• Rich Flee "Crime Infested Hell Hole" Chicago Amid Racial Strife, Civil Unrest

  Those who pull the strings are apt to push racial division and general chaos, as the economic avalanche falls in on the population at large.

  As SHTFPlan.com's Mac Slavo notes, uncertain about why finances and money become so difficult, most will fall into the trap of faction-vs-faction on the streets, as the elite helicopter away on profits derived from our general demise.

   

  Taxpayer bailouts, harsher regulations, and more and more policing of every aspect of life would soon follow. If Chicago goes the way of Detroit, it will be not only because of crime and racial tension, but because the jobs, the opportunity and the future have all been shipped overseas and sold off to the highest bidder.

  As The Daily Sheeple's Joshua Krause details, Millionaires fearing civil unrest are fleeing Chicago by the thousands…

  As time goes on the city of Chicago is rapidly turning into a crime infested hell hole, rife with poverty, debt, and racial tension.

  According to CNN, 141 people were murdered in Chicago during the first three months of the year, which is 71.9% higher than the 82 people who were killed in the same time frame last year. Even more astonishing for a city that prides itself on tackling guns, is the fact that shootings during the first three months of the year have gone up 88.5%, from 359 in 2015, to 677 in 2016. In other words, gun violence has nearly doubled over the past year.

   

  CNN interviewed several residents in Chicago about the explosion in violence, and they all seemed to blame it on the economy. “If you really want to stop this epidemic of violence, the best way to stop a bullet is with a job” explained one resident.

   

  While there is certainly merit to that, the economy isn’t the sole contributing factor to violence. In fact, all crime rates declined in the United States following the crash of 2008. Maybe it’s time for the city to admit that making it easier to own and carry a weapon would also alleviate their horrendous crime rates.

  The city is well on its way to joining the likes of Detroit, and there may be no escaping that eventuality. That’s why many of the city’s wealthy elites are getting the hell out of there.

  The Chicago Tribune reports that roughly 3,000 millionaires have left the city over the past year alone, which amounts to about 2 percent of their wealthy population.

   

  This is the largest exodus of wealthy people in the United States, and one of the largest in the world. Paris and Rome are the only cities that lost more millionaires than Chicago in the same time period.

   

  According to research, many of these elites are relocating to other cities in the United States such as Seattle and San Francisco, which saw a net inflow of millionaires over the past year.

   

  When asked about why they were leaving Chicago, most of these millionaires cited racial tension and rising crime rates.

  If you happen to live in Chicago, take a hint from the people with insider knowledge and connections, and get out while you still can.

  

  

  

  

  

• It Begins: Obama Forgives Student Debt Of 400,000 Americans

  Joining the ranks of "broke lawyers" who can cancel their student debt, "Americans with disabilities have a right to student loan relief,” now according to Ted Mitchell, the undersecretary of education, said in a statement. Almost 400,000 student loan borrowers will now have an easier path to a debt bailout as Obama primes the populist voting pump just in time for the elections.

  On top of "the student loan bubble’s dirty little secret," here is another round of student debt relief…as MarketWatch reports,

  The Department of Education will send letters to 387,000 people they’ve identified as being eligible for a total and permanent disability discharge, a designation that allows federal student loan borrowers who can’t work because of a disability to have their loans forgiven. The borrowers identified by the Department won’t have to go through the typical application process for receiving a disability discharge, which requires sending in documented proof of their disability. Instead, the borrower will simply have to sign and return the completed application enclosed in the letter.

   

  If every borrower identified by the Department decides to have his or her debt forgiven, the government will end up discharging more than $7.7 billion in debt, according to the Department.

   

  “Americans with disabilities have a right to student loan relief,” Ted Mitchell, the undersecretary of education, said in a statement. “And we need to make it easier, not harder, for them to receive the benefits they are due.”

   

  About 179,000 of the borrowers identified by the Department are in default on their student loans, and of that group more than 100,000 are at risk of having their tax refunds or Social Security checks garnished to pay off the debt. Often borrowers losing out on these benefits aren’t even aware that they’re eligible for a disability discharge, said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.

   

  “Borrowers just frankly don’t know about this program,” she said. “In the past it’s been incredibly complicated to apply and that process has been getting better over time, but some people just assume that it’s not going to work.” The letters will help make more borrowers aware of their rights, Yu said.

  *  *  *

  So it's a start – "broke lawyers" , "the poor" and "disabled Americans" get student debt relief. What about models that suddenly become too ugly to work? Or Petroleum Engineers no longer able to work because of The Fed's over-indulgent easy money creating a glut in oil prices? Don't they have a right to relief from their student debt? Seems like not granting students debt relief would violate all of their "safe spaces" – so cancel it all! Student Debt Jubilee here we come.

  As we detailed previously, however, this is a drop in the bucket…

  Borrowers hold $1.2 trillion in federal student loans, the second-biggest category of consumer debt, after mortgages. Of that, more than $200 billion is in plans with an income-based repayment option, according to the Department of Education and Moody’s Investors Service. For taxpayers the loans are "a slow-ticking time bomb," says Stephen Stanley, a former Federal Reserve economist who’s now chief economist at Amherst Pierpont Securities in Stamford, Conn.

   

  The Congressional Budget Office estimates that, for loans originated in 2015 or after, the programs will cost the government an additional $39 billion over the next decade.

  So that's a $39 billion taxpayer loss just on loans originated this year or later, and that could very well rise as schools begin to figure out that they can effectively charge whatever they want for tuition now that the government is set to pick up the tab for any balances borrowers can't pay (which incidentally is precisely what we said in March).

  Consider that, then consider how much of the existing $200 billion pile of IBR debt will have to be written off and add in another $10 billion or so to account for for-profit closures and it's not at all unreasonable to suspect that taxpayers will ultimately get stuck with a bill on the order of $100 billion by the time it's all said and done and that's if they're lucky – if the "cancel all student debt" crowd gets its way, the bill will run into the trillions.

  *  *  *

   And finally, as a reminder, if things don't change, Student Debt could be $17 trillion by 2030…

  Student Loan Debt is a cancer for our society. This misconception that getting a college education equals a steady career has been dashed by the recession. For-profit colleges pray on undereducated and low-income individuals. Text book prices have risen exponentially while the cost of a quality education has as well.

   

  

  Source: DailyInfographic.com

  This industry of education is going backwards, and will one day burst.

  

  

  

  

  

• "My Daddy’s Rich And My Lamborghini’s Good-Looking": Meet The Rich Chinese Kids Of Vancouver

  By now, the only people in the world who are not aware that Vancouver has been overrun by Chinese “hot money-parking” oligarchs, who rush to buy any and every available real estate leading to such grotesque charts as the following showing the ridiculous surge in Vancouver real estate prices…

  

  … are officials from the prvincial government conveniently turning a blind eye to what is a very clear real estate bubble. Which perhaps is understandable – for now prices are only going up, giving the impression that all is well even if it means locking out local buyers from being able to purchase any local housing. It will be a different story on the way down.

  But instead of focusing on the culprit of this regional housing bubble, this time we’d like to present the “rich kids” of the Vancouver’s new invading billionaire class, who according to the NYT are also filthy rich.

  Meet Andy Guo, an 18-year-old Chinese immigrant, who loves driving his red Lamborghini Huracán. He does not love having to share the car with his twin brother, Anky. “There’s a lot of conflict,” Mr. Guo said, as a crowd of admirers gazed at the vehicle and its vanity license plate, “CTGRY 5,” short for the most catastrophic type of hurricane.

  The 360,000-Canadian-dollar car was a gift last year from the twins’ father, who travels back and forth between Vancouver and China’s northern Shanxi Province and made his fortune in coal, said Mr. Guo, an economics major at the University of British Columbia.

   

  The car is more fashion than function. “I have a backpack, textbooks and laundry, but I can’t fit everything inside,” he lamented. And that is not the worst of it. “A cop once pulled me over just to look at the car,” he said.

  The story behind the story is well-known. As the NYT summarizes, “China’s rapid economic rise has turned peasants into billionaires. Many wealthy Chinese are increasingly eager to stow their families, and their riches, in the West, where rule of law, clean air and good schools offer peace of mind, especially for those looking to escape scrutiny from the Communist Party and an anti-corruption campaign that has sent hundreds of the rich and powerful to jail.”

  Their target of choice: Vancouver.

  With its weak currency and welcoming immigration policies, Canada has become a top destination for China’s 1 percenters. According to government figures, from 2005 to 2012, at least 37,000 Chinese millionaires took advantage of a now-defunct immigrant investor program to become permanent residents of British Columbia, the province that includes Vancouver. This metropolitan area of 2.3 million is increasingly home to Chinese immigrants, who made up more than 18 percent of the population in 2011, up from less than 7 percent in 1981.

  The stats are also known:

  Many residents say the flood of Chinese capital has caused an affordable housing crisis. Vancouver is the most expensive city in Canada to buy a home, according to a 2016 survey by the consulting firm Demographia. The average price of a detached house in greater Vancouver more than doubled from 2005 to 2015, to around 1.6 million Canadian dollars ($1.2 million), according to the Real Estate Board of Greater Vancouver.

  And according to Knight Frank, in the last year alone Vancouver home prices soared by 25%, the most in the entire world “due to lack of supply, foreign demand and weaker Canadian dollar.” Understandably, residents angry about the rise of rich foreign real estate buyers and absentee owners, particularly from China, have begun protests on social media, including a #DontHave1Million Twitter campaign. The provincial government agreed this year to begin tracking foreign ownership of real estate in response to demands from local politicians.

  But neither the soaring prices, not the groundswell in anger has had any impact on the new class of uberwealthy Chinese. Indeed, as the NYT adds, “the anger has had little effect on the gilded lives of Vancouver’s wealthy Chinese. Indeed, to the newcomers for whom money is no object, the next purchase after a house is usually a car, and then a few more.”

  One group of people is particularly happy: local car dealers.

  Many luxury car dealerships here employ Chinese staff, a testament to the spending power of the city’s newest residents. In 2015, there were 2,500 cars worth more than $150,000 registered in metropolitan Vancouver, up from 1,300 in 2009, according to the Insurance Corporation of British Columbia.

   

  Many of Vancouver’s young supercar owners are known as fuerdai, a Mandarin expression, akin to trust-fund kids, that means “rich second generation.” In China, where the superrich are widely criticized as being corrupt and materialistic, the term provokes a mix of scorn and envy. The fuerdai have brought their passion for extravagance to Vancouver. White Lamborghinis are popular among young Chinese women; the men often turn in their leased supercars after a few months in order to play with a newer, cooler status symbol.

  You will know them by their Lamborghinis: hundreds of young Chinese immigrants, along with a handful of Canadian-born Chinese, have started supercar clubs whose members come together to drive, modify and photograph their flashy vehicles, providing alluring eye candy for their followers on social media.

  

  From left, Loretta Lai, Chelsea Jiang and Diana Wang attended a reception
  at a Lamborghini dealership last month in Vancouver, British Columbia

  Call it the rich Chinese kids of Instagram… in Vancouver.

  The Vancouver Dynamic Auto Club has 440 members, 90 percent of whom are from China, said the group’s 27-year-old founder, David Dai. To join, a member must have a car that costs over 100,000 Canadian dollars, or about $77,000. “They don’t work,” Mr. Dai said of Vancouver’s fuerdai. “They just spend their parents’ money.”

  Because they are rich, they are confident they own the town: “occasionally, the need for speed hits a roadblock. In 2011, the police impounded a squadron of 13 Lamborghinis, Maseratis and other luxury cars, worth $2 million, for racing on a metropolitan Vancouver highway at 125 miles per hour. The drivers were members of a Chinese supercar club, and none were older than 21, according to news reports at the time.”

  And when a mere Lamborhini is not enough, there is always a Rolls-Royce:

  On a recent evening, an overwhelmingly Chinese crowd of young adults had gathered at an invitation-only Rolls-Royce event to see a new black-and-red Dawn convertible, base price $402,000. It is the only such car in North America.

  For some, such as Jin Qiao, 20, the price is no object: a baby-faced art student he moved to Vancouver from Beijing six years ago with his mother. During the week, Mr. Jin drives one of two Mercedes-Benz S.U.V.s, which he said were better suited for the rigors of daily life.

  

  Ms. Jiang at the Lamborghini dealership. Credit

  His most prized possession is a $600,000 Lamborghini Aventador Roadster Galaxy, its exterior custom wrapped to resemble outer space. A lanky design major who favors Fendi clothing and gold sneakers, Mr. Jin extolled the virtues of exotic cars and was quick to dismiss those who criticized supercar aficionados as ostentatious. “There are so many rich people in Vancouver, so what’s the point of showing off?” he said.

  Where does the money come from for these “toys” which most people will live all their lives and never be able to afford? His parents of course. Asked what his parents did for work, Mr. Jin said his father was a successful businessman back in China but declined to provide details. “I can’t say,” he stammered with evident discomfort.

  The corruption behind the nouveau China riche is well known, but as long as its flows those on the receiving end of the fund flows, are happy. “In Vancouver, there are lots of kids of corrupt Chinese officials,” said Shi Yi, 27, the owner of Luxury Motor, a car dealership that caters to affluent Chinese. “Here, they can flaunt their money.”

  Not every has a penchant for supercars. Take Diana Wang, 23,  who thinks a supercar is a poor investment, because its value decreases over time. “Better to spend half a million dollars on two expensive watches or some diamonds,” said a University of British Columbia graduate student who said she owned more than 30 Chanel bags and a $200,000 diamond-encrusted Richard Mille watch.

  

  Ms. Wang, right, at the Lamborghini reception. Left, Paul Oei
  photographed his wife, Ms. Lai, with a new car

  Now those are some good investments. Her business accumen has helped her land a starring role on the online reality show “Ultra Rich Asian Girls of Vancouver,” and normally drives her parents’ Ferrari or Mercedes-Maybach when she visits them in Shanghai.

  But, get this,  in Canada, her parents gave her a strict car budget of 150,000 Canadian dollars ($115,000), so she drives the less-flashy Audi RS5.

  “I could be in danger if people saw me in a supercar,” she said, her Breguet watch, worth more than a BMW, glinting in the sunlight as she drove the Audi through town.

  But don’t call Ms. Wang spoiled: four years ago, to learn the value of money after her friends criticized her spending habits, Ms. Wang spent three days on the streets of Vancouver, playing homeless. She said she had left her mansion with no phone, identification or wallet, wearing Victoria’s Secret pajamas and $1,000 Chanel shoes.

  While in voluntary poverty, she lined up for donated food and felt the sting of humiliation after she was kicked out of a Tim Horton’s fast-food restaurant for falling asleep at a table. The experiment, she said, gave her a new appreciation for her parents’ financial support.

  “Before that experience, I never looked at a price tag,” she said. “Now I do.”

  

  

  

  

  

• 2012 Redux – They Really Don't Know What They Are Doing

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The old adage is that strong and sustained economic growth cures many ills, if not all of them, so it is unsurprising that so many central banks would be so determined to create it. They are, surprisingly, limited in that endeavor as they always stop one step short of recognizing the shortfall. In other words, they will do everything (as they are now forcing themselves to prove) in the orthodox toolkit to achieve that goal but absolutely refuse any other means outside of it – including actual free markets.

  The big news over the weekend came from Italy, and it was more rumor and innuendo than anything. Some very ugly patterns have resurfaced in events everyone assumed had been put to rest in 2011. Bank stocks, European in particular, have had a difficult time since the middle of last year, so the actual condition of European banks is undoubtedly a primary topic of policy discussions – both fiscal and monetary. Nowhere is that more pressing than Italy, where Italian banks stocks are off 35% (in the FTSE Italy Bank Index) vs. “just” 25% for European banks within the Stoxx Europe 600.

  Representatives of Italy’s leading (I’m not sure what qualifies a bank for that description since it is a pretty dubious distinction in this specific case) banks met with government officials to discuss yet another bailout scheme. The banks want the government to fund and established a financial vehicle in order to offload the still “somehow” rising epic of non-performing loans. They argued the same all through 2012 until Mario Draghi made his dramatic “promise” that sent sovereign and bank yields plummeting as “markets” assumed that would be the end of the matter.

  It’s yet more evidence of the main flaw in orthodox theory. It was presumed that the Great Recession was a temporary interruption in the prior economic trend (which wasn’t itself all that robust); a very serious deviation brought about largely by the financial “shock” of the global banking panic. Recovery theory proceeded on that assumption, whereby central banks’ primary task was to restore banking function. From there, with a clear financial path, the economy could fully recover and that growth would over time alleviate these major imbalances left over from both the pre-crisis and the policy efforts in the aftermath.

  It never happened that way, especially in Europe and especially with the events of 2011. Once more the ECB made “normal financial function” its priority first with OMT’s and then the massive LTRO’s. All of that seemed to have worked and December 2011 was the last of major public near-panics. With bond yields and spreads very, very low and no further disruption to banking there should have been recovery; but there hasn’t been.

  

  Proving monetary policy irresistible almost exclusively within its own track (and to nothing else), Italian banks went on a sovereign bond binge of epic proportions. Since the LTRO’s began, Italian banks have increased their holdings of European sovereign securities by 79%, adding more than €312 billion while the ECB through its various programs provided price “cover.” While that was supposed to signal further restoration, it did nothing to shift the trajectory of the cumulative Italian loan portfolio.

  Italian bank holdings of non-performing loans have risen a quite similar 83% since the start of 2012. At just shy of €200 billion, NPL’s suggest why Italian banks are rejecting the monetary transmission invitation.

  

  Instead, the banking system in Italy has used various ECB “largesse” (starting with the LTRO’s) to first shrink and then practice the banking equivalent of liquidity preferences. As Keynes once suggested of real economic agents, there is a similar wholesale banking dynamic at work that central banks intentionally make no account. There has to be a reason to lend not just because rates are low and that is assumed to be “stimulative” of loan demand. Absent total profit opportunity, banks instead maximize whatever small return that prioritizes safety and especially liquidity (a factor that the ECB or any central bank further distorts by whatever it is actually doing in the “market”).

  

  Italian banks took Draghi’s promise about “doing whatever it takes” not as a signal to resurrect risk and robust financialism but rather to shrink their loan portfolios. Again, the rationale isn’t difficult to discern since there has been no recovery; and thus no recovery in NPL’s that are now almost 11% of all loans in Italy. And it’s not just loan portfolios that have been cut, total bank assets have, too, in a trend that is immediately recognizable all across the world.

  

  All of this is supposed to be capitalism at its finest. Central banks continue to undertake greater effort to restart a recovery that will not because banks will not and really cannot. That begins to answer why bank stocks have been under so much pressure as with global liquidity; there is a gaining realization that monetarism doesn’t work because financialism is not capitalism and thus requires an active monetary agent to be carried out. Monetarists claim that they are searching for and stimulating the “animal spirits” of capitalism but that isn’t true at all, with Italian banks providing all the necessary evidence. It is the “printing press” that they seek and it is not a central bank function even though many assume, still, that it is.

  Without the willing and heavy participation of the banking system, specifically balance sheet capacity in all its forms, including lending and money dealing, monetary policy is just empty promises and really derivative pleading. The recovery of a financialized economy has to be determined by banking whereas in recovery banking is secondary; loan growth is not the predicate for capitalism but its byproduct. For one day, however, it all worked again as Italian bank stocks surged on the premise that the Italian government might bail out its banks that were supposed to be several years past needing one. Like the expansion of QE, it is more proof that none of it ever actually worked and they really don’t know what they are doing. The insolvent remain insolvent, the money still not money, and the recovery something else entirely. Central banks possess no recovery magic; they can’t even deliver their own version of one.

  

  

  

  

  

• Chinese Stocks, Yuan Rally After Exports Rebound From February Bloodbath, Imports Fall For 17th Month In A Row

  After February’s bloodbath in Chinese trade data, expectations were for a scorching hot rebound in March. With PBOC’s Yuan ‘basket’ devaluation accelerating throughout this period it should not be surprising that Yuan-based China exports soared and imports beat expectations (but fell 1.7% – extending the losing streak to 17 months in a row). For now, oil and stock (US and China) prices are rising in reaction to this “good” news. Offshore Yuan is drifting stronger against the dollar.

   

  Yuan has been plunging against China’s largest trading partners… 

  

   

  And so maybe Jack Lew has a point when he complains about competitive advantage…

  • *CHINA’S MARCH TRADE SURPLUS 194.6 BILLION YUAN
  • *CHINA’S MARCH EXPORTS RISE 18.7% Y/Y IN YUAN TERMS
  • *CHINA’S MARCH IMPORTS FALL 1.7% Y/Y IN YUAN TERMS

  

  USD-based data looks similar…

  

   

  All driven by what China’s customs spokesman said was a “low base” as Bloomberg’s Tom Orlik notes, China’s March export bounce reflected more base effect than increased demand.
  

  And under the covers…

  • *CHINA JAN-MAR COPPER IMPORTS RISE 30.1% Y/Y
  • *CHINA JAN.-MAR. CRUDE OIL IMPORTS UP 13.4%

  What will Mr.Trump think of all this?

  

  

  

  

  

• Bill Gross Unleashes Tweetstorm On Five "Investor Delusions" Soon To Be Exposed

  In what has so far been a strange day, in which one headline by an “anonymous diplomatic source” and unconfirmed by the Russian energy ministry has pushed stocks from red on the day back to highs for the year, the latest surprise came from Bill Gross who moments ago broke into a “tweetstorm” to lay out what he see as the latest set of investor delusions.

  Gross: (1 of 5) Investor delusions that one day will be exposed to fresh air: #1) China is growing at 6% / yr;

  — Janus Capital (@JanusCapital) April 12, 2016

  Gross: (2 of 5) #2) Central bank historical models are reliable, Negative yields will work;

  — Janus Capital (@JanusCapital) April 12, 2016

  Gross: (3 or 5) #3) Corporate EPS growth is internal as opposed to “buy-back” generated;

  — Janus Capital (@JanusCapital) April 12, 2016

  Gross: (4 of 5) #4) Future corporate tax revisions will increase productivity instead of corporate profits;

  — Janus Capital (@JanusCapital) April 12, 2016

  Gross: (5 of 5) #5) Demographics don’t matter because they move too slowly.

  — Janus Capital (@JanusCapital) April 12, 2016

  The market’s response: clinging on to day’s highs as the “delusions” are happy to persist.

  

  

  

  

  

• Used-Car Inventories Surge To Record Highs As Goldman Fears "Spillovers From Demand Plateau"

  Just 24 hours ago we explained the beginning of the end of the US automaker "house of cards," detailing how the tumble in used-car-prices sets up a vicious circle as Goldman warns "demand has plateaued." This is most evident in the surge in pre-owned vehicle inventories to record highs, forcing, as WSJ reports, dealers to lower prices, further denting new-car pricing. The effect of any sales slowdown, as Goldman ominously concludes, is considerable as spillovers from auto manufacturing can be significant given its highest "multiplier" of any sector in the economy.

  As we noted previously used-car-prices are plunging at a similar pace to 2008…

  

   

  With only sports cars and pickups rising in price in the last 15 months…

  

   

  and with inventories so extremely high… In New Cars…

   

  

   

  And Used Cars… (via WSJ)

  Inventories of used cars in good condition are soaring in the U.S., and finance companies and dealers are scrambling to offer leases as a way to make payments affordable for people who don’t qualify for cheap deals on new cars or those looking to save cash.

  Wholesale pricing fell during each of those months verus 2015, Manheim Consulting data shows. Manheim estimates used-vehicle supply will hit records in during a three-year period starting in 2016.

  Lower used-car prices will eventually dent new-car pricing power, analysts said.

  

   

  Production slowdowns are inevitable… And as Goldman explains, weakness in auto sales and production could be an unwelcome headache for the manufacturing sector.

  We interpret the recent pullback in auto sales as a sign that demand has finally plateaued. Business spending on vehicles has been robust, but pent-up demand from the recession now looks exhausted. Consumer spending on cars and trucks has been flat for two years, despite favorable income trends and access to credit. Auto sales are currently above our estimate of trend demand, and we see the risks to sales as skewed to the downside.

  Sales of light vehicles declined to a seasonally adjusted annualized rate (saar) of 16.5 million units last month, in contrast to consensus expectations for a roughly steady result of 17.5m. The downside surprise of one million units was the largest since 2008, and raises questions about whether the robust trend in vehicle sales is finally cooling off. Seasonal factors may have played a role: using an alternative (but standard) seasonal adjustment technique makes the recent decline look less dramatic, and we find some evidence that an early Easter can depress sales activity in March (Exhibit 1). But beyond these technicalities, we would read the latest data as suggesting that auto demand has now plateaued.

  

  In earlier analysis, we argued that US vehicle sales would likely normalize at 14-15m units per year, based on demographic changes and other secular trends (see shaded area in Exhibit 1). However, sales can run above this level for some time—as they have in recent years—as consumers and firms exhaust pent-up demand from the recession. We think this process is now running its course, and the medium-term risks to auto sales are therefore skewed to the downside.

  Household spending on new motor vehicles has already flattened out, despite solid fundamentals…

  

  Weakness in auto sales and production could be an unwelcome headache for the manufacturing sector. Growth in auto output has accounted for 40% of the increase in manufacturing production since January 2012, not including spillovers to related sectors (Exhibit 4).

  

  The total effect is likely bigger, as spillovers from auto manufacturing can be significant:

  • producing $1 of motor vehicle output requires $1.8 dollars of output from all other industries – the highest “multiplier” of any sector in the economy (according to the BEA’s input-output accounts).

  Although prospects for the manufacturing sector have started to look brighter, a pullback in motor vehicle activity could limit the extent of any rebound.

  

  

  

  

  

• Visualizing The Energy & Mineral Riches Of The Arctic

  The Arctic has been the fascination of many people for centuries.

  Hundreds of years ago, the Europeans saw the Arctic’s frigid waters as a potential gateway to the Pacific. The region has also been home to many unique native cultures such as the Inuits and Chukchi. Lastly, it goes without saying that the Arctic is unsurpassed in many aspects of its natural beauty, and lovers of the environment are struck by the region’s millions of acres of untouched land and natural habitats.

  However, as VisualCapitalist.com's Jeff Desjardins notes, the Arctic is also one of the last frontiers of natural resource discovery, and underneath the tundra and ice are vast amounts of undiscovered oil, natural gas, and minerals. That’s why there is a high-stakes race for Arctic domination between countries such as the United States, Norway, Russia, Denmark, and Canada.

  Today’s infographic highlights the size of some of these resources in relation to global reserves to help create context around the potential significance of this untapped wealth.

   

  

  Courtesy of: Visual Capitalist

   

   

  In terms of oil, it’s estimated that the Arctic has 90 billion barrels of oil that is yet to be discovered. That’s equal to 5.9% of the world’s known oil reserves – about 110% of Russia’s current oil reserves, or 339% of U.S. reserves.

  For natural gas, the potential is even higher: the Arctic has an estimated 1,669 trillion cubic feet of gas, equal to 24.3% of the world’s current known reserves. That’s equal to 500% of U.S. reserves, 99% of Russia’s reserves, or 2,736% of Canada’s natural gas reserves.

  Most of these hydrocarbon resources, about 84%, are expected to lay offshore.

  There are also troves of metals and minerals, including gold, diamonds, copper, iron, zinc, and uranium. However, these are not easy to get at. Starting a mine in the Arctic can be an iceberg of costs: short shipping seasons, melting permafrost, summer swamps, polar bears, and -50 degree temperatures make the Arctic tough to be economic.

  Original graphic by: 911 Metallurgist

  

  

  

  

  

• Dear Dallas Fed, Any Comment?

  Several months ago, just as the market was tumbling on the back of crashing oil prices and not only energy companies but banks exposed to them via secured loans seemed in peril, we wrote a post titled “Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears” in which we made the following observations:

  … earlier this week, before the start of bank earnings season, before BOK’s startling announcement, we reported we had heard of a rumor that Dallas Fed members had met with banks in Houston and explicitly “told them not to force energy bankruptcies” and to demand asset sales instead.

  Rumor Houston office of Dallas Fed met with banks, told them not to force energy bankruptcies; demand asset sales instead

  — zerohedge (@zerohedge) January 11, 2016

  We can now make it official, because moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston.

   

  This is what took place: the Dallas Fed met with the banks and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated “under the table” that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.

   

  In other words, the Fed has advised banks to cover up major energy-related losses.

   

  Why the reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks commercial loan book are impaired, and that’s based on just applying the 3Q marks for public debt to their syndicate sums.

   

  In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed’s involvement that is pressuring banks to not disclose the true state of their energy “books.”

  Before we posted the article we naturally gave the Dallas Fed a chance to comment, which it did not take advantage of. To our surprise, however, the Dallas Fed’s Twitter account did respond two days later as follows:

  No truth to this @zerohedge story. The Dallas Fed does not issue such guidance to banks. https://t.co/rmE3Zul3PM

  — Dallas Fed (@DallasFed) January 18, 2016

  We in turn escalated by submitted a FOIA request demanding the Fed provide any and all documents and materials related to such meetings which according to the Fed did not happen. After all, there was “no truth” to the story.

  The Dallas Fed’s subsequent response to the FOIA was trivial: “the Board does not maintain or possess calendars of Federal Reserve Bank staff.”

  * * *

  We bring all of this up several months later for the following reason: in an article published earlier today on Bloomberg titled “Wells Fargo Misjudged the Risks of Energy Financing” in which the author Asjylyn Loder writes the following:

  … In September, regulators from the OCC, the Federal Reserve and the Federal Deposit Insurance Corp. met with dozens of energy bankers at Wells Fargo’s office in Houston.

   

  The disagreement centered on how to rate the risk of reserves-based loans. Banks insisted that, in a worst-case scenario, they’d be made whole by liquidating the properties. Regulators pushed lenders to focus instead on a borrower’s ability to make enough money to repay the loan, according to the person familiar with the discussions. The agency reinforced its position with new guidelines published last month that instructed banks to consider a company’s total debt and its ability to pay it back when gauging a loan’s risk. Bill Grassano, an OCC spokesman, declined to comment.

  Which, incidentally dovetails with the following article from the WSJ reporting of the same meeting:

  The issue came to a head this month when a dozen regulators from the Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. flew to Houston to meet with about 40 energy bankers from J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Citigroup Inc. and Royal Bank of Canada. In the spring and fall, regulators conduct a review of large corporate loans shared by multiple banks.

   

  Several industry officials said the meeting, held at Wells Fargo’s offices in downtown Houston, was the first of its kind. The bankers and regulators sat around tables in a large room with a screen displaying the OCC’s agenda that largely focused on examining and rating the loans, people familiar with the meeting said.

  Which is odd, because when we read the Bloomberg story, we focus on this particular line: regulators – among which the Fed – “pushed lenders to focus instead on a borrower’s ability to make enough money to repay the loan, according to the person familiar with the discussions.“

  Which sounds awfully close like “giving guidance to banks.”

  Which, incidentally, is what the Dallas Fed tweet said it does not do when it accused us of lying.

  So, dear Dallas Fed, in light of today’s Bloomberg article, would you like to take this chance to revise your statement which is still on the public record at the following link, and according to which you called this website liars?

  Or perhaps there is “no truth” to the Bloomberg story either?

  

  

  

  

  

• SocGen: "Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets"

  With the ECB now unabashedly unleashing a bond bubble in Europe of which it has promised to be a buyer of last resort with the stronly implied hint that European IG companies should issue bonds and buy back shares, and promptly leading to the biggest junk bond issue in history courtesy of Numericable, it will come as no surprise that the world once again has a debt problem.

  For the best description of just how bad said problem is we go to SocGen’s Andrew Lapthorne, one of last few sane analyzers of actual data, a person who first reveaked the stunning fact that every dollar in incremental debt in the 21st century has gone to fund stock buybacks, and who in a note today asks whether “central bank policies going to bankrupt corporate America?”

  His answer is, unless something changes, a resounding yes.

  Here are the key excerpts:

  Sensationalist headlines such as the one above are there to grab the reader’s attention, but the question is nonetheless a serious one. Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today. These central bank policies are having some serious unintended consequences, particular on mid cap and smaller cap stocks.

   

  Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand. The effect on US non-financial balance sheets is now starting to look devastating. We’re not the only ones to be worried. The Office of Financial Research (OFR), a body whose function is to assess financial stability for the US Treasury, highlights corporate debt issuance as their primary threat to financial stability going forward.

   

  In our assessment, credit risk in the U.S. nonfinancial business sector is elevated and rising, and by more than depicted in the Financial Stability Monitor. The evidence is broad. Credit growth to the sector has been rapid for years, pushing the ratio of nonfinancial business debt to GDP to a historically high level. Firm leverage is also at elevated levels. Creditor protections remain weak in debt contracts below investment grade. These factors are consistent with the late stage of the credit cycle, which typically precedes a rise in default rates.

   

  The reality is US corporates appear to be spending way too much (over 35% more than their gross operating cash flow, the biggest deficit in over 20 years of data) and are using debt issuance to make up the difference. US corporates will have to borrow over 2.5% of their market capitalisation (over $400bn each year) to, somewhat ironically, buy back their own stock.

   

  

   

  This cash flow deficit then needs to be financed, hence the continuing need to raise more and more debt. Current spending implies US non-financials will have to raise another $400bn of debt, a large proportion of which would then be reinvested back into the equity market via share repurchases. Some consider this to be shareholder return, while others (ourselves included) see it as simply remortgaging shareholder equity in an attempt to boost short-term share price performance. This in our view is short-term irrationality.

   

  No matter where you look or how you measure it, leverage is elevated and continues to rise to unusually high levels given where we are in the cycle, with the most worrying rise in small cap stocks’ debt levels. Looking at interest cover is not particularly reassuring either, with the weighted interest coverage ratio approaching the recent low of 2009 when EBIT was depressed and not that far off the 1998/2003 levels when corporate bond yields were significantly higher.

   

   

   

  The catalyst for a balance sheet crisis is rarely the affordability of interest rates, so a 25bp rise in Fed rates is neither here nor there. Credit market risk is about assessing the likelihood of getting your money back. As such asset prices (i.e. equity markets) and asset price risk (i.e. equity volatility) are far bigger concerns. So all you need for a balance sheet crisis is declining equity markets, a phenomenon the Fed appears desperate to avoid. Now we know why (see chart below).

   

  

  Well that, and another reason: as of this moment one can measure the daily credibility of central banks by whether stocks closed higher or lower; too low and everyone starts talking about how CBs no longer have credibility and how they would rather Yellen et al would stop micromanaging everything… and then everyone quiets down when stocks surge back to all time highs. Alas, this means that the markets have not only stopped being a discounting mechanism (or rather they only discount what central banks will do in the immediate future), but have also stopped reflecting the underlying economy a long time ago, something will remains lost on all of the “smartest people in the room.”

  

  

  

  

  

• Fed vs. Fed: New York Fed To Issue Its Own GDP Nowcast; Atlanta Fed Too Pessimistic?

  Submitted by Mike “Mish” Shedlock

  Fed vs. Fed: New York Fed To Issue Its Own GDP Nowcast; Atlanta Fed Too Pessimistic?

  It’s Fed vs. Fed in the Nowcasting business. The New York Fed has decided to issue a FRBNY Nowcast, clearly in competition with the Atlanta Fed GDPNow forecast.

  The Atlanta Fed has the name GDPNow trademarked.

  The Atlanta Fed provides its updates following major economic reports. In contrast, the New York Fed will deliver its version every Friday starting April 15.

  We have a sneak peek of this Friday’s Fed vs. Fed battle already.

  FRBNY Nowcast

  

   

  GDPNow History

  

  The above from Sufficient Momentum (For a Recession).

  Current Scorecard

  • Atlanta: 0.1
  • New York: 1.1

  I commend the New York Fed for providing much needed entertainment value. Any other regions want to get in on the act?

  

  

  

  

  

• Gold Options Traders Extend Longest Bullish Streak Since 2009

  Amid gold's best start to a year since 1974, options traders continue to bet on more gains.

  

  Despite the near 17% gains in 2016, put options (bearish bets) have been cheaper than bullish bets (calls) since January 14th.. and options holders own more bullishly biased options overall…

  

   

  As Bloomberg notes this is the longest streak of bullish "skew" since June 2009, after which gold took off from $900 to $1900.

  

   

  And most notably, the "excess" skew has been wrung out, just as it did in mid-2009, providing considerably less "short-squeeze" ammo for any speculative downswing attack.

  Charts: Bloomberg

  

  

  

  

  

• The New Middle Kingdom Of Concrete And The Red Depression Ahead

  Submitted by David Stockman via Contra Corner blog,

  No wonder the Red Ponzi consumed more cement during three years (2011-2013) than did the US during the entire twentieth century. Enabled by an endless $30 trillion flow of credit from its state controlled banking apparatus and its shadow banking affiliates, China went berserk building factories, warehouses, ports, office towers, malls, apartments, roads, airports, train stations, high speed railways, stadiums, monumental public buildings and much more.

  If you want an analogy, 6.6 gigatons of cement is 14.5 trillion pounds. The Hoover dam used about 1.8 billion pounds of cement. So in 3 years China consumed enough cement to build the Hoover dam 8,000 times over—-160 of them for every state in the union!

  

   

  Having spent the last ten days in China, I can well and truly say that the Middle Kingdom is back. But its leitmotif is the very opposite to the splendor of the Forbidden City.

  The Middle Kingdom has been reborn in towers of preformed concrete. They rise in their tens of thousands in every direction on the horizon. They are connected with ribbons of highways which are scalloped and molded to wind through the endless forest of concrete verticals. Some of them are occupied. Alot, not.

  

  The “before” and “after” contrast of Shanghai’s famous Pudong waterfront is illustrative of the illusion.

  The first picture below is from about 1990 at a time before Mr. Deng discovered the printing press in the basement of the People’s Bank of China and proclaimed that it is glorious to be rich; and that if you were 18 and still in full possession of your digital dexterity and visual acuity it was even more glorious to work 12 hours per day 6 days per week in an export factory for 35 cents per hour.

  I don’t know if the first picture is accurate as to its exact vintage. But by all accounts the glitzy skyscrapers of today’s Pudong waterfront did ascend during the last 25 years from a rundown, dimly lit area of muddy streets on the east side of Huangpu River. The pictured area was apparently shunned by all except the most destitute of Mao’s proletariat.

  

  But the second picture I can vouch for. It’s from my window at the Peninsula Hotel on the Bund which lies directly accross on the west side of the Huangpu River and was taken as I typed this post.

  Today’s Pudong district does look spectacular—–presumably a 21st century rendition of the glory of the Qing, the Ming, the Soong, the Tang and the Han.

  But to conclude that would be to be deceived.The apparent prosperity is not that of a sustainable economic miracle; its the front street of the greatest Potemkin Village in world history.

  

  The heart of the matter is that output measured by Keynesian GDP accounting—-especially China’s blatantly massaged variety— isn’t sustainable wealth if it is not rooted in real savings, efficient capital allocation and future productivity growth. Nor does construction and investment which does not earn back its cost of capital over time contribute to the accumulation of real wealth.

  Needless to say, China’s construction and “investment” binge manifestly does not meet these criteria in the slightest. It was funded with credit manufactured by state controlled banks and their shadow affiliates, not real savings. It was driven by state initiated growth plans and GDP targets. These were cascaded from the top down to the province, county and local government levels—–an economic process which is the opposite of entrepreneurial at-risk assessments of future market based demand and profits.

  China’s own GDP statistics are the smoking gun. During the last 15 years fixed asset investment—–in private business, state companies, households and the “public sector” combined—–has averaged 50% of GDP. That’s per se crazy.

  Even in the heyday of its 1960s and 1970s boom, Japan’s fixed asset investment never reached more than 30% of GDP. Moreover, even that was not sustained year in and year out (they had three recessions), and Japan had at least a semblance of market pricing and capital allocation—unlike China’s virtual command and control economy.

  The reason that Wall Street analysts and fellow-traveling Keynesian economists miss the latter point entirely is because China’s state-driven economy works through credit allocation rather than by tonnage toting commissars. The gosplan is implemented by the banking system and, increasingly, through China’s mushrooming and metastasizing shadow banking sector. The latter amounts to trillions of credit potted in entities which have sprung up to evade the belated growth controls that the regulators have imposed on the formal banking system.

  For example, Beijing tried to cool down the residential real estate boom by requiring 30% down payments on first mortgages and by virtually eliminating mortgage finance on second homes and investment properties. So between 2013 and the present more than 2,500 on-line peer-to-peer lending outfits (P2P) materialized—-mostly funded or sponsored by the banking system—– and these entities have advanced more than $2 trillion of new credit.

  The overwhelming share went into meeting “downpayments” and other real estate speculations. On the one hand, that reignited the real estate bubble——especially in the Tier I cities were prices have risen by 20% to 60% during the last year. At the same time, this P2P eruption in the shadow banking system has encouraged the construction of even more excess housing stock in an economy that already has upwards of 70 million empty units.

  In short, China has become a credit-driven economic madhouse. The 50% of GDP attributable to fixed asset investment actually constitutes the most spectacular spree of malinvestment and waste in recorded history. It is the footprint of a future depression, not evidence of sustainable growth and prosperity.

  Consider a boundary case analogy. With enough fiat credit during the last three years, the US could have built 160 Hoover dams on dry land in each state. That would have elicited one hellacious boom in the jobs market, gravel pits, cement truck assembly plants, pipe and tube mills, architectural and engineering offices etc. The profits and wages from that dam building boom, in turn, would have generated a secondary cascade of even more phony “growth”.

  But at some point, the credit expansion would stop. The demand for construction materials, labor, machinery and support services would dry-up; the negative multiplier on incomes, spending and investment would kick-in; and the depression phase of a crack-up boom would exact its drastic revenge.

  The fact is, China has been in a crack-up boom for the last two decades, and one which transcends anything that the classic liberal economists ever imagined.  Since 1995, credit outstanding has grown from $500 billion to upwards of $30 trillion, and that’s only counting what’s visible. But the very idea of a 60X expansion of credit in hardly two decades in the context of top-down allocation system suffused with phony data and endless bureaucratic corruption defies economic rationality and common sense.

  Stated differently, China is not simply a little over-done, and it’s not in some Keynesian transition from exports and investment to domestic services and consumption. Instead, China’s fantastically over-built industry and public infrastructure embodies monumental economic waste equivalent to the construction of pyramids with shovels and spoons and giant dams on dry land.

  Accordingly, when the credit pyramid finally collapses or simply stops growing, the pace of construction will decline dramatically, leaving the Red Ponzi riddled with economic air pockets and negative spending multipliers.

  Take the simple case of the abandoned cement mixer plant pictured below. The high wages paid in that abandoned plant are now gone; the owners have undoubtedly fled and their high living extravagance is no more. Nor is this factory’s demand still extant for steel sheets and plates, freight services, electric power, waste hauling, equipment replacement parts and on down the food chain.

  And, no, a wise autocracy in Beijing will not be able to off-set the giant deflationary forces now assailing the construction and industrial heartland of China’s hothouse economy with massive amounts of new credit to jump start green industries and neighborhood recreation facilities. That’s because China has already shot is its credit wad, meaning that every new surge in its banking system will trigger even more capital outflow and expectations of FX depreciation.

  Moreover, any increase in fiscal spending not funded by credit expansion will only rearrange the deck chairs on the titanic. Indeed, whatever borrowing headroom Beijing has left will be needed to fund the bailouts of its banking and credit system. Without massive outlays for the purpose of propping-up and stabilizing China’s vast credit Ponzi, there will be economic and social chaos as the tide of defaults and abandonments swells.

  

  Empty factories like the above—–and China is crawling with them—–are a screaming marker of an economic doomsday machine. They bespeak an inherently unsustainable and unstable simulacrum of capitalism where the purpose of credit has been to fund state mandated GDP quota’s, not finance efficient investments with calculable risks and returns.

  The relentless growth of China’s aluminum production is just one more example. When China’s construction and investment binge finally stops, there will be a huge decline in industry wages, profits and supply chain activity.

  

  But the mother of all malinvestments sprang up in China’s steel industry. From about 70 million tons of production in the early 1990s, it exploded to 825 million tons in 2014. Beyond that, it is the capacity build-out behind the chart below which tells the full story.

  To wit, Beijing’s tsunami of cheap credit enabled China’s state-owned steel companies to build new capacity at an even more fevered pace than the breakneck growth of annual production. Consequently, annual crude steel capacity now stands at nearly 1.4 billion tons, and nearly all of that capacity—-about 70% of the world total—— was built in the last ten years.

  Needless to say, it’s a sheer impossibility to expand efficiently the heaviest of heavy industries by 17X in a quarter century.

  

  What happened is that China’s aberrationally massive steel industry expansion created a significant one-time increment of demand for its own products. That is, plate, structural and other steel shapes that go into blast furnaces, BOF works, rolling mills, fabrication plants, iron ore loading and storage facilities, as well as into plate and other steel products for shipyards where new bulk carriers were built and into the massive equipment and infrastructure used at the iron ore mines and ports.

  That is to say, the Chinese steel industry has been chasing its own tail, but the merry-go-round has now stopped. For the first time in three decades, steel production in 2015 was down 2-3% from 2014’s peak of 825 million tons and is projected to drop to 750 million tons next year, even by the lights of the China miracle believers.

  And that’s where the pyramid building nature of China’s insane steel industry investment comes in. The industry is not remotely capable of “rationalization” in the DM economy historical sense. Even Beijing’s much ballyhooed 100-150 million ton plant closure target is a drop in the bucket—-and its not scheduled to be completed until 2020 anyway.

  To wit, China will be lucky to have 400 million tons of true sell-through demand—-that is, on-going domestic demand for sheet steel to go into cars and appliances and for rebar and structural steel to be used in replacement construction once the current one-time building binge finally expires.

  For instance, China’s construction and shipbuilding industries consumed about 500 million tons per year at the crest of the building boom. But shipyards are already going radio silent and the end of China’s manic eruption of concrete, rebar and I-beams is not far behind. Use of steel for these purposes could easily drop to 200 million tons on a steady state basis.

  Bu contrast, China’s vaunted auto industry uses only 45 million tons of steel per year, and consumer appliances consume less than 12 million tons. In most developed economies autos and white goods demand accounts for about 20% of total steel use.

  Likewise, much of the current 200 million tons of steel which goes into machinery and equipment including massive production of mining and construction machines, rails cars etc. is of a one-time nature and could easily drop to 100 million tons on a steady state replacement basis.  So its difficult to see how China will ever have recurring demand for even 400 million tons annually, yet that’s just 30% of its massive capacity investment.

  In short, we are talking about wholesale abandonment of a half billion tons of steel capacity or more. That is, the destruction of steel industry capacity greater than that of Japan, the EC and the US combined.

  Needless to say, that thunderous liquidation will generate a massive loss of labor income and profits and devastating contraction of the steel industry’s massive and lengthy supply chain. And that’s to say nothing of the labor market disorder and social dislocation when China is hit by the equivalent of dozens of burned-out Youngstowns and Pittsburgs.

  And it is also evident that it will not be in a position to dump its massive surplus on the rest of the world. Already trade barriers against last year’s 110 million tons of exports are being thrown up in Europe, North America, Japan and nearly everywhere else.

  This not only means that China has upwards of a half-billion tons of excess capacity that will crush prices and profits, but, more importantly, that the one-time steel demand for steel industry CapEx is over and done. And that means shipyards and mining equipment, too.

  That is already evident in the vanishing order book for China’s giant shipbuilding industry. The latter is focussed almost exclusively on dry bulk carriers——-the very capital item that delivered into China’s vast industrial maw the massive tonnages of iron ore, coking coal and other raw materials. But within in a year or two most of China’s shipyards will be closed as its backlog rapidly vanishes under a crushing surplus of dry bulk capacity that has no precedent, and which has driven the Baltic shipping rate index to historic lows.

  Still, we now have the absurdity of China’s state shipping company (Cosco) ordering 11 massive containerships that it can’t possibly need (China’s year-to-date exports are down 20%) in order to keep its vastly overbuilt shipyards in new orders. And those wasteful new orders, in turn will take plate from China’s white elephant steel mills:

  This and other state-owned shipyards are being kept busy by China Ocean Shipping Group, better known as Cosco, the country’s largest shipper by carrying capacity, which ordered 11 huge container ships last year. Caixin, the financial magazine, reported that the three ships ordered from Waigaoqiao would be able to carry 20,000 20ft containers, making them the world’s largest.

   

  The weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered.

   

  About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan. 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013.

   

  

  Total orders at Chinese shipyards tumbled 59 percent in the first 11 months of 2015, according to data released Dec. 15 by the China Association of the National Shipbuilding Industry. Builders have sought government support as excess vessel capacity drives down shipping rates and prompts customers to cancel contracts. Zhoushan Wuzhou Ship Repairing & Building Co. last month became the first state-owned shipbuilder to go bankrupt in a decade.

  It is not surprising that China’s massive shipbuilding industry is in distress and that it is attempting to export its troubles to the rest of the world. Yet subsidizing new builds will eventually add more downward pressure to global shipping rates—-rates which are already at all time lows. And as the world’s shipping companies are driven into insolvency, they will take the European banks which have financed them down the drink, as well.

  Still, the fact that China is exporting yet another downward deflationary spiral to the world economy is not at all surprising. After all, China’s shipbuilding output rose by 11X in 10 years!

   

  

  The worst thing is that just as the Red Ponzi is beginning to crack, China’s leader is rolling out the paddy wagons and reestablishing a cult of the leader that more and more resembles nothing so much as a Maoist revival. As Xi said while making the rounds of the state media recently, its job is to:

  “……reflect the will of the Party, mirror the views of the Party, preserve the authority of the Party, preserve the unity of the Party and achieve love of the Party, protection of the Party and acting for the Party.”

  

  The above proclamation needs no amplification. China will increasingly plunge into a regime of harsh, capricious dictatorship as the Red Depression unfolds.  And that will only fuel the downward spiral which is already gathering momentum.

  During the first two months of 2016, for example, China export machine has buckled badly. Exports fell 25.4% in February year over year, following an 11.2% decline in January.

  

  Likewise, local economies in its growing rust belt, such as parts of Heilongjiang, in far northeast China have dropped by 20% in the last two years and are still in free fall. Coal prices in those areas have plunged by 65% since 2011 and hundreds of mines have been closed or abandoned.

  The picture below is epigrammatic of what lies behind the great Potemkin Village which is the Red Ponzi.

   

  

  While pictures can often tell a thousand words, as in the above, sooner or later then numbers are no less revealing. The fact is, no economy can undergo the fantastic eruption of credit that has occurred in China during the last two decades without eventually coming face to face with a day of reckoning. And a Bloomberg analysis of the shocking deterioration of credit metrics in the non-financial sector of China suggests that day is coming fast.

  To wit, overall interest expense coverage by operating income has plunged dramatically, and virtually every major industrial sector of the Red Ponzi is underwater with a coverage ratio of less than 1.0X.

  Stated differently, during the first two months of this year China’s total social financing or credit outstanding surged at an incredible $6 trillion annual rate. That means the Red Ponzi is on track to bury itself in a further debt load equal to 55% of GDP by year end.

  But that’s not the half of it. What is evident from the Bloomberg data below is that the overwhelming share of these new borrowings are being allocated to pay interest on existing debt because it is not being covered by current operating profits.

  Firms generated just enough operating profit to cover the interest expenses on their debt twice, down from almost six times in 2010, according to data compiled by Bloomberg going back to 1992 from non-financial companies traded in Shanghai and Shenzhen. Oil and gas corporates were the weakest at 0.24 times, followed by the metals and mining sector at 0.52.

   

  The People’s Bank of China has lowered benchmark interest rates six times since 2014, driving a record rally in the bond market and underpinning a jump in debt to 247 percent of gross domestic product. Yet economic growth has slumped to the slowest in a quarter century and profits for the listed companies grew only 3 percent in 2015, down from 11 percent in 2014. The mounting debt burden has caused at least seven firms to miss local bond payments this year, already reaching the tally for the whole of last year.

   

  “We will likely see a wave of bankruptcies and restructurings when the interest coverage ratio drops further,” said Xia Le, chief economist for Asia at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “Return on assets for Chinese companies has been declining due to rising debt. Profitability is also slowing due to overcapacity in many sectors, which has weakened the ability of companies to repay their debts.”

   

  

   

  Massive borrowing to pay the interest is everywhere and always a sign that the the end is near. The crack-up phase of China’s insane borrowing and building boom is surely at hand.

  

  

  

  

  

• Swiss Bank Whistleblower Claims Panama Papers Was A CIA Operation

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Bradley Birkenfeld is the most significant financial whistleblower of all time, so you might think he’d be cheering on the disclosures in the new Panama Papers leaks. But today, Birkenfeld is raising questions about the source of the information that is shaking political regimes around the world.

   

  “The CIA I’m sure is behind this, in my opinion,” Birkenfeld said.

   

  – From the CNBC article: Swiss Banker Whistleblower: CIA Behind Panama Papers

  Last Friday, I published a post titled, Was the Panama Papers “Leak” a Russian Intelligence Operation? Here’s some of what I wrote:

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

   

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

   

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

   

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

   

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

  The main point I was trying to hammer home with that post was the fact that I did not believe the Panama Papers was an altruistic act of heroic whistleblowing, but that it was an intelligence operation. I went on to say that I thought the notion it was a Russian job was plausible merely because if it was indeed a CIA operation (as I initially suspected), we would have to accept that the agency is mind-bogglingly sloppy and clownish. Nevertheless, according to notorious swiss bank whistleblower, Bradley Birkenfeld, this is the work of the CIA.

  CNBC reports:

  Bradley Birkenfeld is the most significant financial whistleblower of all time, so you might think he’d be cheering on the disclosures in the new Panama Papers leaks. But today, Birkenfeld is raising questions about the source of the information that is shaking political regimes around the world.

   

  Birkenfeld, an American citizen, was a banker working at UBS in Switzerland when he approached the U.S. government with information on massive amounts of tax evasion by Americans with secret accounts in Switzerland. By the end of his whistleblowing career, Birkenfeld had served more than two years in a U.S. federal prison, been awarded $104 million by the IRS for his information and shattered the foundations of more than a century of Swiss banking secrecy.

   

  In an exclusive interview Tuesday from Munich, Birkenfeld said he doesn’t think the source of the 11 million documents stolen from a Panamanian law firm should automatically be considered a whistleblower like himself. Instead, he said, the hacking of the Panama City-based firm, called Mossack Fonseca, could have been done by a U.S. intelligence agency.  

   

  “The CIA I’m sure is behind this, in my opinion,” Birkenfeld said. 

   

  Birkenfeld pointed to the fact that the political uproar created by the disclosures have mainly impacted countries with tense relationships with the United States. “The very fact that we see all these names surface that are the direct quote-unquote enemies of the United States, Russia, China, Pakistan, Argentina and we don’t see one U.S. name. Why is that?” Birkenfeld said. “Quite frankly, my feeling is that this is certainly an intelligence agency operation.”

   

  Asked why the U.S. would leak information that has also been damaging to U.K. Prime Minister David Cameron, a major American ally, Birkenfeld said the British leader was likely collateral damage in a larger intelligence operation.

   

  “If you’ve got NSA and CIA spying on foreign governments they can certainly get into a law firm like this,” Birkenfeld said. “But they selectively bring the information to the public domain that doesn’t hurt the U.S. in any shape or form. That’s wrong. And there’s something seriously sinister here behind this.”

   

  This just further confirms my belief that this whole “leak” isn’t what we are being told. This is the work of an intelligence agency working on behalf of a particular government, not on behalf of the public. Don’t be duped.

  

  

  

  

  

• Goldman and Wells Fargo FINALLY Admit They Committed Fraud

  Goldman Sachs has finally admitted to committing fraud.  Specifically, Goldman Sachs reached a settlement yesterday with the Department of Justice, in which it  admitted fraud:

  The settlement includes a statement of facts to which Goldman has agreed.  That statement of facts describes how Goldman made false and misleading representations to prospective investors about the characteristics of the loans it securitized and the ways in which Goldman would protect investors in its RMBS from harm (the quotes in the following paragraphs are from that agreed-upon statement of facts, unless otherwise noted):

   

  • Goldman told investors in offering documents that “[l]oans in the securitized pools were originated generally in accordance with the loan originator’s underwriting guidelines,” other than possible situations where “when the originator identified ‘compensating factors’ at the time of origination.”  But Goldman has today acknowledged that, “Goldman received information indicating that, for certain loan pools, significant percentages of the loans reviewed did not conform to the representations made to investors about the pools of loans to be securitized.”
  • Specifically, Goldman has now acknowledged that, even when the results of its due diligence on samples of loans from those pools “indicated that the unsampled portions of the pools likely contained additional loans with credit exceptions, Goldman typically did not . . . identify and eliminate any additional loans with credit exceptions.”  Goldman has acknowledged that it “failed to do this even when the samples included significant numbers of loans with credit exceptions.” 
  • Goldman’s Mortgage Capital Committee, which included senior mortgage department personnel and employees from Goldman’s credit and legal departments, was required to approve every RMBS issued by Goldman.  Goldman has now acknowledged that “[t]he Mortgage Capital Committee typically received . . . summaries of Goldman’s due diligence results for certain of the loan pools backing the securitization,” but that “[d]espite the high numbers of loans that Goldman had dropped from the loan pools, the Mortgage Capital Committee approved every RMBS that was presented to it between December 2005 and 2007.”  As one example, in early 2007, Goldman approved and issued a subprime RMBS backed by loans originated by New Century Mortgage Corporation, after Goldman’s due diligence process found that one of the loan pools to be securitized included loans originated with “[e]xtremely aggressive underwriting,” and where Goldman dropped 25 percent of the loans from the due diligence sample on that pool without reviewing the unsampled 70 percent of the pool to determine whether those loans had similar problems.
  • Goldman has acknowledged that, for one August 2006 RMBS, the due diligence results for some of the loan pools resulted in an “unusually high” percentage of loans with credit and compliance defects.  The Mortgage Capital Committee was presented with a summary of these results and asked “How do we know that we caught everything?”  One transaction manager responded “we don’t.”  Another transaction manager responded, “Depends on what you mean by everything?  Because of the limited sampling . . . we don’t catch everything . . .”  Goldman has now acknowledged that the Mortgage Capital Committee approved this RMBS for securitization without requiring any further due diligence.
  • Goldman made detailed representations to investors about its “counterparty qualification process” for vetting loan originators, and told investors and one rating agency that Goldman would engage in ongoing monitoring of loan sellers.  Goldman has now acknowledged, however, that it “received certain negative information regarding the originators’ business practices” and that much of this information was not disclosed to investors.
  • For example, Goldman has now acknowledged that in late 2006 it conducted an internal analysis of the underwriting guidelines of Fremont Investment & Loan (an originator), which found many of Fremont’s guidelines to be “off market” or “at the aggressive end of market standards.”  Instead of disclosing its view of Fremont’s underwriting, Goldman has acknowledged that it “[u]ndertook a significant marketing effort” to tell investors about what Goldman called Fremont’s “commitment to loan quality over volume” and “significant enhancements to Fremont underwriting guidelines.”  Fremont was shut down by federal regulators within several months of these statements.
  • In another example, Goldman was aware in early-mid 2006 of certain issues with Countrywide Financial Corporation’s origination process, including a pattern of non-responsiveness and inability to provide sufficient staff to handle the numerous loan pools Countrywide was selling.  In April 2006, while Goldman was preparing an RMBS backed by Countrywide loans for securitization, a Goldman mortgage department manager circulated a “very bullish” equity research report that recommended the purchase of Countrywide stock.  Goldman’s head of due diligence, who had just overseen the due diligence on six Countrywide pools, responded “If they only knew . . . .”

  Similarly, Wells Fargo settled with the Department of Justice last week and – as part of the settlement – admitted fraud:

  Wells Fargo & Co admitted to deceiving the U.S. government into insuring thousands of risky mortgages, as it formally reached a … settlement of a U.S. Department of Justice lawsuit.

   

  ***

   

  According to the settlement, Wells Fargo “admits, acknowledges, and accepts responsibility” for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance.

   

  The San Francisco-based lender also admitted to having from 2002 to 2010 failed to file timely reports on several thousand loans that had material defects or were badly underwritten ….

  Why should we care?

  Because Wells Fargo received a $25 billion dollar bailout and Goldman received $10 billion in one bailout and $13 billion in another.

  Moreover, fraud was one of the main causes of the Great Depression and the Great Recession … which cost tens of trillions of dollars in losses. But nothing has been done to rein in fraud today. And governments have virtually made it official policy not to prosecute fraud criminally. (Background.)

  Fraud is an economy-killer, and trying to prevent deflation while allowing a breakdown in the rule of law is like pumping blood into a patient without suturing his gaping wounds.

  

  

  

  

• Japan Leads Global Central Banks to the End Game

  As I’ve outlined in recent missives, Japan is at the forefront for Keynesian driven Central Bank monetary policy. Japan was not only the first Central Bank to start ZIRP and QE, it has also launched the single largest QE program in history (a single QE program equal to over 25% of Japan’s GDP).

   

  However, in the last few months, the Head of the Bank of Japan, Haruhiko Kuroda has lost credibility for the markets. Specifically:

   

  1)   The markets only rallied for a day after he announced NIRP.

   

  2)   His claim that there are “no limits” to the monetary policy the Bank of Japan might employ failed to generate a market rally.

   

  3)   Japanese lawmakers have begun to openly criticize him.

   

  Regarding #3, consider the following article published in Bloomberg.

   

  The Bank of Japan took a wrong turn by adopting negative interest rates this year, says Takeshi Fujimaki, the Japanese banker turned opposition lawmaker who first called for sub-zero yields two decades ago.

   

  Governor Haruhiko Kuroda’s decision to charge for some deposits parked at the central bank is punishing those who hold the cash he just spent 2 1/2 years pumping into the economy. And the BOJ is boxing itself into a corner because it won’t be able to stop its asset purchases once inflation takes hold, raising the specter of fiscal collapse as yields soar, the 65-year-old lawmaker said.

   

  "The BOJ is trapped,” Fujimaki, who has been predicting an eventual default in Japan over the past 20 years, said in a Feb. 16 interview at his office in Tokyo. “Minus rates weaken the yen and push up inflation, but the BOJ doesn’t have the courage to expand negative rates because that will expedite a fiscal collapse."

   

  Source Bloomberg

   

  Compare this to another Bloomberg article written immediately after Kuroda launched NIRP and before it was obvious that the market had turned against him

   

  BOJ Market Magician Kuroda Pulls Another Rabbit From His Hat

   

  …In the case of Japan, the bold move by Bank of Japan Governor Haruhiko Kuroda shows the lengths that the BOJ is willing to go to end a decades-long economic malaise. Since taking over in 2013, Kuroda has already pushed monetary policy to the limits with an aggressive quantitative easing program of bond and other asset purchases that has blown out the central bank’s balance sheet to about three-quarters the size of the economy. Along the way, the yen has tumbled more than 20 percent versus the dollar.

   

              Source Bloomberg

   

  Kuroda has gone from a magician to being “trapped.” Small wonder as his goal of forcing the Yen lower (the black line below) and pushing the Nikkei higher (the blue line below) has completely reversed.

   

  

   

  Now even former IMF economists are admitting Japan has entered the “End Game”

   

  Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned.

   

  Olivier Blanchard, former chief economist at the International Monetary Fund, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory.

   

  Source: Telegraph

   

  The situation here is more significant than many realize. Japan first launched ZIRP in 1999. QE was launched there in 2000. So the Bank of Japan has roughly 15 years of experience with the monetary policies that all Central Banks have begun to adopt post 2008.

   

  So if the Bank of Japan loses control of its financial system, it’s only a matter of time before other Central Banks do the same. At that point it’s systemic collapse.

   

  Buckle up… it’s coming. Sooner than most expect too.

   

  If you’ve yet to prepare for a bear market in stocks we just published a 21-page investment report titled Stock Market Crash Survival Guide.

   

  In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

   

  We are giving away just 100 copies for FREE to the public.

   

  To pick up yours, swing by:

  https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

   

  Best Regards

   

  Graham Summers

  Chief Market Strategist

  Phoenix Capital Research

   

   

   

  

  

  

  

• Hate Taxes? You Certainly Are Not Alone…

  Submitted by Michael Snyder via The Economic Collapse blog,

  At this time of the year, millions of Americans are rushing to file their taxes at the last minute, and we are once again reminded just how nightmarish our system of taxation has become. 

  I studied tax law when I was in law school, and it is one of the most mind-numbing areas of study that you could possibly imagine.  At this point, the U.S. tax code is somewhere around 4 million words long, which is more than four times longer than all of William Shakespeare’s works put together.  And even if you could somehow read the entire tax code, it is constantly changing, and so those that prepare taxes for a living are constantly relearning the rules. 

  It has been said that Americans spend more than 6 billion hours preparing their taxes each year, and Politifact has rated this claim as true.  We have a system that is as ridiculous as it is absurd, and the truth is that we don’t even need it.  In fact, the greatest period of economic growth in all of U.S. history was when there was no income tax at all.  Why anyone would want to perpetuate this tortuous system is beyond me, and yet we keep sending politicians to Washington D.C. that just keep making this system even more complicated and even more burdensome.

  If you hate taxes, you are far from alone.  According to NBC News, here are some of the things that Americans would rather do than pay taxes…

  Six percent would rather sell a kidney, eight percent would rather name their first-born “Taxes,” and 11 percent would rather spend three years cleaning the bathrooms at noro-torious Chipotle.

  Of course our system was never intended to be like this anyway.  Our founders hated taxes, and they fought a very bitter war to escape the yoke of oppressive taxation.  During his very first inaugural address, Thomas Jefferson clearly expressed what he thought about taxes…

  “A wise and frugal government… shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”

  Why couldn’t we have listened to him?

  When the federal income tax was originally introduced a little more than a century ago, most Americans were taxed at a rate of only 1 percent.

  But of course once they get their feet in the door, the social planners always want more, and today we are being taxed into oblivion.  Below, I would like to share with you three quick facts about our taxes that come from the Tax Foundation…

  -This year, Tax Freedom Day falls on April 24, or 114 days into the year (excluding Leap Day).

  -Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes, for a total bill of almost $5.0 trillion, or 31 percent of the nation’s income.

  -Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.

  That last statistic is a huge sore point with me.

  How can anyone argue that we are not a socialist society when the government takes more of our money than we spend on food, clothing and housing combined?

  What they are doing to us is deeply wrong and it is fundamentally un-American.

  And of course the elite have the resources to be able to hire very expensive tax attorneys that help them manipulate the game in their favor.  At the end of the day, many extremely wealthy Americans end up paying a much lower percentage of their income to the government than you or I do.

  For example, just consider what the Clintons have been doing…

  The Clintons and their family foundation have at least five shell companies registered to the address 1209 North Orange Street in Wilmington, Delaware — which is also home to some 280,000 other companies who use the location to take advantage of the state’s low taxes, limited disclosure requirements, and other business incentives.

  Two of the five are tied to Bill and Hillary Clinton specifically. One, WJC, LLC, is used by the former president to collect his consulting fees. The other, ZFS Holdings, LLC, was used by the former secretary of state to process her $5.5 million book advance from Simon & Schuster. Three additional shell companies belong to the Clinton Foundation.

  One could argue that they are simply “playing the game”, but why do we have to play such a complicated game in the first place?

  Another thing that frustrates me is how our tax money is being wasted.  Speaking of the Clintons, did you know that Bill Clinton still receives close to a million dollars from the federal government every year?  Since he left office in 2001, he has been given approximately 16 million of our tax dollars.

  Does that seem right to you?

  Of course there are other examples that should make us all sick as well.  Tens of millions of our tax dollars have been spent on Obama vacations, and Planned Parenthood received 528 million taxpayer dollars in one recent year.

  Our system is deeply, deeply broken, but I am under no illusion that it will change any time soon.  It will probably just continue to roll along until it eventually collapses under its own weight.

  And of course it isn’t just income taxes that I am talking about.  Our politicians have become masters at inventing ways to extract money from all of us.  If you doubt this, just look at the list that I have shared below.  It comes from my previous article entitled “A List Of 97 Taxes Americans Pay Every Year“, and it shows how the politicians are squeezing money out of us in just about every way that you can imagine…

  #1 Air Transportation Taxes (just look at how much you were charged the last time you flew)

  #2 Biodiesel Fuel Taxes

  #3 Building Permit Taxes

  #4 Business Registration Fees

  #5 Capital Gains Taxes

  #6 Cigarette Taxes

  #7 Court Fines (indirect taxes)

  #8 Disposal Fees

  #9 Dog License Taxes

  #10 Drivers License Fees (another form of taxation)

  #11 Employer Health Insurance Mandate Tax

  #12 Employer Medicare Taxes

  #13 Employer Social Security Taxes

  #14 Environmental Fees

  #15 Estate Taxes

  #16 Excise Taxes On Comprehensive Health Insurance Plans

  #17 Federal Corporate Taxes

  #18 Federal Income Taxes

  #19 Federal Unemployment Taxes

  #20 Fishing License Taxes

  #21 Flush Taxes (yes, this actually exists in some areas)

  #22 Food And Beverage License Fees

  #23 Franchise Business Taxes

  #24 Garbage Taxes

  #25 Gasoline Taxes

  #26 Gift Taxes

  #27 Gun Ownership Permits

  #28 Hazardous Material Disposal Fees

  #29 Highway Access Fees

  #30 Hotel Taxes (these are becoming quite large in some areas)

  #31 Hunting License Taxes

  #32 Import Taxes

  #33 Individual Health Insurance Mandate Taxes

  #34 Inheritance Taxes

  #35 Insect Control Hazardous Materials Licenses

  #36 Inspection Fees

  #37 Insurance Premium Taxes

  #38 Interstate User Diesel Fuel Taxes

  #39 Inventory Taxes

  #40 IRA Early Withdrawal Taxes

  #41 IRS Interest Charges (tax on top of tax)

  #42 IRS Penalties (tax on top of tax)

  #43 Library Taxes

  #44 License Plate Fees

  #45 Liquor Taxes

  #46 Local Corporate Taxes

  #47 Local Income Taxes

  #48 Local School Taxes

  #49 Local Unemployment Taxes

  #50 Luxury Taxes

  #51 Marriage License Taxes

  #52 Medicare Taxes

  #53 Medicare Tax Surcharge On High Earning Americans Under Obamacare

  #54 Obamacare Individual Mandate Excise Tax (if you don’t buy “qualifying” health insurance under Obamacare you will have to pay an additional tax)

  #55 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income)

  #56 Parking Meters

  #57 Passport Fees

  #58 Professional Licenses And Fees (another form of taxation)

  #59 Property Taxes

  #60 Real Estate Taxes

  #61 Recreational Vehicle Taxes

  #62 Registration Fees For New Businesses

  #63 Toll Booth Taxes

  #64 Sales Taxes

  #65 Self-Employment Taxes

  #66 Sewer & Water Taxes

  #67 School Taxes

  #68 Septic Permit Taxes

  #69 Service Charge Taxes

  #70 Social Security Taxes

  #71 Special Assessments For Road Repairs Or Construction

  #72 Sports Stadium Taxes

  #73 State Corporate Taxes

  #74 State Income Taxes

  #75 State Park Entrance Fees

  #76 State Unemployment Taxes (SUTA)

  #77 Tanning Taxes (a new Obamacare tax on tanning services)

  #78 Telephone 911 Service Taxes

  #79 Telephone Federal Excise Taxes

  #80 Telephone Federal Universal Service Fee Taxes

  #81 Telephone Minimum Usage Surcharge Taxes

  #82 Telephone State And Local Taxes

  #83 Telephone Universal Access Taxes

  #84 The Alternative Minimum Tax

  #85 Tire Recycling Fees

  #86 Tire Taxes

  #87 Tolls (another form of taxation)

  #88 Traffic Fines (indirect taxation)

  #89 Use Taxes (Out of state purchases, etc.)

  #90 Utility Taxes

  #91 Vehicle Registration Taxes

  #92 Waste Management Taxes

  #93 Water Rights Fees

  #94 Watercraft Registration & Licensing Fees

  #95 Well Permit Fees

  #96 Workers Compensation Taxes

  #97 Zoning Permit Fees

  So after reading all of this, are you still satisfied with how our present system operates?

  

  

  

  

  

• Mixed API Report and Doha Meeting Production Agreement in Play for Oil Market

  By EconMatters

   

  

  We could have a bearish slant to tomorrow`s EIA Report, and some profit taking after today`s rally in the Oil Market. API reports 6.2 Million build in Oil Inventories.

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

  

  

  

  

• Bernanke's Former Advisor: "People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned"

  With every passing day, the Fed is slowly but surely losing the game.

  Only it is not just former (and in some cases current) Fed presidents admitting central banks are increasingly powerless to boost the global economy, even if they still have sway over capital markets. What is far more insidious to the Fed’s waning credibility is when former economists affiliated with the Fed start repeating mantras that until recently were only a prominent feature in the so-called fringe media.

  This is precisely what happened today when former central bank staffer and Dartmouth College economics professor Andrew Levin, special adviser to then Fed Chairman Ben Bernanke between 2010 to 2012, joined with an activist group to argue for overhauls at the central bank that they say would distance it from Wall Street and make its activities more transparent and accountable to the public.

  Levin is pressing for the overhaul with Fed Up coalition activists. Many of the proposed changes target the 12 regional Federal Reserve Banks, which are quasi-private and technically owned by commercial banks in their respective districts.

  All of that is not surprising. What he said to justify his new found cause, however, is.

  “A lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned, Mr. Levin said. The Fed “should be a fully public institution just like every other central bank” in the developed world, he said in a conference call announcing the plan. He described his proposals as “sensible, pragmatic and nonpartisan.”

  Why is that stunning? Because it has long been a bone of contention if only among the fringe media, that at its core the Fed is merely a private institution, beholden only to its de facto owners: not the people of the U.S. but to a small cabal of banks. Worse, the actual org chart of who owns what is not disclosed, even as the vast majority of the U.S. population remains deluded that the Fed is a publicly owned institution.

  As the WSJ goes on to note, the former central bank staffer said he sees his ideas as designed to maintain the virtues the central bank already brings to the table. They aren’t targeted at changing how policy is conducted today. “What’s important here is that reform to the Federal Reserve can last for 100 years, not just the near term,” he said.

  And this is coming from a former Fed employee and Ben Bernanke’s personal advisor! That in itself is a most striking development, because now that the insiders are finally speaking up, it will be a race among both current and prior Fed workers to reveal as much dirty laundry as possible ahead of what is increasingly being perceived by many as the Fed’s demise.

  To be sure, Levin’s personal campaign for Fed transformation will not be easy, and as the WSJ writes, what is being sought by Mr. Levin and the activists is significant and would require congressional action. Ady Barkan, who leads the Fed Up campaign, said the Fed’s current structure “is an embarrassment to America” and Fed leaders haven’t been “willing or able” to make changes.

  Specifically, Levin wants the 12 regional Fed banks to be brought fully into the government. He also wants the process of selecting new bank presidents—they are key regulators and contributors in setting interest-rate policy—opened up more fully to public input, as well as term limits for Fed officials.

  This would represent a revolution to the internal staffing of the Fed, which will no longer be at the mercy of its now-defunct shareholders, America’s commercial banks; it would also mean that Goldman Sachs would lose all its leverage as the world’s biggest central bank incubator, a revolving door relationship which has allowed the Manhattan firm to dominate the world of finance for the decades.

  Levin’s proposal was made in conjunction with the Center for Popular Democracy’s Fed Up coalition, a group that has been pressuring the central bank for more accountability for some time. The left-leaning group has been critical of the structure of the regional banks, and has been pressing the Fed to hold off on raising rates in a bid to make sure the recovery is enjoyed not just by the wealthy, in their view.

  The proposal was revealed on a conference call that also included a representative from Bernie Sanders’s presidential campaign, although all campaigns were invited to participate.

  The WSJ adds that according to Levin, who knows the Fed’s operating structure intimately, says the members of the regional Fed bank boards of directors, the majority of whom are selected by the private banks with the approval of the Washington-based governors, should be chosen differently. The professor says director slots now reserved for financial professionals regulated by the Fed should be eliminated, and that directors who oversee and advise the regional banks should be selected in a public process involving the Washington governors and local elected officials. These directors also should better represent the diversity of the U.S.

  Levin also wants formal public input into the selection of new bank presidents, with candidates’ names known publicly and a process that allows for public comment in a way that doesn’t now exist. The professor also wants all Fed officials to serve for single seven-year terms, which would give them the needed distance from the political process while eliminating situations where some policy makers stay at the bank for decades. Alan Greenspan, for example, was Fed chairman from 1987 to 2006.

  As the WSJ conveniently adds, the selection of regional bank presidents has become a hot-button issue. Currently, the leaders of the New York, Philadelphia, Dallas and Minneapolis Fed banks are helmed by men who formerly worked for or had close connections to investment bank Goldman Sachs.

  Levin called for watchdog agency the Government Accountability Office to annually review and report on Fed operations, including the regional Fed banks. He also wants the regional Fed banks to be covered under the Freedom of Information Act. A regular annual review hopefully would insulate the effort from perceptions of political interference, Mr. Levin said.

  * * *

  While ending the Fed may still seem like a pipe dream, at least until the market’s next major crash at which point the population may  finally turn on the culprit behind America’s serial boom-bust culture, the U.S. central bank, Levin’s proposal would get to the heart of the most insidious conflict of interest in the US: the fact that the Federal Reserve works not for the people of America, but for its owners – the banks.

  Which is also why, sadly, this proposal will be dead on arrival, as its passage would represent the biggest loss for Wall Street in the past 103 years, far more significant than anything Dodd-Frank could hope to accomplish.

  

  

  

  

  

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• 19 Signs That American Families Are Being Economically Destroyed

  Via Michael Snyder's Economic Collapse blog,

  The systematic destruction of the American way of life is happening all around us, and yet most people have no idea what is happening. 

  Once upon a time in America, if you were responsible and hard working you could get a good paying job that could support a middle class lifestyle for an entire family even if you only had a high school education.  Things weren’t perfect, but generally almost everyone in the entire country was able to take care of themselves without government assistance. 

  We worked hard, we played hard, and our seemingly boundless prosperity was the envy of the entire planet.  But over the past several decades things have completely changed.

  We consumed far more wealth than we produced, we shipped millions of good paying jobs overseas, we piled up the biggest mountain of debt in the history of the world, and we kept electing politicians that had absolutely no concern for the long-term future of this nation whatsoever.  So now good jobs are in very short supply, we are drowning in an ocean of red ink, the middle class is rapidly shrinking and dependence on the government is at an all-time high. 

  Even as we stand at the precipice of the next great economic crisis, we continue to make the same mistakes.  In the end, all of us are going to pay a very great price for decades of incredibly foolish decisions.  Of course a tremendous amount of damage has already been done.  The numbers that I am about to share with you are staggering.  The following are 19 signs that American families are being economically destroyed…

  #1 The poorest 40 percent of all Americans now spend more than 50 percent of their incomes just on food and housing.

  #2 For those Americans that don’t own a home, 50 percent of them spend more than a third of their incomes just on rent.

  #3 The price of school lunches has risen to the 3 dollar mark at many public schools across the nation.

  #4 McDonald’s “Dollar Menu & More” now includes items that cost as much as 5 dollars.

  #5 The price of ground beef has doubled since 2009.

  #6 In 1986, child care expenses for families with employed mothers used up 6.3 percent of all income.  Today, that figure is up to 7.2 percent.

  #7 Incomes fell for the bottom 80 percent of all income earners in the United States during the 12 months leading up to June 2014.

  #8 At this point, more than 50 percent of all American workers bring home less than $30,000 a year in wages.

  #9 After adjusting for inflation, median household income has fallen by nearly $5,000 since 2007.

  #10 According to the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.

  #11 47 percent of all Americans do not put a single penny out of their paychecks into savings.

  #12 One survey found that 62 percent of all Americans are currently living paycheck to paycheck.

  #13 According to the U.S. Department of Education, 33 percent of all Americans with student loans are currently behind on their student loan debt repayments.

  #14 According to one recent report, 43 million Americans currently have unpaid medical debt on their credit reports.

  #15 The rate of homeownership in the U.S. has been declining for seven years in a row, and it is now the lowest that it has been in 20 years.

  #16 For each of the past six years, more businesses have closed in the United States than have opened.  Prior to 2008, this had never happened before in all of U.S. history.

  #17 According to the Census Bureau, 65 percent of all children in the United States are living in a home that receives some form of aid from the federal government.

  #18 If you have no debt at all, and you also have 10 dollars in your wallet, that you are wealthier than 25 percent of all Americans.

  #19 On top of everything else, the average American must work from January 1st to April 24th just to pay all federal, state and local taxes.

  All of us know people that once were doing quite well but that are now just struggling to get by from month to month.

  Perhaps this has happened to you.

  If you have ever been in that position, you probably remember what it feels like to have people look down on you.  Unfortunately, in our society the value that we place on individuals has a tremendous amount to do with how much money they have.

  So if you don’t have much money, there are a lot of people out there that will treat you like dirt.  The following excerpt comes from a Washington Post article entitled “The poor are treated like criminals everywhere, even at the grocery store“…

  Want to see a look of pure hatred? Pull out an EBT card at the grocery store.

   

  Now that my kids are grown and gone, my Social Security check is enough to keep me from qualifying for government food benefits. But I remember well when we did qualify for a monthly EBT deposit, a whopping $22 — and that was before Congress cut SNAP benefits in November 2013. Like 70 percent of people receiving SNAP benefits, I couldn’t feed my family on that amount. But I remember the comments from middle-class people, the assumptions about me and my disability and what the poor should and shouldn’t be spending money on.

  Have you ever seen this?

  Have you ever experienced this yourself?

  These days, most people on food stamps are not in that situation because they want to be.  Rather, they are victims of our long-term economic collapse.

  And this is just the beginning.  When the next major economic crisis strikes, the suffering in this country is going to go to unprecedented levels.

  As we enter that time, we are going to need a whole lot more love and compassion than we are exhibiting right now.

  As a nation, we have made decades of incredibly bad decisions.  As a result, we are experiencing bad consequences which are going to become increasingly more severe.

  The numbers that I just shared with you are not good.  But over the next several years they are going to get a whole lot worse.

  Everything that can be shaken will be shaken, and life in America is about to change in a major way.

  

  

  

  

• China's Stealth Devaluation Continues Despite Lew Blasting "Unacceptable" FX Practices

  "Intervention in foreign exchange markets in order to gain a competitive advantage is unacceptable," proclaims US Treasury Secretary Jack Lew in a strongly worded statement today with regard America's position in the global economy. That we note this comment is only relevant as, despite the apparent "stability" of the Chinese Yuan against the USD, relative to the 13-currency-basket with which China primarily trades, the Yuan has collapsed to 17-month lows – with JPY and EUR appearing to bear the brunt of the pain.

  The US Dollar has traded within a relatively "stable" band against the offshore Yuan for much of the last six weeks…

  

   

  But when compared to the collapse of the Yuan "basket" – as PBOC devalued against the rest of the major trading partners – the 'stealth' devaluation is obvious…

  

   

  Is it any wonder that JPY is surging – despite all of Kuroda's best jawboning efforts?

   

  As Lew's statement notes,

  As other countries gain greater voice in the international system, they also must accept greater responsibilities. A major one is to engage in responsible foreign exchange practices. Currency fluctuations are a normal and even desirable attribute of the global economy. When the values of currencies are allowed to move according to market forces, the global economy can better adapt to changes in relative economic performance among countries. What is unacceptable, however, is intervention in foreign exchange markets in order to gain a competitive advantage in trade or impede adjustments in the balance of payments.

   

  Competitive devaluation represents a beggar-thy-neighbor fight for a shrinking global pie, not a pathway to stronger global growth.

   

  Strong multilateral institutions such as the IMF and the G-20 are important vehicles for reinforcing norms against predatory currency practices and for mobilizing multilateral pressure against countries that engage in them. At the G-20 meeting in Shanghai this February, members not only committed to using all tools of policy—monetary, fiscal, and structural—to boost economic growth in a time of weak demand. They also committed to refrain from competitive devaluation and, for the first time, to consult on foreign exchange markets to avoid surprises that could threaten global financial stability.

  So the question is – Is it ok to "devalue" your currency against other non-reserve-status currencies? As long as the veil of "stability" is maintained against The USD?

  

  

  

  

  

• Fleecing The American Taxpayer: The Profit Incentives Driving The Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.” ? Ron Paul

  If there is an absolute maxim by which the federal government seems to operate, it is that the American taxpayer always gets ripped off.

  This is true whether you’re talking about taxpayers being forced to fund high-priced weaponry that will be used against us, endless wars that do little for our safety or our freedoms, or bloated government agencies such as the National Security Agency with its secret budgets, covert agendas and clandestine activities. Rubbing salt in the wound, even monetary awards in lawsuits against government officials who are found guilty of wrongdoing are paid by the taxpayer.

  Not only are American taxpayers forced to “spend more on state, municipal, and federal taxes than the annual financial burdens of food, clothing, and housing combined,” but we’re also being played as easy marks by hustlers bearing the imprimatur of the government.

  With every new tax, fine, fee and law adopted by our so-called representatives, the yoke around the neck of the average American seems to tighten just a little bit more.

  Everywhere you go, everything you do, and every which way you look, we’re getting swindled, cheated, conned, robbed, raided, pickpocketed, mugged, deceived, defrauded, double-crossed and fleeced by governmental and corporate shareholders of the American police state out to make a profit at taxpayer expense.

  The overt and costly signs of the despotism exercised by the increasingly authoritarian regime that passes itself off as the United States government are all around us: warrantless surveillance of Americans’ private phone and email conversations by the NSA; SWAT team raids of Americans’ homes; shootings of unarmed citizens by police; harsh punishments meted out to schoolchildren in the name of zero tolerance; drones taking to the skies domestically; endless wars; out-of-control spending; militarized police; roadside strip searches; roving TSA sweeps; privatized prisons with a profit incentive for jailing Americans; fusion centers that collect and disseminate data on Americans’ private transactions; and militarized agencies with stockpiles of ammunition, to name some of the most appalling.

  Meanwhile, the three branches of government (Executive, Legislative and Judicial) and the agencies under their command—Defense, Commerce, Education, Homeland Security, Justice, Treasury, etc.—have switched their allegiance to the Corporate State with its unassailable pursuit of profit at all costs and by any means possible. As a result, we are now ruled by a government consumed with squeezing every last penny out of the population and seemingly unconcerned if essential freedoms are trampled in the process.

  As with most things, if you want to know the real motives behind any government program, follow the money trail.

  When you dig down far enough, as I document in my book Battlefield America: The War on the American People, you quickly find that those who profit from Americans being surveilled, fined, scanned, searched, probed, tasered, arrested and imprisoned are none other than the police who arrest them, the courts which try them, the prisons which incarcerate them, and the corporations, which manufacture the weapons, equipment and prisons used by the American police state.

  Examples of this legalized, profits-over-people, government-sanctioned extortion abound.

  In the schools: The security industrial complex with its tracking, spying, and identification devices has set its sights on the schools as “a vast, rich market”—a $20 billion market, no less—just waiting to be conquered. In fact, the public schools have become a microcosm of the total surveillance state which currently dominates America, adopting a host of surveillance technologies, including video cameras, finger and palm scanners, iris scanners, as well as RFID and GPS tracking devices, to keep constant watch over their student bodies. Likewise, the military industrial complex with its military weapons, metal detectors, and weapons of compliance such as tasers has succeeded in transforming the schools—at great taxpayer expense and personal profit—into quasi-prisons. Rounding things out are school truancy laws, which come disguised as well-meaning attempts to resolve attendance issues in the schools but in truth are nothing less than stealth maneuvers aimed at enriching school districts and court systems alike through excessive fines and jail sentences for “unauthorized” absences. Curiously, none of these efforts seem to have succeeded in making the schools any safer.

   

  On the roads: It has long been understood that police departments have quotas for how many tickets are issued and arrests made per month, a number tied directly to revenue. Likewise, red light camera schemes—sold to communities as a means of minimizing traffic accidents at intersections but which in fact are just a vehicle for levying nuisance fines against drivers often guilty of little more than making a right-hand turn on a red light—have been shown to do little to increase safety while actually contributing to more accidents. Nevertheless, these intrusive, money-making scams, which also function as surveillance cameras, are being inflicted on unsuspecting drivers by revenue-hungry municipalities, despite revelations of corruption, collusion and fraud.

   

  In the prisons: States now have quotas to meet for how many Americans go to jail. Increasing numbers of states have contracted to keep their prisons at 90% to 100% capacity. This profit-driven form of mass punishment has, in turn, given rise to a $70 billion private prison industry that relies on the complicity of state governments to keep the money flowing and their privately run prisons full, “regardless of whether crime was rising or falling.” As Mother Jones reports, “private prison companies have supported and helped write … laws that drive up prison populations. Their livelihoods depend on towns, cities, and states sending more people to prison and keeping them there.” Private prisons are also doling out harsher punishments for infractions by inmates in order to keep them locked up longer in order to “boost profits” at taxpayer expense. All the while, the prisoners are being forced to provide cheap labor for private corporations. No wonder the United States has the largest prison population in the world at a time when violent crime is at an all-time low.

   

  In the endless wars abroad: Fueled by the profit-driven military industrial complex, the government’s endless wars is wreaking havoc on our communities, our budget and our police forces. Having been co-opted by greedy defense contractors, corrupt politicians and incompetent government officials, America’s expanding military empire is bleeding the country dry at a rate of more than $57 million an hour, and that’s just the budget for the Dept. of Defense for 2016, with its 1000-plus U.S. military bases spread around the globe. Incredibly, although the U.S. constitutes only 5% of the world's population, America boasts almost 50% of the world's total military expenditure,  spending more on the military than the next 19 biggest spending nations combined. In fact, the Pentagon spends more on war than all 50 states combined spend on health, education, welfare, and safety.

   

  In the form of militarized police: The Department of Homeland Security routinely hands out six-figure grants to enable local municipalities to purchase military-style vehicles, as well as a veritable war chest of weaponry, ranging from tactical vests, bomb-disarming robots, assault weapons and combat uniforms. This rise in military equipment purchases funded by the DHS has, according to analysts Andrew Becker and G.W. Schulz, “paralleled an apparent increase in local SWAT teams.” The end result? An explosive growth in the use of SWAT teams for otherwise routine police matters, an increased tendency on the part of police to shoot first and ask questions later, and an overall mindset within police forces that they are at war—and the citizenry are the enemy combatants. Over 80,000 SWAT team raids are conducted on American homes and businesses each year. Moreover, government-funded military-style training drills continue to take place in cities across the country. These Urban Shield exercises, elaborately staged with their own set of professionally trained Crisis Actors playing the parts of shooters, bystanders and victims, fool law enforcement officials, students, teachers, bystanders and the media into thinking it’s a real crisis.

   

  In profit-driven schemes such as asset forfeiture: Under the guise of fighting the war on drugs, government agents (usually the police) have been given broad leeway to seize billions of dollars’ worth of private property (money, cars, TVs, etc.) they “suspect” may be connected to criminal activity. Then—and here’s the kicker—whether or not any crime is actually proven to have taken place, the government keeps the citizen’s property, often divvying it up with the local police who did the initial seizure. The police are actually being trained in seminars on how to seize the “goodies” that are on police departments’ wish lists. According to the New York Times, seized monies have been used by police to “pay for sports tickets, office parties, a home security system and a $90,000 sports car.”

   

  Among government contractors: We have been saddled with a government that is outsourcing much of its work to high-paid contractors at great expense to the taxpayer and with no competition, little transparency and dubious savings. According to the Washington Post, “By some estimates, there are twice as many people doing government work under contract than there are government workers.” These open-ended contracts, worth hundreds of millions of dollars, “now account for anywhere between one quarter and one half of all federal service contracting.” Moreover, any attempt to reform the system is “bitterly opposed by federal employee unions, who take it as their mission to prevent good employees from being rewarded and bad employees from being fired.”

   

  Among defense contractors: Over the past two decades, America has become increasingly dependent on private defense contractors in order to carry out military operations abroad (the government’s extensive use of private security contractors has surged under Obama). In fact, the United States can no longer conduct large or sustained military operations or respond to major disasters without heavy support from contractors. As a result, the U.S. employs at a minimum one contractor to support every soldier deployed to Afghanistan and Iraq. With paid contractors often outnumbering enlisted combat troops, the American war effort has evolved from the “coalition of the willing” into the “coalition of the billing.”

   

  By the security industrial complex: Not only is the government spying on Americans’ phone calls and emails, but police are also being equipped with technology such as Stingray devices that can track your cell phone, as well as record the content of your calls and the phone numbers dialed. The DHS has distributed more than $50 million in grants—again, paid by taxpayers—to enable local police agencies to acquire license plate readers, which rely on mobile cameras to photograph and identify cars, match them against a national database, and track their movements. Relying on private contractors to maintain a license plate database allows the DHS and its affiliates to access millions of records without much in the way of oversight. That doesn’t even touch on what the government’s various aerial surveillance devices are tracking, or the dangers posed to the privacy and safety of those on the ground.

  The bottom line?

  These injustices, petty tyrannies and overt acts of hostility are being carried out in the name of the national good—against the interests of individuals, society and ultimately our freedoms—by an elite class of government officials working in partnership with megacorporations that are largely insulated from the ill effects of their actions.

  This perverse mixture of government authoritarianism and corporate profits has increased the reach of the state into our private lives while also adding a profit motive into the mix. And, as always, it’s we the people, we the taxpayers, we the gullible voters who keep getting taken for a ride by politicians eager to promise us the world on a plate.

  This is a far cry from how a representative government is supposed to operate. Indeed, it has been a long time since we could claim to be the masters of our own lives. Rather, we are now the subjects of a militarized, corporate empire in which the vast majority of the citizenry work their hands to the bone for the benefit of a privileged few.

  Adding injury to the ongoing insult of having our tax dollars misused and our so-called representatives bought and paid for by the moneyed elite, the government then turns around and uses the money we earn with our blood, sweat and tears to target, imprison and entrap us, in the form of militarized police, surveillance cameras, private prisons, license plate readers, drones, and cell phone tracking technology.

  All of those nefarious deeds that you read about in the paper every day: those are your tax dollars at work. It’s your money that allows for government agents to spy on your emails, your phone calls, your text messages, and your movements. It’s your money that allows out-of-control police officers to burst into innocent people’s homes, or probe and strip search motorists on the side of the road. And it’s your money that leads to innocent Americans across the country being prosecuted for innocuous activities such as raising chickens at home, growing vegetable gardens, and trying to live off the grid.

  Just remember the next time you see a news story that makes your blood boil, whether it’s a police officer arresting someone for filming them in public, or a child being kicked out of school for shooting an imaginary arrow, or a homeowner being threatened with fines for building a pond in his backyard, remember that it is your tax dollars that are paying for these injustices.

  So what are you going to do about it?

  There was a time in our history when our forebears said “enough is enough” and stopped paying their taxes to what they considered an illegitimate government. They stood their ground and refused to support a system that was slowly choking out any attempts at self-governance, and which refused to be held accountable for its crimes against the people. Their resistance sowed the seeds for the revolution that would follow.

  Unfortunately, in the 200-plus years since we established our own government, we’ve let bankers, turncoats and number-crunching bureaucrats muddy the waters and pilfer the accounts to such an extent that we’re back where we started.

  Once again, we’ve got a despotic regime with an imperial ruler doing as they please.

  Once again, we’ve got a judicial system insisting we have no rights under a government which demands that the people march in lockstep with its dictates.

  And once again, we’ve got to decide whether we’ll keep marching or break stride and make a turn toward freedom.

  But what if we didn’t just pull out our pocketbooks and pony up to the federal government’s outrageous demands for more money? What if we didn’t just dutifully line up to drop our hard-earned dollars into the collection bucket, no questions asked about how it will be spent? What if, instead of quietly sending in our checks, hoping vainly for some meager return, we did a little calculating of our own and started deducting from our taxes those programs that we refuse to support?

  If we don’t have the right to decide what happens to our hard-earned cash, then we don’t have very many rights at all. If they can just take from you what they want, when they want, and then use it however they want, you can’t claim to be anything more than a serf in a land they think of as theirs.

  This was the case in the colonial era, and it’s the case once again.

  

  

  

  

  

• Used Car Price Plunge "Could Bring The Whole House Of Cards Down"

  When we first warned that something was breaking in the American auto market, the Phil-LeBeau-ians crawled out of the woodwork to explain how everything is still awesome (brushing the weakness in stocks) despite soaring inventories and shrinking credit. Then when used-car prices began to leak lower, a few paid attention and the recent weakness in new car sales has shocked most. Now, however, used-car-prices are plunging at a similar pace to 2008…

   

  

   

  With only sports cars and pickups rising in price in the last 15 months…

  

   

  And RBC's Joseph Spak wonders if declining used vehicle prices (biggest YoY since 2013)…

  

   

  Is "the card that brings the whole house down."

  The reason for concern is lower used vehicle prices have a potential spillover effect to many other industry factors.

   

  If we think about volume, price, mix, credit – all have been incredibly positive and supportive of the recovery. All are also no doubt related, but that’s what makes it a bit scary.

  • Volume. Higher used vehicle values means higher trade-in value bringing incremental consumers to the new market.
  • Price/Mix. Higher trade-in values allow consumers to “buy” more vehicle. Low rates/term-extension help this too. On mix, greater affordability has pushed consumers into more profitable CUVs or trucks from passenger cars (especially amid low fuel). Putting it all together, it shouldn’t come as a surprise that industry ATPs are up ~15% since 2010.
  • Credit. High used values lead to lower monthly payments, but perhaps that credit wasn’t as “strong” as lead to believe. For the OEM's captive finance companies, if the vehicle is leased, that lease is written with a higher residual value thereby lowering the monthly payment. As such, we’ve seen leasing mix as a percent of retail sales rise dramatically during the recovery from 17% in 2010 to 29% in 2015. This is another example of letting the consumer get more vehicle than they otherwise can afford.

  Now let’s think about the unwind.

   

  Lower used vehicle values mean lower trade-in value which means lower vehicle affordability. Maybe the consumer is underwater (especially if bought on longer term loans). New volumes could decline if the consumer holds off (or looks to the secondary market). Mix worsens as the consumer affordability is lower. ATPs decline as OEMs incentivize to keep volume and/or mix going. Captive finance companies may write down lease portfolios. In general, monthly payments go higher which raises the credit risk which in turn means auto loan rates could increase which could then stymie demand/mix.

   

  Used vehicle pricing is likely to continue to decline as off-lease volume should increase further from 3.1mm in 2016 to 3.6/4mm in 2017/18.

  It should not surprise many then that US Auto Sales (SAAR), via WARD's Automative Group, tumbled 3.5% YoY to end March – the biggest YoY plunge since July 2009 (pre-Cash-for-Clunkers)…

  

   

  And this price and sales weakness is occurring amid a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years…

  

   

  None of this should be a surprise to readers, as we noted previously, Tommy Behnke in Mises Daily predicted that auto prices will fall as the bubble bursts from the artificially created demand generated from excessive credit creation.

   Behnke pointed out that car production has increased a whopping 100 percent since 2009, but that apologists for government’s monetary stimulus programs see this fact as proof of the success of their Keynesian, aggregate demand hypothesis.

   

  Behnke, on the other hand, took the Austrian perspective that the government has simply substituted a bubble in subprime auto loans for the bubble in subprime home loans. As defaults rise and automobile loan credit tightens, the result will be the same. Namely, a flood of used cars, and falling prices. The same happened with homes following the burst of the last bubble: a flood of “used” houses, and falling prices.

   

  Surprisingly, the article attracted a number of reader comments predicting that used car prices would not fall, allegedly due to increases in complexity of cars or increases in the difficulty of repairing them. Another suggestion was that large dealers will dominate the used car market and simply raise prices at will.

   

  While it’s certainly true that government interference – such as Cash for Clunkers – can raise the prices of cars, it is not true that private dealers (or any other private party) can simply raise the price. More complex and difficult-to-fix cars will not keep prices from falling in an environment in which the inventory of used cars is increasing. 

   

  Used Car Dealer or Used Car Collector?

   

  There is one thing that we can know a priori: that an increase in the supply of some good or a drop in its demand will cause its price to be lower than that which it otherwise would be. There is no other way to clear the market.

   

  Mises explained that, eventually, even a monopolist would prefer any price to zero price. Maintaining a price above the market clearing price produces zero revenue. In a flooded used-car market, car dealers must reduce their prices in order to avoid bankruptcy. Otherwise, the used car dealer ceases to be a dealer and becomes a collector. The laws of supply and demand have not been rescinded, even in a world with very expensive-to-build and complex cars. As the automobile bubble bursts, quality used cars will flood the market, creating a buying opportunity for those with cash.

  As with houses, it doesn’t matter how big or luxurious or complex you make new cars. When the credit bubble bursts, auto prices will not “always go up.”

  

  

  

  

  

• Was Saudi Arabia Behind 9/11: These 28 Pages Have The Answer

  Is it sensitive Steve, might it involve opening a bit of can of worms, or some snakes crawling out of there, yes.

  That’s how the latest “60 Minutes” segment ended on Sunday.

  The comment was in reference to the final chapter of a Congressional investigative report into 9/11 that has been left out of the report due to it being classified. The congressional investigative report is a report that was completed and handed over to the 9/11 commission, who ultimately produced the final “official” report.

  The 28 pages that were classified have only been seen by a select few, and allegedly have to do with details around the existence of a possible Saudi support system for the hijackers while they were in the US among other implications of official Saudi involvement.

  The push to declassify the documents is being led by then Chairman of the Senate Select Committe on Intelligence, former Senator Bob Grahm (D-FL), who has been a strong advocate of the documents being declassified since the Bush administration classified them due to matters of national security back in 2003.

  Point blank, the Democratic senator said the hijackers were “substantially” supported by Saudi government, as well as charities and wealthy people in that country. 

  “I think it is implausible to believe that 19 people, most of whom didn’t speak English, most of whom never been in the United States before, many of whom didn’t have a high school education, could’ve carried out such a complicated task without some support from within the United States,” Graham said.

  For now only a handful of people know for sure: those who have seen the contents of the 28 classified pages. And here are some notable quotes by those that have actually read these 28 pages:

  I think it is implausible to believe that nineteen people, most of whom didn’t speak English, most of whom had never been in the United States before, many of whom didn’t have a high school education, could have carried out such a complicatd task without some support from within the United States.

  
  

  Interviewer: You believe that support came from Saudi Arabia
  Grahm: Substantially
  Interviewer: When you say the Saudis you mean the government, rich people in the country, charities
  Grahm: All of the above

  
  

  You can’t provide the money for terrorists and then say I don’t have anything to do with what they were doing.

  In general, the 9/11 commission did not get every single detail of the conspiracy. We didn’t have the time, we didn’t have the resources. And we certainly didn’t pursue the entire line of inquiry in regards to Saudi Arabia.

  The papers are currently locked in a guarded vault beneath the Capitol called a Sensitive Compartmented Information Facility (SCIF). Very few people have access to these sites, and visitors are now allowed to bring in cameras or recording devices.

  

  

   

  Full 60 Minutes segment here:

  View More: Newsmakers News|60 Minutes News|Live News|More News Videos

  

  

  

  

  

• Bernanke's Former Advisor: "People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned"

  With every passing day, the Fed is slowly but surely losing the game.

  Only it is not just former (and in some cases current) Fed presidents admitting central banks are increasingly powerless to boost the global economy, even if they still have sway over capital markets. What is far more insidious to the Fed’s waning credibility is when former economists affiliated with the Fed start repeating mantras that until recently were only a prominent feature in the so-called fringe media.

  This is precisely what happened today when former central bank staffer and Dartmouth College economics professor Andrew Levin, special adviser to then Fed Chairman Ben Bernanke between 2010 to 2012, joined with an activist group to argue for overhauls at the central bank that they say would distance it from Wall Street and make its activities more transparent and accountable to the public.

  Levin is pressing for the overhaul with Fed Up coalition activists. Many of the proposed changes target the 12 regional Federal Reserve Banks, which are quasi-private and technically owned by commercial banks in their respective districts.

  All of that is not surprising. What he said to justify his new found cause, however, is.

  “A lot of people would be stunned to know” the extent to which the Federal Reserve is privately owned, Mr. Levin said. The Fed “should be a fully public institution just like every other central bank” in the developed world, he said in a conference call announcing the plan. He described his proposals as “sensible, pragmatic and nonpartisan.”

  Why is that stunning? Because it has long been a bone of contention if only among the fringe media, that at its core the Fed is merely a private institution, beholden only to its de facto owners: not the people of the U.S. but to a small cabal of banks. Worse, the actual org chart of who owns what is not disclosed, even as the vast majority of the U.S. population remains deluded that the Fed is a publicly owned institution.

  As the WSJ goes on to note, the former central bank staffer said he sees his ideas as designed to maintain the virtues the central bank already brings to the table. They aren’t targeted at changing how policy is conducted today. “What’s important here is that reform to the Federal Reserve can last for 100 years, not just the near term,” he said.

  And this is coming from a former Fed employee and Ben Bernanke’s personal advisor! That in itself is a most striking development, because now that the insiders are finally speaking up, it will be a race among both current and prior Fed workers to reveal as much dirty laundry as possible ahead of what is increasingly being perceived by many as the Fed’s demise.

  To be sure, Levin’s personal campaign for Fed transformation will not be easy, and as the WSJ writes, what is being sought by Mr. Levin and the activists is significant and would require congressional action. Ady Barkan, who leads the Fed Up campaign, said the Fed’s current structure “is an embarrassment to America” and Fed leaders haven’t been “willing or able” to make changes.

  Specifically, Levin wants the 12 regional Fed banks to be brought fully into the government. He also wants the process of selecting new bank presidents—they are key regulators and contributors in setting interest-rate policy—opened up more fully to public input, as well as term limits for Fed officials.

  This would represent a revolution to the internal staffing of the Fed, which will no longer be at the mercy of its now-defunct shareholders, America’s commercial banks; it would also mean that Goldman Sachs would lose all its leverage as the world’s biggest central bank incubator, a revolving door relationship which has allowed the Manhattan firm to dominate the world of finance for the decades.

  Levin’s proposal was made in conjunction with the Center for Popular Democracy’s Fed Up coalition, a group that has been pressuring the central bank for more accountability for some time. The left-leaning group has been critical of the structure of the regional banks, and has been pressing the Fed to hold off on raising rates in a bid to make sure the recovery is enjoyed not just by the wealthy, in their view.

  The proposal was revealed on a conference call that also included a representative from Bernie Sanders’s presidential campaign, although all campaigns were invited to participate.

  The WSJ adds that according to Levin, who knows the Fed’s operating structure intimately, says the members of the regional Fed bank boards of directors, the majority of whom are selected by the private banks with the approval of the Washington-based governors, should be chosen differently. The professor says director slots now reserved for financial professionals regulated by the Fed should be eliminated, and that directors who oversee and advise the regional banks should be selected in a public process involving the Washington governors and local elected officials. These directors also should better represent the diversity of the U.S.

  Levin also wants formal public input into the selection of new bank presidents, with candidates’ names known publicly and a process that allows for public comment in a way that doesn’t now exist. The professor also wants all Fed officials to serve for single seven-year terms, which would give them the needed distance from the political process while eliminating situations where some policy makers stay at the bank for decades. Alan Greenspan, for example, was Fed chairman from 1987 to 2006.

  As the WSJ conveniently adds, the selection of regional bank presidents has become a hot-button issue. Currently, the leaders of the New York, Philadelphia, Dallas and Minneapolis Fed banks are helmed by men who formerly worked for or had close connections to investment bank Goldman Sachs.

  Levin called for watchdog agency the Government Accountability Office to annually review and report on Fed operations, including the regional Fed banks. He also wants the regional Fed banks to be covered under the Freedom of Information Act. A regular annual review hopefully would insulate the effort from perceptions of political interference, Mr. Levin said.

  * * *

  While ending the Fed may still seem like a pipe dream, at least until the market’s next major crash at which point the population may  finally turn on the culprit behind America’s serial boom-bust culture, the U.S. central bank, Levin’s proposal would get to the heart of the most insidious conflict of interest in the US: the fact that the Federal Reserve works not for the people of America, but for its owners – the banks.

  Which is also why, sadly, this proposal will be dead on arrival, as its passage would represent the biggest loss for Wall Street in the past 103 years, far more significant than anything Dodd-Frank could hope to accomplish.

  

  

  

  

  

• "The Problems Are Unfixable"

  Submitted by Howard Kunstler via Kunstler.com,

  The mystery is at last revealed: why does the field of candidates for president score so uniformly low in trust, credibility, likability? Why are there no candidates of real substance, principle, and especially of real charm in this scrim of political basilisks? (Surely there are many people of substance and principle elsewhere in America — they just don’t dare seek the job at the symbolic tippy-top of this clusterfuck of faltering rackets.) The reason is that the problems are unfixable, at least not within the acceptable terms of the zeitgeist, namely: the secret wish to keep all the rackets going at all costs.

  This is true, by the way, of all parties concerned from the 0.001 percent billionaire grifter class to the deluded sophomores crying for “safe spaces” in their womb-like “student life centers” to the sports-and-porn addled suburban multitudes stuck with impossible mortgage, car, and college loan debts (and, suddenly, no paying job) to the deluded Black Lives Matter mobs who have failed to notice that black lives matter least to the black people slaughtering each other over sneakers and personal slights. None of these groups really want to change anything. They actually wish to preserve their prerogatives.

  The interests of the 0.001 percent are obvious: maintain those streams of unearned, rentier, notional wealth as long as possible and convert them as fast as possible into hard assets (Caribbean islands, Cézanne landscapes, gold bars) that will theoretically insulate them from the wrath of history when the center no longer holds. The poor (and ever-poorer) formerly middle class suburban debt serfs, for all their travails, can’t imagine living any other way or putting less of their dwindling capital into the Happy Motoring matrix. The Maoist Social Justice Warrior students are enjoying the surprising power and thrills of coercion, especially as directed against their simpering professors and cringing college presidents anxious to sustain the illusion that something like learning takes place in the money laundering operations of higher ed. The Black Lives Matter crowd just wants to be excused from their failure to follow standards of decent behavior and to keep mau-mauing the other ethnic groups of America for material and political tribute.

  It must be obvious that the next occupant of the White House will preside over the implosion of all these arrangements since, in the immortal words of economist Herb Stein, if something can’t go on forever, it will stop. So the only individuals left seeking the position are 1) An inarticulate reality TV buffoon; 2) a war-happy evangelical maniac; 3) a narcissistic monster of entitlement whose “turn” it is to hold the country’s highest office; and 4) a valiant but quixotic self-proclaimed socialist altacocker who might have walked off the set of Welcome Back Kotter, 40th Reunion Special. These are the ones left standing halfway to the conventions. Nobody else in his, her, it, xe, or they right mind wants to be handed this schwag-bag of doom.

  On Saturday, the unstoppable Democratic shoo-in Hillary lost her 7th straight contest to the only theoretically electable Vermont Don Quixote, Bernie Sanders. This was a week after it was reported in The Huff-Po that her campaign crew literally bought-and-paid for the entire 50-state smorgasbord of super-delegates who will supposedly compensate for Hillary’s inability to otherwise win votes the old-fashioned way, by ballots cast. Wonder why that didn’t make nary a ripple in the media afterward? Because this is the land where anything goes and nothing matters, and that’s really all you need to know about how things work in the USA these days.

  The Republican mandarins are apparently delirious over loose cannon Donald Trump’s flagging poll numbers in the remaining primary states. Should Trump fall on his face, do you think they’ll just hand Ted Cruz the Ronald Reagan Crown-and-Scepter set. (They’d rather lock Ted in the back of a Chevy cargo van with five Mexican narcos and a chain saw.) The GOP establishment insiders are already lighting cigars in preparation for the biggest smoke-filled room in US political history, Cleveland, July 20. But what poor shmo will they have to drag to the podium to get this odious thing done? Who wants to be the guy in the Oval Office when Janet Yellen comes in some muggy DC morning and says, “Uh, sir (ma’am)… that sucker you heard was gonna go down…? Well, uh, it just did.”

  As for the Dems: they are about to anoint the most unpopular candidate of our lifetimes. The BLM mobs have promised to deliver mayhem to the streets of the party conventions and don’t think they will spare Hillary in Philary, no matter how many chitlins she scarfed down last month in Carolina. The action in Philly will unleash and reveal all the deadly power of President Obama’s NSA goon squads when the militarized police put down the riots, and Hillary will be tagged guilty by association.

  And that is how Kim Kardashian gets elected president.

  

  

  

  

  

• Brazil Committee Votes To Begin Rousseff Impeachment Process: What Happens Next

  Moments ago, in the first of two closely anticipated and watched votes, a special committee in Brazil’s lower house voted 38 to 27 to begin the impeachment process against president Dilma Rousseff.

  The committee voted on a report presented last week that concluded Rousseff bypassed Congress in authorizing credits to mask a growing budget deficit. While the report is not binding, the vote to confirm or reject it is the first real barometer on the prospect for impeachment.

  Prepared by committee rapporteur Jovair Arantes, the report says Rousseff broke budget law by signing off on expenditures that had not been previously authorized by Congress, and by agreeing to illegal loans between federal govt and state-owned banks.

  A quick reminder of Brazil’s current chaotis situation: as a result of an economic crisis that has plunged Brazil’s economy into a deep depression, cost its its coveted investment-grade rating and led to the corruption scandal known as Carwash that has ensnared leading executives and politicians, the largest Latin Americam nation has been left deeply divided, culminating with a surge in populist anger aimed squarely at president Dilma Rousseff who has become the symbol for many of all that is broken.

  However, unlike President Fernando Collor de Mello, who in 1992 was ousted by an overwhelming majority in both houses, Rousseff’s fate seems to be hanging in the balance as many centrist legislators remain undecided on whether to support Rousseff or side with Vice President Michel Temer, who would replace her and whose party left government last month.

  In any event, now that a special committee has voted with an overwhelming majority to push forward, things are finally in motion and following today’s vote, the full Chamber of Deputies could vote as early as April 17, either killing impeachment or setting the stage for Rousseff’s ouster in the Senate.

  Impeachment would require two-thirds support, or 342 of the 513 lower-house lawmakers, to send the case to the Senate. As Bloomberg reported on Saturday, the pro-impeachment tally rose to 285 on Saturday from 274 on Friday, according to a survey by newspaper O Estado de S.Paulo, while the anti-government group VemPraRua put the count at 282. A group of Rousseff allies, including members of her Workers’ Party, said 127 lawmakers were lined up against the president’s ouster, short of the one-third needed to block her removal.

  If there is a majority, and if the Senate accepts charges against Rousseff, she must step down for up to 180 days, with VP Michel Temer taking over. The Senate then holds trial, and votes whether to permanently oust president.

  But for now it is up to the House vote where as Bloomberg previously reported, supporters of Rousseff and Temer in recent days have both sought to sway undecided legislators by offering government posts. They have also squabbled over procedural issues that could slow or accelerate the process. The chairman of the impeachment committee has been moving to speed up the debate, for which more than 100 speakers signed up, while government supporters are balking at the fast-track approach.

  PSDB, the biggest opposition party, plans to support Temer if he becomes president, Folha de S.Paulo reported Saturday. Though PSDB won’t block members from accepting ministers’ positions, it won’t join a possible Temer administration, the newspaper said, citing unidentified party leaders who met Friday in Sao Paulo.

  Attorney General Jose Eduardo Cardozo said he could challenge the impeachment process before the Supreme Court, citing insufficient legal grounds and alleged irregularities in the committee.

  Meanwhile, Rousseff, 68, who was imprisoned and tortured during Brazil’s two-decade military dictatorship that ended in 1985, has repeatedly denied wrongdoing and said that an impeachment process without sufficient evidence would amount to a coup.

  Bloomberg adds that the government seemed to have clawed back some support earlier this month, but Rousseff’s momentum “has slowed, or even reversed” in recent days, political consulting company Eurasia Group said in a research note on Friday. It put the chances of Rousseff being impeached at 60 percent.

  Brazil’s agriculture federation and Evangelical legislators came out in support of impeachment on April 6. A day later, Folha de S. Paulo published fresh allegations that the Andrade Gutierrez construction company financed Rousseff’s re-election campaign in exchange for benefits. The government denied the claims.

  Meanwhile, Rousseff’s efforts to bring her predecessor Luiz Inacio Lula da Silva into the government to help muster support in Congress remain stuck in the Supreme Court, and have diminishing chances of being approved before the impeachment vote. In a change of opinion, chief public prosecutor Rodrigo Janot argued on Thursday that Lula shouldn’t be allowed to join Rousseff’s cabinet and thereby gain special legal privileges, because it looked as though his appointment was designed to protect him from a continuing corruption probe.

  Then today, according to AP, in yet another twist in the months-long saga, the newspaper Folha de S. Paulo released the audio of an address by Vice President Michel Temer, who would take over if Rousseff were suspended. The audio, which the newspaper said was sent to members of Temer’s Democratic Movement, appears to be a draft of an address that Temer would make to the Brazilian people if the impeachment process were to move forward following a vote in the full Chamber of Deputies.

  In the address, Temer speaks as if he had already assumed the top job, saying, “Many people sought me out so that I would give at least preliminary remarks to the Brazilian nation, which I am doing with modesty, caution and moderation.”

  * * *

  In summary, while the first key step in Rousseff’s ouster has been taken, there is a long road ahead for the process and Dilma will not go quietly or without a fight.

  

  

  

  

  

• Average German Bond Yield Crashes To Zero For First Time Ever

  “You Get Nothing” is the message for German bond coupon-clippers as for the first time in history, the average yield across the entire bond complex tumbles to zero.

   

  

  h/t @Schuldensuehner

  With the yield curve below zero to 9 years, and 1 month yields at -65bps, it is no surprise that asset managers are extending duration…

  

  

  

  

  

  

• Former IMF Chief Economist Admits Japan's "Endgame" Scenario Is Now In Play

  Back in October 2014, just after the BOJ drastically expanded its QE operation, we warned that the biggest risk facing the BOJ (and the ECB, and the Fed, and all other central banks actively soaking up securities from the open market) was a lack of monetizable supply. We cited Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, who said that at the scale of its current debt monetization, the BOJ could end up owning half of the JGB market by as early as in 2018. He added that “The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation.”

  

   

  Which is why 17 months ago we predicted that, contrary to expectations of even more QE from Kuroda, we said “the BOJ will not boost QE, and if anything will have no choice but to start tapering it down – just like the Fed did when its interventions created the current illiquidity in the US govt market – especially since liquidity in the Japanese government market is now non-existent and getting worse by the day.”

  As part of our conclusion, we said we do not “expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016’s business.”

  Since then, the forecast has panned out largely as expected: both the ECB and BOJ, finding themselves collateral constrained, were forced to expand into other, even more unconventional methods of easing, whether it be NIRP in the case of the BOJ, or the outright purchases of corporate bonds as the ECB did a month ago.

  * * *

  Then, in September of 2015, the IMF realized the severity of what our forecast meant for Japan, and released a working paper with the non-pretentious title “Portfolio Rebalancing in Japan; Constraints and Implications for Quantitative Easing“, which however had momentous implications because it was a replica of what we had said a year earlier.

  In the paper, the IMF said that the Bank of Japan may need to reduce the pace of its bond purchases in a few years due to a shortage of sellers. The paper predicted a world in which, just as we cautioned, “the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds… there is likely to be a “minimum” level of demand for JGBs from banks, pension funds, and insurance companies due to collateral needs, asset allocation targets, and asset-liability management (ALM) requirements. As such, the sustainability of the BoJ’s current pace of JGB purchases may become an issue.”

  The paper’s shocking punchline was how Japan would survive this inevitable phase shift, or as we rhetorically asked, what happens when the regime shifts from the current buying phase to its inverse: The IMF response: “As this limit approaches and once the BoJ starts to exit, the market could move from a situation of shortage to one with excess supply. The term premium could jump depending on whether the BoJ shrinks its balance sheet and on the fiscal deficit over the medium term.

  When considering that by 2018 the BOJ market will have become the world’s most illiquid (as the BOJ will hold 60% or more of all issues), the IMF’s final warning is that “such a change in market conditions could trigger the potential for abrupt jumps in yields.”

  Or as we put last September, “at that moment the BOJ will finally lose control.”

  We even timed it: “But before we get to the QE endgame, we first need to get the interim point: the one where first the markets and then the media realizes that the BOJ – the one central banks whose bank monetization is keeping the world’s asset levels afloat now that the ECB has admitted it is having “problems” finding sellers – will have no choice but to taper, with all the associated downstream effects on domestic and global asset prices.

  It’s all downhill from there, and not just for Japan but all other “safe collateral” monetizing central banks, which explains the real reason the Fed is in a rush to hike: so it can at least engage in some more QE when every other central bank fails.

   

  But there’s no rush: remember to give the market and the media the usual 6-9 month head start to grasp the significance of all of the above. 

  Sure enough, it took the market about 6 months to finally grasp that the BOJ is out of ammo: the result has been a dramatic surge in the Yen coupled with a plunge in the Nikkei, meanwhile Kuroda is left scratching his head what he can do in a world in which the G-20 have specifically prohibited him from easing and making the dollar stronger as that will lead to a return of China’s weak currency-driven, capital outflow crisis. 

  As for our other forecast from October 2014 in which we said “expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016’s business” this too was quite prescient.  Because while summer is just around the corner, earlier today the mainstream media, in this case the Telegraph’s Ambrose Evans-Pritchard, finally caught up with a piece titled: “Olivier Blanchard eyes ugly ‘end game’ for Japan on debt spiral.” In it he cites none other than the IMF’s former chief economist, Olivier Blanchard who left the IMF just at the time the IMF’s study from last September was made public. 

  The content of Pritchard’s piece should be familiar to anyone who has followed our musings on this topic for the past two years.

  In it, he says that “Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned.“

  From the article:

  Olivier Blanchard, former chief economist at the International Monetary Fund, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory.

   

  Prof Blanchard said the Japanese treasury will have to tap foreign funds to plug the gap and this will prove far more costly, threatening to bring the long-feared funding crisis to a head.  

   

  “If and when US hedge funds become the marginal Japanese debt, they are going to ask for a substantial spread,” he told the Telegraph, speaking at the Ambrosetti forum of world policy-makers on Lake Como.

   

  Analysts say this would transform the country’s debt dynamics and kill the illusion of solvency, possibly in a sudden, non-linear fashion.

  That moment in which the illusion dies, is precisely the phase shift which we descibed in September as the moment “market conditions could trigger the potential for abrupt jumps in yields.“

  

  Said otherwise, from plummeting deflation Japan would be faced with soaring yields and hyperinflation as the last recourse buyer, the BOJ, is swept aside.

  Prof Blanchard, now at the Peterson Institute in Washington, said the Bank of Japan will come under mounting political pressure to fund the budget directly, at which point the country risks lurching from deflation to an inflationary denouement.

   

  “One day the BoJ may well get a call from the finance ministry saying please think about us – it is a life or death question – and keep rates at zero for a bit longer,” he said.

  Pritchard here catches up to what we said in October of 2014, namely that the “BoJ is  soaking up the entire budget deficit under Govenror Haruhiko Kuroda as he pursues quantitative easing a l’outrance.” Incidentally, this is the same Pritchard who several years ago was lauding Japan’s QE. 

  He next points out something we have also warned about for year: “the central bank owned 34.5pc of the Japanese government bond market as of February, and this is expected to reach 50pc by 2017.”

  This is us circa last September.

  

  What comes next is the scary part, the part we have been focusing on for years:

  Prof Blanchard did not elaborate on the implications of Japan’s woes for the global financial system, but they would surely be dramatic and there are growing fears that this could happen within five years. Japan is still the world’s third largest economy by far. It is also the global laboratory for an ageing crisis that the rest of us will face to varying degrees.

   

  Once markets begin to suspect that Tokyo is deliberately engineering an escape from its $10 trillion public debt trap by means of an inflationary ‘stealth default’, matters could spin out of control quickly.

   

  It might lead to an abrupt reappraisal of sovereign debt risk in other parts of the world, especially in Europe with its own Japanese pathologies of low-growth and bad demographics. Roughly $7 trillion of debt is trading at negative yields worldwide, an accident waiting to happen for the bond market.

  After Japan comes Europe:

  Prof Blanchard said the risk for the eurozone is the election of populist “rogue governments” that let rip with spending in defiance of Brussels. “Investors would have serious thoughts about buying their sovereign bonds,” he said. The European Central Bank would be legally prohibited from activating its back-stop mechanism (OMT) to prevent yields soaring since these governments would not be in compliance with EU rules. “Some of them have very high debt and presumably would have to default,” he said.

  Perhaps, or the ECB will simply unleash the first helicopter money if it can get over the loud German chorus of disagreement. Although once Europe launches Helicopter money, it will be promptly followed by the US as the global monetary devaluation round enters the final sprint. It is no coincidence that earlier today none other than Ben Bernanke admitted that “Helicopter Money May Be The Best Available Alternative.”

  What shape the final stand of failed monetary policy takes, is irrelevant. What is relevant, is that for the first time, not only is the Japanese doomsday scenario finally in the mainstream press, but it is acknowledged by none other than one of the Keynesian luminaries AEP is so impressed by:

  Prof Blanchard is one of the world’s top theoretical economists over the last quarter century and might have won the Nobel Prize by now if he had not been cajoled into IMF service by his fellow Frenchman, Dominique Straus-Kahn.

   

  He transformed the IMF into a brain-trust of progressive ‘Keynesian’ thinking, much to the fury of Berlin. A leaked document from the German finance ministry said the institution should be renamed the ‘Inflation Maximizing Fund’.

  Evans-Pritchard’s conclusion:

  “Professor Blanchard has had the last laugh on that joke. Seven years after the Lehman crisis the eurozone is in outright deflation and yields on 10-year German Bunds are trading at an historic low 0.11pc.  Touché.”

  Actually let’s check back in another 7 years, because now that even one of the world’s “top theoretical economists” acknowledges that the endgame for trillions in debt ends in a hyperinflationary supernova, and not a deflationary black hole, all those years of sliding interest rates around the globe are about to be flipped on their head. At that point it will be the Germans who are laughing last.

  Sadly, there will be nothing else to laugh about as the Keynesian “progressive thinkers” will have finally reached the inevitable and disastrous “end-game” of their failed religion.

  

  

  

  

  

• White House Issues Following Statement After Meeting Between Obama And Yellen

  The closed-door meeting between Obama, Biden and Yellen has concluded, and moments ago the White House released the following statement:

  “The President and Chair Yellen met this afternoon in the Oval Office as part of an ongoing dialogue on the state of the economy. They discussed both the near and long-term growth outlook, the state of the labor market, inequality, and potential risks to the economy, both in the United States and globally. They also discussed the significant progress that has been made through the continued implementation of Wall Street Reform to strengthen our financial system and protect consumers.”

  Of course, for the actual transcript of what was said, we will have to rely on some conscientious White House leaker putting it on BitTorrent, but here is our modest attempt at translating what was and what was not said: no market crashes allowed until November.

  

  

  

  

  

• A Tale Of Two Car Companies

  Via EricPetersAutos.com,

  Here’s a tale of two start-up car companies: Elio Motors and… Tesla.

  

  One execrable, the other admirable.

  Elio is developing a low-cost ($6,800 to start) very high mileage (80-plus MPG) commuter car.

  Tesla builds expensive toys.

  This – the building of toys – is not of itself an execrable activity. Lamborghinis and Porsches are toys, too.

  They are expensive, impractical things.

  As is the Tesla – including the new Model 3. It’s expensive ($35k to start; probably closer to $40k once all is said and done) and impractical. Not a car for cold places or long trips … unless you don’t mind long waits.

  Not that there’s anything wrong with that… if that’s what you’re into.

  

  Lambos are also finicky and not good for very much except going very fast and advertising that you’ve got funds.

  The execrable element is that Tesla expects you to pay for its toys. Not for yourself. But so that other people – affluent people – can play with them.

  It’s exactly like giving – being forced to give – your orthodontist a fat check so he can go out and buy a new 911 or Gallardo.

  Elio, in contrast, merely offers its cars – which you’re free to buy or not. And if you don’t want one, they’re not gonna force you (via Uncle) to “help” other people buy one.

  So, which one gets the press? The adulation of the press? The seal-clapping encomiums on Today and Good Morning America and such?

  How many people have even heard of Elio Motors?

  How many have not heard of Tesla?

  

  The reason for this disparity is easy enough to grok:

  Tesla makes collectivism sexy – and that makes Tesla popular with collectivists.

  Selling the Green Agenda has not been easy because it seems pretty dreary. Pay more for shittier things. But the Tesla looks good. This allows preening.

  It is quick – which allows bragging.

  And – so they say – it is green, too.

  This renders cost no object.

  It doesn’t matter that the entire venture is a Jenga castle of crony capitalism; that every “sale” entails an extortion payment extracted from a real car company – a “carbon credit” that is “sold” to offset the less-than-Teslian characteristics of functionally viable but “greenhouse gas” producing conventional cars… that it is necessary to bribe even rich people who have money to burn on toys with thousands of dollars of tax write-offs (the costs for these written off onto the backs of those who pay the taxes) in order to complete each transaction.

  

  No. The Tesla is a long-legged, G-string-wearing planet-saving sex machine… and can do no wrong. Sense is blind to the realities behind the flash in the same way that men’s reason is often blinded – and their judgment impaired – by a hot piece of ass. No matter her liabilities.

  The Elio is not sexy. It is a thumb in the eye to everything the Tesla is and stands for.

  It is practical; an ideal city car/commuter car well-suited to Froggering around in busy urban traffic and which can be parked pretty much anywhere a motorcycle fits.

  It is cheap. A new car for just under $7k – or about half the price of the typical economy compact sedan and about a fifth the cost of a Tesla 3.

  Which also means it costs less to insure.

  Most of all – and unlike the Tesla – the Elio is economical. Eighty-plus MPG renders the cost of gas a near-irrelevance, even if it doubles. And makes the Tesla look ridiculous, if the criteria is economy.

  Or even “saving the planet.”

  How much less energy goes into making an Elio? It does not have hundreds of pounds of lethally noxious chemical batteries that required Earth rape to obtain. Nor does it depend upon C02-producing utility plants for its motive power.

  But most of all, it is a car that many people could simply write a check for – that is, bought outright, no loan. No debt. And that is anathema to the Banksters who run the country and who push Teslas via the media they own, the bought-and-paid-for parrots who read the Tele-e-Prompters and know what the Talking Points are.

  

  Can’t have people not chained to beefy monthly payments for the next seven years. Can’t have a car that doesn’t include multi-leveled kickbacks of other people’s money (i.e., “incentives”) to make each “sale.”

  The Elio is sane.

  A car ideally suited to every consideration of our times.

  The Tesla, insane.

  It touts the fact that it uses no gasoline, so no worries about the cost of gas. But you pay (with “help” from Uncle) $35,000-plus to “save” on the cost of fuel.

  It touts performance – quick acceleration. But if its ability to accelerate quickly is used much, the car’s range is reduced a lot. What good is a quick car that can’t go very far?

  But it’s sexy – and it’s “green” – and that makes it politically appealing, even if it’s utterly ridiculous as an economic proposition, absurd as a machine and noxious as as an example of the most grotesque manifestation of crony capitalism I’m aware of – exceeding even the effrontery of the ethanol lobby.

  Cue the Zapruder film….

  

  

  

  

  

• BofA Warns "Europe Looks Frightening" – Trades Like 2001, 2008

  "Europe looks concerning" warns BofAML's Stephen Suttmeier, pointing out, rather ominously that the broad European index – STOXX 600 – is trading like it did in 2001 & 2008.

   

  

   

  The STOXX Europe 600 (SXXP) is trending below declining and bearishly positioned 26 and 40-week moving averages. ECB quantitative easing has not reversed this bearish trend.

  The 2016 set-up is similar to early 2001 and early 2008 with 350 important resistance and 300 important support. Both 2001 and 2008 saw rebounds into bearishly positioned and falling 26/40-week MAs that formed important lower tops in May.

  We think this pattern could repeat or at least rhyme moving into May 2016. The breaks below 300 in September 2011 and June 2008 led to much deeper weakness and a similar break in 2016 could see the SXXP trend down toward 200.

  Source: BofAML

  

  

  

  

  

• As Ukraine Collapses, Europeans Tire Of US Interventions

  Submitted by Ron Paul via The Ron Paul Institute for Peace & Proseprity,

  On Sunday Ukrainian prime minister Yatsenyuk resigned, just four days after the Dutch voted against Ukraine joining the European Union. Taken together, these two events are clear signals that the US-backed coup in Ukraine has not given that country freedom and democracy. They also suggest a deeper dissatisfaction among Europeans over Washington’s addiction to interventionism.

  According to US and EU governments – and repeated without question by the mainstream media – the Ukrainian people stood up on their own in 2014 to throw off the chains of a corrupt government in the back pocket of Moscow and finally plant themselves in the pro-west camp. According to these people, US government personnel who handed out cookies and even took the stage in Kiev to urge the people to overthrow their government had nothing at all to do with the coup.

  When Assistant Secretary of State Victoria Nuland was videotaped bragging about how the US government spent $5 billion to “promote democracy” in Ukraine, it had nothing to do with the overthrow of the Yanukovich government. When Nuland was recorded telling the US Ambassador in Kiev that Yatsenyuk is the US choice for prime minister, it was not US interference in the internal affairs of Ukraine. In fact, the neocons still consider it a “conspiracy theory” to suggest the US had anything to do with the overthrow.

  I have no doubt that the previous government was corrupt. Corruption is the stock-in-trade of governments. But according to Transparency International, corruption in the Ukrainian government is about the same after the US-backed coup as it was before. So the intervention failed to improve anything, and now the US-installed government is falling apart. Is a Ukraine in chaos to be considered a Washington success story?

  This brings us back to the Dutch vote. The overwhelming rejection of the EU plan for Ukrainian membership demonstrates the deep level of frustration and anger in Europe over EU leadership following Washington’s interventionist foreign policy at the expense of European security and prosperity. The other EU member countries did not even dare hold popular referenda on the matter – their parliaments rubber-stamped the agreement.

  Brussels backs US bombing in the Middle East and hundreds of thousands of refugees produced by the bombing overwhelm Europe. The people are told they must be taxed even more to pay for the victims of Washington’s foreign policy.

  Brussels backs US regime change plans for Ukraine and EU citizens are told they must bear the burden of bringing an economic basket case up to European standards. How much would it cost EU citizens to bring in Ukraine as a member? No one dares mention it. But Europeans are rightly angry with their leaders blindly following Washington and then leaving them holding the bag.

  The anger is rising and there is no telling where it will end.

  In June, the United Kingdom will vote on whether to exit the European Union. The campaign for an exit is broad-based, bringing in conservatives, populists, and progressives. Regardless of the outcome, the vote should be considered very important. Europeans are tired of their unelected leaders in Brussels pushing them around and destroying their financial and personal security by following Washington’s foolish interventionism. No one can call any of these recent interventions a success and the Europeans know it.

  One way or the other, the US empire is coming to an end. Either the money will go or the allies will go, but it cannot be sustained. The sooner the American people demand an end to these foolish policies the better.

  

  

  

  

  

• Wait for a Pullback after Earning`s Season to Buy Energy Stocks (Video)

  By EconMatters

  

  Generally I don`t think the Energy stocks are in line with the fundamentals of the sub $60 oil environment. Be patient wait for a market pullback either in the summer or early fall to find value in Energy Stocks.

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

  

  

  

  

• "Mr. Yen" Warns USDJPY May Hit 100 By Year-End

  Having correctly predicting the yen’s advance beyond 115 and then 110 per dollar, former Japanese Finance Minister Eisuke Sakakibara now says Japan’s currency may strengthen to 100 by year-end.

  As Bloomberg reports, having been in charge of currency intervention in Japan, Sakakibura was dubbed Mr. Yen for his ability to influence the exchange rate in the 1990s, seems to suggest – uinlike Suga overnight – that intervention is unlikely (or unlikley to be successful).

  The yen has renewed its highs despite increased rhetoric from Japanese officials in the past week aimed at restraining its advance. Bank of Japan Governor Haruhiko Kuroda said Monday financial markets continue to be volatile, and he is watching the effect on the economy.  

   

  Chief Cabinet Secretary Yoshihide Suga reiterated the government is watching foreign-exchange movements “with vigilance,” and will take appropriate action if necessary. A weaker currency has been a linchpin of Prime Minister Shinzo Abe’s program to stoke a recovery and exit deflation.

   

  A yen at 105 per dollar is “no problem” for Japan’s economy, the 75-year-old Sakakibara, who is currently a professor at Aoyama Gakuin University, said in a Bloomberg Television interview.

   

  Any currency intervention can only be done with agreement from the U.S. and other counter parties, he said.

  While noting that 105 would be "no problem" for Japan's economy, we suspect the implied drop in the S&P 500 to 1550 would be a problem for the world's "economy".

   

  

  

  

  

  

  

• Silver Soars, Stocks Slump As Equity "Fear" Hits All-Time Record High

  "smooth sailing", right?

   

  Something is going on beneath the covers…

  Last week saw the biggest addition of shorts across the Treasury Bond Complex in over 3 years (with record ultra shorts)…

  

   

  And CSFB's "Fear Barometer" just hit an all-time high…

  

  As CS' Mandy Xu notes, typically, an increase in the CSFB is caused by a combination of higher put demand and lower call demand. Interestingly, this time, the entire move was driven by the call-side. The derivatives market is assigning less than 1% probability the market will rise by 10% in the next three months vs. 17% probability it will fall by 10%.

  *  *  *

  And so while stocks tried (twice) to ramp in the face of faux-ness, they couldn't… Despite a well placed Italian headline into the close…

  • *ITALY FIN. INSTITUTIONS, CDP AGREE TO SET UP FUND FOR BANKS

  Just as we predicted…

  Time for another "Italian bank bailout" headline

  — zerohedge (@zerohedge) April 11, 2016

   

  Which totally failed.. as stocks dumped into the red!

  

   

  Who could have seen that coming? An EU banking bailout rumor headline-driven rally and USDJPY ramp crushed by crude's collapse on Russia "no freeze" headlines…

  

   

  Post-Payrolls, stocks are red but crude is soaring with gold and bonds also bid…

  

   

  But again all that mattered was 2043.94… (YTD unch) – VIX tagged 16.00 and was quickly dropped to get S&P back over 2043.94…

  

   

  Goldman was bid on a $5.1bn settlement… (imagine if it had been $51 billion?)

  

   

  Stocks are beginning to wake up to the credit and bond decoupling…

  

   

  Treasury yields ended the day practically unchanged – swinging from bid to offered in the EU session and rallying (lower yields) during the US session…

  

   

  The USD Index ended modestly lower on the day but rallied back during the US session (after the EU close) after some shenanigans around the Silver fix time…

  

   

  And finally, Commodities all ended positively (even copper just) but it was silver that stood out…

  

   

  As the precious metal inched back towards the $16 level…

  

   

  Charts: Bloomberg

  Bonus Chart: With Alcoa kicking off earning season, we suspect this won't end well…

  

  

  

  

  

• Behold Accounting Magic 101: This Is How Alcoa Just "Beat" Consensus EPS

  Some companies are notorious for buying back billions in stock in order to mask the decline in their earnings by reducing the number of shares outstanding. Alcoa, which still has a major debt overhang from the last financial crisis, is unable to do that as it simply does not have the free cash flow to dedicate to shareholder friendly activities. Instead, Klaus Kleinfeld’s company is forced to resort to an even more primitive form of EPS fudging: massive quarterly EPS addbacks.

  And as we showed last quarter, AA’s addbacks just hit an all time high.

  We were curious if as a result of this “bathwater” quarter, Alcoa would finally cease this deceptive practice.

  The answer: not even close.

  Moments ago, Alcoa reported adjusted EPS of $0.07, or $108 million in adjusted net income, beating consensus expectations of $0.02 handily (nevermind that it missed consensus revenues of $5.2 billion by a whopping $250 million, a drop of 15% from a year ago).

  There is, alas, a problem with these adjusted “earnings”, because on a actual, GAAP basis, Alcoa actually reported its latest GAAP whopper, according to which GAAP EPS was actually… $0.00, thanks to a paltry $16mm in net income. 

  How did Alcoa “fill the gap?” Simple: with its usual millions in “one-time” charges, in this case $61 million.

  

  But it is on an LTM basis that the company has absolutely outdone itself.

  Here, things get downright comical, because whereas Alcoa’s GAAP Net Income for the LTM period ended December 31 was a net loss of $501 million, when one adds back all the charges incurred over the past 12 months, the “net income”, on a non-GAAP Basis of course, soars to a ridiculous $532 million. The plug? “One-time, non-recurring” addbacks and various other restructuring charges amounting to over $1 billion for the LTM period!

  

   

  Said otherwise, more than all of Alcoa’s earnings in the last 12 months were the result of “non-recurring” addbacks, “one-time” charges, and other proforma changes to the non-GAAP net income number.

  And that, ladies and gentlemtn, is non-GAAP accounting magic 101.

  Oh, we almost forgot: here is the history of Alcoa’s $0.02 EPS “consensus” which the company had to take a record addback in order to “beat”…
  

   

  And the cherry on top? This:

  The business reduced its workforce by 600 positions in the first quarter and plans a further reduction of 400 positions. Additionally, given the current market environment, it is evaluating another reduction of up to 1,000 positions.

  What current market environment? Isn’t everything recovering now? And are those GAAP or non-GAAP jobs?

  Finally, some tangential observations. It appears the company’s treasurer is so busy, he can’t even check the company’s primary excel spreadsheet.

  

  And then remember when Alcoa beat last quarter on non-GAAP EPS of $0.07? Well, that was just quietly revised to $0.04.

  

  

  

  

  

  

• "Credit-Dollars" – The Fatal Flaw In The System

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

  The Hard Rocks of Real Life

  The Dow dropped 174 points on Thursday, the biggest fall in six weeks. Not the end of the world. Maybe not even the end of this year’s bounce-back bull run. As you’ll recall, stocks sold off at the beginning of the year, too. Then, investors were buoyed up after central banks got to work – jimmying the credit market on their behalf.

   

  

   

  The Fed swore off any further “normalization” until later in the year. Central banks in Europe, Japan, and China all took bolder and more reckless action… with the Bank of Japan following some European banks by going into “full retard” mode with negative interest rates.

   

  

  DJIA, 10-minute candles; the red rectangle bounds Thursday’s market action. A rebound attempt on Friday failed to go very far – click to enlarge.

   

  Now, according to the narrative popular in the financial press, investors are beginning to worry that central banks are not very effective after all. As to that last point, they’re right; central banks can only do so much. They made the situation what it is. Now, they can only make it worse. How? By adding more of what made it bad in the first place. All they can do is add more debt to a world already drowning in it.

  If anyone knows of a different way this story might unfold, we’d like to hear it. But for all the puzzling and preposterous guesswork and wondering, it is still the same tale: Debt builds up; debtors can’t pay; they go broke. It happens all the time.

  In a healthy economy – with real money and honest banking – people make mistakes. They go broke. The bankruptcies are absorbed and disposed of in good order. Assets go on the block. Hungry investors and entrepreneurs snap them up… and put them to good use.

  The system cleans out errors, taking money from “weak hands” and moving it to stronger, more capable management. But now, the whole system is mismanaged. Thanks to credit-based money – and modern central bank guidance – the normal ebbs and flows of the credit market have become treacherous tidal waves, lifting up assets to absurd deliriums,  and then crashing them down on the hard rocks of real life.

   

  Borrowers’ Busted Boards

  Here’s a group of surfers whose boards have been busted recently: young people. In the news this week was this interesting item from the Wall Street Journal:

  “40% of Student Borrowers Aren’t Making Payments”

   

  

  Student debt (federal and private credit combined) amounts to over $1.2 trillion, and 43% of borrowers are by now delinquent, in default or “in postponement” (i.e., they have a waiver allowing them to be delinquent) – click to enlarge.

   

  According to the WSJ, $200 billion in loans are running behind schedule. The Journal says this is good news; last year, it was 46% of borrowers who weren’t keeping up. And Bank of America tells us that corporate borrowers, too, are soon going to wash up on the beach. Here’s the report from Bloomberg:

  “When the next corporate default wave comes, it could hurt investors more than they expect. Losses on bonds from defaulted companies are likely to be higher than in previous cycles because U.S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities.

   

  “We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,” said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management.

   

  Loss rates have already been rising… In bad times, corporate bond investors, on average, lose about 70 cents on the dollar when a borrower goes bust. In this cycle, that figure could be closer to the mid-80s [when losses approached 80 cents on the dollar], Bank of America strategists said. Those losses would be the worst in decades…”

   

  

  Since peaking in late 2011 just above 70%, recovery rates from corporate defaults have been in a steady downtrend –  a sign that the quality of assets underlying corporate debt has worsened considerably. This could is guaranteed to make the next major economic downturn especially painful – click to enlarge.

   

  Credit Money

  We warned that there is a fatal “flaw” in the system. We talked about the lack of real, physical dollars. In a credit crisis, we argued, the U.S. would quickly run out of real dollars. ATMs would shut down. The whole system would seize up. But there’s more…

  We are still figuring out how it works, but this appears to be one of the most intriguing nuances of the whole cockamamie story. You see, credit has a particularity that real money doesn’t.

  If I lend you a real dollar, you will have the dollar to spend, and I won’t. Then, when you pay it back, I will have the dollar to spend, and you won’t. Either way, the money supply is unchanged.

  The credit dollar is different. When the banks lend you a credit dollar, they “make” it out of thin air with a few keystrokes on a computer. Then, the dollar you have to spend didn’t exist before. So far, so good. But when you pay it back, what happens? It disappears as if – well – as if it never existed. The money supply contracts.

   

  

  Out of whack: Total US credit market debt outstanding (blue line) = $63.4 trn.; Total US bank credit (incl. mortgages) outstanding (red line) = $22.3 trn.; US broad true money supply TMS-2 (black line) = $11.4 trn.; Currency in circulation (purple line) = $1.37 trn. – click to enlarge.

   

  We should say, “even if you pay it back, the money supply contracts.” Because there are other ways the money disappears. Negative interest rates, for example, cause people to hoard cash, or even increase bank savings, as they are doing in Japan. Either way, money disappears from circulation… reducing the “velocity of money”… and dropping the available money supply. Spending goes down, not up.

  The effect is the exact opposite of what the policymakers promise. Again, we see the proof that something isn’t working. Not for Janet Yellen nor for any of her delusional central banker buddies around the world. Their tricks no longer work.They just make the tidal wave higher.

  

  

  

  

  

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• 28 Blank Pages: Washington’s Cover-Up Of The Saudi Role In The 9/11 Terrorist Attack Continues

  In light of today’s 60 Minutes segment, according to which classified “28 pages” may shed light on Saudi ties to terrorism, here is a an article which was originally posted in the December 2015 edition of Future of Freedom. More to follow tomorrow.

  28 Blank Pages: Washington’s Cover-Up Of The Saudi Role In The 9/11 Terrorist Attack Continues

  Do Americans have the right to learn whether a foreign government helped finance the 9/11 attacks? A growing number of congressmen and senators are demanding that a 28-page portion of a 2002 congressional report finally be declassified. The Obama administration appears to be resisting, and the stakes are huge. What is contained in those pages could radically change Americans’ perspective on the war on terror.

  The congressional Joint Inquiry Into Intelligence Community Activities Before and After the Terrorist Attacks of September 11, 2001, completed its investigation in December 2002. But the Bush administration stonewalled the release of the 838-page report until mid 2003 — after its invasion of Iraq was a fait accompli — and totally suppressed a key portion. Former U.S. Sen. Bob Graham (D-Fla.) chairman of the investigation, declared that “there is compelling evidence in the 28 pages that one or more foreign governments was involved in assisting some of the hijackers in their preparation for 9/11.” Graham later indicated that the Saudis were the guilty party. But disclosing Saudi links to 9/11 could have undermined efforts by some Bush administration officials to tie Iraqi leader Saddam Hussein to the 9/11 attacks.

  Almost everyone has forgotten how hard the Bush administration fought to torpedo that report. In April 2003, controversy raged on Capitol Hill over the Bush administration’s continuing efforts to suppress almost all of the report by the Joint Intelligence Committee investigation. Some intelligence officials even insisted on “reclassifying” as secret some of the information that had already been discussed in public hearings, such as the FBI Phoenix Memo. On May 13, Senator Graham accused the Bush administration of engaging in a “cover-up” and said that the report from the congressional investigation “has not been released because it is, frankly, embarrassing … embarrassing as to what happened before September 11th, but maybe even more so the fact that the lessons of September 11th are not being applied today to reduce the vulnerability of the American people.” Sen. Trent Lott (R-Miss.) complained that intelligence agencies sought to totally censor the report: “The initial thing that came back was absolutely an insult, and it would be laughable if it wasn’t so insulting, because they redacted half of what we had. A lot of it was to redact a word that revealed nothing.”

  When the report was finally released, Sen. Richard Shelby (R-Ala.) added an additional opinion in which he castigated “the FBI’s dismal recent history of disorganization and institutional incompetence in its national-security work.” The congressional report was far blunter than the subsequent 9/11 Commission. The congressional investigation concluded that the FBI’s “mixed record of attention contributed to the United States becoming, in effect, a sanctuary for radical terrorists.” But the Bush administration may have succeeded in stonewalling the most damaging revelations.

  Suppressing the 28 pages was intensely controversial at the time. Senator Shelby, the vice chairman of the joint inquiry, urged declassification of almost all of the 28 pages because “the American people are crying out to know more about who funds, aids, and abets terrorist activities in the world.” Forty-six senators, spearheaded by Sen. Chuck Schumer (D-N.Y.) and including almost all the Democratic members, signed a letter to President George W. Bush urging the release of the 28 pages.

  Bush, at a July 30, 2003 press conference, justified suppressing the 28 pages:

  We have an ongoing investigation about what may or may not have taken place prior to September the 11th. And therefore, it is important for us to hold this information close so that those who are being investigated aren’t alerted…. If we were to reveal the content of the document, 29 [sic] pages of a near-900-page report, it would reveal sources and methods. By that, I mean it would show people how we collect information and on whom we’re collecting information, which, in my judgment, and in the judgment of senior law-enforcement officials in my administration, would be harmful on the war against terror.

  And then he dangled a carrot: “Now, at some point in time, as we make progress on the investigation, and as a threat to our national security diminishes, perhaps we can put out the document. But in my judgment, now is not the time to do so.”

  Protecting incompetence

  The claim of secrecy is routinely a cloak for incompetence. As former Senator Graham said earlier this year, “Much of what passes for classification for national-security reasons is really classified because it would disclose incompetence. And since the people who are classifying are also often the subject of the materials, they have an institutional interest in avoiding exposure of their incompetence.”

  Rep. Walter Jones (R-N.C.) revived the push to declassify the pages in 2013. Jones is a conservative stalwart best known for coining the phrase “freedom fries” in 2003 when France opposed invading Iraq. He has since become one of the most outspoken opponents of reckless U.S. intervention abroad. He explained that he introduced a resolution because “the American people deserve the truth. Releasing these pages will enhance our national security, not harm it.”

  Jones further explained that “the information contained in the redacted pages is critical to our foreign policy moving forward and should thus be available to the American public. If the 9/11 hijackers had outside help — particularly from one or more foreign governments — the press and the public have a right to know what our government has or has not done to bring justice to all of the perpetrators.”

  Last May, Sen. Rand Paul (R-Ky.) fresh from a bracing filibuster against the renewal of the USA PATRIOT Act, joined the 28-page fight. He introduced the Transparency for the Families of 9/11 Victims and Survivors Act, co-sponsored by Sens. Ron Wyden (D-Ore.) and Kirsten Gillibrand (D-N.Y.). The suppressed pages are another wedge between Paul and other Republican presidential candidates: New Jersey Gov. Chris Christie rejects declassification, instead urging deference to the president’s judgment on the issue. A person attending a recent New Hampshire event asked Christie, “Don’t we have a right to know?” Christie replied, “That’s for the president of the United States to decide.… [The] question is: In his judgment and the judgment of the people in the national-security apparatus, do they believe there’s something in there that’s classified that would cause harm or danger to American interests?” But cravenness is never a good recipe for safety.

  Members of Congress can read the still-classified pages in a special secure room on Capitol Hill if they get prior permission from the House or Senate Intelligence Committee. Rep. Thomas Massie (R-Ky.),  one of the few members to read the report, was shocked: “I had to stop every couple of pages and just sort of absorb and try to rearrange my understanding of history for the past 13 years and the years leading up to that. It challenges you to rethink everything.” Massie is one of 18 co-sponsors of Jones’s resolution in the House.

  Too much trouble

  It is encouraging that the effort spearheaded by Congressman Jones has garnered support on Capitol Hill. But it is surprising that the 28-page disclosure campaign has not yet spurred far more members of Congress to read the document. Unfortunately, members of Congress were also grossly negligent when it came to the evidence to justify invading Iraq. In October 2002, prior to the vote on the congressional resolution to permit Bush to do as he pleased on Iraq, the CIA delivered a 92-page classified assessment of Iraq’s weapons of mass destruction to Capitol Hill. The classified CIA report raised far more doubts about the existence of Iraqi WMDs than did the five-page executive summary that all members of Congress received. The report was stored in two secure rooms — one each for the House and the Senate. Only six senators bothered to visit the room to look at the report, and only a “handful” of House members did the same, according to the Washington Post. Sen. John Rockefeller (D-W.Va.) explained that congressmen were too busy to read the report: “Everyone in the world wants to come to see you” in your office, and going to the secure room is “not easy to do.” Hundreds of thousands of Americans were sent 6,000 miles away to swelter for months in burning deserts because congressmen could not be bothered to walk across the street. Most congressmen had ample time to give saber-rattling speeches for war, but no time to sift the purported evidence for the invasion.

  Why is the Obama administration continuing to suppress a report completed more than a dozen years ago? It is not as if the White House’s credibility would be damaged by revelations of Saudi bankrolling the worst attack on American soil since Pearl Harbor (15 of the 19 hijackers were Saudis).

  And it is not as if the Saudis became squeaky-clean Boy Scouts after 9/11. Saudi sources are widely reported to be bankrolling Islamic State terrorists throughout the Middle East; Gen. Martin Dempsey, the chairman of the Joint Chiefs of Staff, told a Senate committee last September, “I know major Arab allies who fund [ISIS].”

  Barack Obama just ordered more U.S. troops to Iraq to seek to rebuff the ISIS onslaught. If the Saudis are helping sow fresh chaos in the Middle East, that is another reason to disclose their role in an attack that helped launch conflicts that have already cost thousands of American lives and more than $1.6 trillion, according to the Congressional Research Service.

  “Don’t confuse me with the facts” should be the motto of the war on terror. Self-government is an illusion if politicians can shroud the most important details driving federal policy. If Americans have learned anything since 9/11, it should be the folly of deferring to http://fff.org/explore-freedom/article/cover-damning-911-report-continues/Washington secrecy.

  

  

  

  

  

• China CPI Misses, Drops Sequentially As PPI Declines For 49 Consecutive Months

  There was some good and some bad news in tonight’s Chinese March inflation (and deflation in the case of PPI) data.

  The good news, for those who believe that rising inflation is a positive economic outcome, was that Producer Prices declined “only” 4.3% Y/Y, or less than the -4.6% exoected, and better than the -4.9% drop last month. On a sequential basis, PPI rose by 0.5% on the back of various commodity input prices posting a modest increase in the past month on the back of China’s epic January loan injection.

  However, putting that rebound in context, on an annual basis, Chinese gate inflation, or rather deflation, has now been negative for 49 consecutive months.

  

   

  The not so good news, was in the CPI print, which rose 2.3% Y/Y, missing expectations, and in line with last month’s identical increase. This tied headline inflation at a 22 month high, even as non-food inflation rose a paltry 1% in March.

  

   

  On a sequential basis, however, CPI dropped by 0.4% M/M, driven by a 0.1% decline in non-food inflation coupled with a much needed 1.8% drop in food inflation. As a reminder, in recent months Chinese food inflation has exploded driven by a 60% jump in pork prices which had risen to the point where the population was starting to grumble about the surging prices of this most popular protein in the mainland.

  Still, on a Y/Y basis, food inflation rose once more, increasing 7.6% Y/Y and remains the only stable component of inflation, hardly the “diet” for a stable, growing economy, in which consumers are forced to spend their discretionary income on staples instead of pushing up broader, core prices.

  

   

  The best news, however, since China’s inflation appears to have once again peaked, is that this means the media will be flooded with expectations of more stimulus from the PBOC in the form of either RRR or interest rate cuts, which in turn pushed the Shanghai Composite more than 1% higher and back over 3000 (which may  or may not be the result of more direct PBOC buying: as a reminder, as of last week we now know the Chinese central bank is directly buying bank stocks, breaking a core central banking taboo).

  Then again, whether the PBOC agrees with such an assessment, one which by definition will further weaken the Yuan which has become the Achilles heel of China’s “Impossible Trinity” remains to be seen.

  

  

  

  

  

• Obama Announces Unexpected Meeting With Yellen Following Tomorrow's "Expedited Procedures" Fed Meeting

  One of the more significant, if largely underreported events from last Friday, was the Fed’s surprising announcement that it would conduct a closed meeting tomorrow, April 11, at 11:30am “under expedited procedures” during which the Board of Governors will review and determine advance and discount rates charged by the Fed banks.

  

  This is notable because the last time such a meeting took place was on November 21, less then a month before the Fed’s historic first rate hike in years.

  Moments ago things got even more interesting, when in yet another unexpected announcement, the White House said that both Obama and Joe Biden would meet with Janet Yellen on Monday to discuss the economy and Wall Street reform, the White House said late on Sunday. The meeting is expected to take place some time “in the afternoon.”

  “In the afternoon, the president will meet with Federal Reserve Chair Janet Yellen to discuss the state of the American and global economy, Wall Street reform, and the long-term economic outlook; the vice president will also attend,” the statement said.

  According to Reuters, the president and the Fed chair meet regularly to discuss economic issues. Still, one can’t help but wonder what will be said in these two back to back meetings, both of which will be closed to the public.

  In the meantime, we are confident numerous Fed speakers will explain how the Fed may or may not raise rates in the immediate future, unless it of course, does not, all depending on data which the Fed no longer cares about.

  

  

  

  

  

• Austria Just Announced A 54% Haircut Of Senior Creditors In First "Bail In" Under New European Rules

  Just over a year ago, a black swan landed in the middle of Europe, when in what was then dubbed a “Spectacular Development” In Austria, the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.

  Austria had previously nationalized Heta’s predecessor Hypo Alpe-Adria-Bank International six years ago after it nearly collapsed under the bad loans it ran up when it grew rapidly in the former Yugoslavia. Having burnt through €5.5 euros of taxpayers’ money to prop up Hypo Alpe, Finance Minister Hans Joerg Schelling ended support in March 2015, triggering the FMA’s takeover.

  This was the first official proposed “Bail-In” of creditors, one that took place before similar ad hoc balance sheet restructuring would take place in Greece and Portugal in the coming months. Or rather, it wasn’t a fully executed “Bail-In” for the reason that creditors fought it tooth and nail.

  And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.

  The highlights from the announcement:

  Today, the Austrian Financial Market Authority (FMA) in its function as the resolution authority pursuant to the Bank Recovery and Resolution Act (BaSAG – Bundesgesetz über die Sanierung und Abwicklung von Banken) has issued the key features for the further steps for the resolution of HETA ASSET RESOLUTION AG. The most significant measures are:

  • a 100% bail-in for all subordinated liabilities,
  • a 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities,
  • the cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG,
  • as well as a harmonisation of the maturities of all eligible liabilities to 31.12.2023.

  According to the current resolution plan for HETA, the wind-down process should be concluded by 2020, although the repayment of all claims as well as the legally binding conclusion of all currently outstanding legal disputes will realistically only be concluded by the end of 2023. Only at that point will it be possible to finally distribute the assets and to liquidate the company.

  As part of the announcement, Austria has cut Heta’s senior liabilities by 54 percent and extended the maturities of all eligible debt to Dec. 31, 2023 to help cover an 8 billion-euro ($9.1 billion) hole in Heta’s balance sheet. It also wiped out any residual equity and the junior liabilities as well as any supplementary capital. The Finanzmarktaufsicht took control of Heta last year in the first application of European Union rules designed to end taxpayer-funded bank rescues.

  “While the application of the new European recovery and resolution framework for banks is uncharted territory in both legal and practical terms, we are on target with the resolution of Heta,” the FMA’s co-chiefs, Helmut Ettl and Klaus Kumpfmueller, said in the statement. “Orderly resolution is more advantageous than insolvency proceedings.”

  As Bloomberg writes, dealing with failing banks remains a thorny issue in the EU more than seven years after the collapse of Lehman Brothers Holdings Inc. Rescues in Portugal, Greece and Italy carried out before new rules came into force in those countries prompted protests over unequal or arbitrary creditor treatment. The EU’s untested Bank Recovery and Resolution Directive, now in force across the 28-nation bloc, provides rules and tools, including the so-called bail in, to make sure creditors share the burden.

  Creditors were not happy, and Heta became a battleground of what the first BRRD implementation would look like. “At the heart of the issue is 11 billion euros of Heta’s debt that’s guaranteed by the province of Carinthia, which owned Heta’s predecessor until 2007. Those guarantees blunt the intent of the new rules because they mean the losses imposed on bondholders become a claim on Carinthia, which says it can’t pay them. Sunday’s haircut means the province faces claims of about 6.4 billion euros, the FMA said.”

  Carinthia’s attempt to neutralize the guarantees by buying up the bonds at a discount was rejected by bondholders led by Commerzbank AG and Pacific Investment Management Co. last month. The creditors, who say that Austria should pay up if Carinthia can’t, also sued in a German court, arguing the BRRD’s rules don’t apply to Heta.

  The announcement ushers in the next, and even more contentuous phase of creditor negotiations: after initially ruling out a second offer, Austrian officials this week smoothed the way for new negotiations to avoid years of litigation. Gaby Schaunig, Carinthia’s finance secretary, said she will review a recent creditor proposal and that “any out-of-court solution is better than the legal route.”

  According to Bloomberg, some of the creditors are planning to make an offer to Austria that would result in a payout of 92 cents on the euro, a person familiar with the bid said Saturday. It’s unclear how many creditors support the offer. On Tuesday, representatives for both sides will also meet in London for talks, according to a report in Der Standard. Many creditors have rejected any haircut as an option over concerns how such an example could impact their investments in comparably impaired financial companies. Others are more willing to negotiate.

  Some creditors had already challenged the FMA’s decision to apply European bank resolution rules to Heta. Answering the objections, the FMA said the wind-down remains “fully binding,” adding that creditors are now free to appeal to Austria’s federal administrative court:

  Challenges may be submitted to the FMA against the emergency administrative decision of 10.4.2016, which sets out the significant resolution actions under BaSAG, within three months. If applicable, the FMA will initiate ordinary administrative proceedings, will recognise and examine the submitted challenges and will then issue an administrative decision in relation to the challenge procedure.

  Changes, if any, to today’s decision will likely take years to pass through the Austrian court system. In the meantime, the precedent has been set and we expect many more banks to follow suit in “bailing in” their senior debt creditors, and ultimately – if there is not enough value to satisfy claims – depositors.

  

  

  

  

  

• "I Used To Be A Big Deal… And Then A Billion Dollars Walked Out The Door" – Hugh Hendry's Sad Story

  In a somewhat more manic-than-usual introduction to his 2016 macro outlook, Eclectica’s Hugh Hendry – the first of the big bears to throw in the towel and kiss the ring of central planners – admits that things did not turn out quite as he expected, noting “I used to be a big deal”, that “I had $1.5 billion in AUM” most of which “walked out the door”, and that “life is cruel.”

  While the entirety of his presentation is certainly worth watching, what specifically caught our attention were the occasional, and rather troubling, streams of consciousness during which we get a glimpse into Hendry’s current frame of mind and, frankly, we are a little concerned, because while we have no doubt in Hendry’s investing genius (even if he did decide to infamously flipflop in 2013 and many of his LPs decided not to stick with him), the content of what he says is just a little troubling.

  Some excerpts:

  This morning i ended up in an accident in emergency and I just to dispel any rumors that it involved having superglue on my hands or anything else embarrassing. But I’m back, I’m better, albeit my ear is a little bit ringing. And life is cruel, people keep getting younger. The Joseph Stiglitz interview was broadcast on British TV 6 years ago in 2010.

   

  As I say to my children, I used to be a big deal ago 6 years ago. I was at a party recently with some younger girls who represent some fund of funds in New York, I said “I am in global macro, I run Eclectica”… nothing. They had never heard of me. So if I may continue with the introduction, I feel actually now that I have to.

   

  My shrink says I’ve got to get over it, that I keep wishing to express my identity. My identity lies in a post-dated envelope which is going to come through my door in ten years time, and on that number is my compound growth rate. I am that silly person who somehow defines myself by performances… I have survived, I am like when you spill red wine on the carpet and you scrub it, and that stain just won’t come out, it’s difficult to get rid of me. I’ve been running a global macro fund for 14 years, now one of the longest running London global macro teams, and we have compounded at 8%. I wish it was 18%, I would still be on the beach if it was 18%. But with 8% comes a degree of accomplishment I believe, because that 8% has been accomplished with a set of return that just have not correlated with anything. I am eclectic.

   

  * * *

   

  For two years I didn’t take any risk. I had $1.5 billion in AUM. For me that’s a big number and I had clients who thought I was negative correlated to the stock market and they were fearful, Investors are fearful: it’s one of the most bullish things about stocks today apart from their profound underperformance to fixed income markets.

  On his intellectual metamorphosis from bear to bull:

  I had a Damascene conversion. I was one of those angry, curmudgeonly Austrian economists. I made over 30% in 2008, I won. My AUM halved. But then you had this QE and all those people who didn’t see it, who took the reckless bets, they all came back. We had a chance to kill the vampires and we missed the chance. Purge the system of its rottenness; we failed to do it. That’s how I lived; one should never be angry, it’s such a negative force and I got over that. I survived for 14 years because I was good at making mistakes.

  And then this:

  Back to my rant about central banks: they were right, I was wrong. The notion that QE has distorted the integrity of market prices is kinda right, but is kinda right in a benevolent manner because without the courageous intellectual decision by the American Federal Reserve to introduce QE shortly followed by the Bank of England, I think without a doubt we would have had another Great Depression. So QE has influenced the integrity of market pricing because it took away the very real risk of a depression. In that sense, equities are worth more.

  So without the “courageous intellectual decision” by the Fed to take away “tail risk” and thus eliminate one of the fundamental tenets of capitalism, namely “risk”, equities are worth more? Well, sure. The only question is what happens when the market finally sees through this massive, global experiment in central-planning, one which by definition means that every asset is overvalued. Indicatively we saw glimpses of that before the Shanghai Accord unleashed an unprecedented central bank re-stimulus attempt.

  But the saddest part is Hendry’s James Joyceian lament of how he lost virtually all of his AUM – it happened when he infamously flipflopped from bearish to bullish in 2013, a shift we profiled in “Hugh Hendry Throws In The Bearish Towel: His Full Must-Read Letter.”

  A funny thing happened at the end of 2013 I wrote a letter to my new clients and I began with the preface “what if I was to tell you that I’d become bullish on equities; is that something you’d be interested in.”

   

  The resounding message no. A billion dollars walked out the door. “What, really, you’re bullish?” This is cabaret maybe I should be in show business. Bullishness, optimstic, bearishness, there are adjectives that are very demeaning to the endeavor of global markets.

   

  In 2013 I was flat and I had one client who said “Gee, if only you had been down 15% I could give you more money, but this being flat, I feel uncomfortable.”

  At this point Hendry proceeds to lay out his returns, proudly noting that in 2014 he made 10%, in 2015 he made 6% (mostly on the back of China), and “this year we are flat” (according to the latest HSBC report as of March 31, as of March 31, Eclectica is down to -5.9%).

  He goes on: “I am not very good in the company of others; with the greatest of respect to bank credit analysts I’ve never had a call from a buddy at Goldman Sachs, JPMorgan, Morgan Stanley, so I am the author of my own mistakes, but I want to tell you I am very, very good at making mistakes.”

  We honestly hope this is not the latest one. 

  His sad story aside, we urge readers to watch the entire presentation below to see how an honest, in their own mind, transformation from crushed bear to just as crushed bull takes place, as well as Hugh’s quasi-contrarian view on what will happen to China next as well as to the Renminbi (he completely disagrees with the Kyle Bass view that a major devaluation is inevitable) which he says “is the key to the markets today”, something he also touch upon in “Hugh Hendry: “If China Devalues By 20% The World Is Over, Everything Hits A Wall.”

  Full presentation to Skagen

  

  

  

  

  

• This Vancouver Home Just Sold For More Than $1 Million Above The Asking Price

  Not a day passes without the Vancouver real estate market succeeding to amaze us all over again.

  Just over a month ago we were amazed to learn that, in confirmation of the local buying frenzy, the Vancouver home shown on the photo below sold for $735,000 above asking.

  

  As Vancity Buzz wrote, “The house at 3555 West 1st Avenue was built in 1912, is 3,400 square feet and sits on a standard 33 x 120 foot lot without a view. The selling price of $4.23 million is about $1.6 million above the lot’s assessed property value.”

  For his part, real estate agent Brandan Price is incredulous. “For it to go over $4 million is remarkable. I had five offers,” he said. “These were local buyers just looking to make a shift who wanted to move into this area.”

   

  “They were willing to sacrifice lot size to move into this area.” Maybe, but things seem to be getting out of hand and part of the “problem” may indeed be demand from investors attempting to find a home for capital they’ve moved out of China. As Thomas Davidoff with UBC’s Sauder School of Business told Vancity Buzz: “These prices are getting pretty freaking nuts in my opinion.”

  Which led us to observe that in Canada, an interesting paradox is visible. On the one hand, the country’s oil patch in Alberta is mired in a painful depression, where the worst 12 months for job losses in 34 years is contributing to rising property crime, higher food bank usage, and a rash of unsold condos and empty office space in Calgary.

  On the other hand, if simply looking at real estate in Vancouver and Ontario you’d think you were looking at home prices for an economy that is thriving. In fact, prices in Vancouver have reached nosebleed levels. In January for instance, the average selling price of detached homes was an astronomical $1.82 million.

  

  According to a recent report by Knight Frank, prime residential property prices in Vancouver increased by 25% in 2015 “due to lack of supply, foreign demand and weaker Canadian dollar.” But mostly foreign demand as Chinese buyers scramble to launder their money in this Canadian city.

  Vancouver’s soaring home prices posted nearly double the growth rate of the next few residential markets of Syndey (14.8% Y/Y), Shanghai (14.1%), Istanbul (13.0%) and Munich (12.0%).

  And while there has been some speculation the government may crackdown on this runaway home price inflation, this has yet to happen. In the meantime, the horror stories of Vancouver’s houing market persist.

  According to the National Post, another west side Vancouver home has sold for more than $1 million above the asking price. The Dunbar area bungalow was listed for $3.188 million and sold earlier this week for $4.19 million.

  

  SunThis Dunbar area house sold for $1 million over the asking price this week.

  This is the second time in just one month when a Vancouver home sells more than $1 million above asking. Just over a month ago, a Point Grey home with a view sold for $1.172 million more than the asking price. The sale price for the house on Bellevue Drive was more than $9 million and the new owner planned to rent it out then tear it down and rebuild in a couple of years, according to the realtor. The house had not been updated.

  

  SunThe house has a new roof, updated bathrooms and a gourmet kitchen.

  But the 71-year-old Dunbar house has been fully renovated, according to the MLS listing. It sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains. The house has a new roof, updated bathrooms and a gourmet kitchen as well as a one-bedroom basement suite.

  “Perfect for families,” says the listing. Or, “hold and build.” 

  

  SunThe bungalow was listed for $3.188 million and sold for $4.19 million

  University of B.C. real estate professor Tsur Somerville said the Dunbar home may have been listed low. “That is one third more than the asking price,” he said. “It looks a whole lot like a realtor playing games.”

  That or the panic buying frenzy is getting bigger by the day.

  Getting the right listing price for a property in Metro Vancouver’s overheated market is difficult, Somerville acknowledged.

  “Because prices are going up so rapidly, so out of control, it’s hard to know what the price is,” he said. “The rate of price increases is reaching hysteria levels. It’s not sustainable.”

  This is what is known as a bubble, and while everyone admits it, the frenzy goes on.

  

  SunThe house sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains.

  Homes sales in Metro Vancouver surpassed 5,000 last month, making it a record-breaking month according to statistics from the Real Estate Board of Greater Vancouver. The benchmark price for detached properties in the region increased 27.4 per cent to $1,342,500 in March 2016 compared to the same month last year.

  Something else everyone can agree on: the Vancouver housing bubble will eventually burst. The question is when, and how much longer will the government ignore this ridiculous surge in prices while pretending everything is perfectly normal. Naturally, when it does burst leading to a collapse in the local economy and crushed living standards for everyone, the excuse will be a well-known one: “nobody could have seen it coming.“

  

  

  

  

• CEO Keith Neumeyer: "There's Going To Be A Major Revolt If We See Negative Rates"

  Submitted by Mac Slabo of SHFTPlan.com

  CEO Keith Neumeyer Warns: “There’s Going To Be a Major Revolt… We’re Going To See Riots“
  

  With negative interest rates now the order of the day in much of the Western world, it’s only a matter of time before financial institutions start charging American depositors for the privilege of keeping their money safe in the U.S. banking system.

  And according to Keith Neumeyer in his latest interview with SGT Report, that could spell disaster for socio-economic stability. Neumeyer, who is the CEO of one of the world’s top primary silver producers First Majestic Silver and the Chairman of mineral bank firm First Mining Finance, says that should The Fed and government policy makers implement negative interest rates and continue on their current course of bailing out big business while impoverishing average Americans, we could well see riots in the streets.

  Negative interest rates are a way that governments are trying to tax the people… it’s going to start with big corporations that have a lot of cash sitting around in the banks and then it’s going to trickle down to the average person on the street… the people that get hurt are the small investor… the people that could least afford it…  the retired people that rely on their interest on their savings that they expected to have… this is all changing… the world is changing…

   

  I think there’s going to be a major revolt… If we actually do see negative interest rates in North America…  we’re going to see riots.

  The Fed has lost credibility. And that has left the average person on the street with an air of uncertainty and concern over the stability of the system.

  This, says Neumeyer, is why many investors, both large and small, have started turning to tangible assets as a safe haven.

  The Fed is losing credibility… there’s talk of negative interest rates… people are looking to gold now as a safe haven to be in as protection against these major forces that are occurring in the world.

  But it’s not just the retail investor that is terrified of the consequences of Fed policy.

  We’re seeing State mining companies go on an acquisition spree looking around the world for gold mines to buy. They are very bottom-up players… very long-term players… a lot of the people we’re talking to are actually looking to buy gold mines…

   

  Of course there’s the institutional investor and retail investor who wants to have the physical gold…

  Last year Neumeyer warned that a global reset is in the cards and urged investors to start positioning themselves for that eventuality.

  He also famously penned an open letter to the CFTC highlighting the rampant manipulation in the system in which he claimed that a small concentration of market players were attempting to control the price of silver through paper trading.

  But that manipulation will eventually become ineffective, he says, because industrial and retail demand for physical silver will overwhelm the paper markets:

  I’m a believer in the market. We go through phases where we have imperfections… and that’s one of the areas now that we have a price fixing mechanism that is very inefficient… it is very damaging to the miners… it’s damaging for investors who believe the metal should be at higher prices… so as long as the regulators allow the banks to sell unlimited amounts of silver and gold, I’m not sure if the system can ever be fixed on its own.

   

  What I think is going to happen is there will simply be a physical shortage of metal. We’re consuming more silver today than we ever have as a human race. The use of silver is climbing each year. We’ve seen production in 2015 drop from 2014 in silver. It looks like 2016 is going to be another year for lower silver production as well.

   

  Silver is a very rare metal and people don’t understand that. We’re currently mining on a global basis 10 ounces of silver for every 1 ounce of gold.

   

  That’s a shocking number. 

   

  We’re trading at 80-to-1 [silver-to-gold]. So how can you possibly trade at 80-to-1 and be mining at 10-to-1. That relationship cannot possibly last.

   

  … The regulators are sitting on their hands… the banks are making too much money… there’s no incentive to change the system… but it will be a supply squeeze that will eventually change the system.

  As SGT Report echos, there is no incentive for them to change the system except for the time when people actually do reach their boiling point and start to march in the streets because they’ve been thrown under the bus for much too long.

  And when those riots do start, just as Zero Hedge previously reported during the Greek riots, the price of physical precious metals versus the bank manipulated paper prices will skyrocket. In 2010 the price difference between the two was as high as 40% above the paper spot price as Greeks scrambled for real money in the midst of their country’s collapse.

  Things will be no different in America when a jobless, hungry, and marginalized majority takes to the streets. When that comes to pass we will see the real value of physical silver and gold emerge, and you can be almost certain that it will be significantly higher than the suppressed paper prices the banks want us to believe.

  

  

  

  

  

• Blackrock Turns Its Back On Japan Leaving Kuroda Scrambling

  Things are going from bad to worse for the efficacy of the grand – and failed from the beginning – experiment known as Abenomics. As Bloomberg reports, Larry Fink’s Blackrock has changed its stance on investing in Japan, and joins Citigroup, Credit Suisse, and LGT Capital Partners, the $50 billion asset manager based in Switzerland in their decision to head for the exits.

  Ironically, Blackrock’s decision comes only a few months after blogging about “The Case for Investing in Japan”, in which they explicitly cited increased demand for Japanese stocks.

  INCREASED DEMAND FOR JAPANESE STOCKS

   

  The BOJ and other large institutions have increased their investments in Japanese equities. Meanwhile, the recent successful Japan Post initial public offering has renewed domestic interest in equities and likely increased demand for Japanese equities by investors around the globe.

  This is the latest in a long list of setbacks for Japan in their quest to inflate consumer prices and their stock market. Foreign investors have been getting out of the market all year long, as concerns about the global economy and a strenthening yen continue to be at the forefront. So far they’ve dumped $46 billion in shares according to Bloomberg.

  

   

  Meanwhile, Japan is doing all it can (according to the Abenomics playbook). NIRP, Japan’s latest central bank tool form the proverbial “toolbox” has been fully implemented, with a negative 10Y bond auctioned just last month. So far it is not enough.

  It has also apparently done enough damage on the fixed income side to sway the worlds biggest state investor, their very own Government Pension Investment Fund, to move more into equities. However with other major players not wanting to be invested in Japan, the BoJ may very well have to increase their ETF holdings to roughly 100%.

  

   

  But most entertaining would be Peter Panic’s reaction. A photographer’s s rendering of Kuroda’s face upon hearing that even his most devoted supporters are now giving up on him would probably look like the change from this…

  

   

  … To this

  

  

  

  

  

  

• Japan Says G-20 Accord Barring FX Devaluations Does Not "Rule Out Intervention" In The Yen

  One of the biggest unconfirmed secrets of recent market action was whether or not there was a Shanghai Accord in February, in which the G20 and central bankers decided to push the dollar lower to benefit China at the expense of Japan and Europe, both of whom have suffered substantially in recent weeks as a result of their own currencies surging, pushing local stock markets lower (and sending European banks sliding).

  Earlier today, Japan’s government spokesman Suga came as close as possible to admitting that there was in fact a tacit “Shanghai Accord” agreement when he said that the Group of 20’s agreement to avoid competitive currency devaluation “does not mean Japan cannot intervene in response to one-sided currency moves.”

  It got better: in an interview with Reuters Suga added that Japanese Prime Minister Shinzo Abe’s comment to the Wall Street Journal last week that countries should avoid “arbitrary intervention,” was misunderstood and does not rule out intervention for Japan, Suga said.

  And yet it did rule out intervention until now? He clarified. “What the G20 is talking about is arbitrary intervention, which is different from responding to a one-sided move,” Suga told Reuters in an interview on Saturday.

  So arbitrary is not really arbitrary if as a result of other arbitrary devaluations the market decides to focus on Japan… which sound oddly like Obama defending Hillary and explaining how confidential is not confidential.

  As Reuters notes, some traders have said Japan cannot sell its own currency now, because the G20 warned countries in February to refrain from competitive devaluation. Suga, who coordinates other ministers in Abe’s cabinet, rejected this idea outright and said Abe’s remarks about arbitrary intervention in a Wall Street Journal interview last week were misunderstood.

  “The prime minister’s comments were based on the G20 understanding that long-term manipulation of currencies is undesirable.”

  As a reminder, the last time Japanese authorities intervened directly in the market was in 2011, when Tokyo got an explicit G7 consent to stem a yen spike driven by speculation that a devastating earthquake and nuclear disaster in March would force Japanese insurers to repatriate funds to pay claims.

  What is fascinating is how weak even Japan’s attempts at verbal intervention have become.

  The attempts at posturing continued:

  Suga also rejected the argument that the adoption of negative rates was a sign the BOJ’s attempts to meet its 2-percent price target had reached a limit.

   

  Abe is meeting foreign economists to prepare to host a summit of G7 finance ministers and central bank governors in May, where he will urge other countries to coordinate policies to accelerate global growth.

   

  “The prime minister strongly believes G7 should lead the global economy with sustainable growth,” Suga said.

  At this point Japan has become such a joke in trader circles, the nickname which we penned for Kuroda aka “Peter Panic”, appears to have stuck.

  Of course, there is a quick way to find out just how much leeway Japan actually has: if at the next BOJ meeting, one which have taken place after a tremendous surge in the Yen which is up over 10% YTD, Kuroda does nothing, then as expected all of the above will have been merely the latest bout of ridiculous posturing, and the Shanghai Accord indeed made it so that only the USD is allowed to weaken.

  Meanwhile, keep an eye on the USDJPY downside. As we reported last week, this is where various banks expect the BOJ will have no choice but to intervene:

  •     Bank of Singapore: 100
  •     BofAML: 105
  •     CBA: 100
  •     Daiwa Securities: 100
  •     JPMorgan: 95
  •     Julius Baer: 100-105
  •     Macquarie: 100
  •     Mitsubishi UFJ Morgan Stanley: 99
  •     NAB: 100
  •     Nomura: 105
  •     RBS: 105-110
  •     Societe Generale: 104
  •     Swissquote Bank: 100
  •     Westpac: 106.5

  Finally, here is SocGen chiming in on the matter with a note released this afternoon.

  We do not believe in a “secret” currency agreement reached at the February G20 meeting in Shanghai. We do, however, believe that the official statement places certain limitations of what policymakers can do with the sentence ”we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes”. Interestingly, Chief Cabinet Secretary Suga noted in a Reuters interview on Saturday that the G20 statement does not exclude intervention against “one-sided” currency moves.

   

  To our minds, intervention is likely to remain verbal for now given not only the poor track record of one sided intervention and the fact that politically the situation is challenging for Japan as it prepares to host the G7 summit in May. Japan last intervened unilaterally in October 2011; the impact proved short-lived and back then USD/JPY was below 80 when the intervention took place. The March 2011 intervention was more successful, but this one enjoyed the blessing of the G7 post the Fukushima disaster. Then too, USD/JPY was below 80 when the intervention began.

   

  Turning to the BoJ, the recent move in the yen has not changed our probability of 30% for additional easing. Our Chief Japan Economist, Takuji Aida, would increase this to 40% if USD/JPY breaks 105. The problem of effective BoJ tools remains, however. Given the poor public image of negative rates, PM Abe would be amongst those disappointed to see it used again and not least ahead of the Upper House elections in July.  

   

  More likely to our minds is that PM Abe will use the current situation to further build the case to delay the consumption tax hike (due next April) as part of a new fiscal package that we expect will be released in the course of May. Ironically, such a policy could be argued to favour further yen strength – at least in the short-term.

  Perhaps, although Abe has made it repeatedly clear that Japan’s sales tax will be raised to 10% from 8% in April 2017  unless there is a”barring a crisis like the one caused by the collapse of Lehman Brothers.“

  So Perhaps all Japan needs to send its Yen crashing again is another Lehman-like crisis? Surely that too can be arranged.

   

  

  

  

  

  

• Caught On Tape: U.S. Plane Allegedly Drops Weapons for ISIS Militants in Iraq

  One day after reprorting that British military information services Janes, had found confirmation of several shipments amounting to 3,000 tons of weapons and ammo to Al-Qaeda linked Syrian rebels in a transport solicitation on the U.S. government website FedBizOps.gov, today Veterans Today goes deeper into the rabbit hole and reports that several Iraqi policemen claim to have seen US aircraft dropping weapons and munitions for ISIS terrorists in a region west of the Anbar province on Friday.

  

  According to VT, in a video posted on Iraq’s al-Maaloomah news website on Sunday, the policemen are purportedly heard saying that the American plane had also jammed their communication devices in the Hadisah Island district.

  “There is an American aircraft seen at four o’clock in the morning on Friday over the Hadisah Island district of the Anbar province, delivering weapons and munitions to ISIS criminals,” one of the policemen says.

  “The plane proceeded to jam radar devices of the police regiment stationed in Hadisah Island to prevent contact between the affiliates and the headquarters of the regiment,” he added.

  

  The man said they had seen a military vehicle of ISIS arriving in the region a few minutes later and transferring the weapons to the place the group controlled.

  

  In the video, the man and his associates are heard appealing to Iraqi Prime Minister Haidar al-Abadi to follow up the issue.

  

  VT adds that the Iraqi army and the volunteer Hashd al-Shaabi forces liberated the district from ISIS terrorists just last month. The US may have different plans, however.

  

  Ironically, this took place just hours after US SecState John Kerry visited Baghdad on Frday, where he said ISIS was losing ground, including more than 40 percent of the territory that they once controlled in the country.

  President Barack Obama is reportedly weighing an increase in the number of American troops in Iraq but Kerry said there had been no formal request from the Iraqis and the issue had not been raised on Friday.

  Even more curiously, the Daily Beast reported last week that there are at least 12 U.S. generals in Iraq, “a stunningly high number for a war that, if you believe the White House talking points, doesn’t involve American troops in combat. And that number is, if anything, a conservative estimate, not taking into account the flag officers running the U.S. air war, the admirals helping wage the war from the sea, or their superiors back at the Pentagon.”

  For now any additional deployments are being kept under the curtain of fighting ISIS: the US, officials said, looked to “accelerate recent gains” against ISIS.

  Further to that, recall that as reported this morning, the US Air Force deployed B-52 bombers to Qatar, the first time they have been based in the Middle East since the end of the Persian Gulf War in 1991.

  “The B-52 demonstrates our continued resolve to apply persistent pressure on Daesh and defend the region in any future contingency,” said Charles Brown, commander of US Air Forces Central Command.

  Contingecy such as carpet bombing and paradropping supplies to unknown recipients?

  But back to the alleged US delivery of weapons for ISIS – it would not be the first time this has happened. In October 2014, ISIS released a new video in which it bragged it recovered weapons and supplies that the US military intended to deliver to Kurdish fighters in the Syrian city of Kobani.

  Some Iraqi MPs have also accused the US of deliberately arming ISIS, citing an arms air-drop case in Tikrit, but government officials have rejected it.

  In Syria, the US military has airdropped tons of ammunition to Al Qaeda-linked rebels and militants.

  If all this US weaponry is indeed ending up in Al Nusra and/or ISIS’ hands, it remains to be seen where just it will be used.

  

  

  

  

• Obama Defends Hillary In Email Scandal: "There's Classified And There's Classified"

  Following Hillary’s recent interview with Matt Lauer, in which she very boldly declared she’ll never be seen in handcuffs, none other than President Obama weighed in on the topic.

  In an interview with Chris Wallace, the President discussed his thoughts around Hillary Clinton’s email debacle.

  On this subject, Obama has gone from categorically denying any wrongdoing, to a slightly different tone. Be that as it may, the President wants the American public to feel fine about Hillary’s unsecured server and blackberry, because, well, he’s handled a lot of confidential information.

  And then he goes on to explain that “there’s classified, and there’s classified. There’s stuff that’s really top secret, top secret, and then there’s just stuff being presented to the President or Secretary of State.” 

  Another quote worth noting is how the President responded when Wallace asked him if he could direct the DOJ to ensure the investigation into Hillary Clinton will be handled based on fact, and it’s to to go where the evidence leads. That Hillary won’t be in any way protected.

  I can guarantee that. I guarantee that there is no political influence in any investigation conducted by the Justice Department. Full stop, period.

  So there we have it. As far as national security concerns around Hillary’s unsecured communications, don’t be alarmed because there’s classified, and then there’s classified. As far as whether or not justice will be served if it is determined that Hillary broke the law, everyone can also rest assured that the outcome of the FBI’s investigation will be solely based on evidence, and nothing more – just as the process is supposed to work.

  At this juncture, we’re still trying to wrap our minds around what the difference between classified and classified is, but it’s something Edward Snowden certainly wishes he knew about.

  If only I had known. https://t.co/yrPg8uxiQO

  — Edward Snowden (@Snowden) April 10, 2016

  We want to also quickly point out that the following comment from this interview came literally less than 24 hours after we learned the US is sending B-52 bombers in order to help fight against ISIS.

  I hear some candidates say we should carpet bomb innocent civilians, that is not a productive approach to defeating terrorism. Our approach has to be smart.
  

  You can view the full interview here

  

  

  

  

  

• Guest Post: The U.S. Dollar – Return Of The King?

  Submitted by $hane Obata

  USD: Return Of The King

  Falling oil prices, China growth fears, submerging markets, Brexit and Italian banks. All of those risks have one thing in common: They have not derailed the US economy. Despite concerns about a recession, it continues to grow at a steady pace. According to the Atlanta Fed, real GDP is expected to grow by 0.7% in Q1’16. That is not a great number; however, the series is extremely volatile.

  
  sources: Bloomberg, @Not_Jim_Cramer

  It would not be surprising to see growth rebound to 2% or more in the coming quarters.

  Global investors are counting on the US because of lackluster growth elsewhere. Europe is doing fine; however, deflation remains a concern and bank credit growth is turning down. Japan continues to fall in and out of recession. In the emerging world, the BRICs are crumbling. Brazil & Russia are suffering due to falling commodity prices while China continues to decelerate. Going forward, rate differentials, relative economic strength and divergent monetary policies should provide support for the USD.

  Sentiment & Positioning

  With all that said, as of Mar29’16, the net speculative long position in the USD was 7% of open interest, the lowest it has been since Q2’14. This indicates that speculators are the least bullish they have been in nearly two years.

  

  The US Dollar Index is sitting at 94.62, just above a critical support zone at 93-94. Meanwhile, the Trade-Weighted Dollar Index has pulled back ~3.4% from its high on Jan20’16. It is hard to tell that long USD is a consensus trade because investors have lost their conviction.

  FX, Rates & Monetary Policy

  USDCAD: Has fallen to 1.3011 from a high of 1.4692 on Jan20’16. This is a direct result of the relief rally in oil, which has risen to $36.79 from a low of $26.05 on Feb11’16. These moves have not been driven by improving fundamentals. Rather, they are mostly attributable to short covering.

  
  
  via @Ole_S_Hansen

  Rate differentials (see the following chart), relative economic strength and divergent monetary policies should support USDCAD in the near term. Also, it is unlikely that the bear market in commodities is over.

  
  sources: Bloomberg, @sobata416

  EURUSD & USDJPY: In Europe and Japan, easy monetary policy will be present for an extended period of time. The ECB and BOJ have made it clear that they will do “whatever it takes” to protect their countries from deflation. The ECB recently announced a set of new measures intended to support the Euro Zone. Equities have responded positively but the Euro has not. EURUSD is trading at 1.1389, up from a low of 1.0538 on Dec3’15. Japan is facing the same issue. Even though Japanese equities are up since oil bottomed on February 11^th, the Yen is the strongest it has been since Q4’14. It is unlikely EUR and JPY strength will persist for the same reasons mentioned in the previous paragraph.

  

  World Reserve Currency

  The USD is the most widely held reserve currency in the world. It represented 64% of official foreign exchange reserves at the end of Q3’15. Countries tend to hold Dollar-denominated assets because they are relatively stable. Foreign central banks also use the USD as collateral for loans and to protect their currencies. For example, if the ECB feels as though the EUR is too strong, it can sell Euros to buy Dollars, thereby reducing the amount of USD in circulation. In theory, this would weaken the Euro.

  The foreign exchange market also speaks to the structural importance of the USD. According to the BIS’ Triennial Central Bank Survey, “FX deals with the US Dollar on one side of the transaction represented 87% of all deals initiated in April 2013.”

  Lastly, it is important to recognize that many commodities are priced in USD. Therefore, people who want to buy or sell them are required to hold Dollars.

  These facts help to explain why demand for the USD will persist. It is still the world reserve currency and that will not change in the near future.

  Major Risks

  The two major risks to the USD are a dovish Fed and slowing US economic growth.

  The Fed is the world’s central bank. Even though both of its mandates are domestic, the Fed has become increasingly concerned about the global economy. This is evident when we look at the rising number of times the Fed has mentioned key terms such as “Global” and “Dollar” in recent meetings.

  

  A strong USD is good for US consumers and bad for commodities & exporters. The Fed is well aware of this relationship; however, it alone does not guarantee dovish monetary policy. Not long ago, market participants thought that 4 rate hikes in 2016 was a possibility. Now, it is unclear whether or not we will see 1. As of Mar29’16, the probability of a hike in December was just 65%. The market is positioned for easy US monetary policy. As such, positive surprises from the US or negative surprises out of Europe or Japan will force investors to reassess their outlooks. If that happens then the Fed may turn more hawkish, which would be positive for the US Dollar.

  2) Slowing US Growth

  The US economy continues to muddle along, backed by steady employment and consumption growth. The Eurozone is doing fine but most of its gains are attributable to Germany. Other major players such as France and Italy have not fared as well. Moreover, Japan continues to tread water. Canada has rebounded. That said, its economy is dependent on commodity prices, which may roll over in the short run.

  All in all, the US still looks good on a relative basis. Especially versus developed market peers.

  Return of the King

  Rate differentials, relative economic strength and divergent monetary policies should provide support for the USD. In addition, it will likely benefit from safe haven flows when global risks return to the headlines.

  If the Dollar resumes its uptrend then commodities will suffer.

  
  via @NickatFP

  Oversupply in many industries such as oil, iron ore and coal remains an issue. On the demand side, China’s deceleration is not helping. The emerging markets are inextricably linked to commodities. If prices fall then the EMs will underperform.

  There can only be one king.

  

  

  

  

  

• Stunning Video Reveals Why You Shouldn't Trust Anything You See On Television

  In recent years, many have voiced increasing concerns with their ability to place trust in official data, and have faith in conventional narratives.

  And for good reason: just yesterday a University of Chicago finance professor, while being interviewed at the Ambrosetti Forum, said that it is all about preserving confidence and trust in a “rigged game”: “if people are told enough by smart people on television that the economy has been fixed, and the market is a reflection of the fundamentals, then they’ll blindly support anything the Fed does.”

  But while the saying “don’t believe everything [or anything] you read” and “trust but verify” may be more appropriate now than ever, the following video is an absolute stunner in its revelation of just how deep “real-time” media deception can truly go.

  In a recently published paper by the Stanford lab of Matthias Niessner titled “Face2Face: Real-time Face Capture and Reenactment of RGB Videos“, the authors show how disturbingly easy it is to take a surrogate actor and, in real time using everyday available tools, reenact their face and create the illusion that someone else, notably someone famous or important, is speaking. Even more disturbing: one doesn’t need sophisticated equipment to create a “talking” clone – a commodity webcam and some software is all one needs to create the greatest of sensory manipulations.

  From the paper abstract:

  We present a novel approach for real-time facial reenactment of a monocular target video sequence (e.g., Youtube video). The source sequence is also a monocular video stream, captured live with a commodity webcam. Our goal is to animate the facial expressions of the target video by a source actor and re-render the manipulated output video in a photo-realistic fashion. To this end, we first address the under-constrained problem of facial identity recovery from monocular video by non-rigid model-based bundling. At run time, we track facial expressions of both source and target video using a dense photometric consistency measure. Reenactment is then achieved by fast and efficient deformation transfer between source and target. The mouth interior that best matches the re-targeted expression is retrieved from the target sequence and warped to produce an accurate fit. Finally, we convincingly re-render the synthesized target face on top of the corresponding video stream such that it seamlessly blends with the real-world illumination. We demonstrate our method in a live setup, where Youtube videos are reenacted in real time.

  In simple English: famous “talking heads” speaking, chatting, interacting on TV can be practically anyone masquerading as said celebrity, and due to the real time conversion, they can talk, react, answer questions and generally emote so that the deception is flawless and totally convincing.

  So striking is the real time effect of the conversion, the creators of this algorithm felt the need to clarify their intentions:

  This demo video is purely research-focused and we would like to clarify the goals and intent of our work. Our aim is to demonstrate the capabilities of modern computer vision and graphics technology, and convey it in an approachable and fun way. We want to emphasize that computer-generated videos have been part in feature-film movies for over 30 years. Virtually every high-end movie production contains a significant percentage of synthetically-generated content (from Lord of the Rings to Benjamin Button). These results are hard to distinguish from reality and it often goes unnoticed that the content is not real. The novelty and contribution of our work is that we can edit pre-recorded videos in real-time on a commodity PC. Please also note that our efforts include the detection of edits in video footage in order to verify a clip’s authenticity. For additional information, we refer to our project website (see above). Hopefully, you enjoyed watching our video, and we hope to provide a positive takeaway 🙂

  Sadly, while the creators of this stunning technology are forthcoming about their intentions, we doubt many others, those who seek to manipulate and deceive the mass population by ways of the one medium everyone can relate to, namely TV, will be.

  

   

  And to appreciate just how profoundly deceptive this technology can (and will) be for mass media manipulative purposes, watch the shocking 6 minute clip below.

  

  

  

  

• "It's Pure Chaos Now; There Is No Way Back" – Venezuela Morgues Are Overflowing

  When we previewed Venezuela’s upcoming hyperinflation, which in January was predicted to be 720% and as of this moment is likely far higher…

  

   

  … we said “This Is What The Death Of A Nation Looks Like” and said “there is no good news in any of the above for the long-suffering citizens of this “socialist paradise” which any minute now will be downgraded to its fair value of “socialist hell.“

  Subsequent news that Venezuela was now openly liquidating its gold reserves while its president, in an amusing twist, announced last week, that henceforth every Friday will be a holiday, (the term there was a slightly different meaning) to cut down on electricity usage (while blaming El Nino for its electricity rationing) merely confirmed that the end if nigh for this once flourishing Latin American nation.

  Sadly, while we have been warning for years about Venezuela’s inevitable, economic devastation, we said it was only a matter of time before the chaos spreads to broader society and leads to total collapse.

  That may have arrived because as even the FT now admits, after visiting the main Caracas morgue, Venezuela risks a descent into chaos.

  But back to the morgue of central Caracas, where FT correspondent Andres Schipani writes that the stench forces everyone to cover their nostrils. “Now things are worse than ever,” says Yuli Sánchez. “They kill people and no one is punished while families have to keep their pain to themselves.”

  Ms Sánchez’s 14-year-old nephew, Oliver, was shot five times by malandros, or thugs, while riding on the back of a friend’s motorcycle. His uncle, Luis Mejía, remarked that in a fortnight three members of their family had been shot, including two youths who were shot by police.

  Sounds a little like Chicago on a Friday… only in Venezuela things are even worse: “an economic, social and political crisis facing Nicolás Maduro, Venezuela’s unpopular president, is being aggravated by a rise in violence which is prompting fears that this oil-rich country risks becoming a failed state.”

  Even the morgue employees are asking if they should give up.

  “What can we do?” Mr Mejía asks. “Give up.” The morgue employee in charge of handling the corpses notes that a decade ago he received seven or eight bodies every weekend. These days, he says, that number has risen to between 40 and 50: “This is now wilder than the wild west.”

  Critics say that the Venezuelan government is increasingly unable to provide citizens with water, electricity, health or a functioning economy which can supply basic food staples or indispensable medicines, let alone personal safety.

  In other words, total socioeconomic collapse. This is what it looks like:

  Last month alone, Venezuelans learned of the summary execution of at least 17 gold miners supposedly by a mining Mafia, the killing of two police officers allegedly by a group of students who drove a bus into a barricade, and a hostage drama inside a prison at the hands of a grenade-wielding criminal gang. On Wednesday, three policemen were killed when an armed gang busted a member out of a lock-up in the capital.

   

  At least 10 were killed in a Caracas shanty town after a confrontation between local thugs armed with assault rifles, while a local mayor was gunned down outside his home in Trujillo state last month. There are widespread reports of lynchings.

   

  All this is creating a broad unease that Mr Maduro is unable to maintain order… There is a lack of basic goods. Analysts warn that the economic crisis risks turning in to a humanitarian one.

  Some refuse to acknowledge that a state erected on so much oil wealth can be a failed state:

  “Failed state is a nebulous concept often used too lightly. That’s not the case with today’s Venezuela,” says Moisés Naím a Venezuelan distinguished fellow at the Carnegie Endowment for International Peace. “The evidence of state failure is very concrete in the country that sits on top of the world’s largest oil reserves.”

  Alas, a failed state is precisely what Venezuela has become: Venezuela is already one of the world’s deadliest countries. The Venezuelan Observatory of Violence, a local think-tank, says the murder rate rose last year to 92 killings per 100,000 residents. The attorney-general cites a lower figure of 58 homicides per 100,000. This is up from 19 per 100,000 in 1998, before Maduro’s predecessor Hugo Chavez took power.

  It gets worse, because in addition to a soaring murder rate, the government itself is implicated.

  “Venezuelans are facing one of the highest murder rates in the hemisphere and urgently need effective protection from violent crime,” said José Miguel Vivanco HRW’s Americas director. “But in multiple raids throughout the country, the security forces themselves have allegedly committed serious abuses.”

  Their findings show that police and military raids in low-income and immigrant communities in Venezuela have led to widespread allegations of abuse, including extrajudicial killings, mass arbitrary detentions, maltreatment of detainees, forced evictions, the destruction of homes, and arbitrary deportations.

  And like all other failed governments, Maduro’s administration is quick to deflect blame, instead accusing violence within its borders on Colombian rightwing paramilitaries “engaged in a war against its revolution.” But as David Smilde and Hugo Pérez Hernáiz of the Washington Office on Latin America, a think-tank, recently wrote: “Attributing violence in Venezuela to paramilitary activity has been a common rhetorical move used by the government over the past year, effectively making a citizen security problem into a national security problem.”

  For many Venezuelans it no longer matters who is to blame. “It is a state policy of letting anarchy sink in,” says a former policeman outside the gates of a compound in Caracas.

  The FT adds that the former police station now houses the Frente 5 de Marzo, one of the political groups that consider themselves the keepers of socialism’s sacred flame. The gates bear the colours of the Venezuelan flag and are marked with bullet holes. The man believes there is something akin to a civil war going on.

  “Venezuela is pure chaos now. It seems to me there is no way back,” the former policeman says.  He is right.

  * * *

  And since words can not fully do a failed state justice, here is a video clip from Jeff Berwick showing the reality on the ground in the country where “socialism’s sacred flame” is about to go out for good.

  

  

  

  

  

• Italy Seeks "Last Resort" Bailout Fund To "Ringfence" Troubled Banks, Meeting Monday

  Submitted by Mike “Mish” Shedlock of Mishtalk

  Italy Seeks “Last Resort” Bailout Fund to “Ringfence” Troubled Banks, Meeting Monday; Italy vs. Austria

  Italy’s finance minister, Pier Carlo Padoan, wants to “ringfence” its troubled banks.

  Padoan called for a meeting of executive of the troubled banks in Rome on Monday. The banks allegedly will come up with a “Last Resort” bailout fund.

  Last resort or first resort, is there a difference at this point in time?

  Please consider Italy Pushes for Bank Rescue Fund. I highlight the key buzzwords and phrases italics.

  Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan.

   

  Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks.

   

  Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.

   

  The plan being worked on, which could be officially announced as soon as Monday evening, recalls the Sareb bad bank created in 2012 by the Spanish government to deal with financial crisis in its smaller cajas banks, say people involved.

   

  Although the details remain under discussion, it foresees the establishment of a private vehicle that will include upwards of €5bn in equity contributions — mostly from Italy’s banks, insurers and asset managers — and then a larger debt component. The fund will then mop up shares in distressed lenders.

   

  A second vehicle will seek to buy non-performing loans at market prices.

   

  “It is a backstop fund,” said one person involved in the talks.

   

  The Italian government can provide only limited financial backing because of EU state aid rules and because it is already struggling under a public debt load that amounts to 132.5 per cent of GDP.

   

  People involved in the talks question whether the plan would have the financial scope to provide a buffer of last resort for Monte dei Paschi di Siena. Italy’s third-largest bank was the worst performer in the 2014 European stress tests, with about €170bn in assets and about €50bn in bad loans. It is considered by many bankers to be the major risk to Italian financial stability and regarded as too big to fail.

   

  “Monte Paschi is the elephant in the room,” says one of Italy’s top bankers.

   

  Monte Paschi is already trading at zero compared with its tangible equity value if its bad debt disposal is taken into account at current prices, says Johan De Mulder of Bernstein Research. By comparison, when Lehman Brothers collapsed in 2008 it was trading at about 20 per cent of its tangible equity.

   

  Berenberg analyst Eion Mullany argued that the “Italian banking sector is at a pivotal moment in its history”.

   

  “We worry that a bail-in of an Italian bank may cause a chain reaction with ripple effects felt across the European banking system,” Mr Mullany added, referring to the possibility of bondholders and depositors in Italian banks being forced to participate in a rescue.

  Key Buzzword and Phrases

  1. Last resort
  2. Ringfence
  3. €360bn pile of non-performing loans
  4. Sareb bad bank
  5. Equity contributions, mostly from Italy’s banks, insurers and asset managers
  6. Backstop fund
  7. Public debt load that amounts to 132.5 per cent of GDP
  8. Buffer of last resort
  9. €170bn in assets and about €50bn in bad loans
  10. Too big to fail
  11. Elephant in the room
  12. Trading at zero compared with its tangible equity
  13. Lehman Brothers
  14. Pivotal moment in its history
  15. Bail-in of an Italian bank may cause a chain reaction with ripple effects

  Those were the key buzzwords in order. Using those buzzword in the same order, let’s condense the article down to the essence with as few sentences as possible.

  Mish’s Concise Summation

  As a last resort to ringfence a massive €360bn pile of non-performing loans of Italian banks, Finance minister Pier Carlo Padoan has called for a meeting of minds in Rome on Monday. Padoan seeks a plan reminiscent of the Sareb bad bank structure in Spain, even though that plan blew up several times.

  The bad bank will require equity contributions, mostly from Italy’s banks, insurers and asset managers to build up a backstop fund. This approach is necessary because Italy has public debt load that amounts to 132.5 per cent of GDP in gross violation of Eurozone rules.

  The structure needs a buffer of last resort because Monte dei Paschi di Siena, Italy’s third-largest bank, has €170bn in assets and about €50bn in bad loans. Monte dei Paschi di Siena is regarded as too big to fail, a veritable elephant in the room, trading at zero compared with tangible equity. Lehman Brothers collapsed in 2008 it was trading at about 20 per cent of its tangible equity.

  This is a pivotal moment in history because a bail-in of an Italian bank may cause a chain reaction with ripple effects that will be felt across the European banking system.

  Comparisons

  I used 4 paragraphs, the Financial Times used 20. I threw in bonus buzz phrases “meeting of minds” and “blew up several times”.

  Italy is desperate to avoid the path Austria announced today, a 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules as commented on by Zerohedge.

  • 100% bail-in for all subordinated liabilities
  • 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities
  • Cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG
  • Harmonization of the maturities of all eligible liabilities to 31.12.2023

  In contrast, Italy is the “too big to fail”, “elephant in the room”. Should Italy try Austria’s solution, it presumably would cause a “chain reaction with ripple effects that would be felt across the European banking system.”

  Instead, officials will attempt to “ringfence” the problem, hoping to “sweep it under the rug” where presumably a “€360bn pile of non-performing loans” will cure itself, eliminating the need for additional bail-ins

  

  

  

  

  

• Barclays Warns "Grexit" May Return This Summer While Tsipras "Demonizes" IMF

  As we predicted last week when Wikileaks released an IMF transcript which suggested trubulent times may be ahead for Greece, Reuters today writes that “the leaking of a conference call of International Monetary Fund officials on Greece’s latest bailout review has further undermined mutual trust in fraught debt talks, embarrassed the European Commission and infuriated the IMF and Germany.”

  At stake are many things, not the least of which is the IMF’s reputation as a stern enforcer of financial rescue programmes meant to make indebted states viable and the European Union’s determination to hold the euro zone together and avert another damaging Greek crisis.

  And as Reuters adds, Greek Prime Minister Alexis Tsipras “exploited the leak at home to demonize the IMF, rally his left-wing Syriza party ahead of more painful sacrifices to secure the next slice of European loans, and try to put his conservative opponents in a corner.”

  However, his efforts to drive a wedge between the EU institutions and the IMF, and isolate IMF Europe director Paul Thomsen, a veteran of six years of acrimonious negotiations with Athens, fell flat. “Each time Tsipras is going to have to compromise, he needs to create an external enemy,” said George Pagoulatos, professor of European politics and economy at Athens University. “It’s part of his old populist playbook. It’s smart domestic politics even if it is dumb diplomacy.”

  

  Diplomatic pandering aside, Tsipras rebuke undercut months of patient efforts by Tsipras himself and Finance Minister Euclid Tsakalotos to rebuild lenders’ trust following last summer’s turbulent events which culminated with a bank run, capital controls and a banking system that relies on the ECB for its daily existence.

  As Reuters writes, it also shone a light on a complex, three-dimensional chess game the IMF is playing to try to make Greece accept painful reforms of pensions, taxation and bad loans while pressuring Germany and its allies to grant Athens substantial debt relief.

  “Put simply, the IMF’s position is that the Greek economy is in worse shape than rosy EU forecasts suggest, and that a necessary relaxation of fiscal targets must be balanced by greater debt relief from euro zone lenders.” 

  Because apparently it is news to someone that while Europe was pretending it was helping Greece (when it was merely making sure none of the bond held by the ECB were defaulted on), Greece was pretending to reform.

  Of course, since Greek reform in any measurable way is unachievable, there was the question of whether it makes sense to chop off some of the debt it can never repay, as a confirmation of what a great job Greece had been doing (or perhaps as impetus to force it to actually do something). By antagonizing the IMF – the only part of the Troika that was pushing for a haircut – that also is now off the table.

  Germany, the biggest creditor, is the most reluctant about major debt restructuring. Its parliament insists on a continued IMF presence to enforce budget savings and minimize the need for stretching out loans and freezing interest payments.

  “The bottom line is the debt will not be repaid in our lifetime,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington.

  Or ever.

  “The IMF is gearing up for new clients in the emerging economies. That is not best done by being soft on Greece. They won’t go to the (IMF) board to approve participation in a third Greek bailout without something they think is tough and credible,” he said.

  Brussels contends that both the economy and Greek compliance with the bailout programme are better than the IMF thinks, hence the first review should be concluded soon, allowing Athens to access the next 5 billion euros ($5.70 billion) of loans.

  Reuters conclusion: “How the three-way tug-of-war between the IMF, Greece and Berlin will play out remains uncertain. The sequencing will be tricky, but no side seems to have an interest in walking away.”

  Ironically, Greece finally has some true leverage over Germany as Merkel is more dependent now on Greece to act as Europe’s gatekeeper than she was during last year’s crisis over a possible “Grexit” from the euro zone. Berlin needs Athens’ cooperation to process and detain migrants and refugees until they can be send back to Turkey. If Greece really wants to flex its muscles, it will simply demand a debt haircut in exchange for keeping refugees within its borders.

  Then again, now that the Western Balkan route has been closed, with Austria now openly sending migrants back, Greece may have lost what little leverage it had…

  As for the IMF, it too does not want to abandon Greece as a black mark on its record. “Four of the five euro zone bailouts have gone pretty well – an 80 percent success rate. Yet if the IMF walks away from Greece now, everything they’ve done in Europe will be remembered as a failure,” said Kirkegaard.

  * * *

  Which brings us to point #2: also last week, we warned “it may be another turbulent summer in Europe” and on Thursday Barclays seems to have agreed with this assessment. This is what Francois Cabau said in a note titled “Greece – Back To The Fore” in which he says that we do not rule out the prospect of “Grexit” returning.

  Here are the highlights:

  We continue to think Greece has the potential to return to the headlines, and we do not rule out the prospect of “Grexit” returning. Our baseline remains that the current government will ultimately remain in power, managing to pass the creditors’ required reforms through Parliament.

   

  We nonetheless note the more fragile European political environment (Dutch referendum, UK’s EU referendum, likely snap elections in Spain, key elections in France and Germany in 2017) compared to previous episodes, and the possibility that the increased noise around Greece could potentially influence the UK referendum on EU membership. Furthermore, the ongoing migration crisis in which Greece plays a central role is exacerbating tensions at both domestic and European levels.

   

  Market-wise, we believe the escalation of the situation in Greece in conjunction with the UK referendum on EU membership could drive further peripheral spreads. On the FX front, Greece’s large projected repayments in June and July, which coincide with the impending UK EU Referendum, could result in heightened volatility and EUR depreciation as redenomination fears re-emerge, in our view.

  Here is an interesting tangent on the wildcard in this summer’s Greek events: “Migration”

  We believe that the migration crisis has entered Greece’s programme review through the back door. It is our belief that Greece has most likely looked to extend the talks and attempted to bargain with EU leaders on completing the programme review and achieving OSI, by exerting pressure given its crucial role on the migrant crisis, before the EU referendum takes place on 23 June in the UK. Now that the Western Balkan route is effectively closed to migrants, and that the EU has decided on an action plan (agreement with Turkey), we think Greece is likely to have less bargaining power than earlier this year; however, we still expect it to play a major role in addressing the crisis. Further delay in the programme negotiations has only been possible due to a relatively light repayment calendar (see below).

  Finally, the key timing choke point, which as always when dealing with Greece has to do with when the money runs out. The answer: late June.

  Looking ahead, IMF redemptions totalling €0.46bn are due to take place on 30 April, while ECB bonds of c.€50mn fall due on 11 April (a c.€2.171bn outstanding bond due on 24 April was issued purely to provide funding for Greek banks at the ECB and so should not be considered as part of funding needs, in our view). Thereafter, the next significant outflows are due in June and July with €750mn due to the IMF and then c.€2.3bn due to the ECB. Therefore, we think Greece is likely to be able to negotiate payments up until June (albeit narrowly and with likely recourse to allowing arrears to rise again). However, the July repayments appear more challenging should further ESM disbursements not be forthcoming.

  Will another “Greek summer” ruin the vacation plans for numerous bond trading algos? Find out in three short months.

  

  

  

  

  

  

• Did The Canary Of New York's Luxury Housing Market Just Die: Real Estate Developer Files For Bankruptcy

  We’re starting to see some concerning developments in the luxury real estate market. First, we observed as Urbancorp, one of Toronto’s largest property developers, quietly canceled a condo complex they had been working on, and instead converting the project into rental apartments. This was one of the first signs that demand for luxury real estate is declining. 

  And then early last week, some more troubling news was reported, when Urbancorp’s attorneys took the highly unusual step of severing their contract with the company. Not only that, but board member James Somerville announced he was quitting, just two weeks after he had been appointed, namely to provide expertise in accounting. 

  If that wasn’t bad enough, Haaretz reports that Canada’s Tarion Warranty Corporation said they would no longer issue insurance for deposits from buyers of Urbancorp properties. This means that those who put down payments on units being developed by Urbancorp are on their own if the firm stops the project and can’t pay them back. That also means that insurance companies are concerned about the developers’ ability to pay deposits back.

  

  Due to the fact that Urbancorp has yet to release its 2015 financials after its audit committee voted to delay due to “open issues and questions”, we’re eager to find out just what is happening behind the scenes.

  Urbancorp bonds traded on the Israeli Stock Exchange plummeted on all of the news, as creditors aren’t trying to stick around for the potential bankruptcy filing.

  

   

  Speaking of bankruptcy filings, we now learn courtesy of the Wall Street Journal, that the Bauhouse Group has filed bankruptcy for BH Sutton Mezz LLC, their entity that was to build out a 78 floor luxury condominium tower at Sutton Place, located on Manhattan’s Upper East Side.

  The Sutton Place tower’s sheer scale—with 78 floors it would reach far higher than surrounding buildings—and location in the middle of a narrow residential street not far from Billionaire’s Row, drew immediate backlash from the community.

  

  The bankruptcy comes on the heels of foreclosure efforts by Gamma Real Estate, who alleges that Bauhouse has defaulted on a loan of roughly $147 million.

  These are major developments in the luxury real estate market. As developers rode soaring prices and demand for the past few years, they have now clearly gotten ahead of themselves just as demand has pulled back. They’ve purchased properties they won’t be able to finish, and built developments that have created an overhang of inventory. 

  As we showed earlier this month, the demand for luxury real estate has shown signs of slowing. Although prices have soared, signed contracts (the underlying driver of the future pricing), has dropped 11% y/y.

  

  First Toronto, now Manhattan. The luxury real estate market is starting to crack, as we now await to see which city the weakness spreads to next.

  In the  meantime, you can expect to see more debt write off’s by lenders, more bankruptcies by developers, and ultimately, when it’s all said and done, luxury real estate prices falling back down to earth as the market figures out that the bubble has burst, and it is impossible to sell the glut of available units into a market where there are no buyers at current prices.

  As the Wall Street Journal summarizes: “this slowdown has made lenders extra cautious when considering high-end condominium projects, making it harder for less-established developers to get financing, said Adi Chugh, founder of Maverick Commercial Properties, an advisory service for lenders. People don’t want to lend on megaprojects and certainly not to sponsors who don’t have strong balance sheets or strong track records.”

  

  

  

  

  

• Japan Needs A Stronger Dollar, China Wants A Weaker Dollar: The Fed Can't Please Both

  Submitted by Charles Hugh Smith from Of Two Minds

  Japan Desperately Needs A Stronger Dollar, China Desperately Wants A Weaker Dollar: The Fed Can’t Please Both

  The FX market is about to blow up in the Fed’s face, and there’s nothing they can do about it.

  Foreign exchange (FX) is a zero-sum game: if one currency weakens, another must strengthen. Since the value of a currency is relative to other currencies, all currencies can’t weaken together: at least one currency must strengthen as others weaken.

  That one strengthening currency has been the U.S. dollar (USD) since mid-2014. The USD has strengthened by 20%, while the Japanese yen and the euro weakened by 20%. Many developing-economy currencies (rand, peso, real, etc.) have fallen off a cliff, suffering 40% to 50% (or even more) declines against the U.S. dollar.

  Why does any of this matter? Simply put, the stock market is a monkey on a leash held by central banks–just give the leash a little tug, and the monkey jumps. Bonds are a gorilla–harder to control, but still manageable–but foreign exchange is King Kong, trading $5 trillion a day and impossible to control beyond short-term manipulations.

  Currencies set the underlying trend, not just for bonds and stocks, but for entire economies. A weakening currency makes a nation’s exports cheaper in other countries, and the theory is that expanding exports will boost the overall economy–especially if that economy is stagnating or in recession.

  A weakening currency also makes imports more expensive in the domestic economy, pushing inflation higher–precisely what every central bank in the world desires, on the theory that inflation will make people spend more (since their money is losing value) and reduce the costs of borrowing (which is presumed to stimulate more borrowing and spending).

  This is why everybody seems to want a weaker currency. But as noted above, every currency can’t go down; if some weaken, others have to strengthen.

  Which brings us to the current brewing crisis: beneath the propaganda that all is well in the world, the soaring dollar has destabilized the global economy in subtle ways: carry trades have been thrown over, capital flows have reversed, commodities priced in dollars have tanked, and so on.

  The typical econo-pundit has welcomed the recent weakening of the USD, a reversal of the strong-USD trend:

  

   

  Japan sought to weaken the yen to boost its exports and inflation. Now the weakening dollar is crushing those plans, as the yen is soaring:

  

  As the yen soars, Japan is being pushed into a self-reinforcing recession. After 20+ years of borrowing to fund fiscal stimulus, money-printing, bond-buying, etc., Japan has run out of options. Weakening the yen was the last best hope to boost exports and inflation.

  The strengthening yen is an economic crisis for Japan.

  Meanwhile, the strengthening dollar pushed China into its own crisis. China’s currency, the renminbi (RMB, a.k.a. yuan), is a special case because its relative value is pegged to the USD by Chinese monetary authorities. The peg was about 9 to the USD in 2005, and in the following decade China pushed the yuan up to 6 to the dollar.

  A currency peg means the pegged currency goes up and down with the master currency. As the dollar soared, it dragged the yuan higher, making China’s exports more expensive. Given the stagnation of China’s debt-bubble dependent economy, the last thing chinese authorities wanted to see was a faltering export sector.

  As the USD rose, the pressure to devalue the yuan also rose. If you think your money is about to lose 20% of its value due to a devaluation, what can you do to protect your wealth? Get your cash out of the currency that’s being devalued and into a currency that’s strengthening.

  Just the possibility of a yuan devaluation has sparked an unprecedented capital flight of cash flooding out of China into USD and assets such as homes in British Columbia and chateaux in France. Capital flight is not a sign of a flourishing economy or evidence that the monied class trusts the currency or the economy.

  Recently, China has taken baby-steps to devalue the yuan: not enough to trigger global panic but more than enough to trigger capital flight and deep unease.

  

  As a result, China desperately wants a weaker dollar, as a weaker dollar will weaken the yuan and relieve the pressure on Chinese exports and demands for devaluation.

  Many savvy observers have concluded that the recent G20 meeting in Shanghai led to an informal accord to weaken the dollar to prop up the global economy’s shaky foundations–and most acutely, to relieve the pressure on China’s yuan, which threatened to destabilize the faltering global economy.

  But now the world faces the consequences of a weakening USD: a crisis triggered by a stronger yen. The USD has been yo-yoing in a trading range for a year, as the Federal Reserve has yo-yoed between hawkish declarations of rising rates (which make the USD more attractive and thus stronger) and dovish backtracking (we’re never going to raise rates), which then push the USD lower.

  No wonder the Fed is wobbling: it can’t please both Japan and China. If the dollar plummets, China is delighted but Japan is pushed into crisis. If the USD continues its march higher, Japan is “saved” but China will be forced to devalue the yuan or watch its export sector decline.

  As I often note, no nation or empire ever devalued its way to dominance or even prosperity. Rather, the devaluation of one’s currency is the kiss of death, as everyone quickly learns your money is a ball that can quickly lose air or go flat.

  Here’s my take: Japan has no options left. China, on the other hand, can devalue the yuan as the USD strengthens. Indeed, a very good case can be made that China should devalue the yuan, as a practical adjustment to new global realities.

  The Fed has a stark choice, and the 2-minute warning just sounded. It can break the informal Shanghai Accord to weaken the USD to save Japan from the slow-moving catastrophe of a soaring yen, or it can let the USD weaken further to placate China and the commodity-dependent economies.

  What it can’t do is please everybody. This is the evitable consequence of manipulating markets: you end up being unable to please anyone, because your constant manipulation has created unsustainable carry trades and speculative gambles.

  The FX market is about to blow up in the Fed’s face, and there’s nothing they can do about it. What central banks fear most are markets that are not tightly controlled by central banks. The world’s central banks are about to sit down to a banquet of consequences arising from seven long years of relentless manipulation.

  

  

  

  

  

• Hazlitt, 1946: Inflation, Deflation, Confusion

  By Mises.org, Originally printed in Newsweek on October 14th, 1946 as “Inflation, Deflation, Confusion.” Available in Business Tides: The Newsweek Era of Henry Hazlitt

  Hazlitt, 1946: Inflation, Deflation, Confusion

  In the last two years left-wingers have been fond of referring to private enterprise as a “boom-bust” economy; OPA officials have contended that only price fixing can prevent a repetition of the 1920–21 boom and collapse, and British statesmen have insisted that their new “democratic socialism” will work beautifully if only mercurial America doesn’t crack again and drag the rest of the world down with it. Small wonder that so many people now ask each other whether the recent slump in the stock market does not at last foreshadow this longpredicted business setback.

  The question is not easy to answer, because the American economy has now become the football of political policies and counterpolicies that are not inherent in it but essentially external. These conflicting political policies are on the one hand those tending to create inflation, and on the other those tending to bring about disruption.

  The inflationary forces are obvious, and until now have been controlling. Their primary causes are government deficit financing and other political policies that increase the volume of money and credit. Past inflationary forces are roughly measured by the increase in the national debt to $265,000,000,000 and of money and credit to more than three times the prewar volume. Potential future inflation is indicated by a still unbalanced budget in prospect (in spite of a balance in the first quarter of the current fiscal year), and by a policy of artificially low interest rates that promotes further increases in credit and further monetization of the public debt. As long as inflation raises prices faster than costs it stimulates business expansion, new ventures, and employment. 

  Against this, however, are equally powerful forces of disruption. The chief of them is price control, administered in a spirit hostile to profits and business. This has distorted relationships among profit margins and disrupted and unbalanced production. Builders find themselves with bricks and no doors, glass, or bathtubs. Automobiles wait on assembly lines for bumpers or batteries.

  The profit squeeze from the top meets another from the bottom. Endless strikes, interrupting output, are followed by endless wage increases. To encourage or compel such wage increases the Administration ignores elementary property rights, seizes coal mines, and signs wage-boosting contracts itself. These wage increases must ultimately either raise costs to the point where many firms can no longer operate, or force up prices to levels that will cut off buying. In either case they will slow down production and force unemployment. Add to all this a basic hostility to business on the part of Washington agencies which is reflected in countless harassments.

  Which of these two sets of forces will dominate the next six to twelve months—the inflationary or the depressive? That is impossible to say until we know the complexion of the next Congress and the main decisions that key political figures—President Truman, Secretaries Snyder, Byrnes, and Anderson, Paul Porter, Wilson Wyatt, Marriner Eccles, and members of the PDB, ICC, OWMR, NLRB and CPA—are going to make. The decisions of such men are incomparably more important today in determining the future course of business than the merely derivative decisions made by private businessmen.

  One thing we could not have simultaneously is both “inflation” and “deflation,” for we could not have simultaneously both an expansion and contraction of the money supply. But we could have a frustrated inflation. We could have simultaneously, as experience in Europe has already proved, both inflation and industrial disruption, inflation and unemployment, inflation and stagnation.

  The real danger we face in the next six to twelve months is that if the present combination of political policies brings about this result, Administration officials, instead of removing the throttling controls that cause it, may decide that the real trouble has been insufficient inflation, and may embark upon the disastrous policy of further increasing and debasing the money and credit supply. Our greatest enemy today, in short, is the economic illiteracy and confusion on the part of those who insist on “planning,” “stabilizing,” and straitjacketing the economy and who have the political power to do it.

  

  

  

  

  

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• SHoCKiNG TeCHNoLoGY ReVeaLeD…

  

  

  

  

  

• Why USDJPY Matters (Or The Carry Collapse Cometh)

  The yen’s strength may be tripping up U.S. stocks as the collape of the BoJ-inspired carry trade pressures leverage and risk-taking around the world. As Bloomberg notes, in the last 10 instances the yen rallied at least 1 percent against the dollar, the Standard & Poor’s 500 Index lost 0.8 percent on average, the most since at least 2008.

   

  

  Andrew Brenner, National Alliance Capital Markets' head of international fixed income, confirms the weakness in US equities could be due to a breakdown in what's known as a carry trade, in which investors borrow money in a low interest-rate environment such as Japan’s to fund investments in higher-yielding assets.

  And as Acting-Man.com's Pater Tenebrarum details, a stronger yen usually doesn’t bode well for stocks. We once again should warn that such correlations are never valid “forever”. The only thing one can always expect to happen in financial markets and the economy is constant change.

  Still, given recent experience, we are wary that yen strength could be a sign that the recent party in “risk” will soon be derailed. On the other hand, we have to acknowledge that market internals have greatly improved due to the recent strong bounce in the commodity and industrial sub-sectors. At the same time, defensive sectors have only surrendered very little of their previous gains.

  Options markets are largely in “neutral” mode – there is neither a great deal of enthusiasm in evidence, nor is there much fear. A similarly meaningless backdrop in options could however be observed in the July-August period as well, so this doesn’t necessarily mean much.

   

  

  SPX daily: the SPX has returned into the area of congestion that contained it prior to the January sell-off. Put-call ratios look largely neutral at present, which is quite similar though to what they looked like shortly before the late August break – click to enlarge.

   

  As we noted at the time of the interim lows in early to mid February, there was elevated crash risk due to the market’s proximity to important medium term support levels. However, once this risk had passed, we expected the SPX to rally back close to one of the previously established resistance areas.

  It has in fact gone quite far in the meantime, by moving right back into the congestion zone it inhabited prior to the January breakdown. This continues to be in keeping with the 1962 and Nikkei 1990 analogs, which we have previously discussed (both examples for “unseasonal” market weakness in early January).

  These analogs call for the next interim peak to be established sometime in the March to May period. If these models remains applicable (which is of course far from certain), then we are now in the phase designated “standard rebound from initial sell-off” on the chart below:

   

  

  DJIA, 1961 – 1962: after a bout of weakness in early January, a rebound brings the market nearly back to its previous highs, and then a large selling wave commences – click to enlarge.

   

  Looking back to the February low, one had to look for subtle clues that might indicate whether the lows would or wouldn’t hold, given the heightened crash risk at the time (that the lows would hold was always the higher probability outcome of course, but caution seemed definitely advisable). One of these signs was that previously weak sectors that had been downside leaders started to outperform the rest of the market.

  This was e.g. evident when comparing the DJIA to the Transportation Average. This is worth noting because the two averages have recently diverged again – only, the other way around. Here is a chart illustrating these divergences:

   

  

  Short term divergences between the DJ Industrial Average and the Transportation Average. A bullish divergence occurred at the February lows, whereas a slight bearish divergence is in evidence currently – click to enlarge.

  *  *  *

  Of course, the real question should be – how much longer can this facade be upheld…

  

  

  

  

  

  

• "The Gold Price Has Been Captured By The Modern Banking System"

  Submitted by Alasdair Macleod via GoldMoney.com,

  It is commonly assumed that the gold price and interest rates move in opposite directions.

  In other words, a tendency towards higher interest rates is accompanied by a lower gold price. Like all assumptions about prices, sometimes it is true and sometimes not.

  The market today is all about synthetic gold, gold which is referred to but rarely delivered. The current relationship is therefore one of relative interest rates, because positions in synthetic gold, in the form of futures and forwards, are financed from wholesale money markets. This is why a rumour that interest rates might rise sooner than expected, if it is reflected in forward interbank rates, leads to a fall in the gold price.

  To the extent that this happens, the gold price has been captured by the modern banking system, but it was not always so. The chart below shows that rising interest rates were accompanied by a higher gold price in the 1970s after 1971.

  

  We can divide the decade into four distinct phases, numbered accordingly on the chart.

  In Phase 1, to December 1971, interest rates fell and gold increased in price, much as today's market expectations would suggest, but from then on until the end of the decade a strong positive correlation between the two is clear. So why was this?

  Those of us who worked in financial markets at the time may remember the development of stagflation in the late sixties and into the first half of the seventies, whereby prices appeared to be rising without a corresponding increase in underlying demand for the goods concerned. This put central banks in a difficult position. In accordance with post-war macroeconomic thinking, monetary policy was (as it is to this day) one of the principal tools for promoting economic growth, and so the lack of growth was put down to insufficient stimulus. Therefore, monetary policy was diametrically opposed to the higher interest rates needed to counter increasing price inflation. The result was central bankers wished for low interest rates but were forced by markets into raising them, which they did reluctantly and belatedly. This is the logical reason the gold price rose to discount the increasing rate of price inflation, instead of being suppressed by increasing interest rates. This was Phase 2 on the chart.

  Stagflation was very evident up to the end of 1974. Dollar price inflation measured by the producer price index increased by over 25% that year, reflecting higher oil prices imposed by the OPEC cartel. Inflation measured by the CPI peaked at 12%. Equity markets collapsed, with the Dow halving and London's FT30 falling by over 70% from its 1972 high. In London, the secondary banking crisis, triggered by rising interest rates, led to the failure of banks which had loaned money to property developers, resulting in a financial crash in November 1973. Again, mainstream economists were confounded, because the collapse in demand following that crisis should have led to deflation, but prices kept on rising.

  The gold story was not just a simple one of belated and insufficient rises in interest rates, as the economic runes suggest. The riches endowed on the Middle East from rising oil prices benefited, in western terms, a backward society which invested a significant portion of its windfall dollars in physical gold. This was natural for the Arabs, who believed gold was money and dollars were a sort of funny paper. Investing in physical gold was also recommended to them by their Swiss private bankers. The recycling of petrodollars into gold routinely cleaned out the US Treasury's gold auctions, which failed to suppress the rising gold price.

  The financial crisis and the associated collapse of stock markets in 1974 lead us into Phase 3 on the chart. Interest rates declined after the stock markets began to recover from the extreme depths of negative sentiment at that time. The gold price also declined, with the price almost halving from just under $200 in December 1974 to just over $100 in August 1976. It had become apparent that the financial world would survive after all, so bond yields fell while stockmarkets recovered their poise during that period. Fear subsided.

  Again, the gold price had correlated with interest rates, this time declining with them. We then commenced Phase 4. From 1976 onwards, economic activity stabilised and price inflation picked up later that year, with the dollar CPI eventually hitting 13% in 1980. Interest rates rose along with price inflation, and gold ran up from the $100 level to as high as $850 at the London PM fix on 21 January 1980. For a third time, the gold price correlated with rising interest rates.

  From the history of the 1970s, we have learned that today's non-correlating relationship between gold and interest rates cannot be taken as normal in future market relationships. Admittedly, derivative markets and the London bullion market were not as well-developed then as they are today. But they certainly were in gold's next bull market, from the early 2000s to 2011. However, the comparison with the seventies is the more interesting, particularly given the emergence of stagflation at that time.

  While official inflation figures today show the relative absence of price inflation, much of that is down to changes in the way it is calculated. John Williams of ShadowStats.com estimates that inflation today, calculated as it was in the eighties, runs consistently higher than official figures suggest. He reckons it is currently at about 5%. And the Chapwood Index, compiled quarterly including 500 commonly bought items in 50 American cities, records price inflation at 1970s levels, closer to 9%.

  As always, official statistics such as the CPI should be treated with immense caution, as John Williams's and the Chapwood inflation estimates confirm. But even the suppressed official CPI is likely to rise beyond the Fed's 2% target within a year from now, if the recent increases in prices of raw materials and energy hold. This is because the negative factors that have suppressed the index, such as the oil price, will soon be dropping out of the back-end of the statistic, giving the CPI an upward boost. Furthermore, rising raw material and energy prices will have little to do with the level of economic demand in the US, because the US economy is no longer the driver for commodity prices. That role now belongs to China, which plans to use vast quantities of raw materials for domestic economic and Asia-wide infrastructure development, and accordingly is beginning to stockpile them.

  On this simple analysis, we can see how domestic US prices could record a significant rise without any increase in domestic demand. In other words, the conditions now exist for the stagflation that became so pernicious from the late 1960s onwards. The question then arises as to how the Fed will respond.

  One thing hasn't changed over the decades, and that is central bankers' assumptions that prices are tied, however loosely, to demand. This is the text-book basis of the inflation target, which assumes that a 2% inflation rate is consistent with sustainable economic growth. There is, in conventional macroeconomics, no explanation for stagflation, despite evidence the condition exists.

  No one is more surprised than the forward-thinking members of the Fed's policy-making committees, who anticipate the same dilemma that their predecessors faced in Phase 2 of our chart of the 1970s. The US economy will be stagnating, while price inflation is rising. The Fed will be torn between the need to keep interest rates low to stimulate credit demand, and raising interest rates to control price inflation. Only this time, a rise in interest rates and bond yields averaging no more than two per cent could be curtains for the Fed itself, because the losses on its bond investments, acquired in the wake of the financial crisis and through quantitative easing, will easily exceed its so-called capital.

  The dynamics behind the gold market are however different now from the early seventies. Debt levels today are so high they risk destabilising the whole financial system, making it impossible for the Fed to raise interest rates much without causing a financial wipe-out. Asian governments, such as the Chinese and the Russians are known to have been accumulating strategic positions in physical gold, and the Chinese and Indian populations along with other Asian people have also exhibited notable appetites for physical metal. Instead of starting from a position where the US Treasury on its own in 1969 still held 14% of estimated above-ground stocks, its holding is officially at less than 5% of them today. That is, if you believe it still has the stated 8,134 tonnes.

  This time, the gold price is likely to be driven by physical shortages in the old world, as American and European investors wake up to stagflation, their central bank's interest rate dilemma, and the loss of physical liquidity from their vaults.

  Today's market set-up, particularly if Chinese demand for energy and commodities materialises in accordance with her new five-year plan, looks like replicating the early stage of Phase 2 in the introductory chart to this article. Gold increased fivefold from $42 to a high of about $200 in three years. The circumstances today have notable differences, not least the launch-pad of negative interest rates. But we can begin to see why, despite the near infinite growth of derivatives as a price-control mechanism, it could be mistaken to assume that the link between interest rates and gold is normally one of non-correlation, and will continue to be so.

  

  

  

  

  

• Department Of Education – Our Work Here Is Done

  Submitted by Jim Quinn via The Burning Platform blog,

  It appears a few children were left behind.

  The Department of Education was created in 1979 and now has an annual budget of $73 billion, with 5,000 government bureaucrats roaming its hallways. When you include all Federal, State and Local spending on public education it totals about $700 billion per year, or $13,000 per student. The Department of Education was created to improve the education of our children.

  After 37 years and trillions of dollars “invested” in our children, see below what they have achieved. The public school teachers who have been on the front lines for the last 37 years work 9 months per year, earn above average salaries, get awesome benefits, and have gold plated pension plans – all at the expense of taxpayers. And look what they have accomplished.

  The tens of millions of illiterate drones think they deserve $15 per hour because it’s fair, even though they can’t count to fifteen or spell fifteen.

  

  STAGGERING ILLITERACY STATISTICS

  California

  • According to the 2007 California Academic Performance Index, research show that 57% of students failed the California Standards Test in English.
  • There are six million students in the California school system and 25% of those students are unable to perform basic reading skills
  • There is a correlation between illiteracy and income at least in individual economic terms, in that literacy has payoffs and is a worthwhile investment. As the literacy rate doubles, so doubles the per capita income.

  The Nation

  • In a study of literacy among 20 ‘high income’ countries; US ranked 12th
  • Illiteracy has become such a serious problem in our country that 44 million adults are now unable to read a simple story to their children
  • 50% of adults cannot read a book written at an eighth grade level
  • 45 million are functionally illiterate and read below a 5th grade level
  • 44% of the American adults do not read a book in a year
  • 6 out of 10 households do not buy a single book in a year

  The Economy

  • 3 out of 4 people on welfare can’t read
  • 20% of Americans read below the level needed to earn a living wage
  • 50% of the unemployed between the ages of 16 and 21 cannot read well enough to be considered functionally literate
  • Between 46 and 51% of American adults have an income well below the poverty level because of their inability to read
  • Illiteracy costs American taxpayers an estimated $20 billion each year
  • School dropouts cost our nation $240 billion in social service expenditures and lost tax revenues

  Impact on Society:

  • 3 out of 5 people in American prisons can’t read
  • To determine how many prison beds will be needed in future years, some states actually base part of their projection on how well current elementary students are performing on reading tests
  • 85% of juvenile offenders have problems reading
  • Approximately 50% of Americans read so poorly that they are unable to perform simple tasks such as reading prescription drug labels

  (Source: National Institute for Literacy, National Center for Adult Literacy, The Literacy Company, U.S. Census Bureau)

  *  *  *

  All that's needed now is a "Mission Accomplished" banner and this is yet another perfect example of the failure of government intervention.

  

  

  

  

  

• "The People Aren't Stupid" – Germany Takes Aim At The ECB, May Sue Draghi: Spiegel

  One month ago, when Mario Draghi unveiled his quadruple-bazooka QE expansion, which for the first time ever included the monetization of corporate bonds, the German press, in this case Handelsblatt, had a swift reaction. It did not approve.

  

  

   

  Fast forward a month later when the ECB is now contemplating the final monetary gambit, launching helicopter money, and Germany’s most respected (in official circles) financial media, Spiegel, is out with an article titled “Germany Takes Aim at the European Central Bank”, in which – as expected – we read that relations between Germany and the Frankfurt-based ECB have just hit new lows:

  There was a time when the German chancellor and the head of the European Central Bank had nice things to say about each other. Mario Draghi spoke of a “good working relationship,” while Angela Merkel noted “broad agreement.” Draghi, said Merkel, is extremely supportive “when it comes to European competitiveness.”

   

  These days, though, meetings between the two most powerful politicians in the euro zone are often no different than their face-to-face at the most recent summit in Brussels. She observed that his forced policy of cheap money is endangering the business model of Germany’s Sparkassen savings banks and retirement insurance companies. He snarled back that the sectors would simply have to adapt, just as the American financial sector has.

  This is nothing new: we have been hearing laments by Europe’s biggest bank, Germany’s Deutsche Bank, that the ECB has gone too far for over two months now (initially in “A Wounded Deutsche Bank Lashes Out At Central Bankers: Stop Easing, You Are Crushing Us“). But for Merkel to take her feud in the open, and seeking to once again freeze relations between Germany and the ECB at this fragile juncture for the future of Europe, when Draghi has once again failed to stimulate inflation, when he has crushed European banks, but at least has unleashed a massive debt issuance spree, is troubling.

  Spiegel has much more:

  The alienation between Germany and the ECB has reached a new level. Back in deutsche mark times, Europeans often joked that the Germans “may not believe in God, but they believe in the Bundesbank,” as Germany’s central bank is called. Today, though, when it comes to relations between the ECB and the German population, people are more likely to speak of “parallel universes.”

  The reason for German anger: rates.

  ECB head Draghi doesn’t understand why he is getting so much resistance from the country that has profited from the euro more than any other. Yet Germans blame Draghi for miniscule yields on savings accounts and life/retirement insurance policies. Frustration is growing.

   

  Draghi has pushed the prime rate down to zero and now even charges commercial banks a fee for parking their money at the ECB. He has also bought almost €2 trillion worth of bonds from euro-zone member states, making the ECB one of the largest state creditors of all time.

   

  During his most recent appearance before the Frankfurt reporter pool, he went even further. The idea of pumping money directly into the economy, he said, was a “very interesting concept,” with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended. Doing so is seen as a way of boosting the economy. German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little.

  If you want to get Germans angry, really angry, just suggest hyperinflation which is what helicopter money always leads to. They are really angry now; and an angry electorate is something Merkel, who has seen her popularity crushed as a result of Germany’s grotesque refugee experience, does not need..

  The criticism of Draghi had already been significant, but his public ruminations about so-called “helicopter money” have magnified it to extreme levels. Even economists that tend to back the ECB, such as Peter Bofinger, who is one of Merkel’s economic advisors, are now accusing Draghi of constantly “pulling new rabbits out of the hat.” Leading representatives of the banking and insurance sectors are openly speaking of legal violations. And strategists within Merkel’s governing coalition, which pairs her conservatives with the center-left Social Democrats (SPD), are concerned that Draghi is handing the right-wing populist Alternative for Germany (AfD) yet another issue where they can score points with the voters. There is hardly any other issue that enrages Germans at town meetings and political party conventions as much as the disappearance of their savings due to the “unconventional measures” adopted by the ECB in Frankfurt.

  Then again, just like when Draghi launched QE over Merkel’s protests, not even the Chancellor is prepared to openly oppose the former Goldman employee.

  By now, the growing dismay has been registered in the Chancellery. Merkel is also critical of Draghi’s zero percent interest policy, but she is afraid of making public demands that she may not be able to push through. Still, she is convinced that Draghi must give greater weight to German concerns, so she has resorted to telephone conversations and closed-door meetings to make her case.

   

  Economics Minister Sigmar Gabriel, who is also head of the SPD and vice chancellor, has likewise refrained from publicly criticizing Draghi. Instead, he says it was the “inaction of European heads of government” that has transformed the ECB into “a kind of faux economic government.” But Draghi’s most recent decision to make money in the euro zone even cheaper has been heavily criticized within Gabriel’s Economics Ministry. “It jeopardizes the trust of all those who work hard to establish a small degree of prosperity or a nest-egg for retirement,” says one ministry official. “Plus, the cheap money hasn’t helped get the economy back on track.”

  There is only one person who is not worried about offending the Italian central banker: Germany’s finance minister, Wolfi Schauble.

  

  To wit:

  Most dangerous for Draghi, however, is the displeasure from the German Finance Ministry. A few weeks ago, Finance Minister Wolfgang Schäuble warned the ECB head that his ultra-loose monetary policies could “ultimately end in disaster.” The fact that Schäuble said anything at all is rather surprising, as were the words he chose. Out of respect for the ECB’s independence, finance ministers tend not to comment on decisions made by the central bank.

  And here we get to the key point – according to Spiegel, the German finance minister is preparing to block the ECB’s helicopter money by any legal means possible:

  ECB independence is also of vital importance to Schäuble as well. But that is no longer the case when the bank’s policies exceed its legal mandate. It is a boundary that Schäuble believes Draghi and his people have crossed, which explains why the minister does not have a bad conscience about abandoning traditional reserve. “We have to initiate this dialogue about monetary policy,” says a Finance Ministry official.

   

  Were the ECB, as Draghi has indicated it might, to open the monetary policy gates even wider — with, for example, helicopter money — the German finance minister would view it as a breaking point. Such a policy would see the ECB bypass the banking sector and distribute money directly to companies, consumers or states, all of which would stand in violation of the central bank’s own statutes. Should it come to that, sources in the German Finance Ministry say, Berlin would have to consider taking the ECB to court to clarify the limits of its mandate. In other words: the German government and Draghi’s ECB would be adversaries in a public court case. 

   

  Such a legal battle between the government and a central bank would be a first in German history. It could lead to a constitutional crisis of unprecedented severity or to currency turbulence — which is why it is extremely improbable that the two sides would allow the conflict to escalate to such a degree.

  Actually, the outcome would be far less dramatic. Remember Draghi’s imaginary OMT program, the “deus ex” contraption he had to conceive to validate his 2012 threat of doing “whatever it takes?” Well, that led to a few lawsuits, the German constitutional court it wasn’t exactly good… and then washed its hands and punted to Brussels which promptly agreed with the ECB. Why would this time be any different.

  We do agree with Spiegel, however, that the threat of legal action indicates how powerless Germany’s ruling party suddenly feels: “the very fact that senior officials in the German Finance Ministry are considering their legal options makes it clear just how great the frustration with Draghi has become.”

  Next, Spiegel does its best attempt at humor by saying that “the ECB head’s ever more imaginative ideas for increasing the money supply, say Finance Ministry officials, indicate that he is only concerned about the psyche of the international financial markets and not about average German savers.“

  Uhm… yes. The ECB’s head is not concerned about German savers and yes, he is only concerned about financial markets. Did you really need the ECB to launch helicopter money to tell you that?

  But beyond the merely theatrical, one thing neither Draghi nor Merkel seem to have grasped, is that just like everywhere else around the globe, so in Germany the vast majority of the population is now openly angry with monetary policy, even if they can’t explicitly name the person behind their anger (around 70% of Americans think the Federal Reserve is a national park):

  During a recent visit to his constituency, Kauder’s deputy, economics expert Michael Fuchs, experienced first-hand just how concerned voters are about the interest-rate issue. One enraged man screamed at him during an event that Merkel is to blame for the low interest rates. Such anger is fertile soil for the AfD. “On this issue, it isn’t easy to counter the AfD,” Fuchs says. “The criticism of the ECB is justified.” Merkel’s coalition, he says, “must clearly say that it finds Mr. Draghi’s interest rate policy to be incorrect. We haven’t been loud enough.”

  That’s right, because you are terrified of being loud. Because while the ECB’s NIRP means a slow death for Deutsche Bank, should the ECB cut off Germany in a full blown vendetta, that would mean the death of Europe’s biggest bank overnight.

  Meanwhile other politicians are seeing cracks in Merkel’s facade and are eager to capitalize on the fury against low rates (and the ECB):

  Bavarian Finance Minister Markus Söder has already set the tone: “The zero-interest policy is an attack on the assets of millions of Germans, who have placed their money in savings accounts and in life insurance policies,” he says.

   

  Söder believes that emphatic critique of the ECB will bring political benefits. The ECB may be independent, but it isn’t omnipotent, he says. “We need a debate in Germany about the erroneous policies of the ECB,” he says. “The German government must demand a change in direction on monetary policy. If things continue as they have, it will be a boon for the AfD.” Ahead of a July conclave of the Bavarian state cabinet, Söder has been charged with developing ideas for what can be done to counter Draghi’s course.

  It’s not just politicians: take Nikolaus von Bomhard.

  Politically correct to a fault, but with a deep sensitivity to the mood of the people, Bomhard is the head of global reinsurance giant Munich Re. He recently launched a savage attack on the ECB. Because its loose monetary policy has driven up stock and real estate prices, he said, it is primarily benefiting the wealthiest people in the country. He said it was serving to redistribute wealth to the upper classes and it had become impossible to sit back and say nothing. “The people of Germany aren’t stupid,” he said, adding that political leadership was required.

  As a reminder, this is the same Bomhard who as we reportedly previously, recently revealed that Munich Re had set aside gold and also cash in the company’s safes. “It is a move that many normal Germans have already made. According to banking associations, the demand for safes and lockers has gone up as people are apparently concerned that they may soon have to pay negative interest rates to their banks, just as commercial banks must now pay the ECB.” At least unlike Japan, where the scramble for cash is so great the Finance Ministry has had to print additional ¥10,000 bills, so far Germany hasn’t run out of physical money.

  So far.

  Meanwhile, instead of at least pretending to hear German concerns, “Draghi has become increasingly annoyed by the constant criticism coming from Germany. He feels unjustly targeted and has insisted even more stubbornly on the correctness of his policies as a result – such as during a recent speech to German stock traders just outside of Frankfurt. What haven’t his German critics tried in their efforts to shed doubt on the measures he has taken, Draghi complained. They have warned of mega-inflation and of a red ECB balance sheet, the ECB head continued, but none of it has come to pass. “Repeatedly, those who have called our decisions into question, have been proven wrong,” Draghi said. It was the Mario Draghi that many of his German listeners were all too familiar with: the man who is never wrong.”

  * * *

  In the end, it is absolutely clear that Draghi will be wrong, just as Bernanke was wrong when he said “subprime was contained” or that “there will be no recession” months after one had started, and hundreds of other things the former “I am the smarest man in the world and i know it” was wrong about, but the question whether his error will bring not only Europe, but the entire world to hyperinflationary ruin, may depend on just one thing: whether the Germans succeed in reining him in.

  For now, however, we doubt it.

  Hours after the Spiegel article hit, Reuters cited the German finance ministry which “denied that it would consider taking legal action if the European Central Bank resorts to “helicopter money” distributions to euro zone citizens, an extreme form of monetary easing.”

  And so Germany retreats once more, terrified to openly engage the European Central Bank.

  * * *

  As senior German conservative lawmaker Ralph Brinkhaus was quoted by Spiegel, Germany needed to “put the ECB under pressure to provide justification” because “otherwise nothing will change.”

  It is clear enough that, at least for the time being, nothing will change and that helicopter money is indeed coming. Trade accordingly.

  

  

  

  

  

• Meanwhile In Germany, An Unexpected Ad Appears

  During a leisurely stroll around Germany, one may encounter many strange sights but nothing would stranger than the following ad (courtesy of Peter Barkow) which promises negative 1% interest rates for consumer loans up to 24 months.

  

   

  Here is the quick and dirty: take out a loan and pay 1% less.

  For the fine print we go to Santander Consumer Bank AG, which has this to which has this to say about this self-amortizing (if only in the beginning) loan.

  

   

  -1.0% FINANCING

   

  Finance now with 0% and is pay 1% off the purchase price.

   

  An exclusive designer bed for only 78 euros a month, or a designer dining table for only 88 euros a month – what are you waiting for?

   

  Fulfill your desires today and pay conveniently in small monthly installments – and get this money back yet!

   

  To mark the 20 years of existence of WHO’S PERFECT, we offer the whole of April at a negative interest rate financing. 

   

  This means that you get refunded after delivery of your goods 1% of the amount of funding of the purchase contract.

   

  Purchase in all our stores and of course here in the online shop you can easily and conveniently fund. So luxury is made easy!

   

  Now -1.0% financing for 24 months (in monthly installments)

   

  Santander Consumer Bank, Santander-Platz 1, 41061 Mönchengladbach

  Sorry, no refugees allowed. Here are the conditions:

  For financing the following requirements must be satisfied in principle:

  • You must be of legal age
  • You must have your primary residence in Germany
  • You must have a checking account at a bank in Germany
  • You must have a steady income
  • You must have a valid identity card or passport with registration card
  • In case of non-EU citizens are further evidence as residence and work permit and a current registration certificate required

  Jest aside, what this ad does is scream deflation. Or maybe that’s the German banks screaming:recall that as shown earlier this week, European bank stocks have been tracking the 10Y Bund lower tick for tick. Why? Because the lower rates go, the lower the interest margin profit.

   

  

  And when rates go negative, so do profits. At that point all banks can hope for is to charge customers one off “violation” fees to offset the NIM losses in a world in each every loan assures an at least 1% loss for the first 24 months of the loan.

  What is more troubling is that now that one bank is offering such loans (to stimulate demand) all other banks will follows suit, and what is initially a 24 month promo period will quickly become set for the duration of the loan. And then we will see an even more unexpected ad, when -2% rates emerge, then -3%, until finally the bank “market test” of where the equilibrium consumer loan demand is to be found provides an answer.

  Meanwhile, even more deflation will be unleashed across Europe as both short and long-term consumer expectations for inflation plunge and instead everyone is looking forward to the latest and greatest negative rate loan which not only pays itself off but reduces the purchase price.

  All of this will continue until the ECB does one or all of the above: i) forces banks to cut deposit rates negative; ii) eliminates cash; iii) starts the money helicopter.

  As we write, Mario Draghi is already working on all of the above.

  

  

  

  

  

• The Complete Story Behind Payroll Gains In Just One Chart

  The following tweet by Eurofaultlines is the best, and most concise, summary of the recent “improvement” in nonfarm payrolls. 

  • Declining average weekly hours and rising part-time employment.

  

  That, for all non-fiction peddlers, is all you need to know.

  

  

  

  

  

• These 2 Charts Show The Next Recession Will Blow Out The US Budget

  By John Mauldin of Mauldin Economics

  These 2 Charts Show the Next Recession Will Blow Out the US Budget

  The weakest recovery in modern history has stretched on for 69 months.

  By 2017, it will be the third-longest recovery without a recession since the Great Depression. By 2018, it will be the second longest.

  Only during the halcyon economic days of the 1960s have we seen a longer recovery; but that record, too, will be eclipsed sometime in 2019—if we don’t see a recession first.

  And note that we were growing at well over 3% in the 1960s, not the anemic 2% we have averaged during this recovery and certainly not the positively puny 1.5% we have endured lately.

  Global growth is slowing down.

  Given the limited number of arrows left in the Federal Reserve’s monetary policy quiver, the US is going to have a difficult time dealing with the fallout from a recession.

  Even worse, a number of factors are coming together that will require serious crisis management.

  The US’ fiscal reality

  Next year, the US national debt will top $20 trillion. The deficit is running close to $500 billion, and the Congressional Budget Office projects that figure to rise.

  Add another $3 trillion or so in state and local debt. As you may imagine, the interest on that debt is beginning to add up, even at the extraordinarily low rates we have today.

  Sometime in 2019, entitlement spending, defense, and interest will consume all the tax revenues collected by the US government. That means all spending for everything else will have to be borrowed.

  The CBO projects the deficit will rise to over $1 trillion by 2023. By that point, entitlement spending and net interest will be consuming almost all tax revenues, and we will be borrowing to pay for our defense.

  Let’s look at the following chart, which comes from CBO data:

  

  By 2019, the deficit is projected to be $738 billion. There are only three ways to reduce that deficit: cut spending, raise taxes, or authorize the Federal Reserve to monetize the debt.

  At the numbers we are now talking about, getting rid of fraud and wasted government expenditures is a rounding error. Let’s say you could find $100 billion here or there. You are still a long, long way from a balanced budget.

  But implicit in the CBO projections is the assumption that we will not have a recession in the next 10 years. Plus, the CBO assumes growth above what we’ve seen in the last year or so.

  What a budget might look like if we have a recession

  I asked my associate Patrick Watson to go back and look at the last recession and determine the level of revenue lost, and then to assume the same percentage revenue loss for the next recession.

  We randomly decided that we would hypothesize our next recession to occur in 2018. Whether it happens in 2017 or 2019, the relative numbers are the same.

  Here’s a chart of what a recession in 2018 would do. 

  

  Entitlement spending and interest would greatly exceed revenue.

  The deficit would balloon to $1.3 trillion. And if the recovery occurs along the lines of our last (ongoing) recovery, we will not see deficits below $1 trillion over the following 10 years—unless we reduce spending or raise revenues.

  The situation is merely hopeless, but not critical. Next week, I’m going to outline some of the policies that I think have the potential to save the US budget.

  I can guarantee you that some of my proposals will annoy almost everyone, but that is the nature of a compromise—nobody gets everything they want.

  

  

  

  

  

• War On Cash Escalates: Japan Starts Testing Fingerprints As "Currency"

  The war on cash just got serious, and of course, it is the extreme policy experimenters of Japan that are pushing the boundaries. Having dived headlong into negative interest rates, Japanee policymakers recognize full well the historical reaction of "hording cash" will not 'create' the nirvana of 2% inflation and break the 'deflation mindset' that they so long have waited for. So, following in the footsteps of Venezuela, as Japan News reports, starting this summer, the government will test a system which will enable people to buy things at stores using only their fingerprints – thus enabling full monitoring (and inevitable control) of spending (or saving).

   

  

  The government hopes to increase the number of foreign tourists by using the system to prevent crime and relieve users from the necessity of carrying cash or credit cards.

  The experiment will have inbound tourists register their fingerprints and other data, such as credit card information, at airports and elsewhere.

   

  Tourists would then be able to conduct tax exemption procedures and make purchases after verifying their identities by placing two fingers on special devices installed at stores.

   

  …

   

  The government plans to gradually expand the experiment by next spring, to cover areas including tourist sites in the Tohoku region and urban districts in Nagoya.

   

  It hopes to realize the system throughout the country, including Tokyo, by 2020.

   

  …

   

  Data concerning how and where foreign tourists use the system will be managed by a consultative body led by the government, after the data is converted to anonymous big data.

   

  After analyzing tourists’ movements and their spending habits, the data is expected to be utilized to devise policies on tourism and management strategies for the tourism industry.

  However, there are concerns that tourists will be uneasy about providing personal information such as fingerprints. The experiment will examine issues including how to protect one’s privacy and information management.

  And finally, the system has already begun use in one bank's ATM systems…

  By the end of this month at the earliest, Tokyo-based Aeon Bank will become the first bank in Japan to test a system in which customers will be able to withdraw cash from automatic teller machines using only fingerprints for identification and omitting the use of cash cards.

   

  “The system is also superior in the area of security, such as preventing people from impersonating our customers,” an official from the bank said.

  While the idea of fingerprint ID-ing authorization makes perfect sense from a security perspective, the requirement of fingerprinting an entire nation (or those who want to spend or retrieve cash) is yet one more step towards the totalitarian control of the final step in the central planners' arsenal – your consumption habits.

  

  

  

  

  

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

  Submitted by Doug Casey via InternationalMan.com,

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

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

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

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

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

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

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

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

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

  CORPORATE BANKRUPTCY

  1930s

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

  Today

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

  UNEMPLOYMENT

  1930s

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

  Today

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

  WELFARE

  1930s

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

  Today

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

  REGULATIONS

  1930s

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

  Today

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

  TAXES

  1930s

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

  Today

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

  PRICES

  1930s

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

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

  Today

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

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

  THE SOCIETY

  1930s

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

  Today

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

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

  THE WAY PEOPLE WORK

  1930s

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

  Today

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

  THE FINANCIAL MARKETS

  1930s

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

  Today

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

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

  *  *  *

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

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

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

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

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

  

  

  

  

  

• "It's Just An Illusion" Santelli & Schiff Slam Fed-Watchers' "Blind-Eye" To Yellen's "Phony Recovery"

  "This economy would have to improve dramatically to get to mediocre," warns Schiff, otherwise, as Santelli rages they would be hiking rates and talking confidently, adding that either Fed-watchers are "going along with it to earn a paycheck"  – just as they did in 2008 – or "they are ignorant."

  "The Fed can't raise rates because they don't want to poke too many holes in this bubble. This recovery was never real, it's phony, it's just another Federal Reserve bubble just like the one that popped in 2008, only this one is even bigger.

   

  What we really should be talking about is not when The Fed will hike rates, but when they wll admit the economy is a lot weaker than they expected and when the next rate cut and when they will launch QE4?"

  After just over 3 minutes of painful reality checks, Schiff sums up it all up perfectly, reflecting on the Sanders-Trump phenomena, "behind all those phony jobs numbers are a lot of angry Americans as everyone pretends this is a legitimate recovery."

  "Why are so many Americans so upset if the 5% unemployment rate is correct? It's not!!"

   

  And opining on the collapse of practically every other data point aside from "jobs", Santelli sarcastically screams "yeah but they are all out of the norms and should be ignored…" adding that it's "shoot the messenger" on any data item or story that does not fit The Fed's narrative…

  Enjoy the following 200 seconds of truth – they don't come around too often nowadays…

  

  

  

  

  

• "Rotten To The Core"

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

  Poison Money

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

   

  

  Staggering on….

   

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

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

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

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

   

  

  We can identify at least one source of the quackery…

   

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

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

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

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

   

  

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

   

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

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

   

  System Seizure

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

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

   

  

  And then, one morning…

   

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

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

   

  Real Money

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

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

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

   

  

  Do the buyers know something? Maybe they do… – click to enlarge.

  

  

  

  

  

• "This Is Devastating News For Republicans": Poll Finds Denying Trump Nomination Would Crush GOP

  In the latest shock for the GOP, which in recent weeks some have speculated is willing to scuttle the entire republican presidential campaign if it means not having Trump as the candidate, according to a just released Reuters poll, one  third of Republican voters who support Donald Trump could turn their backs on their party in November’s presidential election if he is denied the nomination in a contested convention.

  Or, as The Hill puts it, “blocking Donald Trump from the Republican presidential nomination with a contested convention would spell disaster for the GOP” because instead Trump supporters would vote Democrat, vote third-party or sit out the election.

  Just 66% of Trump supporters, which as of this moment are the most numerous of any presidential candidate, said they would support the GOP’s nominee anyway. 

  Should it get to a contested convention, the GOP could be hurt even more in November because 58% of Trump supporters said they would stay with the party, while 16% would leave and 26% responded they didn’t know, yet.

  The results are bad news for Trump’s rivals as well as party elites opposed to the real estate billionaire, suggesting that an alternative Republican nominee for the Nov. 8 presidential race would have a tougher road against the Democrats.

  “If it’s a close election, this is devastating news” for the Republicans, said Donald Green, an expert on election turnout at Columbia University.

  The Reuters/Ipsos poll conducted March 30 to April 8 asked Trump’s Republican supporters two questions: if Trump wins the most delegates in the primaries but loses the nomination, what would they do on Election Day, and how would it impact their relationship with the Republican Party?

  This is what the respondents said:

  

   

  Meanwhile, 58 percent said they would remain with the Republican Party. Another 16 percent said they would leave it, and 26 percent said they did not know what they would do with their registration. The online poll of 468 Republican Trump supporters has a credibility interval of 5.3 percentage points.

  Trump, whose supporters have remained loyal even as he rankled women, Hispanics, Muslims, veterans and others with his fiery rhetoric on the campaign trail, predicted last month there would be riots outside the convention if he was blocked.

  “If they broker him out, I’ll be fed up with the Republicans,” said Chuck Thompson, 66, a Trump supporter from Concord, North Carolina, who took the poll .

  Cited by Reuters, Thompson, a lifelong Republican, said he admires Trump’s independence from big campaign donors and takes that as a sign that the front-runner will be able to think for himself if he were to become president.

  If Trump loses the nomination, Thompson said he would quit the party. “The people want Donald Trump. If they (Republicans) can’t deal with that, I don’t need them,” he said.

  Green said the departure of even a small number of Republicans would make it tough for the party to prevent the Democrats from winning the White House, especially if the election is again decided by razor-thin margins in a handful of battleground states.

  What is paradoxical, is that Trump and Cruz both trail Democratic front-runner Hillary Clinton among likely general election voters in a hypothetical general election matchup, but not by much, according to the latest Reuters/Ipsos polls. The only Republican candidate who, again according to polls, can best Hillary Clinton is Kasich, the one candidate who has virtually no shot of becoming the candidate.

  In other words, the GOP is likely damned if it goes to convention, and damned if it doesn’t.

  Then again, the death of the GOP would not have to wait until November: if and when it does get to the contested convention one can call the time of death.

  Generally, a convention battle is a bad sign for the health of a political party, said Elaine Kamarck, a senior fellow at the Brookings Institution. “When a party gets to a point when it has a contested convention, it almost always hurts them,” Kamarck said. “It’s a confirmation of some really deep fissures within the party that were unable to be dealt with during the primary season.”

  And then there are hard core Trump supporters such as Elizabeth Oerther, 40, of Louisville, Kentucky, who would go all the way, saying she would switch parties and vote for the Democratic nominee if the Republicans denied Trump the nomination.

  “If you don’t give it to him, I’m going to vote against them,” said Oerther, who took the poll. “They want to take away the choice of the people. That’s wrong.”

  

  

  

  

  

• Caught On Tape: Cameraman Attacked At Greek Neo-Nazi Party "Anti-Islamization" Protests

  Despite proclamations from Europe's leaders that Greece was is fixed thanks to its latest round of bailouts and austerity, leaving aside The IMF's hatchet job, and growth is set to return any quarter now; unemployment remains mid-20%, capital controls continue to be in place (ATM caps), and the growing refugee 'problem' leaves social unrest rearing its ugly head once again.

  As KeepTalkingGreece reports, the following shocking video footage captures the moment when a member of the right-extremists of Golden Dawn runs and raise an iron stick against the cameraman of a private television channel covering a GD meeting in the streets of Piraeus. The attacker is wearing a helmet.

  “At the very last moment, the cameraman managed to escape the attack,” the Live News presenter explains in the video adding “it was a miracle that the cameraman went unharmed”.

  According to Live News presenter’s website NewsIt.gr, “present at the incident were also two MPs from Golden Dawn, I. Kasidiaris and Y. Lagos.”

  

  Live News and NewsIt speak of “murder attempt” against the cameraman and wonders why the police did not detain the ‘bully’.

  The incident occurred on Friday afternoon, during a Golden Dawn meeting in Piraeus “against the country’s Islamization” as the racist party said in a poster. An anti-Fascist protest was organized at the same time.

  Minor incidents occurred between the two groups,  riot police intervened with sound flares, one anti-fa protester has been slightly injured.

  There have been apparently two detentions but it is not known who has been detained and why.

  

  

  

  

  

• The End Is Near For Brazil's Ultra-Corrupt Government

  Submitted by George Greenwood via The Foundation For Economic Education,

  Brazil has faced a sharp change in its economic fortunes. Graft, mismanagement of growth dividends and protectionism has put dreams of a seat at the top table on hold.

  At the heart of this regression has been the beleaguered president Dilma Rousseff.

  Last Wednesday, her main coalition partner, the Brazilian Democratic Movement Party, left government. Its ministers resigned their posts and party members left over 600 positions in government.

  An official in the Brazilian government explained the significance of the move.

  “It’s going to be a big blow. The last blow that brings down the government or the last straw before the impeachment process begins.”

  The current constitutional crisis has been the product of a number of interlocking problems besetting the Brazilian government.

  The Brazilian economy shrank four percent this year, and looks set to lose another four percent in the next.

  Rousseff reneged on commitments to liberalisation, and instead tried to protect the industries that her core electoral support occupied. But this has spectacularly backfired, with government money wasted on subsidies, trade hit by tariffs and growth sharply slowing.

  “We could lose a decade of economic growth in three or four years,” the official explained.

   

  “In other words, a decade of growth would be lost during Dilma’s mandate if she continues on as president.”

  This recession, and concurrent high inflation, has been magnified by the biggest scandal in political memory.

  Petrobras, Brazil’s oil giant and the largest company in Latin America, was found to have been engaged in corruption, including illegal political campaign funding, to the tune of 30 to 40 billion dollars.

  While the scandal has embroiled all political parties, it has hit those in power the hardest.

  Lula de Silva, the wildly popular former president considered Brazil’s most important political figure, has been being found to be at the heart of it.

  “Companies that worked for Petrobras were cross financing Lula, buying apartments for him, a ranch for him. They paid him 200,000 dollars a lecture. He earned 40 to 50 million dollars in just 2 or 3 years,” the official explained.

  Beyond personal buy offs Petrobras construction subsidiaries had deals to complete construction projects at inflated prices. The illegal proceeds of these deals were used to finance the People’s Party and its leaders among other parties.

  While blackening the names of many, the investigation has also made some unlikely public champions.

  “Judge Sergio Moro has been conducting the whole investigation. Many consider him a hero for breaking down this corruption,” the official said.

  Among the Brazilian political elite, the scandal has been compared to Italy’s “Mani Pulite” programme, a huge judicial investigation that swept a generation of corrupt politicians out of office for their illegal dealings in the 1990’s.

  For Dilma Rousseff, the allegations are not direct. There is no “money in her pocket”.

  But, the public is keenly aware that she benefited from these networks of corruption. They provided the funds to elect her and her party. Her net negatives in opinion polling are approaching the 90 per cent mark. Her attempts to protect Lula from prosecution with a ministerial position have only worsened this opposition, before they were struck down by the courts.

  “It is considered common sense now that she will be impeached. Only a miracle can save her. All the factors are pushing that way,” the official explained.

  Vice President Michel Temer has certainly not missed this fact. Having ordered his PMDP party to leave government, he is now working hard to impeach her, and to assume the presidency himself. However, even the blatant way in which he has acted has not put the Brazilian public off a change of face.

  “I think people want to see Rousseff impeached.

   

  “I think we should really have a new general election. It wouldn’t be ideal to have a new vice president entering office though the impeachment process.

   

  “People don’t think the vice president is honest person, not at all. He’s seen as a savvy political operator, but people just don’t want Dilma anymore. They just want her to leave, to have a fresh start. No matter with whom. People want a symbol, they might want something more,” the official concluded.

  While Temer’s assumption of the presidency would be constitutional, its legitimacy would be on more rocky ground because of his own party’s role in the scandal.

  Practically, however, impeachment seems just over the horizon. Rousseff has barely enough leverage to limp on in office, and this is draining by the hour.

  A Brazilian president needs only a third of votes in either house of congress to block an impeachment. They could block an impeachment’s admission in the lower house, or by winning the “trial” in the upper house, with this level of support.

  As such, the public is just not buying the complaints from her supporters of foul play.

  “If a serving president cannot find the support of a third of these two bodies, it is quite reasonable to say she does not have any support,” the official said.

  That said impeachment is unlikely to be a long term solution.

  “I don’t think it will bring political stability to Brazil. The opposition is going to make it hard for the Vice President even if he does take over.”

  However the official did not think that Brazil risked a radical lurch in response to public outcry over the scandal.

  “I doubt it.  Brazil, is pretty centrist. We do have some right wing parties in pushing for impeachment as well. Jair Bolsonaro for example, is a very radical guy, who has advocated military take overs, is against abortion and is very homophobic. While he hasn’t been touched by the political scandal, I don’t think he’d have a chance in an election. He’s no Brazilian Trump.

  Brazil clearly wants new blood in government, and the writing appears to be on the wall for Dilma Rousseff and the People’s Party.

  Whether she makes it a swift clean end to allow a fresh start is another matter.

  

  

  

  

  

• "It Been Horrendous" – Investor Tries To Pull Cash From Valeant-Heavy Fund, Gets Shares Instead

  When people talk about the historic collapse of Valeant’s stock price (down 65% this year), the first name that usually comes to mind is that of Bill Ackman whose Pershing Square has been one of the biggest investors in VRX stock and also one of the biggest losers, wiping out billions in assets under management as a result of Valeant’s unprecedented unwind late last summer.

  But while the flamboyant Ackman, who enjoys basking the spotlight when his 100+ page slideshows lead to en immediate eruption (or collapse) in a given company’s stock price but certainly not when the winds blow against him, is the most popular holder of Valeant stock, another name, with over 35 million shares, is a far greater bagholder.

  We are of course talking about the highly concentrated and far lower profile, Sequoia Fund, which at one point last year had more than 30% of its portfolio invested in Valeant, and whose most recent publicly disclosed AUM was roughly $5.5 billion. That, to be sure is not the latest assets under management because as Morningstar has hinted in the past few weeks there has been a run on the suddenly disappointing fund, which according to the WSJ has seen more than $500 million in redemption requests.

  Indeed, while Ackman has allegedly so far avoided an influx of withdrawals from Pershing Square despite being down over 20% in 2016 following a comparable return in 2015, Sequoia’s LPs have been far less merciful and have been scrambling to get their cash out. The problem is that, as the curious case of Tom Bentley shows, Sequoia has been unable to satisfy their cash out demands, and instead has been meeting redemption demands “in kind” by shooting over stock equivalents.

  As the WSJ reports, when Tom Bentley tried to pull his money from a mutual fund troubled by its large stake in Valeant Pharmaceuticals International Inc., he instead received shares in a Springfield, Mo. auto-parts retailer.

   Sequoia Fund Inc. sent the retired computer hardware engineer about 5% of his money in cash and the rest was stock in one company–O’Reilly Automotive Inc. Mr. Bentley said he sold the shares as soon as they appeared in his account on April 7, but they had already dropped in value. 

  Typically, mutual fund investors expect cash instead of stock when they ask for their money back. But investors seeking to pull large sums from Sequoia are getting a combination, according to people familiar with the matter.

  “It has been pretty horrendous,” Mr. Bentley said.

  It is also a surprising approach to make, yet one which Sequoia is entirely in its right.

  As the WSJ notes, Sequoia’s repayment approach, called a “redemption in kind,” is part of a longstanding fund policy that allows it to give shareholders mostly stock if they are pulling out $250,000 or more. A person close to the firm said it has done thousands of in-kind transactions over many years and that the majority are done for redemptions in excess of $1 million.

  “It’s a perfectly legitimate strategy,” said Jeffrey Sion, a partner at Dechert LLP, who specializes in investment funds and tax.

  But the move has come as a surprise to some investors and their advisers. While it is common for mutual funds to reserve the right to hand out a basket of securities to large, sophisticated institutional investors, it is rare for managers to use them to redeem individual investors, lawyers and analysts say.

  The move is even more surprising because unlike illiquid junk bonds or bank loans (or increasingly investment grade corporate bonds), stocks remain quite liquid (mostly when one is selling in a rising market). As such for Seuqoia it is merely a matter of taking a few minutes to cash out existing holdings as a courtesy to its investors, not a case of prudently respecting your fiduciary duty.

  Indeed, as the WSJ adds, “it is less common for managers of stock funds to redeem in-kind because equities, which trade on exchanges, are more easily bought and sold than less liquid fixed-income assets.”

  So why do it? “In-kind” redemptions have benefits for funds such as Sequoia that are experiencing redemptions. Unlike with sales for cash, the fund doesn’t have to recognize a capital gain on such transactions. As a result, remaining investors don’t bear the tax implications of sales associated with exiting shareholders, according to fund and tax lawyers.

  For investors who expect an in cash liquidation, it can be not only a surprise but also a hassle: “If you’re a retail investor, who wants to get stocks? If you’re getting out of fund, presumably you’re selling because you want cash,” said Michael Rosella, a partner at Paul Hastings LLP, who specializes in investment management. “Most funds have the right to do it, but you’re not going to do it if you don’t have to,” he said.

   

  Meeting redemptions with shares also keeps managers from having to sell stock to raise cash, which fund analysts say can weigh on performance.

  More importantly, in an illiquid market in which traders become aware of the need to liquidate profitable positions, they can frontrun the selling of such positions as happened with Bill Ackman when all of his other holdings were slammed once fears swirled he would need to short up capital several weeks ago.  In some extreme cases, one may be completely unable to liquidate as bid/ask spreads swell and selling even profitable positions results in a loss.

  To be sure, one can’t blame Sequoia: it has been vocal about warning shareholders that it is “highly likely” that they will receive all or part of their withdrawal in securities if they are pulling more than $250,000 from the fund, regardless of whether they have a bank or brokerage account to which stocks can be delivered. For many, ending up with stock that can not be sold is a very unpleasant option, especially if seeking prompt liquidity.

  According to the WSJ, the fund has seven days to meet redemption requests and determines which stocks investors will receive. The firm typically pays out in stocks with high unrealized capital gains that trade often, and it advises redeeming shareholders to sell the securities they receive at market close on the day they exit the fund, said a person close to the firm.

  It gets worse for the investors: such redemptions often shift risk and burdens from the fund to its selling investors, especially if they hold the fund in a taxable account. Those who receive all or most of their assets in stock may not have enough cash to pay taxes due on the redemption without selling the stock.

  In addition, funds don’t necessarily give investors a pro-rata basket of stocks, which can expose the newly given holding to market risk from lack of diversification. The stock shares also may rise or fall in value after the investor receives them, producing capital gains and losses. In this case, the taxable gain or loss is measured from the value of the stock on the day of the redemption, according to Robert Willens, an independent tax expert based in New York.

  Finally, selling those shares will also incur transaction costs that can be steeper for individual investors than large investors that benefit from longstanding relationships with banks and brokers and economies of scale.

  The bottom line is that gimmicks such as the one attempts by Sequoia as it scrambles to meet its redemption obligations, will only make the bloodletting worse, and not only because the fund is down 11% year to date through Thursday. Having tipped its hands that when push comes to shove, Sequoia’s troubled principals will trample their investors, will hardly inspire confidence in those other shareholders who have not yet submitted redemption requests.

  In short, we expect many more stories of unhappy investors ending up with unsolicited stock instead of cash in the accounts, even as Sequoia’s AUM dwindles and ultimately hits a low enough level where it has no choice but to get its remaining investors.

  * * *

  But the worst news for Sequoia in the near future may have nothing to do with a surge in redemption requests, but the future value of its core investment, which may be even further impaired in the coming weeks following news out of Bloomberg that a Senate committee may start contempt proceedings against Valeant’s soon to be former CEO, Michael Pearson, for failing to appear to give testimony related to an investigation on drug pricing.

  “Michael Pearson was under subpoena to appear for a deposition today related to the Senate Special Committee on Aging’s drug pricing investigation, and he did not comply with that subpoena,” Senators Susan Collins and Claire McCaskill said in a statement late Friday. “It is our intent to initiate contempt proceedings against Mr. Pearson.” Collins, a Republican, is the chairwoman of the panel and McCaskill is the ranking Democrat.

  Pearson was subpoenaed to testify at an April 27 hearing, the latest in a series of congressional probes into how drugmakers price medications. And while a Pearson lawyer said the executive will appear at the hearing in three weeks, the deposition subpoena was unfair in both timing and scope. The “committee hasn’t been clear about what topics and documents he’ll be questioned about,” attorney Bruce E. Yannett of Debevoise & Plimpton LLP said. Without that, “the committee’s demand would expose him to an inherently unfair process for which we cannot adequately prepare him under the circumstances,” according to the letter.

  As a result, Pearson decided he would rather risk contempt than saying something which may be used against him soon in what is almost certain to be an avalanche of both civil and criminal cases in the coming months. 

  It is almost as if he suddenly has something to hide. Or maybe he had something to hide for a while. Recall that at the February hearing before the House Committee on Oversight and Government Reform, it was Valeant’s former CFO, ex-Goldmanite Howard Schiller, who was then interim CEO while Pearson was on medical leave, testified for the company.

  Since then Valeant has had a dramatic falling out with Schiller, whom it implicitly accused of cooking the books and asking to resign from the Board which he refuses to comply with.

  Perhaps he should testify again, now, some two months later. Considering the dramatic change in his relationship with his former employer, we have a feeling this new testimony would be far more interesting and exciting…

  

  

  

  

  

• Hillary Reeling As Sanders Makes It Seven In A Row – Wins Wyoming Caucus

  Bernie Sanders wins Wyoming Democratic caucus, defeating Hillary Clinton, according to AP, extending his win-streak to seven states in a row. This brings the delegate count to Hillary 1292 vs Bernie's 1044 excluding super-delegates, which as we noted here, are far from a "lock" for Clinton if the Bernie Bus continues to show this kind of momentum.

  Seven In A Row for Bernie – Idaho, Utah, Alaska, Hawaii, Washington, Wisconsin, and now Wyoming.

  

   

  While Wyoming won’t significantly change delegate math for either campaign, as it is one of smallest contests and awards 14 pledged delegates and 4 superdelegates, the trend is very much Bernie's friend right now.

  And, as we concluded previously, if Sanders continues to win primaries, rack up delegates, raise tens of millions of dollars a month in campaign contributions, draw massive crowds to his rallies, and score double-digit leads against Clinton in demographics the party needs to win the general election – they will have to ask themselves some hard questions if the final count is close.

  Who will lead the Democratic Party in the general election is a political question, not a mathematical one. If Sanders’s momentum continues to grow, the superdelegates would ignore that fact at their peril.

  

  

  

  

  

• First Denmark, Now Belgium Is Paying People To Take Out A Mortgage

  Back In January of 2015, we asked "who will offer the first negative rate mortgage?"

  Who will offer the first negative rate mortgage

  — zerohedge (@zerohedge) January 30, 2015

  We didn't have to wait long before Denmark's Nordea Credit unleashed this idiocy. And now two banks in Belgium have followed suit, paying instead of charging interest on mortgages to a handful of customers.

  Thanks to Mario Draghi's generosity with "other generations' slavery", the negative rate mortgage is now a reality. As Het Nieuwsblad reports (via Google Translate),

  Getting paid to borrow money for your house. It seems too good to be true, but for some clients of BNP Paribas and ING is not a dream but reality. The interest rate on their home loan is dropped below zero and so they get money from the bank.

   

  For those who in 2012 closed a mortgage loan with a variable rate at BNP Paribas Fortis or ING are now very lucky. Due to a decline in interest rates, the interest rate on their home loan has also fallen below zero. In other words, the banks pay their customers rather than collect interest. This writes the newspaper De Tijd.

   

  When a loan with fixed interest rate you pay a fixed rate for the duration of your loan. But at a variable interest rate, the interest rate can change at any time, depending on the conditions on capital markets. The rate is now so low that is below the zero interest rates for some customers.

   

  The European Central Bank (ECB) lowered its deposit rate below zero, after all, and also buys bonds en masse to push market interest rates down.

  Careful not cause a stampede of desperate "Belgian Dream" homebuyers (we hear apartments are cheap in Molenbeek), the banks note that it's 'limited' to some clients…

  It's okay but for a limited number of customers. BNP Paribas Fortis is about "a few dozen customers" and ING also speaks of a "very limited number of contracts." Other banks do not have a customer with a negative interest rate.

  And just like that, as we warned in January, what started in Denmark has spread to Belgium, and soon everywhere else in Europe, a situation has now emerged where savers who pay the bank to hold their cash courtesy of negative deposit rates, are directly funding the negative interest rate paid to those who wish to take out debt. In fact, the more debt the greater the saver-subsidized windfall.

  That all this will end in blood and a lot of tears is clear to anyone but the most tenured economists, however in the meantime, we can't wait to take advantage of the humorous opportunities that Europe (and soon Japan and the US) will provide in the coming months, as spending profligacy will be directly subsidized and funded by the insolvent monetary system, while responsible behavior and well-paid labor will be punished, first with negative rates and soon thereafter: with threats, both theoretical and practical, of bodily harm.

  

  

  

  

  

• Hillary’s Bold Predictions: No Doubt She’ll Win, Not Even Remotest Chance She Ends Up In Handcuffs

  On Friday, Hillary Clinton sat down with Matt Lauer for a wide ranging interview. A number of topics came up, from Bernie Sanders, to Donald Trump, to walking a fictional tree lined street in Brooklyn.

  

  Regarding Bernie Sanders’ ability to continue pushing her in the race for the Democratic nomination, Hillary as expected played it cool. However, as we reported previously, there are signs within the Clinton camp that indicate she’s grown increasingly worried about the direction of the race, and becoming quite irritated with Sanders’ surprising staying power.  With Sanders raising record amounts of money online (read: not millionaires and super-PACs) as well as handing Hillary loses in seven out of the last eight primaries, there is good reason for Hillary to be concerned. 

  Lauer pushes the topic later in the interview by saying that although they must be licking their chops, Democrats can’t solely focus on readying Hillary for the general election yet because she can’t shake Bernie Sanders. To which Hillary responded: 

  “That’s the way it always is. When my husband in 1992 secured the democratic nomination, it was in California, he lost a lot of the spring contests. I remember because we were hearing exactly the same kinds of questions like it’s over, you’ll never make it. I don’t have any doubts, I don’t have any concerns. We’re going to win the nomination.”

  Ignoring for a moment that those were statements and not questions that she heard on Bill’s campaign trail, the fact that those kinds of comments are leaking into Hillary’s inner circle are a tell of just how much she’s concerned about Bernie Sanders and his recent winning streak. Furthermore, Bill’s dramatic  falling out with Black Lives Matter activists as documented on Friday suggests that there is the all too real danger Hillary may alienate one of her core constituencies.

  Hillary continues, saying in essence that it’s nice that Bernie has so much support, but she knows that due to the delegate system, both traditional (which are often proportional to percent of the vote the candidate receives – more here), and just as importantly super delegates (those that can throw their support behind whoever they choose, regardless of underlying votes from the citizenry), she has no doubt she’ll win.

  “We have a significant delegate lead, and at the end of the day that’s what’s going to matter”

  Unlike the circus that is the GOP race though, she did say that if she were to lose, she wouldn’t hesitate to endorse Bernie:

  “I will take Bernie Sanders over Donald Trump or Ted Cruz anytime”

  One thing that caught our attention was in discussing Bernie and his groundswell of support for his continued hammering away at crony capitalism and income inequality, Hillary said she too shares that concern. “[Sanders] has a very clear, passionate message about income inequality. I happen to share that.”

  Does she share that passionate message? Well, we can’t know for sure, but somehow we suspect she doesn’t really care much about anything related to income inequality. 

  As you recall, Hillary has been paid tens of millions for putting her work boots on each morning at 6 am and shuffling off to give… speeches.

  

   

  Quite often, the speeches were made to Wall Street, something which by now escapes nobody.

  

   

  And finally, the interview finds itself at perhaps the most contentious of topics for Hillary (outside of Benghazi), the infamous email scandal.

  Of course, the issue was teed up for Hillary so that should could frame as some sort of political issue, as opposed to a serious criminal investigation that has 147 FBI agents working around the clock to get to the bottom of the matter. 

  When asked about whether or not the email scandal will end in handcuffs for her, Hillary provided yet another epic response, along the lines of “what difference does it make”, by saying boldly that there isn’t even the remotest chance that it’s going to happen.

  Here is the exchange

  Lauer: “They [Republicans] are clinging to the hope that at some point between now and the end of the election, that they will get to see Hillary Clinton in handcuffs.”

   

  Clinton: “Matt they live in that world of fantasy and hope, because they’ve got a mess on their hands on the Republican side. That is not gonna happen, there is not even the remotest chance that it’s going to happen. They’ve been after me for twenty five years.”

  And so in summary, she begins with downplaying the people’s voice in her party, clearly calling out for someone, anyone to reign in crony capitalism, and ends with letting everyone know, unequivocally, that she is in fact above the law. Sorry peasants, you lose yet again.

  You can see the full interview here:

  

  

  

  

  

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

  As SHTFPlan.com's Mac Slavo noted,

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

   

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

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

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

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

  So how did it all go so wrong?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  *  *  *

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

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

  

  

  

  

  

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

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

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

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

   

  

  Courtesy of: Visual Capitalist

   

   

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

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

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

  West Coast Envy

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

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

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

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

  

  

  

  

  

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

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

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

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

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

   

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

   

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

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

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

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

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

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

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

  Yes, yes it does.

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

   

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

  The dog that didn’t bark

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

   

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

  This is the dog that didn’t bark.

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

  As Mr. Gaddy explains.

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

   

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

   

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

   

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

  Who is “John Doe”? 

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

   

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

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

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

   

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

   

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

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

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

   

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

   

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

  A more serious Russian motive?

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

   

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

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

  Now back to Brookings.

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

   

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

  Kontrol, the special Russian variety of control

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

   

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

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

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

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

  

  

  

  

  

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

  Submitted by Michaela Whitton via TheAntiMedia.org,

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

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

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

  

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

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

  The report observed:

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

  You can read Amnesty International’s full analysis here.

  

  

  

  

  

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

  Does anyone really believe this is sustainable?

   

  

  Chart: Bloomberg

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

  

  

  

  

  

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

  Submitted by Doug Casey via InternationalMan.com,

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

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

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

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

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

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

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

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

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

  CORPORATE BANKRUPTCY

  1930s

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

  Today

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

  UNEMPLOYMENT

  1930s

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

  Today

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

  WELFARE

  1930s

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

  Today

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

  REGULATIONS

  1930s

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

  Today

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

  TAXES

  1930s

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

  Today

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

  PRICES

  1930s

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

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

  Today

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

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

  THE SOCIETY

  1930s

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

  Today

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

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

  THE WAY PEOPLE WORK

  1930s

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

  Today

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

  THE FINANCIAL MARKETS

  1930s

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

  Today

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

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

  *  *  *

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

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

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

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

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

  

  

  

  

  

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

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

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

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

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

  

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

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

  BofA’s David Cui explains:

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

   

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

   

  * * *

   

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

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

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

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

  

  

  

  

  

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

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

  * * *

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

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

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

  

   

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

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

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

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

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

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

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

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

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

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

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

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

  

  

  

  

  

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

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

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

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

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

   

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

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

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

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

  

   

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

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

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

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

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

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

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

  

  

  

  

  

• Market ReCap 4-8-2016 (Video)

  By EconMatters

  

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

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

  

  

  

  

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

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

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

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

  

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

  From his latest Global Strategy Weekly

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

   

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

   

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

   

  

   

   

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

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

   

  

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

  

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

  

  

  

  

  

• Why Janet Yellen Can Never Normalize Interest Rates

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

  No Return to Normal

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

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

   

  

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

   

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

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

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

   

  

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

   

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

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

   

  

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

   

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

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

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

   

  The Triumph of Politics

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

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

   

  

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

   

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

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

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

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

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

  

  

  

  

  

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

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

  

   

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

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

  

   

  … The McRobot

  

   

  … And the McLinecook.

  

   

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

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

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

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

  

   

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

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

  

   

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

  

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

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

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

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

  

  

  

  

  

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

  Submitted by Charles Kennedy of OilPrice.com

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

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

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

  

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

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

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

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

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

  

  

  

  

  

• Weekend Reading: The Fourth Turning

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

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

  You can listen to the full interview by clicking here.

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

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

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

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

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

  

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

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

  As John Hussman tweeted yesterday:

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

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

   

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

  ---

  CENTRAL BANKING

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

  ---

  MARKETS & EARNINGS

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

  ---

  ECONOMY & OIL 

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

  ---

  OTHER GOOD READS

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

  ---

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

  

  

  

  

  

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

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

  

   

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

  

   

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

  

   

  Just like we saw on Tuesday…
  

   

  Now the 10th time in a row…

  

  

  

  

  

  

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

  This seems to sum the week up…

   

  An ugly week for stocks despite the best ramping efforts…

  

   

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

  

   

  Plenty more to come…

  

   

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

  

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

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

   

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

  

   

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

  

   

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

  

   

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

  

   

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

  

   

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

  

   

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

  

   

  So what happens next?

  

   

  Charts: Bloomberg

  

  

  

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  

  

  

  

  

• Something Just Snapped In Saudi Money Markets

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

   

  

   

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

  

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

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