulation by other nations.

   

  According to Economic Policy Institute, the North American Free Trade Act cost U.S. workers almost 700,000 jobs, thereby pushing down American wages.

   

  Since the passage of the Korea–U.S. Free Trade Agreement, America’s trade deficit with Korea has grown more than 80 percent, equivalent to a loss of more than 70,000 additional U.S. jobs.

   

  The U.S. goods trade deficit with China increased $23.9 billion last year, to $342.6 billion. Again, the ultimate result has been to keep U.S. wages down.

   

  The old-style trade agreements of the 1960s and 1970s increased worldwide demand for products made by American workers, and thereby helped push up American wages.

   

  The new-style global corporate agreements mainly enhance corporate and financial profits, and push down wages.

   

  ***

   

  Global deals like the Trans Pacific Partnership will boost the profits of Wall Street and big corporations, and make the richest 1 percent even richer.

   

  But they’ll bust the rest of America.

  Similarly, the New York Times reports:

  Were the experts wrong about the benefits of trade for the American economy?

   

  ***

   

  Voters’ anger and frustration, driven in part by relentless globalization and technological change … is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

   

  ***

   

  The angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs.

   

  ***

   

  In a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets.

   

  They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year.

   

  In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs.

   

  “These results should cause us to rethink the short- and medium-run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.”

   

  ***

   

  The case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued.

   

  ***

   

  The new evidence from trade suggests American policy makers cannot continue to impose all the pain on the nation’s blue-collar workers if they are not going to provide a stronger safety net.

   

  That might have been justified if the distributional costs of trade were indeed small and short-lived. But now that we know they are big and persistent, it looks unconscionable.

  

  

  

  

• Putin & The Failure Of Washington's Propagandist Predictions

  Authored by Paul Craig Roberts,

  American presstitutes, such as the New York Times and the Wall Street Journal, expressed surprise at Russia’s support for the Syrian ceasefire, which Russia has been seeking, by Putin’s halt to attacks on the Islamic State and a partial withdrawal of Russian forces. The American presstitutes are captives of their own propaganda and are now surprised at the failure of their propagandistic predictions.

  Having stripped the Islamic State of offensive capability and liberated Syria from the Washington-supported terrorists, Putin has now shifted to diplomacy. If peace fails in Syria, the failure cannot be blamed on Russia.

  It is a big risk for Putin to trust the neocon-infested US government, but if ISIS renews the conflict with support from Washington, Putin’s retention of air and naval bases in Syria will allow Russia to resume military operations. Astute observers such as Professor Michel Chossudovsky at Global Research, Stephen Cohen, and The Saker have noted that the Russian withdrawal is really a time-out during which Putin’s diplomacy takes the place of Russian military capability.

  With ISIS beat down, there is less danger of Washington using a peace-seeking ceasefire to resurrect the Islamic State’s military capability. Therefore, the risk Putin is taking by trusting Washington is worth the payoff if the result is to enhance Russian diplomacy and elevate it above Washington’s reliance on threats, coercion, and violence.

  What Putin is really aiming for is to make Europeans realize that by serving as Washington’s vassals European governments are supporting violence over peace and may themselves be swept by the neoconservatives into a deadly conflict with Russia that would ensure Europe’s destruction.

  Putin has also demonstrated that, unlike Washington, Russia is able to achieve decisive military results in a short time without Russian casualties and to withdraw without becoming a permanent occupying force. This very impressive performance is causing the world to rethink which country is really the superpower.

  The appearance of American decline is reinforced by the absence of capable leaders among the candidates for the Republican and Democratic party nominations for president. America is no longer capable of producing political leadership as successive presidents become progressively worse.

  The rest of the world must be puzzled how a country unable to produce a fit candidate for president can be a superpower.

  

  

  

  

  

• Silver Soars Post-Fed As Gold Ratio Tumbles Most In 5 Months

  Two weeks ago we hinted at the flashing red warning coming from 'a 4,000 year old' financial indicator. The Gold/Silver ratio had reached extremely high levels, which at the time we explained…

  This isn’t normal.

  In modern history, the gold/silver ratio has only been this high three other times, all periods of extreme turmoil—the 2008 crisis, Gulf War, and World War II.

  

  This suggests that something is seriously wrong. Or at least that people perceive something is seriously wrong.

  And as we concluded at the time…

  Good times never last forever, especially with governments and central banks engineering artificial prosperity by going into debt and printing money.

   

  These tactics destroy a financial system. And the cracks are visibly expanding.

   

  So while the gold/silver ratio isn’t any kind of smoking gun, it is an obvious symptom alongside many, many others.

   

  Now, the ratio may certainly go even higher in the event of a major banking or financial crisis. We may see it touch 100 again.

   

  But it is reasonable to expect that someday the gold/silver ratio will eventually fall to more ‘normal’ levels.

   

  In other words, today you can trade 1 ounce of gold for 80 ounces of silver.

   

  But perhaps, say, over the next two years the gold/silver ratio returns to a more historic norm of 55. (Remember, it was as low as 30 in 2011)

   

  This means that in the future you’ll be able to trade the 80 ounces of silver you acquired today for 1.45 ounces of gold.

   

  The final result is that, in gold terms, you earn a 45% “profit”. Essentially you end up with 45% more gold than you started with today.

   

  So bottom line, if you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver.

  And, that appears to have happened…

  As Silver has soared post-Fed…

  

   

  Crushing the Gold/Silver ratio back to one-month lows (withthe biggest 2-day drop since October 5th 2015)…

  

   

  But do not forget – even at 79x – this is an extreme level of fear – nothing has been 'fixed' as governments escalate their repression of financial freedom.

  

  

  

  

  

• A First-Hand Account Of What's Really Happening In Subprime Auto

  “Originate-to-sell practices are not and have never been prevalent.”

  That’s a quote from Citi’s Mary Kane who, in a note out in late January, sought to dispel the notion that subprime auto was the next “Big Short.”

  While it may be true that ABS as a percentage of total auto loan origination has been range-bound between 15% and 30% for more than a decade, there’s almost no question that the ability to securitize certain loans is helping to fuel subprime auto.

  Just have a look at Skopos Financial and Santander Consumer for instance. No lender in their right mind would make some of the loans that show up in the collateral pools behind their ABS deals if they had to hold them on their own books. For example, 14% of the loans backing a $154 million Skopos deal last year were made to borrowers with no credit score at all. If you need a visual, take a look at this winner from Skopos:

  

  Of course, the real test will come when, amid jitters about the economy, demand for auto ABS (as well as marketplace ABS and any other paper that isn’t backed by something rock solid) dries up. If subprime lending dries up at the same, well, correlation doesn’t necessarily equal causation but…

  In any event, you don’t have to believe us, just ask someone who works in the industry. Below, find a first-hand account from a reader who says that when you’re in the subprime auto business and the securitization window slams shut, it’s all downhill from there.

  *  *  *

  I wanted to give some insight into what is currently happening in subprime auto finance.

  I work for a smaller but fast growing auto finance company. We grew from opening the doors in 2013 to having a $250 million portfolio as of today. Things for the last 3 years have been booming and it seemed like there would be no end to our growth. We were rated an A by S&P in January and were ready to start securitizing our portfolio.

  Since January we have grown at our fastest pace on record and things couldn’t be better.

  We were hiring at a ridiculous rate and planned on doubling our staff in six months. One of my assistants was actually part of the hiring blitz and told me they needed to hire 13 people that week so he was moving his office down to the floor HR was on.

  Later that day he came to my desk and told me that our director had told him to go back upstairs, because he wasn’t needed down there anymore.

  He soon became worried and said he thought that he might have done something wrong. Being a ZeroHedger I told him it was probably because we haven’t securitized yet.

  On March 1st I came into the office to find out that they had started layoffs. These people were fairly new and were in departments that the executive staff has now deemed unnecessary.

  I had a meeting with my boss who told me my job is safe but due to us not being able to securitize we were freezing hiring going forward but we were hopefully done with layoffs.

  We are a very solid company with a low default rate and higher standards than somewhere like Skopos. I worked in subprime auto during the Financial Crisis and it feels much worse right now than it did there in 2007 or 2008.

  A lot of customer’s who are subprime work in the energy industry and although they are living off of severance and savings right now you can see the wave that will be landing in a few months.

  *  *  *

  Yes, yes we certainly can…

  

  

  

  

  

  

• "Is This Who We Want" – Hillary Strikes Back With Attack Ad Mocking Trump

  When yesterday we showed Donald Trump’s first long overdue Hillary Clinton attack ad (which starred Jihadi John, a laughing Putin, and a barking Hillary) which had a simple message “we don’t need to be a punchline”, we predicted that it would “resonate.” It did, and within hours had accumulated several hundreds thousands views.

  Many wondered how long until Hillary’s response. They didn’t habe long to wait – earlier today, Priorities USA, a pro-Clinton SuperPAC, on Thursday came out with its own attack ad mocking Trump.

  Hillary’s attack ad is shown below:

   

  The oddly unimaginative, almost carbon-copy clip uses the same footage and wording as Trump’s, until cutting to a Trump interview with MSNBC from earlier this week.

  “I’m speaking with myself, number one, because I have a very good brain, and I’ve said a lot of things,” Trump says in the clip, which ends with the same punchline as that released by Trump a day earlier: “we don’t need to be a punchline”

  The ad follows with a shot of Clinton laughing. It is unclear precisely why the footage was taken from the 11-hour Benghazi hearings in October: perhaps it symbolizes Hillary laughing at her devastating foreign policy which led her to defend herself in Congress against accusations her actions led to the death of Americans in Libya.

  What is clear is that the as Trump and Hillary increasingly duke it out against each other, this will be the most entertaining election in recent history.

  As a reminder, this is the original Trump attack ad released yesterday.

   

  We’ll let readers decide which attack ad is more memorable, and respond to the rhetorical “is this who we want.”  As for the U.S. “not wanting to be a punchline,” sadly it’s too late for that, which incidentally explains Trump’s meteoric rise in the polls, one which even JPMorgan has noticed…

  

  

  

  

  

• The Gloves Are Off: Trump Accuses Hillary Of Being "Involved In Corruption For Most Of Her Professional Life"

  It’s popcorn time.

  Barely 24 hours after Trump launched his first Hillary attack ad in which he showed a laughing Putin respond to a barking Hillary, and shortly after Hillary’s SuperPAC responded in kind with an ad of its own in which it used a Trump quote to mock him, the gloves are officially off, and now that both presidential candidates – both convinced they will face off against each other – are beyond the foreplay stage, the gloves have come off and the direct attacks are escalating rapidly.

  So rapidly, in fact, that one may say Trump is risking a potential lawsuit with the following accusation (which, however, should not be too difficult to prove should one of Hillary’s SuperPACs sue him for libel).

  This is what Trump tweeted moments ago.

  Hillary Clinton has been involved in corruption for most of her professional life!

  — Donald J. Trump (@realDonaldTrump) March 18, 2016

  This is more than your typical political ad hominem – this is a material allegation with legal implications that goes to the core of Hillary’s biggest weakness, her trustworthiness or complete lack thereof, and Trump’s charges will only escalate from here on out, hopefully with actual examples. We look forward to Hillary’s response.

  One thing is certain: for the next six months, America will be entertained.

  

  

  

  

• Central Bankers' Embarrassment Of Stitches

  Authored by Danielle DiMartino Booth,

  

  Leonor Jean-Christine Soulas d’Allainval was no Shakespeare. His first play, “L’Embarras des richesses,” was a three-act comedy that premiered in 1726 and was performed only four times in the hopeful playwright’s lifetime. At age 53 he died embarrassingly franc-less at the Hotel de Paris. That’s not to say Soulas did not leave his linguistic mark, however unintentionally. The title of his play directly translates to ‘the burden of wealth.’ But that meaning seems to have been lost in transit across the English Channel courtesy of a Brit.

  That Englishman, John Ozell, an accountant and translator died wealthy thanks to his numerical acumen. It was however not his talent for accounting but rather his 1735 translation of Soulas’ play that would prove to be his more lasting legacy, perhaps intentionally. Today, ‘an embarrassment of riches,’ as it’s come to be universally known among idioms, simply means too much of a good thing.

  In the here and now, a recent New York Times article chronicled the sun-setting on the current era of excess that has known no equal, including the Roaring Twenties. “For the ultrawealthy, 2015 was an embarrassment of riches,” the Times’ James Stewart wrote March 11th. He referenced such extravagances as $100 million penthouses, $179 million Picassos, $48 million blue diamonds and $13 million vintage Jaguars.

  But something happened towards the middle of last year in this land of excess; embarrassment has given way to anxiety. In an apparent refutation of ‘show don’t tell,’ prospective buyers along Billionaires Row, Manhattan’s 57^th Street between Columbus Circle and Park Avenue, have begun to blanch at the idea of movin’ on up. Evidently, the $6,000-plus per square foot price tag was easier to envision when the half dozen rising new towers were just so many deep holes in the ground.

  Now that the fabulous-five, 1000-foot tall “supertall” towers are actually scraping the skyline, sales have plunged from their towering great heights. A meagre 189 Manhattan apartments sold last year for $10 million or more, a 12 percent decline from 2014. Similar tales of woe emanate from art and ‘priceless’ car auctions at which the wares on offer appear to indeed have no price, at least for which they’ve sold.

  What’s a consignor to do? For starters, pray. Perhaps in Mandarin? A recent report found that despite the country’s well telecast economic slowdown, China now boasts 568 billionaires, topping the United States’ 535. Even on a city-to-city level, Beijing’s 100 billionaires now best New York’s 95.

  The good news for Manhattanites with selling on the mind is that the Chinese are game to pay a tasty whim sum just to get their yuan out of the country. If you harbor any doubts as to their intent, just ask a few of the Big Apple’s resident billionaires who run a quaint private equity firm known as the Blackstone Group. These fine gentlemen make up part of the one-in-four American billionaires who work in finance and investments. Bless them.

  Blackstone boasts the title of the world’s largest real-estate private equity fund manager by assets. Though the firm is known for holding its properties in portfolio for years, a resent, as in three months, acquisition of a luxury hotel portfolio is presently selling faster than a bell hop looking for a tip. And even for Blackstone, the resulting $450 million profit is nothing to sneeze at. Especially in light of the above mentioned shrinkage in apartment prices.

  Plus, word is the buyer, China’s Anbang Insurance Group, is the party that did the approaching. It did seem as though the Waldorf Astoria, which the insurer with close ties to the Chinese government, acquired last year, along with a few Ritz Carltons, Four Seasons, a Hotel del Coronado and the Essex House thrown in for good measure would just about do the trick and appease the firm’s appetite for trophy U.S. hotels.

  That is, until the news hit the wires days later that this once obscure Chinese insurer had bid $12.8 billion for Starwood Hotels, which boasts the Sheraton and Westin brands under their banner. It must be buy one, get one at double the price week for those with deep enough pockets, which is saying something about the depth of those pockets considering Anbang has been around for all of 12 years.

  If this tale induces a sensation of déjà vu a la Rockefeller Center and Japanese buyers circa 1989, don’t let it. Don’t ask yourself whether the enthusiastic buyers are flush or flushing their yuan down the drain. Be comforted by what the cavalcade of bullish real estate strategist assure. The Chinese are not marking a top; they’re making rationale choices based on models that guarantee price appreciation based on recent trends. Hmmm.

  The acquiescent acceptance of acquisition valuations makes the Chinese government’s latest stimulus measures that much starker in contrast. While there is unquestionably dry powder with which to sustain the overseas buying spree, there is also festering rot that needs to be cleansed from their domestic banking system.

  And so we hear the latest, that the Chinese government will launch its answer to the U.S. TARP program, wherein Chinese commercial banks swap out bad debts to the government in exchange for equity in said bank. Reported non-performing Chinese bank loans rose to $614 billion in 2015, a decade high, even as their economic growth slumped to a 25-year low. Of course, the aim of the package is identical to that of all stimulus measures launched since 2008 — to spur yet more lending to lift economic growth. More and more yet of the same.

  Which brings us to the European Central Bank (ECB) which added non-financial corporate bonds to the menu of fixed income instruments it can buy to achieve its goal of flooding the markets with 80 billion in euros every month so as to…drum roll, please…incentive, more lending. It seems that there were simply not enough sovereign bonds and asset-backed securities to get the job done, and that’s before the ECB expanded its quantitative easing (QE) program from 60 billion euros a month before last Thursday’s meeting

  No doubt, with 900 billion euros outstanding, the ECB has an appreciably large pool of assets at which to aim its buyer-not-beware bazooka. A gut check, though, should prompt the question as to why European policymakers are so keen to increase their own QE program when the effort has produced so few results everywhere else it’s been attempted.

  A fine point: at roughly $50 billion in outstanding bonds, life insurers top the list of eligible targets for ECB purchases. Just so we understand each other, ECB President Mario Draghi envisions buying non-financial corporate bonds in the sector most damaged by the policies he’s deployed since vowing to do whatever it takes to reignite inflation via record low interest rates. Recall that low interest rates are the bane of insurance companies that depend on reasonably high interest rates to make good on the long-term promises they’ve made to those who pay stiff premiums in exchange for those promises.

  All of this is not to say that QE the world round has not had some redeeming qualities, especially for the uber wealthy who need never deign to Uber anywhere. Tally up China, the United States, India and the rest of the world and you find that worldwide billionaires now number 2,188, up 99 from 2014. Their collective net worth grew nine percent to $7.3 trillion last year alone, a figure that eclipses the GDPs of Germany and the U.K. combined. Jolly right, Herr.

  So why is it the world’s central bankers are tripping over each other in an embarrassment of stitches to patch the splitting seams of the world economy with ineffectual sewing tools they’ve determined give new meaning to the other embarrassment, that of riches?

  One thing is for certain. All of this quantitative pleasing has done little to lift the spirits of the world’s worker bees. Take the latest report on retail sales here in the U.S., which the Lindsey Group’s Peter Boockvar characterized as “mediocre” at best due to the current level of growth over the last year coming in at 2.9 percent. Not only is it punk compared to the five-year average of 3.5 percent; it’s downright depressed looking further back. In the boom-boom days of the dotcom bubble, spending was running at a 5.4-percent rate. Meanwhile, spending averaged 5.0 percent in the mid-2000s “goosed by mortgage equity withdrawals.”

  Clearly, central bankers’ efforts are suffering from the law of diminishing returns, the phenomenon of benefits gained declining as a factor of the amount of money and energy invested. For now, at least, the other major player, the Bank of Japan, is standing down, perhaps because of the huge backlash to negative interest rates in that country. It remains to be seen, though, how long policymakers there will withstand a strengthening yen before succumbing to another stab at stimulus measures.

  As for the Federal Reserve, the dichotomous signals the labor market and retail sales data have recently imparted are bound to have made the enunciating of “on the other hand” in today’s FOMC statement that much more challenging and maybe even a little embarrassing. The risk is always acute that the message gets lost in translation from Fedspeak to plain English as translators from days long since gone could easily attest. Perhaps, had central bankers simply taken to heart that well known idiom that cautions ‘a stitch in time saves nine’ early on, they would not now be so franticly stitching such a gaping gash in the world economy.

  

  

  

  

  

• Hacker Group "Anonymous" Releases Trump's Social Security, Phone Numbers

  Earlier this month, infamous hacker collective Anonymous declared “war” on Donald Trump who they accuse of being a fascist and seeking to institute a dictatorship in America. 

  We’re not sure how many people took them seriously and we’re almost positive Trump himself got a good, hearty laugh at the threat (after all, the group also declared “war” on Bakr al-Baghdadi) but on Thursday, the group claims it has released Trump’s phone number and social security number. 

  Here’s the clip:

  “Do with it as you will,” the group’s trademark mask says, “but just be aware that you are responsible for your own actions.”

  

  

  

  

  

• Why The Fed Is Paralyzed – Its Economic Model Is Junk

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  If there is any doubt as to the confusion inside the FOMC, one needs only to examine its models. The latest updated projections make a full mockery of both monetary policy and the theory that guides it. Ferbus and the rest don’t buy the labor market story, either, which is why the Fed can only be hesitant at best about “normalization.” Coming from the (neo or not) Keynesian persuasion, what is showing up should never happen.

  The theoretical notion of recovery is very straightforward in orthodox economics. In recession, the economy starts with high unemployment and therefore low inflation. Using the Phillips Curve as a short-term guide, orthodox models assume that as levels of unemployment begin to normalize, output (GDP) will rise. That will occur first without any uptick in inflation as the “slack” produced by the recession keeps price pressures to a minimum.

  

  In Stage 1 everything is easy, so long as you can gain forward momentum in unemployment or output (which is what the QE’s were supposed to accomplish with regard to theoretical notions of hysteresis). Stage 2 gets slightly more complicated as the economy nears or reaches “full employment.” At that point, inflation should start to rise which will moderate output growth. If it progresses too far, that means the economy has reached “overheating” whereby inflation gets out of control and actively suppresses output, even reversing employment gains.

  

  By the simple act of communicating a rate hike in December (though not actually carrying it out in meaningful fashion), the FOMC proclaimed closeness to overheating. But there is a huge problem with not just observed conditions but also projected economic conditions for the immediate future. If the economy and recovery has progressed sufficiently through Stage 2 to demand policy action before overheating, we should see a concurrent rise in inflation as well as output. The FOMC estimates show no such thing; worse, they estimate the opposite for especially inflation, as modeled GDP projections continue to muddle. That was true for not just CY 2015 as it was completed in full disappointment, but now encompassing CY 2016 as well.

  

  Both years start out in the earliest projections as they should according to theory, or close enough to be plausible; GDP should accelerate to at least something significantly better than the deficient output expansion of the recent past. Instead, as time rolls forward, that acceleration never materializes as GDP has stagnated around 2% year after year. The March 2016 projections show yet again another year absent acceleration in output (losing track of how many years in a row that would make).

  In terms of inflation, the trends are even worse. When oil prices first crashed in late 2014/early 2015 that was demanded to be “transitory” uniformly across both models and orthodox interpretations (redundant, I know). A year later, not only did inflation never materialize for the rest of 2015, it is now modeled to be increasingly absent in 2016, as well.
  

  That’s a huge problem because the unemployment rate only gets better and better at each forecast. Back in late 2013 as the sounds of taper grew louder, the FOMC’s staff models projected the unemployment rate in 2016 would only be 5.4% to 5.9% (central tendency). That was forecast as a relatively slow improvement because output growth had been so lacking to that point, and even though it was expected to accelerate it was never thought to attain true recovery mechanics (something more like 4-5% rather than 3-3.5%). Instead, as noted above, GDP growth never accelerated at all – but the unemployment rate fell far faster than orthodox theory predicted anyway. In fact, so fast it asserts a major problem somewhere because Okun’s Law suggests GDP should have been, given the unemployment rate improvement, not just higher than 2.1% to 2.3% but higher than even the 3.3% once thought the upper bound back in 2013.

  

  In other words, in late 2013 the models suggested relatively modest GDP of 2.5% to 3.3% in 2016 which would bring unemployment down also modestly to 5.4% and perhaps as high as 5.9%. That progress was supposed to be closing in on full employment enough to propel inflation very close to the 2% target for the PCE deflator. Instead, as of the March 2016 projections, the unemployment rate is expected to be enormously lower at just 4.6% to 4.8%, but GDP still stuck (and being downgraded each quarter) at 2.1% to 2.3% while inflation at the lower bound of the central tendency is 1%? One of these factors really doesn’t add up even in this orthodox context.

  It isn’t difficult to determine which one, as persistently low calculated “inflation” is fully consistent with insufficient economic growth (or worse) for the nth year in a row. It is the huge and unexpected improvement in the unemployment rate blowing right on past “full employment” almost two years faster than predicted that is completely out of line; this “best jobs market in decades” that doesn’t project beyond really questionable BLS statistics.

  As if to emphasize this statistical struggle against orthodox theory, the models are “forced” by the inequity between reported unemployment and the continuing disagreement via output and inflation to reduce to the long run growth rate estimate in order to make 2.2% growth seem like it could possibly belong in Stage 2 as if it were acceleration.

  

  That means the unemployment rate is so far out of whack that the FOMC, a committee dedicated to believing in it above all else, really cannot base monetary policy on the most basic Keynesian, Phillips Curve assumptions. In fact, by count of even orthodox theory, the unemployment rate cannot be real. It doesn’t take much survey outside of these three variables to confirm the suspicion. As much as policymakers want it to be meaningful and representative, the fact that their own models not only fail to confirm it but openly refute it (with emphasis) is why Janet Yellen is slow on the rate hikes even though she talks about the jobs market at every opportunity (as if the unemployment rate as merely a number were, rational expectations, itself a stimulant that QE never was or could be).

  It was the best jobs market in decades that once again finds nobody actually in it; not even the economists.

  

  

  

  

  

  

• What Happened Yesterday: Either Something Spooked The Fed Or There Is A "Central Bank Accord"

  From Guy Haselmann of Scotiabank

  

   

  BURP

  Yesterday’s FOMC meeting and press conference generated widespread unease. My personal uncomfortable feeling was reminiscent of a time many decades ago when a date stood me up and provided an excuse that made little sense. Simply put, the combination of the FOMC’s forecasts, economic assessment, and guidance on the future path of interest rates were incongruous and disconnected to their ‘data dependency’ message. 

  This week was a curious time to recalibrate to a far more dovish stance since it has followed clear improvement in labor markets, inflation indicators, and inflationary expectations.  Even with the modest downward adjustments to their economic projects, the Fed’s goals and mandates have not only (basically) been achieved but they seemingly have economic momentum behind them as well.

  Core year-over-year inflation measures have been rising. Core CPI rose to 2.3% earlier this week. The PCE deflator has risen to 1.7% which already stands above the Fed’s year-end estimate.  The Fed once again lowered the level it believes to be its longer-run estimate of the natural rate to 4.8%.

  Regardless, with the unemployment rate currently at 4.9%, the Fed is implying by its belief in the Philips Curve that wages will soon accelerate. Despite modest changes in the Fed’s economic projections, the Fed is forecasting growth above its estimate of potential growth. So how is it possible that a ‘data dependent’ Fed turned dovish?

  Reporters tried to address these questions during the press conference. Yellen was uncharacteristically opaque. She deflected questions. It had the appearance of a coach who had a specific game plan, but the familiar playbook was replaced on the day of the game. The market place is abuzz with two possibilities for such a shift.

  The first possibility is that something spooked the board.  The market is only learning now from Bernanke’s book that QE2 and QE3 were initiated because of fears of the European crisis, not due to a shortfall in economic targets as claimed.  Most people believe that the Fed deferred a hike in September due to “international developments”. 

  The first possibility may have been the catalyst for the second. The second possibility being discussed is that some type of central bank accord was reached at the G20 meeting in Shanghai February 25-26.  Maybe they noticed that diverging central bank policies were leading to extreme market volatility and accusations of currency wars.  It is not difficult to envision an agreement where central banks agreed to provide more stimuli, if the Fed agreed to pause in order to not offset the effects of such moves. 

  This would mean that the Fed would have to ignore economic data. Since markets have become more correlated, a pause would allow the dollar to weaken, and in turn, take pressure off of China to devalue the yuan. This would also help commodities to rise and emerging markets to soar.  As global financial conditions begin to improve, the Fed would then have better cover under which to hike interest rates.

  These theories are certainly possible. Great global challenges and uncertainties exist and so there are many areas that could be concerning to Fed officials, but which cannot be explicitly identified as the cause of the Fed’s policy shift.  What is clear is that subsequent to the G-20 meeting, there have been policy stimulus actions from the following:  ECB, BoJ, PBoC, RBNZ, and the Central Bank of Sweden (to name a few).

  Central bank stimulus today is very different than stimulus during the past several years. Chasing risk assets is an increasingly dangerous game of chicken. Central bank stimulus has not had the desired economic effects, so financial valuations have diverged from economic fundamentals. Helpful regulatory and fiscal measures are nowhere to be found. At some point, policy makers have to treat root causes, rather than the symptoms with monetary painkillers.

  Negative interest rates or QE that is too aggressive can scare consumers (e.g., the BoJ reaction). I have written in the past that zero rates and QE does long-term harm, but now I believe that negative rates and QE are harmful and counter-productive in the short-term as well. A retrenching consumer during an earnings recession is not good news.

  The FOMC used to say that a hike would be “good news” because it represented great confidence that economic conditions were so good.  Now the Fed wants us to believe that their dovish stance is good news as well, because it means greater levels of accommodations.  It is a stretch to believe that both can be true.

  Financial intermediation between savers and investors has hints of trouble due to negative rates. A news story yesterday said that Munich Re is experimenting with storing cash and gold. The time has come to end NIRP and ZIRP, and other forms of aggressive central bank experimentation and the dangerous consequences that come with them. It time they take a giant collective BURP, I mean BIRP (Basic Interest Rate Policy). 

  “I bought some batteries, but they weren’t included.” Steven Wright

  

  

  

  

  

• Feudalism – Then & Now

  The American public has two clear choices: Fight back, or accept serfdom.

  

  Source: The Burning Platform

   

   

  As Gaius Publicis recently expressed…

  If you think of the country as in decline, as most people do, and you think the cause is the predatory behavior of the big-money elites, as most people do, then you must know you have only two choices — acceptance and resistance.

   

  Why do neo-liberal Democrats, like the Clinton campaign, not want you to have big ideas, like single-payer health care? Because having big ideas is resistance to the bipartisan consensus that runs the country, and they want to stave off that resistance.

   

  But that’s a negative goal, and there’s more. They not only have to stave off your resistance. They have to manage your acceptance of their managed decline in the nation’s wealth and good fortune.

   

  Again: The goal of the neo-liberal consensus is to manage the decline, and manage your acceptance of it.

  Corey Robin says when Clinton tells the truth, believe her:

   

  “Amid all the accusations that Hillary Clinton is not an honest or authentic politician, that she’s an endless shape-shifter who says whatever works to get her to the next primary, it’s important not to lose sight of the one truth she’s been telling, and will continue to tell, the voters: things will not get better. Ever. At first, I thought this was just an electoral ploy against Sanders: don’t listen to the guy promising the moon. No such thing as a free lunch and all that. But it goes deeper. The American ruling class has been trying to figure out for years, if not decades, how to manage decline, how to get Americans to get used to diminished expectations, how to adapt to the notion that life for the next generation will be worse than for the previous generation, and now, how to accept (as Alex Gourevitch reminded me tonight) low to zero growth rates as the new economic normal. Clinton’s campaign message isn’t just for Bernie voters; it’s for everyone. Expect little, deserve less, ask for nothing. When the leading candidate of the more left of the two parties is saying that – and getting the majority of its voters to embrace that message – the work of the American ruling class is done.”

   

  In Germany after WWI, austerity imposed by outsiders created the conditions for fascism to grow. We knew this. We were even taught this in school. And we certainly know just how good that is for women and minorities.

   

  But in America (and Britain), that austerity is being imposed by our own leaders, and most effectively by leaders of the Democratic Party (and Labour Party) — the supposed “left” party, the party that was understood to support working people.

   

  Clinton, like all of the DLC, talks like this “new economy” of decline is something that just happened, like it’s a natural force. They do not admit that it was a political decision to break the power of ordinary working people and put it back into the hands of the aristocracy. They pat us on the head and tell us they will try not to make it as bad as the Republicans will, but it will happen and there is nothing to be done about it.

   

  And they actively divide us by making personal and tribal differences into the main show of the public political arena (only 7% of Americans claim never to have used birth control, so how is it a “Democrat” thing?) while behaving like the really big decisions that are wrecking our lives are none of our business. (Bank bailouts that were opposed 200-1 in calls to the White House from the public! Stopping the prosecutions of fraudulent banksters! HAMP instead of real home-owner relief! Secret TPP talks, for godssakes!)

   

  As a woman and person of funny-color, I know who is being callous and insensitive toward me, and it isn’t Bernie Sanders.

  Perfectly put.

  

  

  

  

  

• Our Economic Growth System Is Reaching Its Limits In A Strange Way

  Submitted by Gail Tverberg via Our Finite World blog,

  Economic growth never seems to be as high as those making forecasts would like it to be. This is a record of recent forecasts by the International Monetary Fund:

  

  Figure 1. World GDP Forecasts by the International Monetary Fund.

  Figure 2 shows world economic growth on  a different basis–a basis that appears to me to be very close to total world GDP, as measured in US dollars, without adjustment for inflation. On this  basis, world GDP (or Gross Planetary Product as the author calls it) does very poorly in 2015, nearly as bad as in 2009.

  

  Figure 2. Gross Planet Product at current prices (trillions of dollars) by Peter A. G. van Bergeijk in Voxeu, based on IMF World Economic Outlook Database, October 2015.

  The poor 2015 performance in Figure 2 reflects a combination of falling inflation rates, as a result of falling commodity prices, and a rising relativity of the US dollar to other currencies.

  Clearly something is wrong, but virtually no one has figured out the problem.

  The World Energy System Is Reaching Limits in a Strange Double Way

  We are experiencing a world economy that seems to be reaching limits, but the symptoms are not what peak oil groups warned about. Instead of high prices and lack of supply, we are facing indirect problems brought on by our high consumption of energy products. In my view, we have a double pump problem.

  

  Figure 3. Double gasoline pump from Torrence Collection of Auto Memorabilia.

  We don’t just extract fossil fuels. Instead, whether we intend to or not, we get a lot of other things as well: rising debt, rising pollution, and a more complex economy.

  The system acts as if whenever one pump dispenses the energy products we want, another pump disperses other products we don’t want. Let’s look at three of the big unwanted “co-products.”

  1. Rising debt is an issue because fossil fuels give us things that would never have been possible, in the absence of fossil fuels. For example, thanks to fossil fuels, farmers can have such things as metal plows instead of wooden ones and barbed wire to separate their property from the property of others. Fossil fuels provide many more advanced capabilities as well, including tractors, fertilizer, pesticides, GPS systems to guide tractors, trucks to take food to market, modern roads, and refrigeration.

  The benefits of fossil fuels are immense, but can only be experienced once fossil fuels are in use. Because of this, we have adapted our debt system to be a much greater part of the economy than it ever needed to be, prior to the use of fossil fuels. As the cost of fossil fuel extraction rises, ever more debt is required to place these fossil fuels in use. The Bank for International Settlements tells us that worldwide, between 2006 and 2014, the amount of oil and gas company bonds outstanding increased by an average of 15% per year, while syndicated bank loans to oil and gas companies increased by an average of 13% per year. Taken together, about $3 trillion of these types of loans to the oil and gas companies were outstanding at the end of 2014.

  As the cost of fossil fuels rises, the cost of everything made using fossil fuels tends to rise as well. Cars, trucks, and homes become more expensive to build, especially if they are intended to be energy efficient. The cost of capital goods purchased by businesses rises as well, since these too are made with fossil fuels. Needless to say, the amount of debt to purchase all of these goods rises as well. Part of the reason for the increased debt is simply because it becomes more difficult for businesses and individuals to purchase needed goods out of cash flow.

  As long as fossil fuel prices are rising (not just the cost of extraction), this rising debt doesn’t look like a huge problem. The rising fossil fuel prices push the general inflation rate higher. But once prices stop rising, and in fact start falling, the amount of debt outstanding suddenly seems much more onerous.

  2. Rising pollution from fossil fuels is another issue as we use an increasing amount of fossil fuels. If only a tiny amount of fossil fuels is used, pollution tends not to be much of an issue. Air can remain safe for breathing and water can remain safe for drinking. Increasing CO2 pollution is not a significant issue.

  Once we start using increasing amounts, pollution becomes a greater issue. Partly this is the case because natural sinks reach their saturation point. Another is the changing nature of technology as we move to more advanced techniques. Techniques such as deep sea drilling, hydraulic fracturing, and arctic drilling have pollution risks that less advanced techniques did not have.

  3. A more complex economy is a less obvious co-product of the increasing use of fossil fuels. In a very simple economy, there is little need for big government and big business. If there are businesses, they can be run by a small number of individuals, with little investment in capital goods. A king, together with a handful of appointees, can operate the government if it does not provide much in the way of services such as paved roads, armies, and schools. International trade is not a huge necessity because workers can provide nearly all necessary goods and services with local materials.

  The use of increasing amounts of fossil fuels changes the situation materially. Fossil fuels are what allow us to have metals in quantity–without fossil fuels, we need to cut down forests, use the trees to make charcoal, and use the charcoal to make small quantities of metals.

  Once fossil fuels are available in quantity, they allow the economy to make modern capital goods, such as machines, oil drilling equipment, hydraulic dump trucks, farming equipment, and airplanes. Businesses need to be much larger to produce and own such equipment. International trade becomes much more important, because a much broader array of materials is needed to make and operate these devices. Education becomes ever more important, as devices become increasingly complex. Governments become larger, to deal with the additional services they now need to provide.

  Increasing complexity has a downside. If an increasing share of the output of the economy is funneled into management pay, expenditures for capital goods, and other expenditures associated with an increasingly complex economy (including higher taxes, and more dividend and interest payments), less of the output of the economy is available for “ordinary” laborers–including those without advanced training or supervisory responsibilities.

  As a result, pay for these workers is likely to fall relative to the rising cost of living. Some would-be workers may drop out of the labor force, because the benefits of working are too low compared to other costs, such as childcare and transportation costs. Ultimately, the low wages of these workers can be expected to start causing problems for the economic system as a whole, because these workers can no longer afford the output of the system. These workers reduce their purchases of houses and cars, both of which are produced using fossil fuels and other commodities.

  Ultimately, the prices of commodities fall below their cost of production. This happens because there are so many of these ordinary laborers, and the lack of good wages for these workers tends to slow the “demand” side of the economic growth loop. This is the problem that we are now experiencing. Figure 4 below shows how the system would work, if increasing complexity were not interfering with economic growth.

  

  Figure 4. How economic growth works, if increased complexity is not interfering.

  Also see my post, How Economic Growth Fails.

  The Two Pumps are Really Energy and Entropy

  Unlike the markings on the pump (gasoline and ethanol), the two pumps of our system are energy consumption and entropy. When we think we are getting energy consumption, we really get various forms of entropy as well.

  The first pump, rising energy consumption, seems to be what makes the world economy grow.

  

  Figure 5. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

  This happens because the use of energy products allows businesses to leverage human labor, so that human labor can be more productive. A farmer with a stick as his only implement cannot produce much food, but a farmer with a tractor, gasoline, modern implements, hybrid seeds, irrigation, and access to modern roads can be very productive. This productivity would not be available without fossil fuels. Figure 4, shown earlier, describes how this increased productivity usually gets back into the system.

  The second pump in Figure 3 is Entropy Production. Entropy is a measure of the disorder associated with the extraction and consumption of fossil fuels and other energy products. Entropy can be thought of as a loss of information. Once energy products are burned, we have a portion of GDP in the place of the energy products that have been consumed. This is why there is a high correlation between energy consumption and GDP. As energy products are burned, we also have an increasing pile of debt, increasing pollution (that our sinks become less and less able to handle), and increasing wealth disparity.

  

  Figure 6. Difference in US income growth patterns of the top 10% versus the bottom 90%. Chart by economist Emmanuel Saez based on an analysis IRS data, published in Forbes.

  Beyond the three types of entropy I have mentioned, there are other related problems. For example, the current immigration problem is at least partly a problem associated with increased complexity and thus increased wealth disparity. Also, low oil prices are a sign of a loss of “information,” and thus also a sign of growing entropy.

  Our Energy/Entropy System Operates on an Energy Flow Basis

  I think of two different kinds of accounting systems:

  1. Accounting on a cash flow basis
  2. Accounting on an accrual basis, such as GAAP

  With respect to energy, we burn fossil fuels in a given year, and we obtain output of renewable energy devices in a given year. We eat food that has generally been grown in the year we eat it. There is virtually no accrual aspect to the way the system works. This is very different from the accrual-basis financial statements prepared by most large companies that allow credit for investments before the benefit is actually in place.

  When it comes to promises such as Social Security benefits, we are, in effect, promising retirees a share of energy production in future years. The promise is only worth something if the system continues to work well–in other words, if the financial system has not collapsed, pollution is not too great a problem, and marginalized workers are not revolting.

  Governments can print money, but they can’t print resources. It is the resources, particularly energy resources, that we need to run the economy. In fact, we need per capita resources to be at least flat, or perhaps increasing.

  

  Figure 7. World energy consumption per capita, based on BP Statistical Review of World Energy 2105 data. Year 2015 estimate and notes by G. Tverberg.

  Printing money is an attempt to get a larger share of the world’s resources for the population of a given country. Printing money usually doesn’t work very well, because if a country prints a lot of money, the currency of that country is likely to fall relative to currencies of other countries.

  What Causes the System to Fail? Too Little Energy, or Too Much Entropy?

  In an interconnected system, it is sometimes hard to understand what causes the system to fail. Is it too little production of energy products, or too much entropy associated with these energy products? Astrophysicist Francois Roddier tells me that he thinks it is too much entropy that causes the system to fail, and I tend to agree with him. The rising amount of debt, pollution, and income inequality tend to bring the system down, long before “running out” of energy products becomes a problem. In fact, the low commodity prices we are now experiencing appear to be part of the entropy problem as well.

  Can Renewable Energy Be a Solution?

  As far as I can see, renewable energy, unless it is very cheap (like hydroelectric dams were many years ago), absolutely does not work as a solution to our energy problems. The basic issue is that the energy system works on an energy flow year basis. To match energy-in versus energy-out, we need to analyze at each calendar year separately. For example, we need to match energy going into making offshore wind turbines against energy coming out of offshore wind turbines, for each calendar year (say 2016). To keep the net energy flow positive, there needs to be an extremely slow ramp-up of high-cost renewable energy.

  In a way, high-cost renewable energy is very close to entropy-only energy. Because of the energy flow year nature of the system, renewable energy generates very little energy, net of energy going into its production. (In some instances, renewable energy may actually be an energy sink.) Instead, renewable energy generates lots of entropy-related products, including increased debt and increased taxes to pay for subsidies. It also adds to the complexity to the system, because of the variable nature of its output. Perhaps renewable energy is less bad at generating pollution, or maybe the pollution is simply of a different type. Ultimately, it is a problem, just as any other type of supplemental energy is.

  One problem with so-called renewable energy is that it can’t be expected to outlast the system as a whole, unless it is part of some off-grid system with backup batteries and an inverter. Even then, the lifetime of the whole system is limited to the lifetime of the shortest-lived necessary component: solar panels, battery backup, inverter, and the device the user is trying to run with the system, such as a water pump.

  There are currently many stresses on our economic system. We can’t be certain that the system will last very long. When the system starts collapsing, it is likely to take grid-connected electricity systems with it.

  What Is the Connection to Energy Returned on Energy Invested (EROEI)?

  If a person believes that energy is a one pump system (the left pump in Figure 3), then a person’s big concern is “running out.” If a person wants to maximize the benefit of energy resources, he will choose energy resources with as high an EROEI as possible. In other words, he will try to get as much energy out per unit of energy in as possible. For example, one estimate gives EROEI of 100 to 1 for hydroelectric,  80 to 1 for coal, and much lower ratios for other fuels. Thus, a mix that is heavy in hydroelectric and coal will stretch energy supplies as far as possible.

  Another place where EROEI is important is in determining “net” energy, that is, energy net of the energy going into making it.

  As I mentioned above, energy per capita needs to be at least level to keep the economy from collapsing. In fact, net energy per capita probably needs to be slightly increasing to keep the economy growing sufficiently, if “net” energy is adjusted for all of the effects that simultaneously impact the energy needs of the economy, apart from energy used in producing “normal” goods and services. (Most people are not aware of the economy’s growing need for energy supplies. For an explanation regarding why this is true, see my recent post, The Physics of Energy and the Economy.)

  In theory, EROEI analyses might be helpful in determining how much gross energy is necessary to produce the desired amount of net energy. In practice, there are many pieces that go into determining the total quantity of net energy required to keep the economy expanding, making the calculation difficult to perform. These include:

  1. The extent to which population is rising.
  2. The extent to which globalization is taking place, and with it, access to other, higher EROEI, energy supplies.
  3. The extent to which the economy is getting more efficient in its use of energy.
  4. The extent to which EROEI is falling for various fuels (on a calendar year basis).
  5. The extent to which average EROEI is falling, because the mix of fuel is changing to become less polluting.
  6.  The extent to which it is taking more energy to extract other resources, such as fresh water and metals.
  7. The extent to which it is taking more energy to make pollution control devices, and work arounds for problems with energy.

  Looking at Figure 5, it is not obvious that there is a need for a big adjustment, one way or another, to produce net energy from gross energy. Of course, this may be an artifact of the way GDP is measured. High-priced metals and water are treated as part of GDP, as is the cost of pollution control devices. People’s general standard of living may not be rising, but now they are paying for clean air and water, something they didn’t need to pay for before. It looks like GDP is increasing, but there is little true benefit from the higher GDP.

  The one big take-away I have from Figure 7 is simply that if our goal is to get net energy to rise sufficiently, the best way to do this is to make certain that gross energy production rises sufficiently. World leaders were successful in doing this since 2001, through their globalization efforts. Of course, the new energy we got was mostly coal–bad from the points of view of pollution and workers’ wages in developed countries, but good from some other perspectives: low direct debt requirement, low complexity requirement, and high EROEI.

  

  Figure 8. China’s energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

  One issue with EROEI calculations is that they disregard timing, and thus are not on an energy flow-year basis. Ignoring timing also means the calculations give little information regarding the likely debt build-up associated with an energy product.

  Conclusion

  If a person doesn’t understand what the problem is, it is easy to come to the wrong conclusion. Part of our problem is that we need a growing amount of net energy, per capita, to keep the economy from collapsing. Part of our problem is that entropy problems such as rising debt, increased pollution, and increasing complexity tend to bring the system down, even when we seem to have plenty of energy supplies. These are the two big problems we are facing that few people recognize.

  Another part of our problem is that it is necessary for common laborers to have good paying jobs, and in fact rising pay, if the economy is to continue to grow. As much as we would like everyone to have advanced training (and training that changes with each new innovation), the productivity of workers does not rise sufficiently to justify the high cost of giving advanced education to a large share of the population. Instead, we must deal with the fact that the world’s economy needs large numbers of workers with relatively little training. In fact, we need rising pay for these workers, because there are so many of them, and they are the ones who keep the “demand” part of the commodity price cycle high enough.

  Robots may be very efficient at producing goods and services, but they cannot recycle the earnings of the system. In theory, businesses could pay very high taxes on the output of automated systems, so that governments could create make-work projects to hire all of the unemployed workers. In practice, the idea is impractical–the businesses would simply move to an area with lower taxes.

  Growth now is slowing because of all of the entropy issues involved. People in China cannot stand any more pollution. Too many laborers in developed countries are being marginalized by globalization and by competition with ever more intelligent machines that can replace much of the function of humans. None of this would be a problem, except that we have a huge amount of debt that needs to be repaid with interest, and we need commodity prices to rise high enough to encourage production. If these problems are not fixed, the whole system will collapse, even though there seems to be a surplus of energy products.

  

  

  

  

  

• Meet The People Behind The Death Of Canada's Oil Patch

  Analyzing provincial statistics in Canada is an exercise in spotting the odd one out.

  Alberta, the heart of Canada’s dying oil patch, is a cautionary tale about boom and bust cycles and just how dramatic the difference can be between the good times and the bad.

  To be sure, we’ve spilled quite a bit of digital ink documenting the plight of the provincial economy and we’ve also outlined some of the more shocking statistics that touch on the human toll exerted by plunging crude prices. Food bank usage in the province, for instance, rose 23% Y/Y from Q1 2014 through Q1 2015 and suicide rates had risen by a third through the summer of last year.

  As far as the economy, the latest data out earlier this month show Alberta was the only province in which real GDP contracted in 2015. “Alberta is facing another recession this year as cuts in energy investment and job losses hit the economy hard,” Conference Board of Canada said, adding that “until imbalances in global oil markets improve, prospects for a recovery are bleak.”

  

  Meanwhile, a report out Wednesday showed that while manufacturing sales across Canada rose 2.3% in January, Y/Y sales plunged 13.2% in Alberta. That’s the sixth decline in seven months and a sure sign that the oil slump has spilled over into the rest of the economy. Provincial manufacturing sales dropped 16% last year.

  But at the end of the day, these are all just numbers. In order to get a true sense of the malaise, we bring you the following video and commentary from CBC, who shows you the people behind the statistics.

  From CBC

  Warren Sonnenberg, 35

  Sonnenberg worked for five years on a drilling rig in the oil patch. He started at the bottom as a leasehand and worked his way up to derrickhand. Before he was laid off in January he was making $40 an hour. He never thought the good times would end.

  “You’re feeling this stuff for the first time, and you’re feeling this worry and this fear and you’re looking around and you don’t see any relief,” he says. “You want to speak to other people but they’re embarrassed by their own situations.

  Gert Raynar

  “We are the canary in the coal mine,” Raynar says about the food bank in Leduc where she is the manager. Raynar has never been busier, and she says it’s the same situation all across the province.

  Demand on the food bank in Medicine Hat, she says, is up an unbelievable 500 per cent over this time last year.

  Clarence Shields

  Clarence Shields owns the sprawling Blackjacks roadhouse in Leduc. It’s a kind of unofficial union hall for oil workers.

  He says, “you’re seeing a rehash of the ’80s. You’re seeing a generation that has never experienced as quick and as decisive a downturn as we got right now.

  “They don’t know where to turn. All we have heard from our government so far is ‘It’ll be OK’. Well it’s not OK. We need help. We really need help.”

  

  

  

  

• "Fear" Indicator Surges To Record High

  As CS' Josh Lukeman notes, the degree of hedging we’re seeing as we go higher illustrated in the CS Fear index (now at all-time highs) suggests institutional investors are not believers in the equity rally

  CSFB's "Fear" Indicator has never been higher…

  

   

  For a succinct explanation of what this far less popular indicator captures we use a handy definition by SentimentTrader:

   

   

  EXPLANATION:

   

  The CSFB is an indicator specifically designed to measure investor sentiment, and the number represented by the index prices zero-premium collars that expire in three months.

   

  The collar is implemented by the selling of a three-month, 10 percent out-of-the-money SPX call option and using the proceeds to buy a three-month out-of-the-money SPX put option.  The premium on both sides will be equal, resulting in a term commonly known as a zero cost collar.

   

  The CSFB level represents how far out-of-the-money that SPX put option is, or in insurance terms it represents the deductible one would have to pay before the put kicks in.

   

  So, for example, if the CSFB is at 20, then that means an investor would have to go 20% out of the money to be able to buy a put with the proceeds from selling a call that's only 10% out of the money.  That means there is more demand for put protection – a sign of fear in the marketplace.

   

  The index would rise when there is excess investor demand for portfolio insurance or lack of demand for call options.

   

  It differs from the Chicago Board Options Exchange Volatility Index or VIX. The VIX, calculated from S&P 500 option prices, measures the market's expectation of future volatility over the next 30-day period and often moves inversely to the S&P benchmark.

   

  The VIX is a fear gauge by interpretation, not by definition. It was designed to quantify the expectations for market volatility — a property that is associated with, but not always correlated to fear.

   

  GUIDELINES:

  The Fear Barometer doesn't work as most of us expect it to.  It doesn't necessarily rise as the market drops, or fall as the market rises.  In fact, often it's the exact opposite.

   

  The reason is because traders in S&P 500 index options are mostly institutional, so the options activity is often a hedge against underlying portfolios.  So when stocks rise, we often see more demand for put protection, not less.

   

  It turns out that these traders can be pretty savvy short-term market timers.  So when we see a sharp upward spike in the Fear Barometer, it means that traders are quickly bidding up put options, and the S&P 500 often sees a short-term decline soon afterward.

   

  Conversely, when we see a sharp contraction in the Barometer (and the Rate Of Change drops to -10% or more), then we often see the S&P rebound shortly thereafter.

  In brief, as we have opined previously: when it comes to the "here and now", which in the Fed's centrally-planned market is driven almost excusively by momentum ignition algos, complacency indeed rules. But even the merest glimpse into the near future, or rather how the present environment may disconnect with what may happen tomorrow, or next week, or, as the case may be, in three months, institutional investors are more concerned than ever before. But is this a confirmation that the US stock market is about to have a new "Deutsche Bank" moment?

  The answer is unclear. Recall that it is the same "institutional" smart money that has over the past 5 years been hedged by shorting a hedge fund hotel of most hated stocks: the same stocks which as we have shown time and again consistently outperform the market, due to one after another furious short squeeze. Perhaps hedge funds have gotten tired of "hedging" (and generating losses, with hedge fund alpha virtually zero since the Lehman collapse) using cash products, and are now simply rolling over collared protection with every passing month as the stock market rises to recorder highs, well above levels that in 2007 precipitated a crash that nearly wiped out the financial system?

  As for whether they are right, well: the best person to ask is Janet Yellen of course. Because with the Fed now permanently broken the business cycle (as any prolonged downturn in the economy will merely bring the Fed back out of hiding and bidding up risk assets), virtually nobody knows just how to trade this centrally-planned construct that the Fed has unleashed on the world.

  As for the retail investors, not only do they not know, but as it is quite clear by now, they don't care either…

  But as VIX plumbs new depths (fooling the greater masses at its complacency) we note that the last 3 times that "FEAR" spiked to record highs as VIX hit local lows, things did not end well…

  

  

  

  

  

  

• "It's All F**ked": Brazil Descends Into Chaos As Rousseff, Lula Wiretaps Trigger Mass Protests

  Just yesterday, we said the following about Brazil: It seems as though this country can’t get through a single day without some piece of political news or economic data creating confusion and turmoil.

  We said that on the way to noting that central bank chief Alexandre Tombini looked set to resign for fear that former President Lula’s new cabinet position and attendant promise to “turn the economy around” would lead invariably to government interference in monetary and FX policy.

  As regular readers and Brazil watchers alike are no doubt aware, the BRL has been on a veritable rollercoaster ride of late and it’s all thanks, one way or another, to Lula. The currency rallied on his arrest, sold off when he was offered a position in Rousseff’s cabinet, and now, is headed sharply higher after a court injunction blocked his nomination as chief of staff.

  

  The injunction appears to stem from some 50 audio recordings released to the media on Wednesday by Judge Sergio Moro, the lead prosecutor in the car wash probe. At least one of the recordings seems to suggest that Rousseff did indeed offer Lula the ministry post in order to shield him from prosecution.

  The most damning call was recorded on Wednesday afternoon, when Rousseff can be heard telling Lula that she is sending him his ministerial papers “in case of necessity.” Obviously, that sounds a lot like an attempt to make sure Lula has proof of his new position in case authorities come to arrest him before he’s sworn in. In Brazil, ministers can only be tried in the Supreme Court which, as you might imagine, could take virtually forever compared to lower courts.

  Lula was questioned earlier this month in connection with the possibility that he received luxury properties in exchange for favors tied to the Petrobras scandal.

  On other calls recorded Wednesday Lula can be heard cursing the court, telling Rousseff the following: “…we have a totally cowardly supreme court, a totally cowardly high court, a totally cowardly parliament … a speaker of the house who is fucked, a president of the senate who is fucked, I don’t know how many legislators under threat, and everyone thinking that some kind of miracle is going to happen.”

  Well, he’s got one thing right: everyone is “fucked,” and Moro doesn’t care. “Democracy in a free society requires that the governed know what their governors are doing, even when they try to act in the dark,” he said.

  “Moro also said he believes Lula had advance warning of the raid on 4 March and may have known his phone was tapped,” The Guardian notes, adding that “by midnight on Wednesday there were reports of demonstrations against the government in at least 17 of Brazil’s 26 states. In the southern city of Curitiba, where Moro is based, hundreds gathered in front of the court to show support for the judge and his investigation.”

  

  (protests on Wednesday night in Sao Paulo)

  

  (demonstrations in Brasilia)

  Rousseff says the court and the media’s interpretation is incorrect. She claims that she was trying to tell Lula that she was sending him his papers early in case he was unable to attend the swearing-in ceremony. 

  Put simply: no one was buying that excuse. 

  “Military police fired tear gas at demonstrators outside government buildings in Brasília, while groups set fire to a doll resembling the ex-president and waved banners calling for his imprisonment,” FT recounts, “[While] thousands of protesters filled São Paulo’s main avenue, Rio de Janeiro’s Copacabana beach and cities in at least 15 other states.” 

  Rousseff now intends to take legal action against Moro for “breaking the constitution. Here’s a summary of Rousseff’s comments, some of which are outright hilarious in light of the circumstances:

  • Says justice system should be focused on proof
  • There’s no justification for selective leaks in probes
  • There’s no justice when constitutional guarantees are violated
  • We want to know who authorized phone taps between her and Lula
  • This is a serious act
  • Says she has always defended the search for truth
  • Convulsing society based on lies is serious, coups can start that way
  • Says she won’t retreat from what happened yesterday
  • Brazil fights corruption, respects individual rights
  • Brazil counts on my work and determination
  • Says she counts on Lula’s experience, his ability to understand the people
  • Whoever bet on my separation from Lula was wrong
  • Brazil confronting economic, political difficulties
  • At this moment, we have to be together for Brazil
  • We have to leave political paralysis behind us
  • We want to reduce inflation, are acting to recover employment
  • We extend an open hand to all who want best for Brazil
  • People wanting coup won’t pull us off our path, won’t bring people to their knees

  A lawyer for Lula called Moro’s release of the tapes “arbitrary.”

  Right. “Arbitrary.” In fact, there was nothing “arbitrary” about it. Moro was due to decide on whether to arrest Lula this week and effectively, he and Rousseff were about to circumvent the entire investigation by using ministerial immunity to keep the car wash probe from reaching any higher up in the government than it already has. In other words, it was now or never for Moro and as you might have noticed, he isn’t one to let things go. 

  The release of the tapes led to a raucous session in Congress where some lawmakers chanted for Rousseff’s head, figuratively speaking… we think. Here are some clips from the protests that swept the country on Wednesday:

  This, ladies and gentlemen, is what’s called chaos. Just ask Delcídio do Amaral, the senator whose testimony has only added to Rousseff’s troubles. “I am a prophet of chaos,” he told reporters after the court accepted his plea deal.

  According to Eurasia, the leaked phone calls put Rousseff on the brink of impeachment, with odds of her ouster now rising to 75%. A vote, Eurasia says, could come as early as May.

  “We’re in the hands of leaders who are bandits,” said Arivaldo Gomes, 54, a deliveryman. “I’m ashamed of this country,” he told The New York Times. But perhaps Josias de Souza, a political commentator put it best: “Brazil is being governed by a joke. It’s turned into an aspiring banana republic.”

  

  

  

  

  

• Is This The Rationale Behind Russia's Withdrawal From Syria?

  Submitted by Robert Berke via OilPrice.com,

  As reported around the world, Russia’s decision to greatly reduce its military presence in Syria, coming as it did with little warning, has left the world struggling for explanations.

  After having rescued the Syrian Government’s position in Syria from certain defeat and securing a partial truce along with the onset of an imminent peace conference, the partial withdrawal is seen by many as a message to the Assad government to not take Russia’s military aid for granted, and to be more flexible in the upcoming peace negotiations.

  If we assume that all wars are essentially trade wars grown large, and in the Middle East, they almost always involve energy, then the Russian gambit in Syria can be viewed from a different perspective. Russia’s economy is currently in recession, partly as a result of western sanctions, but much more seriously hurt by the crashing of energy prices.

  Russia’s warming relations with Saudi Arabia has helped to bring about an OPEC-Russian sponsored freeze in oil production, with only Iran refusing to comply. With the Syrian withdrawal, Russia has tempered a major political feud with the Saudis over Russia’s support for Assad, a move that at once increases the prospects for a Russian-Saudi agreement on oil production cutbacks.

  There are also many who think that Russia is also increasing pressure on its allies to be more flexible, not only in peace talks but also oil production cuts. With the withdrawal of the Russian protective air shield, Iran and Hezbollah’s ground forces in Syria are suddenly exposed to the threat of Saudi and Turkish air attacks. Will the threat of a looming military catastrophe in Syria force Iran to comply with production cuts?

  Many oil insiders believe that after decades of punishing western sanctions, Iran’s oil industry is in no condition to meet its avowed quota for production, so that an agreement on cuts might cause little sacrifice.

  Russia’s actions may well have staved off other threats to its business. Recall that Robert Kennedy Jr., the nephew of the slain U.S. President, recently published an article in Sputnik, claiming that the major reason for the west’s attempt to overthrow the Assad government was to build a natural gas pipeline from Qatar that traversed Syria, capturing its newly discovered offshore reserves, and continued on through Turkey to the EU, as a major competitor to Russia’s Gazprom.

  By re-establishing the Assad government in Syria, and permanently placing its forces at Syrian bases, the Russian’s have placed an impenetrable obstacle to the development of the Qatar gas pipeline. Russia has also placed itself at the nexus point of other new offshore gas discoveries in the Eastern Mediterranean, including Israel, Cyprus, and Greece.

  It’s not hard to imagine a new Russian pipeline to Europe serving these new partners. Could easing of sanctions also lead to the implementation of the long-stalled plans of Gazprom for a second pipeline under the Baltic Sea to Germany for Russia and its partners, Royal Dutch Shell, Germany's E.ON, and Austria's OMV?

  If so, we can be assured that the U.S. will be in fierce opposition to any such plans. As George Friedman, founder of Stratfor has stated, the American’s worst European nightmare is an alliance between Germany and Russia.

  The timing of the Russian withdrawal could not be more fortuitous, as it occurs at the very pinnacle of the European refugee crisis, a crisis that was caused by Europe’s backing of the Saudi-Turkish attempt to overthrow Assad. For the first time in four years, the truce in Syria offers respite for Syrian refugees, fleeing from constant bombardment and attacks, and raises prospects for increasing security within their homeland.

  Is this part of the Russian Syrian gambit? Is Russia gambling on receiving some modicum of European gratitude for helping to stem the flight of refugees to its borders, with the pay-off in terms of easing sanction and enabling its long stalled pipeline projects to be completed.

  No, Putin could not possibly be so calculating, could he?

  

  

  

  

  

• IT WouLD NoT BE PC To SaY: ToP OF THe MaMMaRieS To You!

  

  

  

  

  

• Catalonia Said To Blackmail Spain On Overdue Bank Loans

  Spanish politics is a mess.

  Everyone knew, going into last fall and winter, that the waters were about to get decidedly choppy. At the national level, Podemos was ascendant as Pablo Iglesias rode a wave of anti-austerity sentiment straight to the front of disaffected voters’ collective consciousness.

  A nation beset by sky high unemployment had grown tired of the PP and PSOE duopoly that had dominated Spanish politics since at least the late 80s. Between Podemos and Ciudadanos, a shakeup was virtually assured.

  Meanwhile, Catalonia held what amounted to a referendum on independence in late September and then in early November, the regional parliament approved a resolution to take steps towards establishing an independent republic.

  Mariano Rajoy didn’t like that idea so much. “Catalonia isn’t separating from anywhere,” he said at the time.

  Four months, one national election, and a whole hell of a lot of political infighting both in Madrid and Barcelona later, and virtually nothing is resolved.

  In fact, a new poll by Metroscopia published Sunday by El Pais shows that PP with 26% against 23.1% for the Socialists, 19.5% for Ciudadanos and 16.8% for Podemos. In other words: new elections wouldn’t solve anything.

  Against this hopelessly fraught backdrop, Barcelona is playing a dangerous (if hilarious) game of chicken with Madrid.

  Catalonia knows that, even though Mario Draghi is artificially suppressing yields on Spanish paper, and even though the memories of that fateful summer in 2012 when Spain’s borrowing costs spiked above 7% have long faded from investors’ minds, a regional default would be a catastrophe for the central government. Hold that thought.

  That very same central government, Catalonia says, is dragging its feet on approving a plan between the regional administration and lenders to extend the maturity of $1.8 billion in Catalan debt.

  Catalonia needs Madrid’s approval thanks to the terms of a bailout the region received in 2012. “What we want to do is extend the payment over the longer-term, for that we need the acting government’s approval,” Catalan spokesman Albert Puig tells Bloomberg, who explains that “Catalonia currently finances itself through a national liquidity fund managed by the central government [and] officials in Madrid argue that strict controls are needed to ensure that no funds are used to pay for the push for independence.” 

  In addition to the payment extension Catalonia wants Spain to approve, Barcelona is apparently attempting to blackmail Madrid into making some of the loan payments. Puig says this is aid money due to the region from two years ago. “Officials in the regional capital Barcelona are counting on Spain to step in and supply the funds they need to meet loan repayments coming due this year, betting the central government will be forced to back down because the costs of a default would be greater for the Spanish sovereign,” Bloomberg writes. “The region already missed payments on at least two bank loans, Regional President Carles Puigdemont said earlier this month.”

  Amusingly, Puig admits that Barcelona is essentially extorting Madrid. The region is trying to convince Spain to cough up the aid money and there’s “no scenario” in which they’ll default, he says. Well, needless to say, that’s not exactly what you want to hear if you’re a bondholder, which is why yields soared on Wednesday:

  

  According to El Mundo, S&P isn’t prepared to wait around to see who blinks first and will not hesitate to put Catalonia in selective default. Here are a few excerpts (Google translated): 

  The rating agency Standard & Poor’s has sent the Generalitat of Catalonia and the central government that is willing to put its debt as selective default (selective default), as confirmed by government sources.

   

  According to the methodology of S & P, Catalonia not only deserves and continue its current rating of BB- of junk , even in high risk C. Worse, believes that should fall to the D of default , investors default for failing to meet debt maturities. Assigns the SD cited, selective default. The Valencia ran that risk in 2012, but never received formal communication agencies as has happened to the Generalitat.

   

  How to avoid it? “It is necessary that the central government a mechanism to enable security for the loans we make to the Generalitat, the Autonomous Liquidity Fund should be a clear guarantee to investors”, explained in a financial institution creditor of the Generalitat.

   

  The state FLA lends money to interest close to zero to the Generalitat , but does not cover all the debts of Catalonia, especially the short – term. The president of the Generalitat, Carles Puigdemont, already admitted in Parliament last day 3 which was incurring arrears to financial institutions when asked by a member of the CUP credit for BBVA 100 million.

   

  “We have liquidity problems,” said Puigdemont, complaining that the state “hijacks unacceptable amounts of Catalan”. Moody’s also reported on June 11 that can sink further into junk bond the Generalitat and if they have not already done is for the support it receives from the state.

  Right. So from what we can tell, Spain has two choices: 1) hurry it up with the approval for the maturity extension, or 2) make the payments yourself. Or who knows, maybe Catalonia is asking for both.

  If Madrid chooses to do neither, Catalonia will threaten to default and that, in turn, would cause Spain’s borrowing costs to soar, a decisively unpalatable scenario amid the current political strife. “A default in Catalonia could trigger a constitutional crisis and could double Spain’s spread. For that reason, allowing a default is unthinkable, it’s a substantial negative for Spain as a whole,” Mark Dowding of London-based BlueBay Asset Management told Bloomberg.

  Well if allowing a default is “unthinkable” for Madrid and if Barcelona needs cash, then effectively, Spain will be forced to fund the Catalan government as it outwardly prepares for independence, a rather humiliating situation but one which the caretaker government in Madrid is powerless to change unless Rajoy wants to watch yields on SPGBs double overnight.

  Adding insult to injury, Spain is Catalonia’s biggest creditor, holding some 60% of the total.

  For Rajoy, this must feel a bit like a punch in the face. And he would know…

  

  

  

  

  

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• Turkey's Erdogan Goes Full-Dictator: Designates Journalists And Teachers As "Terrorists"; Arrests Lawyers

  “It is not only the person who pulls the trigger, but those who made that possible who should be defined as terrorists, regardless of their title,” Turkish President Tayyip Recep Erdogan said on Monday, in an attempt to convince parliament to include journalists, politicians, academics, and activists under the country’s anti-extremism laws.

  Erdogan’s comments came a day after the latest in a string of suicide bombings ripped through Ankara, killing 34 and wounding more than 100 in Kizilay. Since then, Turkey has arrested nearly 50 people with “suspected ties” to the PKK against which Erdogan is waging a highly personal crusade.

  Apparently, the President doesn’t think parliament is moving fast enough on his “request” to expand the definition of “terrorist” because in a speech on Wednesday, he effectively instructed lawmakers to get moving before also urging parliament to deal with “the issue of immunities.”

  Erdogan desperately wants to prosecute HDP members who he says are guilty of “inciting terrorism.” “We must swiftly finalize the issue of immunities,” he said. “Parliament must take steps on this issue swiftly,” he added, as if the first statement was in some way unclear.

  

  (Erdogan gets it, why don’t you?)

  But frankly, we’re not even sure why he bothers parliament with these things. Erdogan is going to do whatever Erdogan wants to do. We’re talking about a man who arrested two of the country’s preeminent journalists and had the nerve to charge them with “deliberately aiding a terrorist organization” when what they were in fact doing was exposing Erdogan for… wait for it… deliberately aiding a terrorist organization.

  And if that’s not absurd enough for you, there are countless other examples including an incident which saw a medical doctor put on trial for posting a picture of the President next to a picture of a fictional creature from a Tolkein novel on social media. 

  Turks are in fact so scared of their “leader” that just last month, a Turkish truck driver literally sued his own wife for cursing at Erdogan when he spoke on television. “I warned her,” the man later said.

  True to form, Erdogan didn’t wait on parliament to expand the definition of “terrorist” before he went ahead and arrested three academics for “terrorist propaganda” after they made the mistake of publicly asking the government to stop the siege on Cizre and other cities in the predominantly Kurdish southeast.

  “More than 2,000 academics signed a petition in January criticizing military action in the southeast, including round-the-clock curfews aimed at rooting out PKK militants who have barricaded themselves in residential areas in southeastern cities,” Reuters notes. “The petition outraged President Erdogan, who said the academics would pay a price for their ‘treachery’“.

  A few days ago, a group of lawyers made the mistake of holding a press conference to defend the academics who signed the aforementioned petition. On Tuesday, Erdogan arrested the lawyers too.

  Finally, when a British citizen who teaches at Bilgi University showed up at the courthouse to support the lawyers, he was also arrested. His crime, in his own words: “I am accused because I had several invitations to Kurdish new year (celebrations on March 21) published by the HDP – the third-largest party in the Turkish parliament – in my bag.”

  So there you go. Lessons learned all around we suppose.

  Better still, the President says he plans to start campaigning in April for his long-planned push to expand the powers of the presidency (because clearly he’s not powerful enough). Erdogan will look to rewrite the constitution (literally) in order that it might, in Bloomberg’s words, “feature a strengthened presidency while retaining a key role for the parliament.”

  Yes, “a key role for parliament,” where the third largest party is about to have their immunity stripped away so that Erdogan can prosecute the whole lot of them for being terrorists.

  Erdogan, Bloomberg goes on to write, “has devoted much energy to expanding the executive role of what’s traditionally been a largely ceremonial post, arguing that strong leadership will help extend a record of economic growth [but] only holds 317 seats in the 550-member parliament, short of the 330 votes needed to take a new charter to a public vote.” 

  Trust us. He’ll get it to a referendum. Votes or no votes. And then he’ll rig the referendum.

  Clearly, Nihat Ali Ozcan at the Economic Policy Research Foundation in Ankara (who spoke to Bloomberg) doesn’t get it: “The PKK is engaged in a direct confrontation with Erdogan with the aim of preventing him from turning his office into an executive presidency. However, Erdogan may benefit from a growing nationalist backlash in his campaign for a presidential system, as long as he maintains his crackdown on the PKK.”

  Gee, do you think so? 

  That’s been the entire gambit since last June’s elections. Erdogan lost ground to the pro-Kurdish HDP and so, he used the war on ISIS as an excuse to deliberately restart the conflict with the PKK in order to convince the public that it needs his protection lest the entire country should descend into chaos. Three months and a whole lot of lost lives later, AKP performed better in a November redo election that Erdogan – gun to his head – was “forced” to call when the coalition building process was sabotaged fell apart in August.

  We have no doubt that Erdogan will succeed one way or another in his bid to rewrite the constitution. Even if it kills him. Or wait. No. Even if it kills you.

  

  

  

  

  

• Will A Trump Presidency Really Change Anything For The Better?

  Submitted by Brandon Smith via Alt-Market.com,

  I want to start this analysis by stating that I fully understand the whirlwind of public interest in Donald Trump’s campaign. However, for those that don’t get it, let me break it down for you.

  A sizable portion of the American population considers themselves “conservative.” More than 38% of U.S. citizens, according to Gallup, hold conservative political and social views. Only 24% of the public considers themselves “liberal.” Now, I realize that the term “conservative” means different things to different people, so I would apply a simple rule to categorize them — a conservative is easiest to identify by his or her distaste for normally liberal ideological views. Beyond that, different factions of conservatives disagree on a whole host of issues.

  The goal of any conservative candidate that hopes to be publicly “popular,” whether he actually intends to follow through with his promises or not, is to appear to be all things to all factions; to avoid alienating one faction to appease another. After he is elected (or, after he is placed in the oval office by the powers that be), he may abandon any care for appeasing any of his constituents. Until then, he plays the game so that Americans can maintain faith in the system for at least one moment every four years.

  Trump’s popularity is predicated on the fact that past Republican candidates have done little to make friends with true conservatives and have not sought alliances with the factions of conservatism that have been growing in momentum and power the past two decades. In fact, the Republican candidates presented to the citizenry in recent memory have ALL had characteristics more akin to liberal Democrats than conservative stalwarts. Mitt Romney, for instance, was essentially a carbon copy of Barack Obama in terms of political policy and voting record, with only slightly greasier complexion and equally mysterious religious background.

  Election after election, conservative Americans have been offered one RINO (Republican In Name Only) candidate after another: politicians whose rhetoric sounds principled but whose record is littered with big government policies, constitutional violations, and a disregard for the intentions of the founding fathers. It is very difficult to call yourself a “conservative” in America unless you respect (or at least claim to respect) the tenets of limited government, constitutional law, and a regard for the heritage of our founding principles. U.S. conservatives have not had a candidate sharing their views for a long time.

  Democrats may finally be experiencing a similar disenchantment with establishment candidates considering the surprising popularity of Bernie Sanders this election. The problem is, democrats are trapped in the big government mindset and are for the most part a lost cause. Their anti-establishment candidate is a self-categorized socialist, after all. The only hope for a constitutional small government candidate and a return to our founding principles in politics rests in the hands of Republicans, being that third parties are quashed before they get a chance to put their foot in the door.

  So, you have most if not all Democratic candidates working for bigger more powerful government which leads to increased corruption and less liberty. You also have most Republicans working for bigger and more powerful government and less liberty. And you have few, if any, candidates that represent the majority of voters seeking limited constitutional government.

  Those of us in the liberty movement call this the “false left/right paradigm". It is the most insidious form of social control present in our nation and it makes a mockery of the election process. That is to say, elections are now nothing more than a way for international financiers and elites to keep the masses in line by allowing them to believe (falsely) that they have a “choice” and thus power to determine the future of our country. In fact, our choice is contrived and we have no political power whatsoever. The rest of America is finally starting to become aware of the false paradigm that liberty proponents have been warning about for generations. Is it any wonder that people are becoming fed up with the system?

  The genius of Donald Trump as an election figure is that he has little to no political history. He does not have an extensive legislative or voting record that we can look back on and determine where he stands. His political affiliations have been all over the place with him identifying as a Democrat at one time, Republican at other times, and even independent. Most of us cannot really judge his potential based on this. Hell, I was a registered Democrat early in my life, so how can I hold it against Trump?

  Beyond Trump’s rather disturbing past affiliation and friendship with the Clintons, he is otherwise a blank political slate. And as a blank slate, Trump can in fact present himself as all things to all people.

  The other ingenious aspect of the Trump campaign is really who he is running against — Hillary Clinton, a rabidly liberal candidate even more hated than Barack Obama. A candidate with a potentially serious criminal record and a penchant for an outright communistic world view far beyond that of Bernie Sanders. Those of us who have been in the writing field for a long time and have dabbled in fiction know that in order to create a fantastic hero, you must first put even more work into creating a fantastic villain. The hero is nothing without the villain.

  The unmitigated horror inherent in the prospect of a Hillary Clinton presidency is like adding jet fuel to the Trump campaign. (And yes, I am assuming according to the results of the primaries so far that the final election will be between Trump and Clinton).

  Donald Trump appears to be the perfect antithesis to Hillary Clinton. He is loud and boisterous and a bit obnoxious. He trash talks and says whatever he wants to the torment of liberals. He stomps on the throats of the political correctness police and doesn’t care if they call him a racist or a sexist or a misogynist. And, Americans LOVE IT. They can’t get enough of it.

  Conservatives are so tired of cultural Marxists, crazy feminists, the leftist domination of media, PC thought crime, forced immigration policies and the protection of illegal immigration, paying for social entitlement programs, etc., that they are ready to explode. They are, in fact, ready to go to war. I would even dare to say that a Clinton presidency would lead directly to guaranteed outright civil war. This is not an exaggeration.

  So, the real question is, is Trump a reflection of the frustration and defiance of the conservative population, or, is he a clever ruse by the establishment to co-opt and placate the conservative population before we rebel?

  Again, without much political background to examine and only rhetoric to go by, Trump is a mystery. If Trump is a legitimate anti-establishment candidate, then here are some of the actions he would have to pursue in order to prove it.

  1) The complete reversal of every unconstitutional Obama Administration and Bush Administration executive order.

   

  2) The pursuit of removal of the indefinite detention provisions and secret tribunals contained in the NDAA.

   

  3) The removal of FISA, and the end of the invasion of privacy and other violations of the 4^th Amendment by the NSA against American citizens.

   

  4) The end of secretive executive powers of assassination, including the assassination of American citizens without trial.

   

  5) The dismantling of the Department of Homeland Security in light of abuses of constitutional limits.

   

  6) The complete reversal of Obamacare.

   

  7) The immediate end to all refugee relocation programs related to the Middle East and Syria.

   

  8) The true enforcement of illegal immigration laws and border controls.

   

  9) The encouragement of states to assert their right to protect their borders based on the 10^th Amendment.

   

  10) An immediate call for an independent investigation into the immigration policies of the Obama Administration.

   

  11) An immediate independent investigation into the Benghazi attacks.

   

  12) An immediate independent investigation into the ATF’s “Fast and Furious” gun running program.

   

  13) An immediate independent investigation into the involvement of covert intelligence agencies and the Department of Defense in the funding and training of ISIS.

   

  14) An immediate call for an independent investigation of corruption within the election process itself, as well as the influence of international banks and corporations in the election process.

   

  15) The removal of unfair restrictions that prevent third party and independent candidates from participation in public debates.

   

  16) An immediate call for an investigative audit of the Federal Reserve as well as the pursuit of dismantling the fed and transitioning America back into constitutional sound money creation.

   

  17) An investigation into U.S. relations with the International Monetary Fund, World Bank, and the Bank of International Settlements with the intention of ending all ties to said organizations if and when criminal conduct is discovered.

   

  18) An end to the revolving door of banking elites cycling through various cabinet positions within the White House.

   

  19) An immediate investigation into the influence of international financiers and globalist think tanks like the Council On Foreign Relations and their efforts to destroy the national sovereignty of the U.S.

   

  20) The end of globalization of U.S. foreign policy and economic policy which has weakened America, and the return to a more independent and self reliant American economic and defense infrastructure.

  I’m sure that readers can think of many other potential actions that would help to prove beyond a doubt that Donald Trump is the kind of anti-establishment firebrand he presents himself to be. If Trump does take such measures during his presidency, then he may be a president worth supporting, or even fighting for. If he pursues few or none of these measures, however, we can be relatively certain he is just another establishment puppet playing his part in the false left/right paradigm leading America toward oblivion.

  Whatever Trump is, his popularity does indicate a rising tide of discontent within the U.S. The insane circus atmosphere of election 2016 is no coincidence; it is a perfect representation of the overflowing tensions that permeate our culture and are leading to potential earth shattering conflict. Keep in mind that America’s economic situation was already decided back in 2008 and will only become worse as we move into the election season. Whatever tensions we see now will only multiply as financial crisis becomes more apparent to the masses.

  The idea that a Trump presidency will change much of anything is a rather farfetched one in my view. Trump’s popularity only suggests that people are seeking alternatives. The damage to America has for the most part already been done, and there will be no avoiding the consequences. That said, how we rebuild can still be determined. No political leader including Trump will ever be able to heal the American system or the American psyche, but the efforts of millions of independent and liberty minded Americans can. We have a long and terrible struggle ahead of us, but to look at it from an “optimistic” perspective, at least Americans are becoming sick of the status quo. That is a start.

  

  

  

  

  

• Wage Growth Dream Crushed – Weekly Earnings Rise Weakest In 18 Months

  If the labor market is “tight”, and jobless claims are at 42 year lows…

  

   

  And the 0.5ppt point rise in the labor force participation rate is “heartening”…

  

   

  Then please Dear Janet, oh arbiter of all things labor-ic, explain – after exuberant hope and hype during 2015 that escape velocity was coming – why real average weekly earnings growth just collapsed to just 0.6%, the weakest since August 2014?

   

  

   

  It appears the ‘dream’ is over!! As mal-investment-driven extrapolation of the trend of building and buying (i.e. excess inventories) has accelerated deep into recessionary-signaling territory as earnings growth has plunged…

  

   

  And the credit-card/leverageability is at its maximum once again to fill that gap.

  

  

  

  

  

• World’s Second Largest Reinsurer Buys Gold, Hoards Cash To Counter Negative Interest Rates

  The world’s second-largest reinsurer, German Munich Re which is roughly twice the size of Berkshire Hathaway Re, is boosting its gold reserves and buying gold in the face of the punishing negative interest rates from the European Central Bank, it announced today.

  As caught by Mark O’Byrne at GoldCore and reported by Thomson Reuters this afternoon, the world’s largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.

  Munich Re has held gold in its coffers for some time and recently added a cash sum in the two-digit million euros, Chief Executive Nikolaus von Bomhard told a news conference.

  

  Nikolaus von Bomhard in Munich, on March 16, AFP via Getty Images

   

  “We are just trying it out, but you can see how serious the situation is,” von Bomhard said.

  The ECB last week cut its main interest rate to zero and dropped the rate on its deposit facility to -0.4 percent from -0.3 percent, increasing the amount banks are charged to deposit funds with the central bank.

  Munich Re is one of the largest reinsurance companies in the world – It oversees €231 billion in investments. A small 3% allocation to gold would equate to buying gold worth €8.19 billion. At the current spot price of €1,130 per ounce that would equate to 7.2 million ounces or 225.4 tonnes of gold bullion

  The news is interesting and we believe that other institutions will follow in their footsteps and diversify into gold in order to protect themselves from negative yields. We have not heard of any other non central bank institutions diversifying into gold but it stands to reason that a small percentage will follow in Munich Res footsteps.

  * * *

  It isn”t just gold: the German company confirms that when rates turn negative enough, physical cash will be increasingly more valuable.

  As Bloomberg reports, the German company will store at least 10 million euros ($11 million) in two currencies so it won’t have to pay for the right to access the money at short notice, von Bomhard said at a press conference in Munich on Wednesday. “We will also observe what others are doing to avoid paying negative interest rates,” he said.

  Institutional investors including insurers, savings banks and pension funds are debating whether it may be worth bearing the insurance and logistics costs of holding physical cash as overnight deposit rates fall deeper below zero and negative yields dent investment returns. The ECB last week cut the rate on its deposit facility, which banks use to park excess funds, to minus 0.4 percent.

  “This may well become a mass phenomenon once interest rates are low enough — the only question will be where that exact point is,” said Christoph Kaserer, a professor of finance at the Technische Universitaet in Munich. “For large institutions, that may be the case sooner rather than later. The ECB will react with countermeasures, such as limiting cash.”

  As Bloomberg adds, Munich Re’s strategy, if followed by others, could undermine the ECB’s policy of imposing a sub-zero deposit rate to push down market credit costs and spur lending. Cash hoarding threatens to disrupt the transmission of that policy to the real economy.

  Munich Re, which oversees a total of 231 billion euros in investments, wants to test how practical it would be to store banknotes, having already kept some of its gold in vaults, von Bomhard said. This comes at a time when consumers are increasingly using credit cards and electronic banking to pay for transactions. Deutsche Bank AG Chief Executive Officer John Cryan has predicted the disappearance of physical cash within a decade.

   

  “This shows the difficulties that the ECB is facing in its efforts to stimulate the real economy,” said Andreas Oehler, a professor of finance at Bamberg University in Bavaria. “Charging negative rates on overnight liquidity doesn’t stimulate longer-term lending. All it does is make companies’ and institutions’ payment transactions more expensive.”

  Incidentally, once the Fed’s infatuation with playing central planning doctor fizzles as the economy relapses into an accelerating downward spiral, negative rates are coming to the US next, as such the real-time experiments of how to evade a repressive monetary regime such as those conducted by the Munich Re CEO will be particularly useful to those who want to protect their assets once NIRP crosses the Atlantic.

  

  

  

  

  

• Politics: 50 Years Of Failure

  Submitted by Paul Rosenberg via FreeMansPerspective.com,

  Several decades ago, Saul Bellow wrote this:

  For the first time in history, the human species as a whole has gone into politics. Everyone is in the act, and there is no telling what may come of it.

  At this point, however, we can say what has come of it: failure. Politics has failed to deliver on nearly every promise it has made since the 1960s, and I think it’s time to hold it to account.

  50 Years In

  I was still a child in 1966, but I remember it fairly well. And I remember a good deal of the politics of the era, because my mom was involved with it. In fact, she helped to rewrite the Illinois State Constitution during those years. (Adoption came in 1970, but there were several years of work preceding it.)

  So, I know what people in that time were hoping to get out of politics… what they firmly believed they would get out of politics. Here’s the list:

  • A solution to the race problem.
  • An end to a pointless war.
  • A solution to the Middle East problem.
  • To improve education.
  • A solution to the problems of poverty and welfare.
  • An elimination of police brutality.

  Bear in mind that the people who were seeking these things were decent, well-meaning people. They truly wanted the world to be better, and they believed politics would make it happen.

  And to their credit, they worked to make it happen. Not only that, but their children and grandchildren have kept the faith and continued the fight. We now live in a world of all politics, all the time. And so, half a century in, I think we need to take a hard look at the results, which are these:

  The race problem

  Race problems have shifted over the past 50 years, but they are still very much with us. And when I say “shifted,” I mean this: If you go to the towns of the American South that were considered the cores of racism (in those days it was called “bigotry”), you’ll find that black and white people generally get along pretty well; far better than they did in the 1960s.

  Where racial tension survives and thrives these days is in the realm of the political and because of political actions. The typical white hater of the ’60s derided Negroes as being bad by nature. The “angry white men” of modern times are upset that their money, jobs, and opportunities are stolen via politics and handed to other people. (There is of course a residue of just plain hate.)

  The bottom line here is that politics is keeping racism alive. And if the truth is to be honestly faced, this is because a large number of political operatives would have no job if racial prejudice evaporated. It behooves them to keep it going.

  Verdict: Fail.

  Pointless war

  Vietnam goes, Iraq and Afghanistan come, and Syria may be next; ho hum, just another season in the long march of the military-industrial complex.

  Verdict: Fail.

  The Middle East problem

  Israel, the Arabs, bombs, terrorists, dictators… which decade’s headlines are these?

  Verdict: Fail.

  Education

  Test scores since the 1960s have steadily fallen; teachers’ unions have become ever-more rapacious and arrogant, colleges ever-more expensive. Metal detectors now adorn school buildings, teachers are forbidden to adapt the curriculum to the students, etc.

  Verdict: Fail.

  Poverty and welfare

  More people are on more welfare programs than ever before… and in the face of ever-declining scarcity in the world. And again, armies of political operatives would lose their jobs if these problems ever went away.

  Verdict: Fail.

  Police brutality

  Eric Garner, intensely violent and overly used SWAT teams, and an ever-increasing list of innocent victims.

  At the same time, every evening’s television shows laud “law enforcement” as our true and great saviors. Police departments are laden with bigger, deadlier tools and massive budgets. All of this while Acton’s dictum (“Power corrupts…”) remains.

  Verdict: Fail.

  We See, but Can We Perceive?

  There’s nothing secret about the facts itemized above. We’ve all seen them. The question is this: How many of us are able to accept them?

  Most people hate the reality that forces them to change their opinions. They fight it, cleverly and persistently. If the first reason to reject reality doesn’t work, it’s followed by a second, third, and fourth. And if excuses fail, anger, accusations, and wild displays may follow.

  Still, reality is what it is. And this particular slice of reality is that politics has failed. Profoundly.

  We may have leapt into politics with the best of intentions, but our efforts have failed to produce beneficial results… save of course that they allowed us to feel righteous. As far as changing the world, we’d have been better off gardening; that, at least, would have provided good food for people we cared about.

  We can either face reality or fight against it. But if we really care about the state of the world, we need to face the truth: Politics has failed miserably.

  

  

  

  

  

• Plot Thickens In New York Fed Heist As $30 Million In Cash Said Delivered To Mystery Chinese Man

  One week ago, we documented the Hollywood-esque theft of $100 million from accounts held at the NY Fed and belonging to the central bank of Bangladesh.

  In many ways, the heist was elegantly planned and executed and in others it was comically amateurish.

  Here are the basics: On February 5, Bill Dudley’s New York Fed was allegedly “penetrated” when “hackers” (of supposed Chinese origin) stole $100 million from accounts belonging to the Bangladesh central bank. The money was then channeled to the Philippines where it was sold on the black market and funneled to “local casinos” (to quote AFP). After the casino laundering, it was sent back to the same black market FX broker who promptly moved it to “overseas accounts within days.”

  Basically, hackers got ahold of Bangladesh’s SWIFT codes and bombarded the NY Fed with requests for funds from the country’s FX reserves. Mercifully, the Fed declined to clear separate transfers worth some $870 million, but not before $100 million got away.

  Four transfer requests totaling $81 million went through, but a fifth was held up when whoever was making the request tried to have $20 million sent to an imaginary NGO called Shalika Foundation but accidentally spelled “foundation” as “fandation.”

  According to the Philippine Daily Inquirer, the money was routed to three casino bank accounts via the Jupiter Street, Makati City, branch of Rizal Commercial Banking Corp. The country’s gaming regulator was investigating.

  Now, we get new details on what is a truly fascinating story.

  First, we learn that the hackers who spelled “foundation” wrong weren’t the only ones to do something silly. The requests came in on a Friday, which is notable because as WSJ writes, “Friday is the weekend in Bangladesh and the central bank’s offices were closed.”

  So, “the fact that the money was being wired to personal bank accounts in the Philippines rang alarm bells,” but apparently, the fact that it was a weekend did not.

  Still, there were people at the office.

  In fact, it was a printer error that tipped Bangladesh off to the scam. “Zubair Bin Huda, a joint director of Bangladesh Bank, found the printer tray empty when he looked on the morning of Feb. 5 for confirmations of SWIFT financial transactions that are normally printed automatically overnight,” Bloomberg reports. “Because it was a Friday — a weekend in Muslim-majority Bangladesh — Huda left the office around 11:15 a.m. and asked his colleagues to help fix the problem [but] it took them more than 24 hours before they could manually print the receipts, which revealed dozens of questionable transactions that sent the bank racing to stop cash from leaving its account with the Federal Reserve Bank of New York to the Philippines, Sri Lanka and beyond.”

  As the story goes, Huda came into the office on Saturday and found a flashing message on the terminal connecting to the SWIFT system that read: “A file is missing or changed.” Finally, once Huda managed to get the things up and running his team found “receipts show[ing] the Federal Reserve Bank of New York sent back queries to Bangladesh Bank against 46 payment orders in different messages,” Bloomberg recounts.

  Well at that point, it was panic time but because it was Saturday, no one was home at the NY Fed. 

  Anyway, the crack squad at the Philippine anti-money laundering agency has determined that someone needs to check out the branch manager at the bank where the money ended up. That manager is one Maia Santos Deguito. “[She] is a key player here because if you don’t have the cooperation of the branch manager, this could not have been done,” Senator Serge Osmena, vice chairman of the country’s blue ribbon committee, which investigates major issues, told reporters on Wednesday.

  That’s correct. It’s also “slightly” suspicious that the CCTV cameras at the branch weren’t working when the money was withdrawn. Rizal wouldn’t immediately comment on the CCTV “issue.”

  Deguito decided to essentially plead to fifth in a hearing and it’s easy to understand why. She apparently ignored requests from the Bangladesh central bank to stop the transfers.

  After the money left the bank it went to two casinos and “a man of Chinese origin,” according to Reuters. 

  “$29 million ended up in an account of Solaire, a casino resort owned and operated by Bloombery Resorts Corp which is controlled by Enrique Razon, the Philippines’ fifth-richest man in 2015, a further $21 million went to an account of Eastern Hawaii Leisure Co., a gaming firm in northern Philippines,” and that, according to Teofisto Guingona, head of the Philippine Senate’s anti-corruption committee, is where “the paper trails ends” because “casinos are not covered by the country’s anti-money laundering laws.”

  So what of the mysterious “Chinese” man? Well, we don’t know. All we know is that he ended up receiveing $30 million in cash in three deliveries via an FX broker called Philrem Service Corp which of course wouldn’t talk to Reuters.

  Meanwhile, Bangladesh’s central-bank governor, Atiur Rahman – this poor guy…

  

  … took the fall, saying he “took moral responsibility” for the loss. He resigned after seven years at the bank. 

  We’re sure that any day now, Bill Dudley will set up a small table in his back yard, surround himself with reports sitting in the grass, and fall on his sword as well. After all, it’s his “moral responsibility.” 

  

  (Bangladesh… hmmm… is that some place we can see from the roof at 33 Liberty?)

  
  

  

  

  

  

  

• Is Steve Cohen Back To His Criminal Ways

  Over five years ago, months before most had heard of “expert networks”, soon to be the fixture in the biggest FBI/DOJ/SEC crackdown against hedge fund insider trading in history, and years before it would become clear to everyone that the now defunct SAC Capital was nothing but a fund making billions by trading on inside information, we quietly exposed just how it was that Steve Cohen’s hedge fund would almost as if by magic, always buy (or short) biotech companies, just ahead of successful (or not) Phase 1, 2 or 3 studies.

  We did this all the way back in November 2010, when we looked at SAC’s trades in three specific biotech names, CYBX, ITMN and MYGN, and asked three very specific questions:

  • Did SAC short CYBX in the days immediately preceding the adverse CYBX statement from August 12, 2004. And did it subsequently go long ahead of the favorable 8K from February 3, 2005. If so, what was the investment thesis/catalyst for such decision. Did SAC consult with an expert network or an outside consultant on any of the trades?
  • Did SAC go long ITMN in the days immediately preceding the favorable ITMN statement from March 9, 2010. And did it subsequently sell all of its holdings in advance of the adverse news from May 4, 2010. If so, what was the investment thesis/catalyst for such decision. Did SAC consult with an expert network or an outside consultant on any of the trades?
  • Did SAC sell its 700,000 shares in advance of the adverse MYGN news release from May 4, 2010. And did it subsequently sell all of its holdings in advance of the adverse news from May 5, 2010. If so, what was the investment thesis/catalyst for such a decision. Did SAC consult with an expert network or an outside consultant on any of the trades? Furthermore, what catalyzed the decision to reenter the stock.

  Today, more than five years later, we have a follow up question for Mr. Steve Cohen, and his “new” family office, Point72, regarding the firm’s most recent investment in microcap biotech company Celator, which as of Tuesday is not so micro anymore:

  Why did SAC go long Celator Pharmaceuticals (CPXX) in the days immediately preceding the company’s March 14 favorable Phase 3 trial result of Vyxeos for Acute Myeloid Leukemia? What was the investment thesis/catalyst for this decision. Did SAC consult with an expert network, an outside consultant or company insider when deciding to put on the trade?

  We ask this because yesterday afternoon, Point72 and its New York trading proxy EverPoint filed a 13G dislosing that as of the close of business of March 14, Steve Cohen had become the beneficial owner of an 8.3% stake in CPXX, amounting to 2,855,000 shares. As is traditional with 13G filings, it means Cohen acquired his threshold stake in one (or all) of the 10 calendar days preceding March 14 – the filing does not give the breakdown of how much, and on what days he did so, at a price of around $2/share.

  

  What makes Cohen’s acquisition particularly questionable, is that also on March 14, Celator issued a press release reporting a successful Phase 3 trial for an AML drug, Vyxeos:

  Celator Pharmaceuticals, Inc. (Nasdaq: CPXX) today announced positive results from the Phase 3 trial of VYXEOS™ (cytarabine: daunorubicin) Liposome for Injection (also known as CPX-351) in patients with high-risk (secondary) acute myeloid leukemia (AML) compared to the standard of care regimen of cytarabine and daunorubicin known as 7+3. The trial met its primary endpoint demonstrating a statistically significant improvement in overall survival.

  The result was a spectacular move in the stock following the announcement, one which sent it over 400% higher in the afterhours session, hitting a price of $10 earlier today before closing at $9.38, and netting a profit to Steve Cohen of approximately $20 million assuming he acquired the stake when the stock was trading at $2/share over the past ten days, spending approximately $6 million to build up his reportable position. To be sure, we don’t know his cost basis, something many other 13G filings disclose, and as such we can only speculate, as well as wonder why Cohen decided not to provide this information.

  

   

  But more to the point, and as noted above, we were hoping that Mr. Cohen, who surely would not want his name dragged back into another insider trading scandal as he prepares to move back to managing other people’s money which he will be allowed to do again in 2018, now that the SEC has granted him a reprieve from the isolation of a family office, will provide us with the required information, the same information which several years ago was material enough for the Feds to unleash the most historic crackdown on a legendary hedge fund in modern capital market history.

  Because the alternative is all too obvious: Steve Cohen is back to his “neither admit nor deny criminal guilt” days of investing in biotech stocks on “hot tips” acquired by insiders through “expert networks” or otherwise. Then again, we doubt even he would be so bold as to file a 13G on the same day a company has soared by 400% on a successful Phase 3 trial.

  Or maybe he would, and if so did Steve merely suffer a relapse to his old, more “criminal” days we wonder?

  

  

  

  

  

• TRuMP KNoWS NoTHiNG…

  

  

  

  

  

• Shorts Slammed As Yuan Spikes Most In 6 Weeks

  The Fed’s cowardly “hold” sparked an avalanche of Yuan buying, USD selling this afternoon, squeezing shorts enough to dissolve the last 3 days of weakness. The 450 pips rip was the biggest since early February as for the 2nd time in a week (ECB and Fed) Yuan shorts have been taken to the cleaners…

   

  

   

  For now Chinese trading is ‘stable’ with CNH leaking lower (just as it did after The ECB escapade).

  

  

  

  

  

• "We Choose The Nominee, Not The Voters" – Republican Party Split Looms

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  A Republican Party split is looking much closer after Tuesday. Trump won Florida, Rubio’s home state, and that led Rubio to drop out. However, Trump was denied a victory in Ohio, which was won by its own sitting governor, John Kasich. This will make it very difficult for Trump to win the necessary delegates for a first ballot in the Republican Convention. This Ohio victory doesn’t make Kasich a likely nominee in the least; it is just a spoiler to help the establishment pick who they want to be their nominee and that is certainly not Trump. Kasich has now won just one state so it appears that Ohio has sealed the fate of the Republican Party.

  Without Ohio’s 66 delegates, Trump now faces an extremely difficult path to reach the majority of delegates he needs to avoid a “contested” GOP convention. So the establishment looks like it will win and no candidate will enter the convention with a majority of delegates locked up. So after the first ballot, they are free to vote for whoever the establishment wants. It looks like the computer may be right after all. This is beginning to appear to be a very insane situation. The last time no candidate had the required amount for a nomination was 1976. Under the rules of the GOP, all these primaries were pointless. Delegates can choose one of the candidates who ran, or someone else entirely – Romney?

  With the people voting for Trump, the Republican Party may have to face a huge, strong anger backlash from his supporters.

  We are more likely to see a third party candidacy from Trump himself. The establishment will not have an outsider in that office so Trump might as well run third party to illustrate the corruption.

  The Republicans prefer Hillary to Trump any day of the week.

  The establishment fears ending elections that cannot be bought by their supporters, for their families might get fired from cushy jobs. Trump would not just sign whatever bill was put before him.

  Obama has been a joke. Obama misses more than 50% of the morning briefings. Ever since Bush was in office and Dick Cheney actually ran the country, those in power have preferred a stooge as president. That way, they get to do whatever they want while the “boss” actually does nothing. As the joke goes, when Russia invaded Georgia, someone ran in to tell President Bush. He said, “Really? Well I didn’t win that state anyhow. Texas would be a different matter.”

  Someone like Trump presents a huge threat to the establishment. They would have to assassinate him because he got in their way. The establishment might try blaming Cuba again or someone else they really do not like. The talk behind the curtain is clear— hand it to Hillary and everything remains intact.

  So a Republican split is looking more likely. They have drawn the line in the sand. By no means will they accept Trump. He might as well begin forming a third party. What is going to be exposed is that we do not live in a Democracy. As long as the people vote for their groomed candidates, the pretense is fine. Now when it threatens their existence, well it’s time to bring the grapes of wrath down upon everyone.

  Their mistake: they assume this will all blow over. Where they are wrong is that to defeat Trump, they must expose the truth. It’s their game and they make the rules. Your vote really means nothing to them. I suspect this is step one in what the computer warns will be an entirely new political system ahead.

  *  *  *

  Still in denial at just how little yout vote counts… Watch this stunning admission by an RNC member…"The media has created the perception that the voters choose the nomination. That's the conflict here," Curly Haugland, an unbound GOP delegate from North Dakota, told CNBC's "Squawk Box" on Wednesday. He even questioned why primaries and caucuses are held.

  

  

  

  

  

• Japanese Exports To US Plunge Most Since 2011 As Weak Yen Tailwind Evaporates

  Japan just posted its largest trade surplus in 5 years (+JPY243bn) as exports dropped 4% YoY (worse than expected) but imports fell 14.2% (better than expected). However, the biggest standout was the ongoing deterioration in Japanese exports to the US which dropped by the most since 2011 as the ‘advantages’ of a devalued currency appear to have hit their limit. Time for some more devaluation Abe… or Peter Pan(ic).

   

  

   

  “The tailwind from the weak yen has gone. We can’t help but hold a pessimistic view on the outlook for exports,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo, said before the figures were released. “Domestic demand won’t be dependable at all, and the same goes for exports. I can’t deny the possibility of another economic contraction this quarter.”

  

  

  

  

  

• How Negative Interest Rates Will Turbocharge The Migrant Crisis

  Submitted by Nick Giambruno via InternationalMan.com,

  In the 1989 Batman movie, the Joker (played by Jack Nicholson) showers a crowded Gotham street with free money.

  In the scene, it looks like it’s raining hundred-dollar bills. The people love it. Little do they know, the money is actually a trap. Once the Joker has lured them into the street, he unleashes poisonous gas.

  I think the latest gimmick to stimulate the economy is pretty much the same thing. It’s one of the most absurd ideas I’ve heard in a while. And that’s saying something, considering the outrageous schemes our economic luminaries have recently come up with, like…

  • Faking a space alien invasion to help stimulate the economy.
  • Minting a trillion dollar coin.
  • Negative interest rates.
  • Banning physical cash.
  • Cash for clunkers.
  • Increasing rounds of money printing, euphemistically called “quantitative easing.”

  These ideas would be comical if people in power didn’t actually take them seriously. But they do.

  It’s the same bad medicine the economic witch doctors have been prescribing for years. With a track record like this, it’s hard to imagine they could come up with something even more ridiculous. But they have.

  This latest gimmick goes well beyond the absurdity of their previous ideas. It’s verifiably insane. And the scariest part is, this dangerous idea is gaining currency. It’s spreading across the world like a smallpox outbreak.

  Helicopter Money

  Politicians and establishment economists call this scary idea “a basic income.” I call it sheer lunacy.

  It’s where the government gives you money just because. There’s no requirement to work or even display a willingness to work. You could sit at home all day, watch TV, and still get a check from the government.

  Simply put, a basic income is “free” money the government hands out to everyone unconditionally.

  European politicians are heavily pushing this policy.

  • Finland wants to pay its citizens around $1,000 a month.
  • The Netherlands and the U.K. have also proposed dishing out free money.
  • In Switzerland, there’s a proposal to hand out around $2,800 a month to everyone. This one is surprising since the Swiss are generally sensible about money.
  • The basic income virus has also infected Canada, which recently announced a pilot program in Ontario.

  It’s just a matter of time before the idea gains traction in the U.S. In fact, U.S. central economic planners are already discussing it.

  You might recall former Fed chair Ben Bernanke’s nickname, “Helicopter Ben.” He got the name after he spoke publicly about using helicopter drops of money to “stimulate” the economy. This is just another flavor of a basic income.

  Whether you call it free money, a basic income, or helicopter money, the idea is spreading. It’s the next potion the economic witch doctors will use once their latest scam—negative interest rates—not only fails to cure our economic ailments, but predictably makes them worse.

  No matter, the idea will be politically popular. Who would protest free money?

  And, once a country adopts a basic income, it would be next to impossible to get rid of it until the system collapses under its own weight. Who would vote for a politician that stops (or even slows down) the gravy train?

  The Joker used free money to lure the people of Gotham to poisonous gas. Now real world politicians are using the same trick. They’re using free money to lure the masses into perpetual dependence on government.

  More Problems Ahead for Europe

  If Europeans think they have a migrant problem now, just wait until they institute a basic income.

  It’s obvious what will happen…

  Once European governments start handing every person thousands of dollars in free money each month (more than many in Africa make in a year), everyone will be scrambling for Europe.

  A basic income is a sure recipe for economic disaster and increased cultural tensions. It’s an environment where blowhards and demagogues flourish. Unfortunately, this has happened repeatedly throughout Europe’s history. Once again, it’s going to lead to some very bad things.

  I think a basic income will greatly accelerate this recurring trend.

  Without a basic income and other welfare benefits, immigrants are usually skilled and the very best of people. But the average European will surely forget that once free money draws in the world’s riffraff.

  This is why, although the financial effects will be severe, the sociopolitical ones will be much worse.

  Here’s the bottom line: All you can do is protect yourself from the consequences of all this stupidity. This is a big reason why I think everyone should own some gold.

  Gold is the ultimate form of wealth insurance. It’s preserved wealth for thousands of years through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.

  Unfortunately, most people have no idea how to prepare for the next economic collapse…

  

  

  

  

  

• How The Establishment Works (In 1 Cartoon)

  Your mouth… their money…

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• P2P Property Lending Explodes In China; Officials Panic

  PBoC governor Zhou Xiaochuan thought about it, and decided it’s probably not a good idea for borrowers to get P2P loans for down payments on homes.

  In fact, he said last weekend, it’s illegal: “Funds used for down payments cannot be borrowed.”

  Vice-governor Pan Gongsheng, one of Zhou’s deputies, echoed his sentiments. “Property agencies and developers are not qualified to conduct financial business. They are illegally doing financial business,” he explained. “This business they are engaged in, and jointly with peer-to-peer lenders and down payment credit firms, has not only raised the leverage of residents’ house purchases, worn down the effectiveness of macro policy controls and added to financial risks, but has also increased risk in the property market.”

  Now you might think that what’s implied there is too bad to be true – even in the increasingly ludicrous world of P2P and marketplace lending. But in fact, P2P lenders in China have indeed been funding down payments on homes, embedding an enormous amount of excess leverage into the market while simultaneously driving up prices in Tier-1 cities.

  “Home sales in Beijing, Shanghai, Guangzhou and Shenzhen, China’s ‘first-tier’ cities, grew 14% last year compared with about 7% nationwide,” FT reports. “In Shenzhen, the average price per square meter in February increased by about 50% compared with a year earlier, according to Soufun, a real estate consultancy.”

  Theoretically, this shouldn’t be happening. Although Beijing has gradually relaxed the rules on down payment requirements for both first- and second-homes in an effort to boost the economy, FT reminds us that “in the wake of the collapse of the US housing market in 2008, China launched restrictions on mortgages to rein in the country’s then red hot property market, which was part-fuelled by speculation on borrowed money.”

  But as we noted late last month, shadow banking has a way of creeping into every market in China and as soon as you stamp out one conduit, another pops up in an endless game of Whack-a-Mole. Somehow, leverage always finds a way.

  Over the past year or so, a new phenomenon has emerged: P2P lending for down payments on homes, and as we alluded to above, it’s just as utterly insane as it sounds. Bloomberg recounts one borrower’s experience: 

  When Fu Songtao found his ideal home in the suburbs of Shanghai, he faced the typical problem of would-be homebuyers: Coming up with enough cash for a down payment. So Fu turned to an online solution. His property agent offered him a zero-interest loan, funded entirely online by peer-to-peer lenders, that covered almost half his deposit.

   

  “Everybody I know took out these loans,” said Fu, a 29-year-old employee of a state-owned enterprise, who borrowed 380,000 yuan ($58,000) a year ago, with interest payments to lenders subsidized by the property agent, for his 3 million yuan apartment, and has seen its value increase to 3.3 million yuan since. “If you can borrow like that, why not?”

  Right, “why not?” One reason is because you are effectively taking out a zero down payment mortgage. If you can’t figure out the problem with that then you probably have no business buying a home in the first place. 

  In any event, this type of lending is proliferating – at a rapid clip. In fact, according to Bloomberg, “peer-to-peer lending for property in China grew more than six times faster than loans extended through banks last year” to $18 billion. That’s up 163% over 2014 and dwarfs the 21% increase in outstanding mortgages.

  

  In some ways this is a self-fulfilling prophecy. That is, borrowers (and speculators) see the price gains the practice is fuelling and, not wanting to miss out, dive in as well, driving prices still higher and perpetuating a kind of greater fool boom. Have a look, for instance, at the following chart which shows that China’s housing bubble – at least in Tier-1 cities – is alive and well: 

  

  As we put it last month, “now that the Chinese stock market bubble has burst, the local population has to find a new asset class which to chase for the next few months, and for the time being that asset is housing; and since the politburo gets to boast that the Chinese economy is ‘improving’ as a result of this scramble, no ‘macroprudential brakes’ will be deployed before it is again too late.”

  Well, when it comes to macroprudential brakes, the Politburo might be prepared to make an exception for P2P down payment loans. Just as P2P lenders were forbidden from loaning money for stock purchases last summer, so too is Beijing set to ban P2P loans for down payments. “New rules being drafted by the central bank, the China Banking Regulatory Commission and other bodies would bar developers, peer-to-peer networks and other non-banks from offering down-payment loans,” Bloomberg writes. “Banks would be required to scrutinize mortgage applications and reject those with deposits funded by loans.” 

  “[External financing] started to boom in 2014, helped by online and mobile technologies,” Clement Luk, chief executive officer for eastern China at realtor Centaline, told Reuters, who also notes that “property loans account for around 15 percent of all online financing in China, according to Xu Hongwei, chairman of a data provider on the business, Wangdaizhijia.” Shanghai-based Yingcan says the number is far higher, at 23%.

  And while at least one broker is already under investigation for facilitating down payment loans, analysts say the sector will be difficult to police, given the fact that lenders brand them with innocuous names that would not immediately indicate that they were made for down payments on property. Here’s BofAML with a bit of color on the market:

  The overall property market recovery that began in the spring of 2015 has been supported by a string of monetary-easing measures and supportive property policies. Moreover, the pursuit of capital gain and lack of attractive alternative investments amid the economic downturn have stimulated purchase demand in Tier-1 cities and helped fueling up prices while the supply remains tight. A recent Xinhua News article has warned about housing speculation, especially in Shenzhen, suggesting speculative purchases account for 30% home transactions at present. Home mortgages loan as a percentage of total loans are still relatively low, at 10.1% in Beijing, 14.5% in Shanghai and 22.9% in Shenzhen, vs. 15.4% nationwide. However, there are some other forms of leverage gaining its popularity to speculate in the Tier-1 housing markets, such as mortgage down-payment loans provided by some property agents and P2P platforms. But the size of such loans should still be quite small. For example, the outstanding loans by Lianjia (a leading player in this field) are at RMB2.9bn currently, with typical maturity of 90 days.

  If the typical maturity is 90 days and with interest rates sometimes running as high as 2% per month, it seems rather clear to us that borrowers might indeed default en masse should the economy take a decisive turn for the worst and should Beijing live up to its promise of stripping excess capacity from the industrial sector. 

  On the other side of the equation, lenders are promised returns of up to 10% per year for financing this madness.

  Of course this is, like the rest of China’s shadow banking sector, a Catch-22 for Beijing. If China cracks down on down payment loans, it may curtail the property market and thus dent the economy. If they don’t crackdown, more and more leverage will be embedded into the system making the eventual collapse that much more spectacular. Summing up the government’s dilemma is Hu Xingdou, an economics professor at the Beijing Institute of Technology:

  “China has learned a lesson from the U.S. subprime crisis. The Chinese government understands that they have to solve problems like housing and overcapacity. At the same time, they can’t bring further risks to the financial system, as the banks already have a lot of bad debt.”

  

  

  

  

  

• Which Presidential Frontrunner Is The Best For Energy?

  Submitted by Jessica Ruane via OilPrice.com,

  The future of America's energy policies will heavily depend on who our next president is. Each presidential candidate has strong views on energy policy. Both democratic candidates Sanders and Clinton strongly support the need to move towards developing clean and renewable energy sources. On the other side of the aisle, republican frontrunners Trump and Cruz have taken the opposite stand, and they want to focus resources solely on more drilling, fracking, and lifting regulations on nuclear power and domestic energy exploration. So for those who have a vested interest in crude oil, you're likely going to side with the stance of the republican candidates. If you're all for renewables, the democrats share your vision.

  As you know, the factors that influence oil prices are complex, but the amount of oil the U.S. can produce is a major one. Each candidate has strong opinions (and policies) on domestic drilling, so our next POTUS could dramatically affect the way this industry swings in the future.

  Here’s where each of the four strongest presidential candidates stand on energy policy in America.

  Bernie Sanders

  "I will work toward a 100 percent clean energy system and create millions of jobs. We have little time to aggressively cut carbon emissions. Transitioning to a 100 percent clean energy system for electricity, heating, and transportation is possible and affordable. It will create millions of jobs, clean up our air and water and decrease dependence on foreign oil."

  Sanders is the candidate for environmental enthusiasts. Mother Jones called him the “best candidate on climate change.” He has also been endorsed by national environmental organization, Friends Of The Earth.

  His Plan:

  • Ban offshore drilling, Arctic drilling, natural gas exports, and mountaintop removal coal mining

  • Stop attempts to lift the ban on crude oil exports

  • Ban fracking through the U.S.

  • Expand access to solar and wind energy

  • Invest in geothermal energy

  • Halt nuclear power plant license renewals in the United States and invest in wind, solar, and geothermal energy solutions

  Track Record:

  • Introduced bills like the Residential Energy Savings Act, the Green Jobs Act, and the Energy Efficiency and Conservation Block Grant Program

  • His Low Income Solar Act would provide loans to solar developers to give low-income families access to solar power

  • Helped form a public-private partnership, Efficiency Vermont, and Burlington, Vermont became the first city in the U.S. to run off 100 percent renewable energy

  • Has partnered with the National Guard to improve military energy efficiency to make Vermont a leader in clean-energy

  • In 2011, Bernie announced a three-year, $15 million federal commitment to open the first-ever New England national laboratory

  How Oil Prices Would Be Affected

  Sanders is by far the most aggressive candidate against oil. The only fossil fuel subsidy he supports is the Low Income Home Energy Assistance Program (LIHEAP) that helps low income families with their heating bills. If his plan were passed, the U.S. would be unable to drill, frack, or export oil and natural gas. Therefore, the price of crude oil would likely increase.

  Hillary Clinton

  "On my first day as President, I'll set two big goals. I want the U.S. to have half a billion solar panels by 2020. And I want us to generate enough renewable electricity to power every home in America in the next 10 years. With the right investments, we’ll create good-paying jobs and make America the world’s clean energy superpower."

  Clinton is a big supporter of solar. The prominent environmental group, League of Conservation Voters, has endorsed her. While certain aspects of Hillary Clinton’s background may be questionable, she is making a strong push towards renewable energy sources.

  Related: Choking And Lifting Preventing The Decline In U.S. Shale?

  Her plan:

  • Have every U.S. home powered by renewable energy by 2027

  • Ban offshore drilling

  • Implement $30 billion plan to help coal communities transition away from coal production and move towards developing clean energy

  • Implement a three-month gas tax holiday, where the 18-cent per gallon federal tax on gas between Memorial Day and Labor Day would be lifted

  • Impose a "windfall profits tax" on oil companies

  • Begin negotiations for a North American Climate Compact between the United States, Canada, and Mexico

  • Set ambitious emissions reduction goals

  • Develop common infrastructure standards across the continent

  • Invest in low-carbon transportation

  • Set continent-wide reduction standards for methane

  • Work to strengthen national pipeline safety regulations

  • Create a new national infrastructure bank to invest in new infrastructure projects

  • Make the federal permitting process for clean energy more efficient in order to expand access to it

  Track record:

  • Has come out against the Keystone pipeline

  • Repeatedly voted for legislation that extended the production tax credit for electricity produced from renewable energy sources

  • Proposed making current tax credits for wind and solar production permanent

  • Has been criticized by environmental groups for supporting fossil fuel production and failing to take a strong stance on lifting the ban on exporting crude oil

  How Would Oil Prices Be Affected?

  Clinton has been very careful not to upset big oil. This is probably because her campaign has received million from fossil fuel lobbyists. She also supports natural gas. For the most part, she's played nice with the oil industry, so prices probably won't be too affected, although her recent swing to the left on many environmental issues has oil companies worried that they'll lose an ally. It remains unclear whether her stronger environmental policies are just a ploy for votes, or if these are lasting changes.

  Donald Trump

  “I'm in favor of nuclear energy, very strongly in favor of nuclear energy.”

  “We are going to bring the coal industry back 100 percent.”

  His Plan:

  • Remove the cap and trade tax that the Obama administration has passed

  • Wants to use the natural gas in the Marcellus Shale

  • Plans to cut off U.S. support in Libya unless they give the U.S. 50 percent of their oil for the next 25 years

  • Wants to lift permitting restrictions on drilling for oil, and heavily increase drilling in the U.S.

  • Wants to build up domestic supplies of oil and natural gas to reduce our dependence on OPEC, which he blames for the volatility in global oil prices

  • Increase fracking

  • Supports the Keystone pipeline

  • Make major improvements to the country's infrastructure

  Track Record:

  • Has described wind energy as "not good economically" and “destroying shorelines all over the world"

  • Legally fought to prevent the construction of wind farms in Scotland, and won a lawsuit to stop an offshore wind farm in Ireland

  • Said wind farms are "disgusting looking, but even worse they are bad for people’s health"

  • Said that solar energy is an "unproven technology"

  • Has been criticized for failing to give specifics on his energy policies

  • Has denied global warming

  How Would Oil Prices Be Affected?

  Trump has stated that one of his primary goals as president is to drive down the price of oil. The viability of his plans is questionable, to say the least. With recent statements that he wants to "cut the head off of ISIS and take their oil," and his vow to break up OPEC, it's hard to imagine any of his proposals being implemented.

  Ted Cruz

  “According to the satellite data, there has been no significant global warming for the past 18 years."

  "We are on the verge of an American energy renaissance, and I will lift the regulations that are prohibiting exploration, the Keystone pipeline, and job creation."

  His Plan

  • Increase "responsible energy exploration" including fracking, offshore drilling, and building the Keystone pipeline

  • Broaden energy development on private land

  • Block the Obama administration's “Clean Power Plan,” a set of regulations that would impose stricter requirements on power plants

  • Reduce America's dependency on foreign energy sources, and increase the exploration of domestic energy reserves

  • Allow states to control energy resources on federal land

  • Shrink the power and size of the federal government by eliminating federal regulations and policies surrounding energy

  • Abolish the IRS, the Department of Energy, the Department of Education, the Department of Commerce, and the Department of Housing and Urban Development

  Track Record

  • As a Senator, he authored the American Energy Renaissance Act which was designed to reform and improve our national energy policy by reducing government intervention and improving access to our natural resources

  • Included in this legislation is a provision to prohibit the federal government from regulating greenhouse gas emissions

  • Voted against a five year extension of the wind Production Tax Credit (PTC)

  • Vocal critic of the Renewable Fuel Standard (RFS) mandate, a federal program that requires transportation fuel sold in the U.S. to contain a minimum volume of renewable fuels, and has introduced legislation to phase out RFS over the course of five years

  • Signed the No Climate Tax Pledge: "I pledge to the taxpayers of my state, and to the American people, that I will oppose any legislation relating to climate change that includes a net increase in government revenue."

  • Signed the Contract From America to stop new regulations on climate change

  How Oil Prices Would Be Affected

  The oil and gas industry has invested heavily in Ted Cruz's campaign. He's in good standing with the industry in his home state of Texas, which was responsible for 40 percent of all U.S. oil production in 2014. With his vow to increase domestic oil production through drilling and fracking, the price of oil would likely fall under his leadership.

  Regardless of who you side with, it's important to look closely at each candidate's track record on energy policy, and understand the legislation they want to put forward. The direction of energy policy in America depends largely on who gets elected president. Will we invest in wind and solar? Or will we double down on offshore drilling and fracking to shore up our supply of oil and natural gas?

  

  

  

  

  

• In Dramatic Move, Syrian Kurds Set To Declare Proto-State On Erdogan's Border

  Well, Turkish President Recep Tayyip Erdogan’s worst nightmare is about to come true.

  For days there have been rumors that Syria might attempt to adopt some manner of federal system at peace talks in Geneva as a kind of compromise on the way to negotiating a political solution to the country’s five-year conflict that’s killed some 300,000 people and created the worst refugee crisis Europe has seen since World War II.

  But one of the problems with the “peace talks” is that no one who really matters in terms of the opposition was invited. The High Negotiations Committee (which represents a collection of Saudi-backed anti-Assad elements) is only comprised of representatives from the “moderate” rebels and let’s face it: Russia and Hezbollah just rolled most of them up in five short months, all but forcing them to surrender at Aleppo.

  So it’s not even clear what a federal system would look like with the FSA and the other “moderates.” How would they administer anything in their current depleted condition especially considering they’d live under constant threat of attack from the half dozen (at least) jihadist elements operating in the country?

  The groups who are actually still capable from an operational perspective are al-Nusra, ISIS, and of course, the Kurds (the YPG). Now obviously, you can’t exactly invite ISIS or al-Nusra to Geneva (even though you can, apparently, arm them and send them money), but you could certainly have invited the Syrian Kurds who have been exceptionally effective at battling extremists and who control the entire northern part of the border with Turkey save one small strip west of the Euphrates.

  

  (Kurdish controlled areas are in purple)

  But when the Kurds checked the mail for their Geneva invitation they discovered that as usual, they got the short end of the stick (no doubt thanks to Erdogan). But that’s ok. Because now, they are simply going to take matters into their own hands and declare a federal system.

  “After being excluded from the talks in Geneva, which began on Monday, [the Kurds] are drawing up plans to combine three Kurdish-led autonomous areas of northern Syrian into a federal arrangement,” Reuters reports, adding that “Aldar Khalil, a Kurdish official and one of the organizers, said he anticipated the approval of a new system, and ‘democratic federalism’ was the best one.”

  Idris Nassan, another Kurdish official, told Reuters he also expected a declaration of federalism.

  According to a document seen by Reuters, the Kurds felt the step was necessary because they “envision the failure of U.N.-led peace talks in Geneva.” 

  “The system envisions areas of democratic self-administration that will manage their own economic, security and defense affairs,” the document asserts. The details, Kurdish officials said, would be worked out later. The name of the new proto-state: “The Federal Democratic System of Rojava-North Syria.”

  “Now the conference has just started in Rmelan, about 200 representatives of Rojava have joined [the event]. They represent different ethnicities and nationalities. There are Kurds, Arabs, Assyrians, Syriacs, Turkomans, Armenians, Circassians and Chechens,” Barzan Iso, a Kurdish journalist, told RT. “Also we have representatives from the Syrian democratic forces, YPG, women defense units.”

  “Within days, probably today, self-governing [bodies] of three Kurdish cantons in Syria’s north will declare a federation,” Abd Salam Ali, a PYD party rep in Moscow, told RIA Novosti “Separation of Rojava [Western Kurdistan] from Syria is not an option. We remain [a part of Syria], but declare a federation,” he said.

  From a common sense perspective this makes perfect sense. The Kurds have been defending themselves against virtually everyone for years in Syria and not only that, they managed to make territorial gains while fending off random shelling from inside of Turkey. They’re certainly in a better position to govern themselves than any other group operating in the country including the Alawite government and those who are still loyal to it. 

  Of course this is just about the last thing Erdogan wants to see. Ankara equates the YPG with the PKK and thus with terrorism and worse, Erdogan fears that a Kurdish state on his border will embolden Kurds in southeast Turkey – who, you’re reminded are under bloody seige by government forces that allegedly burned 150 people alive in Cizre last month – to declare autonomy, something the pro-Kurdish HDP supports. 

  For their part Russia is firmly on the side of the Kurds after demanding that they be invited to Geneva. 

  “If the Kurds are ‘thrown out’ of the negotiations on Syria’s future, how can you expect them to want to remain within this state?”  Sergei Lavrov asked in an interview with Russian REN TV channel that aired on Sunday.

  Good question. 

  “The second round of inter-Syrian talks is underway in Geneva, but Syrian Kurds were not invited. It means that the future of Syria and its society is decided without Kurds. In fact, we are pushed back into a conservative, old-fashioned system which does not fit well with us,” Rodi Osman, the head of Syrian Kurdistan’s office in Moscow, told RIA Novosti. “In light of this, we see only one solution which is to declare the creation of [Kurdish] federation. It will serve the interests of the Kurds, but also those of Arabs, Turks, Assyrians, Chechens and Turkomans – all parts of Syria’s multinational society.

  And with that, we can start to see how the next conflict in Syria begins. Erdogan has already shelled the Syrian Kurds in the past month and he’s made it very clear that a Kurdish state on his borders would not be tolerated. “Unilateral moves carry no validity,” the Turkish foreign ministry said, in a terse statement. Ankara will now use every PKK attack and every suicide bombing as an excuse to attack the new proto-state and Erdogan will probably invade later on down the road on the excuse that he’s not invading Syria, but rather a hostile country that supports terrorist elements in southeast Turkey. 

  Note that you heard it here first.

  

  

  

  

  

• "Is This What We Want For A President?" – Trump Launches First Hillary Attack Ad

  For weeks, pundits had been wondering why Donald Trump is holding back from launching direct attacks on Hillary Clinton: after all, only some unpredictable event, or a “brokered convention” (which would “lead to riots” according to Trump) can prevent Trump from being the republican candidate at this point, and the longer Trump delays, the higher the momentum against him on the national arena.

  That all changed earlier today when Trump finally launched his first “attack ad” against Hillary in a tweet asking “Is this what we want for a president”:

  Is this what we want for a President? https://t.co/2yYy6Nyta9

  — Donald J. Trump (@realDonaldTrump) March 16, 2016

  The clip, which will surely attact national attention tonight, contains everything from a laughing Putin, to an ISIS terrorist, and of course, a barking Hillary, has a simple message: “we don’t neet to be a punchline.” It will resonate.

  

  

  

  

  

• Wait A Minute – Who's The Real Fascist?

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  The core belief of the Establishment is the central state should run everything.

  If you're an Establishment insider, the mainstream media will give you plenty of column inches and airtime to label Donald Trump a "dangerous" fascist: for example, Democratic insider Robert Reich's fear-mongering frenzy Donald Trump is a 21st century American fascist, in which Reich conveniently overlooks constitutional limits on any president, "fascist" or not.

  In effect, Reich is announcing the Constitution is dead and powerless to limit the President. Well, if that's the problem, then why not attack the real problem, which is the Imperial Presidency? Why not? Reich served an Imperial President as a loyal lackey, that's why–and he remains an energetic supporter of the central state and its bread-and-circuses institutionalized serfdom.

  If you're an Establishment insider, you'll get ample opportunities in the corporate media to label Bernie Sanders a "dangerous" socialist. You don't even have to be a member of the "vast right-wing conspiracy" (a staple of the Clintons' attack strategy)–any insider can get airtime to label Sanders as "dangerous"–either because he's socialist, or because he's not radical enough. Any attack will do, and you'll get plenty of opportunity to flesh out any attack, no matter how biased or nonsensical.

  It is of course classic Orwellian Doublespeak to label any threat to one's power "fascist," and to laud one's corrupt and venal allies as "freedom fighters," but the Establishment's panicked reliance on accusations of fascism is new and yes, dangerous. So let's step back and ask–precisely who's the fascist here?

  It turns out that the definition of fascism widely attributed to Mussolini– "Fascism should more properly be called corporatism because it is the merger of state and corporate power"–has no provenance: researchers cannot find this quote in any original source material.

  Here is an excellent exploration of the topic: Benito Mussolini on Fascism and Corporatism

  Via the research cited in Mussolini on the Corporate State, we have a verified Mussolini statement on the fascist conception of the state's role in the economy and society:

  The Fascist State lays claim to rule in the economic field no less than in others; it makes its action felt throughout the length and breadth of the country by means of its corporate, social, and educational institutions, and all the political, economic, and spiritual forces of the nation, organised in their respective associations, circulate within the State. (p. 41).

  In other words, the all-powerful central state worshipped by Reich and all the other Establishment insiders, Democrat and Republican alike, is the true culmination of fascism. So if we strip away the Orwellian Doublespeak, we find that it's actually Reich and his fellow believers in the goodness and rightness of the all-powerful central state and central bank who are the real fascists.

  The core belief of the Establishment is the central state should run everything: the state should run the mortgage industry (hey, it does–95% of all mortgages are government-backed or guaranteed); it should run the financial system via setting interest rates, buying bonds and other assets and bailing out/protecting private banks (hey, it does–thank you, Federal Reserve); it should control higher education (the central state not only funds the higher education cartel, it also owns most of the $1.4 trillion in student loan debt); it should control the economy via protecting and enforcing favored monopolies and cartels, and of course the state needs to track any domestic "threats" via surveillance and suppress any resistance to its power by force, media attacks, lawsuits, IRS investigations, social-media smear campaigns, etc.–which is precisely what the U.S. central state's toadies, lackeys, apparatchiks, thugs, bought-off media hacks, et al. do.

  

  That, ladies and gentlemen, is fascism, and that's the Establishment's America. No wonder central-state lackeys like Reich have unleashed frantic attacks against Trump and Sanders–they fear their fascist paradise of central-state-cartel-capitalism might somehow be threatened.

  And like all fascists and fascist states, they over-react to any threats to their power. This over-reaction eventually backfires, for it reveals the true nature of their loyalties and their project: that there is an endless need for more state regulations, controls, programs, guarantees and promises that all will be better as long as you cede control of everything that matters to the state. You are of course still "free" to choose your breakfast cereal and which outpost of the Ministry of Propaganda you wish to view/read/listen to.

  

  The carrot dangled by the fascist state is always the same: there is a free lunch for everyone who cedes control over their lives to the state. For corporations, the free lunch is a quasi-monopoly; for debt-serfs, new programs that erase their debts (i.e. transfer them to others), and for everyone, more entitlements, up to the Nirvana of the fascist state, Guaranteed Minimum Income for all.

  The tragic irony is, as we all know, there is no free lunch. The central state generates the illusion there is a free lunch to institutionalize the dominance of the wealthy and powerful and institutionalize serfdom for everyone else.

  Global Crisis: the Convergence of Marx, Orwell and Kafka (July 25, 2012)

  

  

  

  

  

• Here Is What Janet Yellen Answered When Steve Liesman Asked If The Fed "Has A Credibility Problem"

  The most amusing moment of today’s Janet Yellen press conference occured when none other than Steve Liesman asked Yellen a question, one which he may regret as it is dangerously close to “Pedro da Costa” territory, which goes to the heart of the matter: “does the Fed have a credibility problem?”

  The question goes to the Fed’s self-described role of being “data-dependent”, because if the Fed indeed adhered to the data, it would be hiking right now: it’s latest forecast sees long-term unemployment of 4.7-5.0%, right where the official unemployment rate is currently, while the Core PCE of 1.7% is already higher than the high range of the Fed’s 2016 year end forecast of 1.4%. In light of this data, it makes no sense for the Fed not to be hiking, and certainly makes no sense to be reducing the number of expected rate hikes in 2016 from four to two.

  The jarring congitive dissonance appears to have finally hit Liesman, who asked the following question:

  Madam Chair, as you know, inflation has gone up the last two months. We had another strong jobs report. The tracking forecasts for GDP have returned to two percent. And yet the Fed stands pat while it’s in a process of what it said at launch in December was a process of normalization.

   

  So I have two questions about this. Does the Fed have a credibility problem in the sense that it says it will do one thing under certain conditions, but doesn’t end up doing it? And then, frankly, if the current conditions are not sufficient for the Fed to raise rates, well, what would those conditions ever look like?

  The answer was a 261 word jumbled nightmare of James Joyceian stream of consciousness interspersed with high-end econobabble that we, for one, were completely unable to follow. This is what Yellen responded verbatim:

  Well, let me start — let me start with the question of the Fed’s credibility. And you used the word “promises” in connection with that. And as I tried to emphasize in my opening statement, the paths that the participants project for the federal funds rate and how it will evolve are not a pre-set plan or commitment or promise of the committee. Indeed, they are not even — the median should not be interpreted as a committee-endorsed forecast.  And there’s a lot of uncertainty around each participant’s projection. And they will evolve. Those assessments of appropriate policy are completely contingent on each participant’s forecasts of the economy and how economic events will unfold. And they are, of course, uncertain. And you should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts. So, you have seen a shift this time in most participants’ assessments of the appropriate path for policy. And as I tried to indicate, I think that largely reflects a somewhat slower projected path for global growth — for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads. And those changes in financial conditions and in the path of the global economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives. So that’s what you see — that’s what you see now. 

  Got that?

  Apparently neither did Liesman, who openly admitted in his traditional post-Fed spar with Rick Santelli, the following:

  Santelli: Steve, could you understand any of it? Any of it seriously? Just a yes or no.

  Liesman: Not much, it was not precisely responsive to the question i asked.

  To be sure, Yellen’s response to Liesman’s very simple question merely confirms that any credibility the Fed may have had is long gone; but the real emerging problem for the Yellen Fed is when such stalwart adherents to the Fed’s party line as Steve Liesman are not only losing the plot, but are openly admitting that Yellen no longer makes sense.

  And if the Fed can not make a favorable impression on those who are paid to at least pretend that they “get it”, what about the rest of the market. 

  Worst of all, since the Fed peddles only in faith and “perpetuating the narrative” du jour, in this case one that the Fed has credibility despite not doing what it has explicitly said it would do, how long until it is not just Liesman, but everyone else, who openly admits that the Fed’s emperor is fully naked.

  The exchange between Liesman and Santelli is below. We apologize for the poor picture quality: CNBC appears to have edited this particular segment out.