Apr 03

Today’s News 3rd April 2016

  • Character Traits And Skills That Are Hard To Find During A Crisis

    Submitted by Brandon Smith via Alt-Market.com,

    I have never lived through a national scale crisis and like most people, I hope I never have to. That said, with the growing instability present in the state of the world today it would be rather foolish to assume that the near future holds nothing but fairy dust, unicorns and gumdrops. Preparation is a necessity.

    Many Americans cannot yet relate to the concept of full spectrum crisis, but most of us have at least experienced localized disasters. In order to understand what a national emergency might look like, one simply needs to examine the microcosm of localized disasters and then imagine the same exact problems but magnified 1,000 times.

    From my personal experience with local crises, I can say that the worst threat comes not from the event itself, but the ways in which people choose to deal with the event. That is to say, for smart, courageous and prepared people with the right traits and skills, there is no such thing as a crisis. For stupid people who overestimate their abilities or who let fear dominate their thinking, any crisis becomes an insurmountable moment of utter terror.

    The right people in the right place at the right time — no crisis. The wrong people in the right place at the right time — total destruction. Therefore, the key to surviving any crisis is to have the right people in place, and to be well away from the wrong people.

    The question is, who are the right people? How do we identify them? And, how do we examine ourselves and determine if we are ready or unready? Here are some of the increasingly rare character traits and skills that make a crisis manageable for any community.

    The Ability To Act Without Permission

    This is one of the hardest character qualities to find in people in a moment of crisis. Remember back to any crisis moments you have personally experienced and ask yourself how many people around you actually tried to solve the problem immediately, and how may stood around waiting for someone else to take the lead?

    During larger scale disasters this frequently manifests as widespread apathy. Thousands or even millions of people milling around for someone in “authority” to tell them what they should do rather than taking measures themselves. I am not a big believer in leadership by dictation. The moment you give one or very few people the power to dictate the actions of entire groups, your society is already doomed. However, I am a believer in leadership by example because I have seen it work.

    Unfortunately, people who have the ability to lead by example are few and far between. Without people of this quality within your community, it is unlikely you will survive. Decisiveness wins the day.

    The Ability To Teach

    When I mention the ability to teach, I am not referring to people who we designate officially as “teachers” or people who call themselves teachers. Most teachers do not actually know how to teach anything.

    I am thoroughly convinced that the ability to to teach, to transfer knowledge in a way that people can easily understand and replicate, is an inborn skill — a few people are gifted with it, most people are not. I have seen men and women with expert level knowledge in numerous fields of study who are bumbling buffoons when it comes to passing that knowledge on to others. This is because it is not enough to have mastered a skill set; you must also be able to read other people and figure out how they process information. You have to be highly intuitive to teach, and this is not something that can be learned, it is something that comes naturally.

    Finding great teachers during terrible times is the best way for a community to strengthen rather than weaken. It is also the only way that a society can rebuild after a collapse.

    The Ability To Think Outside Of The Box

    Crisis scenarios sometimes require imaginative solutions in order for the threat to be removed. Thinking outside of the box means a person is unafraid to gamble, and also unafraid to enact measures which have no precedence in history. Thinking outside of the box is not guaranteed to work, but it is a desirable trait when predictable responses are likely to fail.

    An outside-the-box thinker is a kind of inventor – he invents or engineers a mechanism that no one else could have conceived of because he does not see the crisis in front of him in linear terms; he does not see it as a situation he is trapped within. Rather, he sees the crisis as if outside the bubble looking from above. Many people have done this at least once in their lives; few people are able to do this on a regular basis.

    The Ability To Stay Calm

    It is truly amazing how few people are able to recognize they are in the midst of an emergency or disaster and remain calm and collected. Keep in mind, people who are apathetic during a crisis are not “remaining calm,” they simply are too ignorant to understand the gravity of the situation. Remaining calm requires you to see the danger and to act accordingly without panic.

    Vetting people for such a character trait is pretty easy; just watch how they respond to smaller stress events. Do they run and hide every time literally or psychologically, or do they stand their ground and work out the problem? Do they let their emotions take full control, or do they manage them?

    Reactionaries can make any crisis far worse by their mere presence. Get rid of them, or teach them how to manage stress if you can.

    The Ability To Direct Force Intelligently

    Sometimes a crisis is not a natural event but a man-made event, and the only way to stop the crisis is to eliminate the man or men responsible. This requires self-defense, and self-defense requires force. Sadly, when most people do direct force to stop an attack rather than cowering in fear they tend to do it haphazardly and without intelligent direction. They simply lash out in anger, and sometimes the wrong people get hurt in the process.

    This is kind of like using a shovel rather than a scalpel to scoop out a tumor.

    The ability to direct force intelligently requires not only a propensity for acting without permission, but also in some cases remaining patient. When action is taken, it must be done with precision and insight. Finding a person who appreciates this methodology is like finding a four leaf clover nowadays.

    The Ability To Psychologically Process Carnage

    Disasters are usually messy and horrifying affairs leading to grisly and macabre scenes. The key is to be able to process the sight of such carnage without being mentally broken by it, while also maintaining one’s humanity. I call these people “quiet professionals.”

    People who think that dealing with the pain and death of others requires you to act like a robot have missed the point entirely and are not safe and functional people to have present in a crisis.

    Instead, it is vital that we continue to hold onto our empathy, but not let it disrupt our ability to take action to help those who are suffering. Anyone who simply shuts off all emotion is likely a sociopath, and while sociopaths do have a knack for functioning well in grisly jobs they also have a knack for putting other people at risk. Sociopaths are incapable of caring about others, while quiet professionals take responsibility for others despite the ugliness of the situation.

    The Ability To Self-Sacrifice

    This is not a quality that can be easily seen in other people. Situations that actually call for self-sacrifice usually occur only in the worst of times, and it is nearly impossible to know for certain how anyone, including ourselves, will act when that time comes.

    To be clear, self-sacrifice by itself is not a noble quality. There are people out there that long for martyrdom, but they do so in the name of personal glory rather than in the name of saving others. Not only should self-sacrifice be enacted only when it is certain to save lives and no other options are available, it should also only be enacted without selfish aspirations of promoting one’s own legacy. Such an attitude invariably leads to disaster rather than redemption.

    The Ability To Recognize When Others Are More Qualified To Accomplish A Task

    It is vital that people have the ability to take initiative during a crisis and get things done. But, it is also vital for people to recognize when the person next to them is better qualified for a specific task.

    “Leadership” — good leadership — is about deferring responsibilities in a practical way. If you cannot do this then you are not a leader, you are an annoyance or an obstacle. I have seen far too many people in leadership positions sabotage their own efforts by refusing to hand over responsibility to those better suited to certain tasks.

    If you are a motivator, but not a teacher, then motivate your best teachers to teach rather than trying to take charge of both tasks and failing miserably. If you are not skilled in a particular area, then don’t try to micromanage people who are. Finding people who are “doers” is a fantastic thing, as long as they can refrain from overstepping their realm of ability and stepping on the toes of others.

    The worst possible scenario I can imagine is to have a community in which leadership is not shared according to expertise to some extent. Identify micro-managers and mini-tyrants early, or suffer the fate of a completely dysfunctional community in the face of unprecedented challenges.

    It is perhaps not coincidental that all of the above character qualities are growing rarer as our culture grows more and more unstable. The notion of preparedness for crisis revolves far too much around collecting supplies and menial skills and not enough around collecting people of excellent character. That is to say, true preparedness is about building up necessary supplies and talents, but it is also about organizing with uniquely qualified people. Ignoring the latter task is to set yourself up for inevitable failure.

  • Trump: "The Country Is Headed For A Massive Recession; It's A Terrible Time To Invest In Stocks"

    Donald Trump continued to streamroll over all conventional narratives when during a massive 96-minute interview with the Washington Post on Thursday which was released today, in which he talked candidly about his aggressive style of campaigning and offered new details about what he would do as president, he said that economic conditions are so perilous that the country is headed for a “very massive recession” and that “it’s a terrible time right now” to invest in the stock market, which, the traditionally cheerful WaPo said embraces “a distinctly gloomy view of the economy that counters mainstream economic forecasts.”

    Unfortunately, his “gloomy view” is supported by such events as the record surge in gun violence and deadly shootings in Chicago, where the locals also do not ascribe to the WaPo’s rosy take on events, and instead blame the economy and the lack of jobs for the ongoing social collapse in the windy city. 

    In any case, Trump dismissed concern that his comments, which the WaPo said “are exceedingly unusual, if not unprecedented, for a major party front-runner”, which is precisely Trump’s style, “could potentially affect financial markets.”

    As the WaPo adds, “over the course of the discussion, the candidate made clear that he would govern in the same nontraditional way that he has campaigned, tossing aside decades of American policy and custom in favor of a new, Trumpian approach to the world.”

    In his first 100 days, Trump said, he would cut taxes, “renegotiate trade deals and renegotiate military deals,” including altering the U.S. role in the North Atlantic Treaty Organization.

    This is what he said:

    “I think we’re sitting on an economic bubble. A financial bubble… We’re not at 5 percent unemployment. We’re at a number that’s probably into the 20s if you look at the real number. That was a number that was devised, statistically devised to make politicians – and in particular presidents – look good. And I wouldn’t be getting the kind of massive crowds that I’m getting if the number was a real number.”

     

    “I’m talking about a bubble where you go into a very massive recession. Hopefully not worse than that, but a very massive recession. Look, we have money that’s so cheap right now. And if I want to borrow money, I can borrow all the money I want. But I’m rich… If somebody is a great, wonderful person, going to employ lots of people, a really talented businessperson, wants to borrow money, but they’re not rich? They have no chance…

     

    Is it a good time to invest now? “Oh, I think it’s a terrible time right now… because the dollar’s so strong… You have – think of it – you have cheap money that nobody can get unless you’re rich. You have the regulators are running the banks. Not the guys that are being paid $50 million a year to run the banks. I mean, when you look at many of your friends that are running banks that are being paid $40 and $50 million, yeah, they’re not running the banks. The regulators are running the banks. You have a situation where you have an inflated stock market. It started to deflate, but then it went back up again. Usually that’s a bad sign. That’s a sign of things to come.”

     

    “Part of the reason it’s precarious is because we are being ripped so badly by other countries. We are being ripped so badly by China. It just never ends. Nobody’s ever going to stop it. And the reason they’re not going to stop it is one of two. They’re either living in a world of the make-believe, or they’re totally controlled by their lobbyists and their special interests. Meaning people that want it to continue. Because what China, what Mexico, what Japan – I don’t want to name too many countries, because I actually do business in a lot of these countries – but what these countries are doing to us is unbelievable. They are draining our jobs. They are draining our money.”

     

    “I can fix it. I can fix it pretty quickly…I would do a tax cut. You have to do a tax cut. Because we’re the highest-taxed nation in the world. But I would start…I would immediately start renegotiating our trade deals with Mexico, China, Japan and all of these countries that are just absolutely destroying us. ”

    Below are some of the annotated highlights of his bearish take on the economy via the WaPo.

    Trump has for months contended that the U.S. economy is in trouble because of what he sees as an overvalued stock market, but his view has grown more pessimistic of late and he is now bearish on investing, to the point of warning Americans against doing so.

     

    “I think we’re sitting on an economic bubble. A financial bubble,” Trump said. He made clear that he was not specifying a sector of the economy but the economy at large and asserted that more bullish forecasts were based on skewed employment numbers and an inflated stock market.

     

    “First of all, we’re not at 5 percent unemployment. We’re at a number that’s probably into the twenties if you look at the real number,” Trump said. “That was a number that was devised, statistically devised to make politicians — and, in particular, presidents — look good. And I wouldn’t be getting the kind of massive crowds that I’m getting if the number was a real number.”

     

    Trump said, “it’s precarious times. Part of the reason it’s precarious is because we are being ripped so badly by other countries. We are being ripped so badly by China. It just never ends. Nobody’s ever going to stop it. And the reason they’re not going to stop it is one of two. They’re either living in a world of the make-believe, or they’re totally controlled by their lobbyists and their special interests.”

     

    “I’m pessimistic,” Trump said. “Unless changes are made. Changes could be made.” By Trump, for instance: “I can fix it. I can fix it pretty quickly.” Trump firmly believes that a turnaround on trade would be the necessary beginning of a solution to any looming recession.

     

    He mentions the Trans-Pacific Partnership as one pact he would immediately seek to renegotiate, putting him at odds with congressional Republicans who supported giving the president fast-track trade authority last year.

     

    Coupled with his push on trade would be a “very big tax cut,” which Trump unveiled last September. That proposal increases taxes on the “very rich” but reduces taxes for most taxpayers and would cut the corporate tax rate to 15 percent. To woo companies back to the United States, he would offer an incentive of a deeply discounted rate and would no longer allow corporations to defer taxes on income earned overseas.

    * * *

    The Washington Post was displeased by Trump’s pessimistic view, which it said “runs counter to that of most economists, whose rough consensus is that the U.S. economy has about a 20 percent chance of slipping into recession this year largely because growth remains weak across the world, according to a Wall Street Journal survey of economists in March.”

    Most economists aren’t overly worried about an imminent downturn because job creation remains strong, workers are starting to see their wages grow and the Federal Reserve remains cautious about shifting away from the low-interest-rate stance that has helped stimulate the economy.

    Cheerful economists promptly chimed in to defend the economy:

     

    Of course, whether Trump is right or not with his warning about the economy and the market, only time will tell, although as we reported in mid-January, Trump is certainly hoping for a market crash. The reason is that historically, the market performance in the three months leading up to a Presidential Election has displayed an uncanny ability to forecast who will win the White House… the incumbent party or the challenger. Since 1928, there have been 22 Presidential Elections. In 14 of them, the S&P 500 climbed during the three months preceding election day. The incumbent President or party won in 12 of those 14 instances. However, in 7 of the 8 elections where the S&P 500 fell over that three month period, the incumbent party lost.

    In other words, if Trump wants to win he would certainly benefit from a major drop in the S&P in the all important September to November period. That is, assuming he gets the nomination.

    * * *

    Of note also was Trump’s insistence that he would be able to get rid of the nation’s more than $19 trillion national debt: “We’re not a rich country. We’re a debtor nation. We’ve got to get rid of – I talked about bubble. We’ve got to get rid of the $19 trillion in debt.” How long would that take? “Well, I would say over a period of eight years.”

    This is how he says he would do it: “I’m renegotiating all of our deals, the big trade deals that we’re doing so badly on. With China, $505 billion this year in trade.” He said that economic growth he foresees as a consequence of renegotiated deals would enable the United States to pay down the debt.

    But Trump’s most interesting comment had nothing to do with economics – it was his admission that everyone close to him — family, friends, Republican leaders — have been urging him to tone down his attacks and reach out to former rivals, both to reassure wary voters and to begin the difficult process of unifying a party in which many have sworn to never back him. Trump does not intend to take the advice. He said such overtures are “overrated.” “I think the first thing I have to do is win,” he said. “Winning solves a lot of problems. And I have two people left”: his two remaining Republican rivals, Sen. Ted Cruz of Texas and Ohio Gov. John Kasich.

    Bob Woodward summarizes his take of the Trump interview

  • Shocking Video From Brussels Anti-Islam Protest Of Moment Muslim Woman Is Run Over By Car

    Various far-right groups, including the anti-migrant Generation Identitaire movement, demonstrated in Belgium’s notorious Molenbeek district, the notorious terrorist breeding ground of the Belgian capital, on Saturday. At the same time, leftist groups held counter-rallies. Though the demonstrations were banned in Brussels following the March attacks, several rallies still took place in Belgian capital.

    Since the attacks in Brussels Zaventem Airport and Maelbeek metro station that rocked the Belgian capital on March 22, Belgium has been on high alert, while tension between various local groups and migrants has escalated to unprecedented levels, confirmed by today’s events, when according to local news, at an anti-racism rally in the Brussels district of Molenbeek, the police clashed with hundreds of youths. Later, police temporarily closed the area after the police made 19 arrests at the Place de la Bourse, according to RTL

    Thirteen rioters were arrested in the neighborhood which appears like a warzone.

     

    According to RT, at least two armed far-right activists with Molotov cocktail arrested in the Molenbeek district.

    But the most shocking and violent moment took place when a car drove toward the police line, spraying a fire extinguisher. While driving off, the Audi hit a woman head on, according to twitter reports.

    The video below captures the moment of impact of what RT reports, was a Muslim woman wearing a hijab, without so much as slowing down, as she bounces off the bonnet. The woman was taken to hospital immediately afterwards

    Viewer discretion advised.

     

    The perpetrator, who the Belgian media say is a resident of Molenbeek, has since reportedly been arrested.

    And as the world becomes witness to increasing violence by both sides, one thing is certain: Molenbeek residents will feel compelled to escalate their acts of violence even more in the next inevitable attack, which in turn will lead to an even more violent response, and so on until deadly violence between assorted groups of people is a daily fixture across Europe.

  • Black Lives Matter Activist: "If Trump Wins We Will Incite Riots Everywhere"

    The social fallout from Trump’s rising popularity continues with the most disturbing event taking place recently when prominent Black Lives Matter activist and rapper Tef Poe tweeted a message for “white people”: if Donald Trump wins the presidency, “niggas” will ‘incite riots everywhere.’

    “Dear white people if Trump wins young niggas such as myself are fully hell bent on inciting riots everywhere we go. Just so you know,” Poe tweeted. A screenshot of the tweet was captured below by the Daily Media.

     

    He followed up with another promise: “Trump wins aint no more rules fammo. We’ve been too nice as is.”

    As Daily Media adds, “Poe is by no means a nobody, he has appeared in innumerable articles charting the rise of ‘Black Lives Matter’ and was credited with coining the phrase, “This ain’t your grandparents’ civil rights movement.”

    The rapper was one of the co-founders of Hands Up United, a “social justice” organization that emerged after the death of Michael Brown that was responsible for coordinating large BLM protests in the St. Louis area.

    Ironically, as the website updates, Poe has since deleted his tweet and then claimed that he never made the comments, instead suggesting it was “slander.”

    “He’s now whining about “slander”. Talk crap, then play the victim when you get challenged on your crap. Same process EVERY time with social justice warriors.”

    This is shown in the tweet below:

    Unfortunately this kind of fallout continues with prominent movement leaders across all social groups becoming increasingly belligerent toward each other, which fundamentally is driven by one simple thing: the ongoing deterioration of the US economy. Recall from the post profiling the surge in Chicago shootings that even local Chicago citizens agrees that the root of America’s rising anger is the lack of economic opportunity.

     “I think it’s got something to do with economics,” Gabb says of the continued shootings. As CNN adds, most residents say communities continue to suffer from an economy that is nowhere strong enough to keep at-risk youths from looking for financial support in the wrong places.

     

    The lament is one heard across most poor areas in the US: “I’m hoping that some money is invested in some job creation. We bailed out Wall Street, why not bail out Main Street? It would make a world of difference,” Acree says.

     

    “If you really want to stop this epidemic of violence, the best way to stop a bullet is with a job.”

     

    Which is odd, because according to the BLS, jobs across the US are growing at a brisk pace of over 200K per month.

    Sadly, we expect this form of social devolution to continue no matter who is president in November because the underlying issue of most social problems in America, the withering economy, will not only remain unaddressed – after all a Congressman once told Bernanke to “get to work” instead of doing his job, which the Fed promptly did by further enriching the richest Americans at the expense of all other social tiers – but, worse, anyone who dares to point it out is promptly accused of “peddling fiction.”

  • Greek Prime Minister Sends Angry Letter To Christine Lagarde Over IMF Leak

    Today’s Wikileaks disclosure, in which two IMF officials hinted that the IMF may use a “credit event as a means to pressurize(sic) Greece” as it has been subsequently put by Greek officials, has elicited another round of widespread anger in Athens and could jeopardize the upcoming Greek debt negotiations.

    The anger has been made more acute because Greece previously accused Poul Thomsen, one of the IMF staffers caught on the leak, of effectively sabotaging talks in the past when the IMF refused to compromise on Greek pension cuts after the government proposed alternatives with an equivalent fiscal impact.

    As such, hoping to ride on the latest wave of populist anger, it was only a matter of time before the country’s prime minister Alexis Tsipras officially responded to the IMF.

    His letter to the head of the IMF is below:

    Dear Christine

     

    I am writing to you to express my deep concern about publications on the position of IMF officials with key roles in the Greek program.

     

    The first issue is, of course, whether their position reflects the official IMF view. Using a credit event as a means to pressurize Greece and the other member states is clearly beyond the bounds of the negotiation process as we understand it.

     

    The second issue is whether Greece can trust, and continue negotiating in good faith with, IMF officials who express views such as those expressed in these publications. Particularly so as they seem to be threatening to delay the process in the belief that only a credit event will work to extract concessions. Successful negotiations are often difficult but they always require trust and credibility from all sides. I sincerely hope that the IMF position is to reach a quick, successful and sustainable conclusion of the review and I am sure you will take all necessary measures to ensure that the negotiation process will remain on track.

     

    As always, I would be happy to talk to you any time on these issues, as I am sure your share my concern.

     

    Yours Sincerely,

     

    Alexis Tsipras

    A snapshot of the letter:

    While we expect that this latest scandal will quickly be forgotten, what we find most paradoxical about the situation is that the Greek ire is focused on the one entity that, while hardly innocent as per Lagarde’s previous comments, is actually is pushing for a Greek debt reduction over the refusal of European, and especially German, institutions. Granted, we also understand the Greek ire: being used as guniea pigs by the IMF in its policy battle with other NGOs is hardly pleasing and if anything, is a reflection of the Greek recent collapse into quasi-vassal status and ongoing ward of the ECB. Recall that Greece still has capital controls as its banking system is completely insolvent, and that this leverage Europe has over the country and the money of its savers will not change for a long time.

     

  • The Great Divide: The Death Of The Middle Class

    Submitted by Jeff Nielson via SprottMoney.com,

    Several months ago, a chart produced by one of the Big Banks was presented to readers . It was supposed to be innocuous data on global wealth distribution, but instead portrayed a horrifying picture.

     

    The focal point of the aforementioned article was that when it came to “the world’s poorest people,” the Corrupt West has now produced a greater percentage of severe poverty in its own populations than in India, and an equal percentage of such poverty as exists in Africa.

    Stacked beside this, we see that when it comes to the richest-of-the-rich, the Corrupt West remains in a league of its own. Supposedly, we are living in “the New Normal,” where life is supposed to get increasingly harder and harder. So why does the New Normal never affect those on top?

    Of course all of these extremely poor people being manufactured by our governments (as these regimes give away our jobs, destroy wages, and eviscerate our social programs) have to come from somewhere. Certainly they don’t come from the Wealthy Class.

    Indeed, the chart above provides us with a crystal-clear view of where all these poor and very-poor people are coming from: the near-extinct Middle Class. In order to manufacture hundreds of millions of impoverished citizens in our nations, the Old World Order has had to engage in a campaign to end the Middle Class.

    We are conditioned to consider economic “classes” within our own societies, but with the chart above, we’re given a global perspective. Where does the Middle Class exist today, globally? At the upper end, it exists in China, and to a lesser extent, in Latin America and other Asian nations. At the lower end of the Middle Class, we see such populations growing in India and even Africa.

    Only in the West, and especially North America, is the Middle Class clearly an endangered species. Two incredibly important aspects of this subject are necessary to cover:

    1) How and why has the One Bank chosen to perpetrate Middle Class genocide?

    2) What are the consequences of the Death of the Middle Class?

    Attempting to catalogue the nearly infinite number of ways in which the oligarchs of the One Bank have perpetrated their Middle Class genocide is impractical. Instead, discussion will be limited to the five most important programs responsible for the Death of the Middle Class: three of them relatively new, and two of them old.

    a) Globalization

    b) Union decimation/wage destruction

    c) Small business decimation

    d) Money-printing/inflation

    e) Income taxation

    Globalization was rammed down our throats in the name of “free trade,” the Holy Grail of charlatan economists . But, as previously explained, real free trade is a world of “comparative advantage” where all nations play by a fair-and-equal set of rules. Without those conditions, “free trade” can never exist.

    The globalization that has been imposed upon us is, instead, a world of “competitive devaluation,” a corrupt, perpetual, suicidal race to the bottom. The oligarchs understood this, given that they are the perpetrators. The charlatan economists were too blinded by their own dogma to understand this. And, as always, the puppet politicians simply do what they are told.

    Next on the list: union decimation and wage destruction are inseparable subjects, virtually the flipside of the same coin. “But wait,” shout the right-wing ideologues, “unions are corrupt, everyone knows that.”

    Really? Corrupt compared to whom? Are they “corrupt” standing next to the bankers, who have stolen all our wealth ? Are they “corrupt” standing next to their Masters, the oligarchs who are hoarding all our stolen wealth ? Are they “corrupt” standing next to our politicians, who betrayed their own people to facilitate this economic pillaging? No, compared to any of those groups, unions (back when they still existed) were relative choir-boys.

    When it comes to corruption, nobody plays the game as well as those on top. Compared to the Fat Cats, everyone else are rank amateurs. When unions were strong and plentiful, everyone had jobs. Almost everyone earned a livable wage (or better). Gee, weren’t those terrible times! Look how much better off we are now, without all those “corrupt unions.”

    The other major new component in the deliberate, systemic slaughter of the Middle Class was and continues to be Small Business decimation. “Small business is the principal job-creator in every economy.” Any politician who ever got elected can tell you that.

    If this is so, why do our corrupt governments funnel endless trillions of dollars of Corporate Welfare (our money) into the coffers of Big Business, while complaining there is nothing left to support Small Business? Why do our governments stack the deck in all of our regulations and bureaucracies, greasing the wheels for Big Business and strangling Small Business in their red tape?

    Why do our governments refuse to enforce our anti-trust laws? One of the primary reasons for not allowing the corporations of Big Business to grow to an illegal size is because these monopolies and oligopolies make “competition” (meaning Small Business) impossible. One might as well try to start a small business on the Moon.

    Then we have the oligarchs’ “old tricks” for stealing from the masses (and fattening themselves): banking and taxation. Of course, to the oligarchs, “banking” means stealing, and you steal by printing money. As many readers are already aware, “inflation” is money-printing – the increase (or inflation) of the supply of money.

    In the absence of the gold standard, there is no way to protect savings [i.e. wealth] from confiscation through inflation .

    – Alan Greenspan (1966 version )

    Remove the Golden Handcuffs , as central banker Paul Volcker bragged of doing in 1971, and then it’s just print-and-steal – until the whole fiat currency Ponzi scheme implodes.

    Then of course we have income taxation: 100 years of systemic thievery. No matter what the form or structure, by its very nature every system of income taxation will:

    i) Provide a free ride to those at the very, very top

    ii) Be revenue-neutral to the remainder of the wealthy

    iii) Relentlessly steal out of the pockets of everyone else (via over-taxation)

    This is nothing more than a matter of applying simple arithmetic. However, many refuse to educate themselves on how they are being robbed in this manner, year after year, so no more will be said on the subject.

    These were the primary prongs of the oligarchs’ campaign to exterminate the Middle Class. As always, skeptical readers will be asking “why?” The answer is most easily summarized via The Bankers’ Manifesto of 1892 . This document was presented to the U.S. Congress in 1907 by Republican congressman, and career prosecutor, Charles Lindbergh Sr.

    It reads, in part:

    The courts must be called to our aid, debts must be collected, bonds and mortgages foreclosed as rapidly as possible.

    When through the process of law, the common people have lost their homes they will be more tractable and easily governed through the influence of the strong arm of government applied to a central power of imperial wealth under the control of the leading financiers [the oligarchs]. People without homes won’t quarrel with their leaders.

    We have “the strong arm of government.” The oligarchs saw to that by bringing us their “War on Terror.” When it comes to throwing people out of their homes, and creating a population of serfs, that’s a two-part process.

    Step 1 is to manufacture artificial housing bubbles across the Western world, and then crash those bubbles. However, this is only partially effective in turning Homeowners into Homeless. To truly succeed at this requires Step 2: exterminating the Middle Class. A Middle Class can survive a collapsing housing bubble, assuming they remained reasonably prudent. The Working Poor cannot.

    Finally, after more than a century of scheming, the oligarchs have all of their pieces in place. In the U.S., they’ve even already built many gulags – to warehouse these former Middle Class homeowners – since a large percentage of those people are armed.

    This brings us to one, final point: the consequences of the Death of the Middle Class. What happens when you destroy the foundation of a house? Just look.

     

    As readers have been told on many previous occasions, the “velocity of money” is effectively the heartbeat of an economy. It is another way of representing the economics principle known as the Marginal Propensity to Consume, probably the most important principle of economics forgotten by charlatan economists.

    The principle is a simple one, since it is half basic arithmetic and half common sense. Unfortunately, these are both skills beyond the grasp of charlatan economists. If you take all of the money out of the pockets of the People, and you stuff it all into the vaults of the Wealthy (where it sits in idle hoards), then there is no “capital” for our capitalist economies – and these economies starve to death .

    What is the response of the oligarchs to the relentless hollowing-out of our economies? They have ordered the puppet politicians to impose Austerity: taking even more money out of the pockets of the people. It is the equivalent to someone with anorexia going to a doctor, and the doctor imposing a severe diet on the patient (i.e. victim). The patient will not survive.

    The Middle Class is dying. Unlike the oligarchs’ Big Banks, we are not “too big to fail.” Our jobs are gone. Our unions are gone. Our Middle Class wages are gone. Very soon, our homes will be gone. But don’t worry! It’s just the New Normal.

  • America's "Capitalist" Economy Explained By 2 Dogs

    Presented with no comment…

     

     

    Source: Townhall.com

  • Why JPMorgan Believes Central Banks Can No Longer Save The Day

    In recent weeks, JPMorgan has turned decidedly sour on the US equity market: one month ago, on March 3, JPM announced that “for the first time this cycle”, it has gone underweight stocks.

    Equities, credit and commodities have all rallied in the last three weeks, as some of the immediate threats to the world economy have faded from attention, possibly only because the bad earnings season has wound up. But, to us, the fundamentals of growth, earnings and recession risk have not improved, and if anything have worsened. We remain wary of the near-empty ammo box of policy makers.

     

    Our 12-month-out US recession odds have risen to 1/3, while equity-implied odds have instead fallen to near 1/5. But even with no recession this year or next, we see US earnings rising only slowly by low single digits and see little to boost multiples. The eventual recession should bring US stocks down some 30%, creating a strong downward risk skew to returns over the next few years.

     

    We use the rally in stocks to sell it and go underweight stocks, versus HG corporate bonds and cash. The strong rebound of the past few weeks does create near-term momentum, and thus keeps our first UW small.

    To be sure, the continued bounce since the JPM call has not been exactly reassuring of the forecast’s accuracy. However, what is surprising is that when faced with unpalatable price action, sellside researchers usually flip their call quickly.

    Not in this case, because in a surprisingly candid piece released overnight, JPM’s Jan Loeys doubles down, and after asking rhetorically “Can central banks really save the day, or cycle?”, his answer is no. In fact, after saying now is the time to sell stocks, JPM’s head of global asset allocation is now even far more concerned about the over economy where his biggest concern is that central banks are powerless to stop the “collapsing productivity growth.”

    Loeys begins as follows:

    Equities and bonds are both up on the week, fueled by supportive central bank talk. Commodities and the dollar are down, with EM asset classes continuing to outperform. Our overall strategy remains on the defensive side. We started a year ago to dollar-average from the long risk positions we have held over the past seven years towards a more defensive one where we finally arrived last month.

     

    The main drivers of this year-long process are the sense that the cycle in economic and earnings growth is maturing, leading us to the eventual recession, as well as the more structural force of the global collapse in productivity growth. Of the two, we view the latter one as the more ominous, as it is potentially much longer lasting, with no obvious force driving it, nor a policy solution in sight to reverse it.

     

    Both of these negatives to world economies and risk markets have in common that they are of uncertain timing. Hence, our use of the time-honored strategy is going slowly by dollar averaging. Over the past month, data are tracking our economic forecasts, and have kept our global projections on net unchanged.

     

    That is good news after the steady drip-drip of downgrades of the past two years. It has allowed us to reduce our 12-month US recession risk to 28%, even as it keeps us with a view that the US economy is more likely than not to contract over the next 2-3 years in response to falling profits.

    And here is why JPM’s explanation why central banks are now powerless to stop the ongoing global contraction: 

    We are not getting any solace on our fears over collapsing productivity growth, though. Investors have been happy to see the 628K rise in US payrolls in Q1, but at that pace, jobs are growing faster than the economy, implying that GDP per worker/hour, which is productivity, is actually falling. US companies are hiring people frantically as they are unable to get more product and services out of their existing workforce. This is not a good omen for future growth in the economy and earnings, in our view.

    This is something we noted last night when we noted the increasing prevalence of warnings about an upcoming US stagflation. It is also what is most troubling to JPM.

    Without real upgrades to earnings or growth forecasts, we think that the recent rally in risk assets gained much from dovish actions and messages from central banks, in particular the ECB, Fed and the PBoC. One can only applaud the seriousness and pro-activeness that central banks apply to their mandates. But aren’t investors counting too much on central banks carrying the day if not the cycle?

     

    This analyst thinks so, without disparaging their efforts, as central banks are almost out of ammo, and their tools are not well suited to handle the problems of slowing company profits and productivity.

     

    It is our perception that much of the weaker than expected growth over the past 4 years results from a supply side problem. Lower rates can boost spending, but are not much of a solution to falling productivity growth. The latter needs greater innovation, competition, globalization, and capital investment, in our view. Low rates can boost the latter, but have not helped enough, as rising capex over recent years did not prevent falling productivity growth.

    * * *

    But perhaps most amusing was the following Freudian slip in the JPM piece:

    “We do not see easy money as a bait to lure unsuspecting investors into risky assets.”

    Then why bring it up… and if you don’t, who does?

  • White House Censors French President's Use Of The Words "Islamic Terrorism"

    Submitted by Mac Slavo via SHTFPlan.com,

    Not only does President Obama refuse to join the words “Islam” and “terrorism,” but the White House won’t let anyone else do it either.

    In a video that appeared on the White House website this morning, the words of French President Francois Hollande were censored to remove the following segment:

    Islamist terrorism, is in Syria and in Iraq. We therefore have to act both in Syria and in Iraq, and this is what we’re doing within the framework of the coalition.

    Here’s the censored video that has since been taken down from the White House website.

    Here’s a screenshot of the transcript that was published on the site, which contains President Hollande’s full statement.

    hollande-censored

    You know it’s obvious that Obama is avoiding using the phrase “Islamic terror” when even the NY Post notices. Back in November, after the Paris attack, columnist Michael Goodwin called for the President’s resignation. Goodwin wrote:

    President Obama has spent the last seven years trying to avoid the world as it is. He has put his intellect and rhetorical skills into the dishonorable service of assigning blame and fudging failure. If nuances were bombs, the Islamic State would have been destroyed years ago.

     

    He refuses to say “Islamic terrorism,” as if that would offend the peaceful Muslims who make up the vast bulk of victims. He rejects the word “war,” even as jihadists carry out bloodthirsty attacks against Americans and innocent peoples around the world.

    After the attacks in San Bernadino, California in December, we pointed out that Obama attempted to shift the blame away from radical Islam to…wait for it…workplace violence.

    President Obama said that the San Bernardino terrorists had mixed motives for killing 14 people and injuring 17 others. He warned Americans not to draw any conclusions:

    “At this stage, we do not yet know why this terrible event occurred.”

     

    “We do know that the two individuals who were killed were equipped with weapons and appeared to have access to additional weaponry in their homes. But we don’t know why they did it.”

     

    …

     

    “It is possible that this was terrorist-related, but we don’t know. It’s also possible this was workplace-related.”

     

    “We don’t know why they did it. We don’t know at this point the extent of their plans.”

    Are you f*cking serious, Mr. President?

     

    As we noted earlier, The Intent Here Was Jihad And It Was Carefully Premeditated And Planned. President Obama, his national security team and the FBI know this.

    Maybe if we all hide under our blankies and refuse to say the words, we can pretend this threat doesn’t exist too.

  • IMF's Christine Lagarde: "When The World Goes Downhill, We Thrive"

    When we wrote earlier that based on a leaked Wikileaks transcript, which the Greek government interpreted “as revealing an IMF effort to blackmail Athens with a possible credit event to force it to give in on pension cuts which it has rejected“, the article promptly went viral. While it remains to be determined if the IMF indeed made such an implied threat, we attribute this spike in interest to the general public’s surprise that the IMF could stoop to such a low, even by its own standards, level as to use a nation of 11 million people as a lab rat on which to conduct policy experiments.

    But why the surprise?

    As the below transcript from a April 2012 interview given by Lagarde to the Wharton school at UPenn, none other than IMF president Lagarde herself admitted that for the IMF to “thrive”, the world has to “goes downhill“, and that the IMF “to be sustainable” it needs to be “very in touch with our client base.”

    She added that “when the world goes well and we’ve had years of growth, as was the case back in 2006 and 2007, the IMF doesn’t do so well both financially and otherwise”

    It goes without saying that Lagarde’s sole prerogative as the managing director of the IMF is to make sure it “does well.”

    She concluded by saying that “we need to be able to invent and reinvent ourselves in many ways.” One such client-facing “reinvention” just happened to be caught on tape.

    Here is the key section:

    Knowledge@Wharton: Of all the things that you do here, what are you most passionate about? What would you really like to make sure happens? It could be a small thing, it could be a large thing. What is it that really has your heart?

     

    Lagarde: That’s complicated. I think it’s this issue of relevance … that is of real concern to me. You see, this is a very fascinating institution because it’s completely counter-cyclical. When the world around the IMF goes downhill, we thrive. We become extremely active because we lend money, we earn interest and charges and all the rest of it, and the institution does well. When the world goes well and we’ve had years of growth, as was the case back in 2006 and 2007, the IMF doesn’t do so well both financially and otherwise.

     

    For this institution, which is a fascinating mix of almost all countries of the world with a single objective that should transcend all their respective individual policies and strategies, for it to be sustainable, we need to be very agile, very in touch with our membership, with our client base, if you will. We need to be able to invent and reinvent ourselves in many ways. So, as I was explaining about going from bilateral to multilateral surveillance, from a narrow focus to something that is more holistic, that is exactly what is at stake

    h/t @rudyhavenstein

  • Shuffling The Deckchairs On The USS Perpetual Growth

    Submitted by Paul Brodsky via Macro-Allocation.com,

    The USS Perpetual Growth was picking up speed, steaming over calm seas despite a growing chorus of capital market Cassandras fearing trouble under the surface and further out at sea.

    “Full speed ahead” Skipper Yellen barked to her economates, unperturbed by ominous radar images or the uselessness of econometric expertise at the zero bound, unmindful of passenger dysentery because 95.1% of the ship’s births were full.

    “Look at all this liquidity!” she likely informed Captain Blithely, her commander in chief on shore, who had spent his presidency too disengaged of economic matters (or too politically astute) to have a cogent public thought on the matter, or perhaps smart enough to figure out everyone in Washington answers to the banks and that fixing their collateral damage social programs would be the best he could hope to do.

    Indeed, the Fed Chair had gone rogue among her peers, charting her central bank’s shipping lane on a divergent path from her counterparts, Draghi and Kuroda, who were steering their monetary fleets to port. Captain Yellen seemed oblivious to the economic (and rhetorical) dangers of relying on consumption: an economy should not be beholden to eating its own productive cells.

    We have argued there could be only one reason the Fed would want to hike rates: it is now responsible for US dollar policy and it wants a strong one to weaken other currencies, to prop up exporting economies, and to attract global capital and deposits to the US. Alas, the wind just died – not just for the US, but for all ships at sea.

    Leading up to her March 29 press conference, numerous Fed speakers had tried to jawbone the market into believing the Fed remained on track to hike rates more, maybe even in April. And yet the markets had entirely dismissed such a possibility, in fact betting the Fed would be lucky to hike rates again in 2016. One point four percent US GDP put a quick end to that. She’ll get her year over year inflation, but not growth.

    And so the de facto captain of the US economic ship of state walked the Fed’s position back to better reflect market doubts. “Economic and financial conditions remain less favorable than they did back at the time of the December FOMC meeting” she offered. Well, okay, if you insist. Tell the market something it doesn’t know.

    The Fed Funds rate is functionally pointless now that Interest on Excess Reserves are higher and deposit rates are zero. The bottom line is that the Fed must keep asset prices up because assets are collateral for potentially deflationary systemic debt.

     

    Yes, the Fed can do this with a strong dollar, but it can also use talk therapy rhetorical warfare its communication policy. The great global monetary parlor game is navigating the rocky shoals of greater economic discontent.
     

  • "Production Freeze" Narrative Collapses In Two Days: Russian Oil Output Hits New Post-Soviet Record

    How quickly the oil production freeze narrative has fallen apart.

    Source: stockboardasset

    Indeed, it’s been a tough two days for oil bulls holding on to hope that excess oil production will normalize in the near term and that the world’s oil suppliers would somehow manage to curb oil production in the aftermath of the OPEC’s November 2014 cartel collapse.

    First it was yesterday’s Bloomberg story which cited the Saudi Deputy Crown Prince Mohammed bin Salman as saying that the Saudis would not participate in an oil production freeze unless everyone including Iran which has made it  joined  “If all countries including Iran, Russia, Venezuela, OPEC countries and all main producers decide to freeze production, we will be among them.“

    The second one came overnight.

    Recall that one month ago, just as Russia and Saudi Arabia were finalizing their “agreement” to freeze oil production which was the major catalyst for the oil surge from its 13 year lows hit in early February, we got the surprising news that far from throttling production, Russian crude and condensate production just set new post-Soviet daily record of 10.92 million barrels.

    Well, overnight we got the latest update of Russian oil output, and according to Bloomberg it just set a new post-Soviet high in March “as the success of a proposed crude production freeze between OPEC members and other major producers appeared to be in doubt.”

    Bloomberg reports that Russian production of crude and a light oil called condensate climbed 2.1 percent in March from a year earlier to 10.912 million barrels a day, according to the Energy Ministry’s CDU-TEK unit. That narrowly beat the previous high of 10.910 million barrels in January.

    With most of the Organization of Petroleum Exporting Countries members, Russia and some others outside the group scheduled to meet in Doha this month to discuss an accord on capping output, Saudi Arabia’s Mohammed bin Salman signaled in an interview with Bloomberg that if any country raises output, the kingdom will also boost sales. Prices on Friday sank more than 4 percent after the comments. Iran previously said it plans to boost production after the lifting of sanctions following a deal to curb its nuclear program.

     

    Saudi Arabia, Russia, Venezuela and Qatar in February first proposed an accord to cap oil output to reduce a worldwide surplus and boost prices. Brent prices in London have gained nearly 40 percent from the 12-year low reached in January.

    But what was most notable is that Russian oil exports rose 10% to 5.59 million barrels a day, according to the Energy Ministry data. This is just the start because as we wrote two weeks ago, according to Reuters calculations based on Energy Ministry data, Russia will have as much as 4.3 million tonnes of idle refining capacity next month, more than twice the 1.9 million tonnes unused in March. Russian refineries traditionally have the largest offline capacity in April, as companies scramble to finish maintenance before consumption of oil products peaks in summer.

    This forces producers to divert crude towards exports, because there is nowhere to store the oil that otherwise would have gone to refineries.

     

    This means that as soon as next month, there will be an extra 2.4 million tonnes of extra oil being exported by Russia; how this oil will be sold to some willing end buyer without crushing oil prices in what is already a 3 million barrel/daily oversupplied market, is unknown.

    The Russian export glut is already starting to be felt, and that may be just the beginning: two additional factors may push oil supply in the open market materially higher in the coming weeks. The first as we previously explained is that up to 30 million barrels in floating storage may soon come onshore as the sliding contango makes offshore storage no longer economical. The second as also previously discussed is that some shale oil producers, including Oasis Petroleum and Pioneer Natural Resources Co, are activating drilled but uncompleted wells (DUCs) in a reversal in strategy that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices.

    Taken together these factors perhaps explain why oil tumbled on Friday as stocks made another 2016 high.

  • "I'm 100% Sure" The US Presidential Campaign Is Being Tampered With

    There is a growing recognition of the increasing tail wagging the dog nature of the internet's control over election outcomes. We recently detailed "the hidden persuaders" at work showing how the internet has spawned subtle forms of influence that can flip elections and manipulate everything we say, think and do. Confirming all of this to be chillingly true is Andrés Sepúlveda, who rigged elections throughout Latin America for almost a decade. On the question of whether the U.S. presidential campaign is being tampered with, he is unequivocal – "I'm 100 percent sure it is."

    Liberty Blitzkrieg's Mike Krieger excerpts a must-read Bloomberg article,

    In July 2015, Sepúlveda sat in the small courtyard of the Bunker, poured himself a cup of coffee from a thermos, and took out a pack of Marlboro cigarettes. He says he wants to tell his story because the public doesn’t grasp the power hackers exert over modern elections or the specialized skills needed to stop them. “I worked with presidents, public figures with great power, and did many things with absolutely no regrets because I did it with full conviction and under a clear objective, to end dictatorship and socialist governments in Latin America,” he says. “I have always said that there are two types of politics—what people see and what really makes things happen. I worked in politics that are not seen.”

     

    Rendón, says Sepúlveda, saw that hackers could be completely integrated into a modern political operation, running attack ads, researching the opposition, and finding ways to suppress a foe’s turnout. As for Sepúlveda, his insight was to understand that voters trusted what they thought were spontaneous expressions of real people on social media more than they did experts on television and in newspapers. He knew that accounts could be faked and social media trends fabricated, all relatively cheaply. He wrote a software program, now called Social Media Predator, to manage and direct a virtual army of fake Twitter accounts. The software let him quickly change names, profile pictures, and biographies to fit any need. Eventually, he discovered, he could manipulate the public debate as easily as moving pieces on a chessboard—or, as he puts it, “When I realized that people believe what the Internet says more than reality, I discovered that I had the power to make people believe almost anything.”

     

    Sepúlveda says he was offered several political jobs in Spain, which he says he turned down because he was too busy. On the question of whether the U.S. presidential campaign is being tampered with, he is unequivocal. “I’m 100 percent sure it is,” he says.

     

    – From the excellent Bloomberg article: How to Hack an Election

    Yesterday, Bloomberg published one of the most fascinating articles I’ve read all year. Below are some choice excerpts from the piece, which I encourage you to read in full.

    It was just before midnight when Enrique Peña Nieto declared victory as the newly elected president of Mexico. Peña Nieto was a lawyer and a millionaire, from a family of mayors and governors. His wife was a telenovela star. He beamed as he was showered with red, green, and white confetti at the Mexico City headquarters of the Institutional Revolutionary Party, or PRI, which had ruled for more than 70 years before being forced out in 2000. Returning the party to power on that night in July 2012, Peña Nieto vowed to tame drug violence, fight corruption, and open a more transparent era in Mexican politics.

     

    Two thousand miles away, in an apartment in Bogotá’s upscale Chicó Navarra neighborhood, Andrés Sepúlveda sat before six computer screens. Sepúlveda is Colombian, bricklike, with a shaved head, goatee, and a tattoo of a QR code containing an encryption key on the back of his head. On his nape are the words “</head>” and “<body>” stacked atop each other, dark riffs on coding. He was watching a live feed of Peña Nieto’s victory party, waiting for an official declaration of the results.

     

    When Peña Nieto won, Sepúlveda began destroying evidence. He drilled holes in flash drives, hard drives, and cell phones, fried their circuits in a microwave, then broke them to shards with a hammer. He shredded documents and flushed them down the toilet and erased servers in Russia and Ukraine rented anonymously with Bitcoins. He was dismantling what he says was a secret history of one of the dirtiest Latin American campaigns in recent memory.

     

    For eight years, Sepúlveda, now 31, says he traveled the continent rigging major political campaigns. With a budget of $600,000, the Peña Nieto job was by far his most complex. He led a team of hackers that stole campaign strategies, manipulated social media to create false waves of enthusiasm and derision, and installed spyware in opposition offices, all to help Peña Nieto, a right-of-center candidate, eke out a victory. On that July night, he cracked bottle after bottle of Colón Negra beer in celebration. As usual on election night, he was alone.

     

    His teams worked on presidential elections in Nicaragua, Panama, Honduras, El Salvador, Colombia, Mexico, Costa Rica, Guatemala, and Venezuela. Campaigns mentioned in this story were contacted through former and current spokespeople; none but Mexico’s PRI and the campaign of Guatemala’s National Advancement Party would comment.

     

    Usually, he says, he was on the payroll of Juan José Rendón, a Miami-based political consultant who’s been called the Karl Rove of Latin America. Rendón denies using Sepúlveda for anything illegal, and categorically disputes the account Sepúlveda gave Bloomberg Businessweek of their relationship, but admits knowing him and using him to do website design. “If I talked to him maybe once or twice, it was in a group session about that, about the Web,” he says. “I don’t do illegal stuff at all. There is negative campaigning. They don’t like it—OK. But if it’s legal, I’m gonna do it. I’m not a saint, but I’m not a criminal.” While Sepúlveda’s policy was to destroy all data at the completion of a job, he left some documents with members of his hacking teams and other trusted third parties as a secret “insurance policy.”

     

    Sepúlveda provided Bloomberg Businessweek with what he says are e-mails showing conversations between him, Rendón, and Rendón’s consulting firm concerning hacking and the progress of campaign-related cyber attacks. Rendón says the e-mails are fake. An analysis by an independent computer security firm said a sample of the e-mails they examined appeared authentic. Some of Sepúlveda’s descriptions of his actions match published accounts of events during various election campaigns, but other details couldn’t be independently verified. One person working on the campaign in Mexico, who asked not to be identified out of fear for his safety, substantially confirmed Sepúlveda’s accounts of his and Rendón’s roles in that election.

     

    Sepúlveda says he was offered several political jobs in Spain, which he says he turned down because he was too busy. On the question of whether the U.S. presidential campaign is being tampered with, he is unequivocal. “I’m 100 percent sure it is,” he says.

     

    Rendón, says Sepúlveda, saw that hackers could be completely integrated into a modern political operation, running attack ads, researching the opposition, and finding ways to suppress a foe’s turnout. As for Sepúlveda, his insight was to understand that voters trusted what they thought were spontaneous expressions of real people on social media more than they did experts on television and in newspapers. He knew that accounts could be faked and social media trends fabricated, all relatively cheaply. He wrote a software program, now called Social Media Predator, to manage and direct a virtual army of fake Twitter accounts. The software let him quickly change names, profile pictures, and biographies to fit any need. Eventually, he discovered, he could manipulate the public debate as easily as moving pieces on a chessboard—or, as he puts it, “When I realized that people believe what the Internet says more than reality, I discovered that I had the power to make people believe almost anything.”

     

    For most jobs, Sepúlveda assembled a crew and operated out of rental homes and apartments in Bogotá. He had a rotating group of 7 to 15 hackers brought in from across Latin America, drawing on the various regions’ specialties. Brazilians, in his view, develop the best malware. Venezuelans and Ecuadoreans are superb at scanning systems and software for vulnerabilities. Argentines are mobile intercept artists. Mexicans are masterly hackers in general but talk too much. Sepúlveda used them only in emergencies.

     

    Chávez won but died five months later of cancer, triggering an emergency election, won by Nicolás Maduro. The day before Maduro claimed victory, Sepúlveda hacked his Twitter account and posted allegations of election fraud. Blaming “conspiracy hackings from abroad,” the government of Venezuela disabled the Internet across the entire country for 20 minutes.

     

    Sepúlveda didn’t like the idea of working in Mexico, a dangerous country for involvement in public life. But Rendón persuaded him to travel there for short trips, starting in 2008, often flying him in on his private jet. Working at one point in Tabasco, on the sweltering Gulf of Mexico, Sepúlveda hacked a political boss who turned out to have connections to a drug cartel. After Rendón’s security team learned of a plan to kill Sepúlveda, he spent a night in an armored Chevy Suburban before returning to Mexico City.

     

    Early polls showed Peña Nieto 20 points ahead, but his supporters weren’t taking chances. Sepúlveda’s team installed malware in routers in the headquarters of the PRD candidate, which let him tap the phones and computers of anyone using the network, including the candidate. He took similar steps against PAN’s Vázquez Mota. When the candidates’ teams prepared policy speeches, Sepúlveda had the details as soon as a speechwriter’s fingers hit the keyboard. Sepúlveda saw the opponents’ upcoming meetings and campaign schedules before their own teams did.

     

    Money was no problem. At one point, Sepúlveda spent $50,000 on high-end Russian software that made quick work of tapping Apple, BlackBerry, and Android phones. He also splurged on the very best fake Twitter profiles; they’d been maintained for at least a year, giving them a patina of believability.

     

    Just about anything the digital dark arts could offer to Peña Nieto’s campaign or important local allies, Sepúlveda and his team provided. On election night, he had computers call tens of thousands of voters with prerecorded phone messages at 3 a.m. in the critical swing state of Jalisco. The calls appeared to come from the campaign of popular left-wing gubernatorial candidate Enrique Alfaro Ramírez. That angered voters—that was the point—and Alfaro lost by a slim margin. In another governor’s race, in Tabasco, Sepúlveda set up fake Facebook accounts of gay men claiming to back a conservative Catholic candidate representing the PAN, a stunt designed to alienate his base. “I always suspected something was off,” the candidate, Gerardo Priego, said recently when told how Sepúlveda’s team manipulated social media in the campaign.

     

    In 2012, Colombian President Juan Manuel Santos, Uribe’s successor, unexpectedly restarted peace talks with the FARC, hoping to end a 50-year war. Furious, Uribe, whose father was killed by FARC guerrillas, created a party and backed an alternative candidate, Oscar Iván Zuluaga, who opposed the talks.

     

    Rendón, who was working for Santos, wanted Sepúlveda to join his team, but Sepúlveda turned him down. He considered Rendón’s willingness to work for a candidate supporting peace with the FARC a betrayal and suspected the consultant was going soft, choosing money over principles. Sepúlveda says he was motivated by ideology first and money second, and that if he wanted to get rich he could have made a lot more hacking financial systems than elections. For the first time, he decided to oppose his mentor.

     

    Sepúlveda went to work for the opposition, reporting directly to Zuluaga’s campaign manager, Luis Alfonso Hoyos. (Zuluaga denies any knowledge of hacking; Hoyos couldn’t be reached for comment.) Together, Sepúlveda says, they came up with a plan to discredit the president by showing that the guerrillas continued to traffic in drugs and violence even as they talked about peace. Within months, Sepúlveda hacked the phones and e-mail accounts of more than 100 militants, including the FARC’s leader, Rodrigo Londoño, also known as Timochenko. After assembling a thick file on the FARC, including evidence of the group’s suppression of peasant votes in the countryside, Sepúlveda agreed to accompany Hoyos to the offices of a Bogotá TV news program and present the evidence.

     

    It may not have been wise to work so doggedly and publicly against a party in power. A month later, Sepúlveda was smoking on the terrace of his Bogotá office when he saw a caravan of police vehicles pull up. Forty black-clad commandos raided the office to arrest him. Sepúlveda blamed his carelessness at the TV station for the arrest. He believes someone there turned him in. In court, he wore a bulletproof vest and sat surrounded by guards with bomb shields. In the back of the courtroom, men held up pictures of his family, making a slashing gesture across their throats or holding a hand over their mouths—stay silent or else. Abandoned by former allies, he eventually pleaded guilty to espionage, hacking, and other crimes in exchange for a 10-year sentence.

     

    Three days after arriving at Bogotá’s La Picota prison, he went to the dentist and was ambushed by men with knives and razors, but was saved by guards. A week later, guards woke him and rushed him from his cell, saying they had heard about a plot to shoot him with a silenced pistol as he slept. After national police intercepted phone calls revealing yet another plot, he’s now in solitary confinement at a maximum-security facility in a rundown area of central Bogotá. He sleeps with a bulletproof blanket and vest at his bedside, behind bombproof doors. Guards check on him every hour. As part of his plea deal, he says, he’s turned government witness, helping investigators assess possible cases against the former candidate, Zuluaga, and his strategist, Hoyos. Authorities issued an indictment for the arrest of Hoyts  but according to Colombian press reports he’s fled to Miami.

     

    In July 2015, Sepúlveda sat in the small courtyard of the Bunker, poured himself a cup of coffee from a thermos, and took out a pack of Marlboro cigarettes. He says he wants to tell his story because the public doesn’t grasp the power hackers exert over modern elections or the specialized skills needed to stop them. “I worked with presidents, public figures with great power, and did many things with absolutely no regrets because I did it with full conviction and under a clear objective, to end dictatorship and socialist governments in Latin America,” he says. “I have always said that there are two types of politics—what people see and what really makes things happen. I worked in politics that are not seen.”

     

    Last year, based on anonymous sources, the Colombian media reported that Rendón was working for Donald Trump’s presidential campaign. Rendón calls the reports untrue. The campaign did approach him, he says, but he turned them down because he dislikes Trump. “To my knowledge we are not familiar with this individual,” says Trump’s spokeswoman, Hope Hicks. “I have never heard of him, and the same goes for other senior staff members.” But Rendón says he’s in talks with another leading U.S. presidential campaign—he wouldn’t say which—to begin working for it once the primaries wrap up and the general election begins.

    Now I wonder…who might that be?

    Screen Shot 2016-04-01 at 3.34.42 PM

     

    As we concluded prevously, we are living in a world in which a handful of high-tech companies, sometimes working hand-in-hand with governments, are not only monitoring much of our activity, but are also invisibly controlling more and more of what we think, feel, do and say. The technology that now surrounds us is not just a harmless toy; it has also made possible undetectable and untraceable manipulations of entire populations – manipulations that have no precedent in human history and that are currently well beyond the scope of existing regulations and laws. The new hidden persuaders are bigger, bolder and badder than anything Vance Packard ever envisioned. If we choose to ignore this, we do so at our peril

  • "The Coming War Will Solve Our Unemployment & Growth Problem"

    Submitted by Carmen Elena Dorobat via The Mises Institute,

    On the eve of World War II, Keynes delivered the following chilling address on the BBC, talking about the "grand experiment" of curing unemployment through war expenditure:

    Two years later to the day, in a lecture delivered shortly after his arrival in the U.S., Mises described what the great experiment really looked like:

    We are witnesses to the most frightful and phenomenal occurrence in human history: the decay of Western civilization.

     

    London, one of the centers of this civilization… is almost completely destroyed. The buildings of the Parliament of Westminster are in ruins; the House of Commons holds its assemblies in the catacombs. […] 

     

    The theater of war is spreading, and the day seems not distant when peace will have lost its last refuge. It is a moral and material collapse without precedent.

    Are we really set to revisit this disgusting Keynesian Endgame once again?

    A similar situation had occurred in the US in the 1930’s.

     

    What solved the question? War! Because World War II had occurred during the 1940’s and that became the solution for the United States. So, let’s look at the entrepreneurs in Japan. They are stuck with the deflationary mindset.

     

    They have to switch their mindset and should start making capital investments. We are looking for the trigger.

  • Chicago Disintegrates – Gun Shootings Soar An Unprecedented 89%: "It's The Struggling Economy"

    While the Obama administration has been vocal about its intentions to limit access to guns for Americans across the nation, in the process achieving the opposite and leading to record gun sales, FBI firearm background checks that just hit an all time high for the month of March…

    … and record stock prices of US gun makers such as Smith and Wesson, perhaps it should focus on what has become the epicenter of ground zero for violence and gun homicides in the US: Obama’s “home town” of Chicago.

    According to a CNN report, gun violence in the windy city is on track to post its worst year in the 21st century, the result of an unprecedented surge in gun deaths in the first three months of the year.  By March 31, 141 people had been killed, according to the Chicago Police Department. On Thursday, eight were shot and two of them died in one hour alone, Chicago Police said.

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

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

     

    Overall, shootings have also skyrocketed. According to data provided by Chicago police, the number of shootings in the first three months of the year jumped from 359 in 2015 to 677 in 2016 – an 88.5% increase.

     

    The result are countless stores of personal tragedy. For example, eighty-year-old Betty Johnson has lived in Chicago’s Roseland neighborhood since 1968. She raised two children and several grandchildren on the city’s far south side, where she has lived her entire life.

    After her granddaughter Sabrina was killed in a car accident in 2008, Johnson gained full custody of her great-grandson Andre Taylor.

    She looked on proudly as he busied himself with swimming, football and karate. She knew the dangers someone his age faced if he spent too much time on the streets of Chicago.

     

    On a Sunday night in March, her worst nightmare was realized. Andre, 16, was shot in the head and killed just a block from his home.

     

    “It has gotten much worse out here,” Johnson says, standing outside her home and looking out onto the streets she knows so well.

    There was gang violence when Johnson was growing up, “but you never heard anything like what’s going on today,” she says.

    And it’s getting worse. Another example is 14 year old Tyjuan Poindexter.

    Michael Gabb knows the pain Betty Johnson feels all too well. He helped raise his grandson Tyjuan Poindexter. The 14-year-old had never been in serious trouble, and Gabb was raising him in his home in the Kenwood neighborhood.

     

    He believes Tyjuan was mistaken for a gang member when he was killed in a drive-by shooting just a few blocks from his home. Gabb told CNN six months ago he was hopeful police would find the people responsible. Mayor Rahm Emanuel even paid a visit to Gabb’s home to offer his condolences.

     

    Almost six months later, Gabb is still hopeful his grandson’s killer will be found. But he thinks it may only happen if someone steps forward with information.

     

    He hopes things can change so others don’t suffer the same fate as his grandson. But how that change will occur and what’s causing the violence is something difficult to narrow down to one definitive explanation.

     

    Gabb, like many residents and advocates throughout the city, agree that there are several contributing factors; some old, some new.

    What is perplexing is that even the ordinary people are getting it: “I think it’s got something to do with economics,” Gabb says of the continued shootings. As CNN adds, most residents say communities continue to suffer from an economy that is nowhere strong enough to keep at-risk youths from looking for financial support in the wrong places.

    “There’s not enough money to sustain certain families and people go into drugs,” Gabb says.

    However, and very sadly, it is none other than the president who insists that anyone suggesting the US economy is in dire shape is “peddling fiction.” In other words, classic denial of what is happening in his own back yard.

    It’s hard for longtime community pastor Ira Acree to watch. He has been serving the Austin community on Chicago’s West Side for 26 years.

    “It’s horrifying,” he says. “It’s horrifying to look at the numbers from this winter, because if it’s that bad in the winter, we better brace for a long, hot summer.“

    And since it is indeed the economy’s fault, it is about to get much worse. Acree, like Gabb, believes the struggling economy in many communities is a big part of the problem.

    “All of the violence is rooted in the illegal drug economy,” Acree says. “Many guys have allowed their economic desperation to cause them to resort to these measures. The economy is terrible, especially in African-American neighborhoods.”

    Acree says the violence is the worst he’s seen since the 1990s, and he’d like to see a state of emergency declared for wide areas of the city by President Barack Obama, who called Chicago home for so many years.

    The lament is one heard across most poor areas in the US: “I’m hoping that some money is invested in some job creation. We bailed out Wall Street, why not bail out Main Street? It would make a world of difference,” Acree says.

    “If you really want to stop this epidemic of violence, the best way to stop a bullet is with a job.“

    Which is odd, because according to the BLS, jobs across the US are growing at a brisk pace of over 200K per month.

    What is rarely mentioned, however, is the true state of affairs even for those with jobs, according to which the net income of virtually every social group of Americans has devolved dramatically in recent years. As a recent Pew survey showed, by 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent. This change in the expenditure-to-income ratio in the years following the financial crisis is a clear indication of why and how households feel financially strained. 

     

    But that will be ignored as the myth of a recovery has to be perpetuated at all costs.

    Meanwhile Chicago is disintegrating and as long as the culture of denial persists, there is no hope. The local residents know it too.

    Jahmal Cole, 32, grew up in the city of North Chicago, about 45 miles from Chicago’s South Side. But in 2007, he moved to the Chatham neighborhood on the South Side, one of the toughest, to help young kids most at risk of falling prey to gangs and drugs.

    “I think that we’ve developed a mentality in Chicago — we see ourselves part of the North Side, South Side,” Cole says.

    If they tried to learn from others, or immerse themselves in other opportunities, Cole believes lives could be changed. His nonprofit organization, My Block, My Hood, My City, is dedicated to providing young people with opportunities to see things they don’t even know exist.

    “They don’t know what’s available,” he adds. “They don’t know the museum is open Tuesday nights. Many of these kids have never even seen the lakefront in their entire life.” Many will never see a lifestyle different from one where squad cars are part of the norm and the constant hovering of police helicopters is more known than a YMCA. It’s a way of life he views as “traumatizing” to the children and part of a cycle he is trying to break.

    He knows there isn’t one easy fix: “I don’t think there’s a program a policy or a resolution that’s going to solve violence in Chicago,” Cole says. He believes many teens and residents suffer from what he calls “poverty of imagination.” Cole hopes to bring new experiences to one child at a time and hopes that will make a difference.

    But for Betty Johnson, as she stands outside her longtime home, thinking about all of the years she’s lived in Chicago, there isn’t as much hope as there is sadness anymore.

    “I feel sorry for all of these young kids coming up today,” she says. Johnson wishes she could do more to save her other grandkids from the streets of Chicago and from the same fate as her great-grandson Andre.

    “If I wasn’t so old, I’d take the other grandkids that are living with me and go so far up in the country, it would take three hours to get to me,” she says. “It’s just so bad that this is the way we have to live.”

    Meanwhile, anyone who dares to expose the naked, if heavily armed emperor, will continue to be accused by those tasked with fixing the economy for all, not just for the 1%, as perpetuating the peddling of fiction. Sadly, it may be the ultimate disintegration of this city that forces the administration, either the current one or the next one, to wake from its stupor.

    Until then, thousands more will die.

  • A "Generational" Peak In Corporate Profit Margins

    Submitted by Jesse Felder via TheFelderReport.com,

    Over the past few years I’ve written a fair amount about the record-high levels of corporate profit margins. I’ve been focused on this topic because corporate earnings are one of the most popular ways to value equities thus the sustainability of record-high profit margins should be an issue of great concern to investors. If profit margins revert to historical averages, earnings-based valuation measures investors are using to justify investment in equities today could quickly go against them making stocks appear much more expensive than they do currently. And this process may now be underway.

    fredgraph.jpg-2

    To the point of mean reversion in profit margins, in the past I have referenced the words of a pair of investment legends. Jeremy Grantham has called profit margins, “the most mean-reverting series in finance.” And back in 1999, Warren Buffett explained why:

    In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be competition, which is alive and well. In addition, there’s a public-policy point: If corporate investors, in aggregate, are going to eat an ever-growing portion of the American economic pie, some other group will have to settle for a smaller portion. That would justifiably raise political problems—and in my view a major reslicing of the pie just isn’t going to happen.

    Both of these two gentlemen clearly believe, and very strongly, that corporate profit margins have an equilibrium. They can rise above or fall below that equilibrium but the very nature of capitalism, along with its social contract, will force an inevitable reversion to the mean.

    I believe there are three major factors behind the recent bubble in corporate profit margins.

    First, and most obvious, is the simple trend in interest rates over the past 35 years or so. As rates have fallen to lows not seen in many generations, debt has become much less costly, especially when you also consider that corporate spreads on top of these ultra-low rates have also fallen to ultra-low levels.

    fredgraph.jpg-2

    Second, corporate taxes as a percent of income have been falling for a long time, as well. Recently, this may be due in large part to the growth of tax avoidance strategies, mainly those involving relocating corporate headquarters to tax havens.

    fredgraph.jpg-3

    Third, labor costs have also been falling for quite some time. Much of this may be due to the trend toward automation and, perhaps far more so, the offshoring of labor over the past several decades. This falling corporate cost is very apparent in the labor share of income numbers that many have discussed recently, including Paul Tudor Jones.

    fredgraph.jpg

    These three secular trends have provided a tailwind for profit margins for a long time now. However, they may be reaching, or have already reached, their full potential and begun reverting. In terms of interest rates, the Fed Funds rate has essentially been stuck at zero for seven years now. Corporate spreads hit rock bottom almost two years ago and have been reversing course ever since. Furthermore, after a long period of deregulation in the banking industry that saw lending standards loosen considerably, it appears that regulation is making a sustained comeback and the effect will likely be just the opposite.

    Politically, corporations are finding it increasingly difficult to defend their use of tax avoidance schemes. Politicians have been squawking about this for a long time but it now appears as if they are ready to actually do something about it. More and more companies are reporting growing political risk in this regard as new legislation is being introduced in a variety of countries to combat it.

    Finally, the trend toward offshoring looks to be in the process of reversing as overseas labor costs rise and companies focus more and more on the potential quality and branding benefits of, “reshoring.” Google trends shows a surge in the popularity of this search term in recent years.

    Screen Shot 2016-03-29 at 4.18.21 PM

    So I agree with Grantham and Buffett that profit margins are very likely to continue to revert to their historical mean, driven by the natural forces of capitalism, and its social contract. And this will most likely be seen in either the rising cost of debt, taxes or labor, or perhaps all three.

    In the short-term, history suggests the current profits recession very likely will lead to an economic recession accompanied by a bear market. In fact, profit margin peaks regularly lead major stock market peaks and profit margins peaked this cycle about four years ago already. In addition, the recent fall in earnings and profit margins is already beginning to damage those earnings-based valuation measures. The S&P 500 now trades at its highest price-to-earnings ratio since the bull market began even as the index remains well off its recent price highs. And profit margins still could have a long way to fall before even reaching their average level since 1950.

    Longer-term, if these new secular trends working against profit margins are to remain in place, earnings growth will be much harder to come by for corporate America than it has been over the past few decades. And there are plenty of signs it is already becoming very difficult for them. Corporate cash flow has essentially been flat for the past five years. At the same time, more and more companies recently have resorted to financial engineering via buybacks, non-GAAP reporting and even outright fraud. My guess is this is all in an attempt to make up for broadly slowing organic profit growth due the these secular tailwinds shifting to headwinds.

    Should these shifts actually turn out to be longer-term secular trends, they pose a great risk to equities in both the short-term and the long-term. Falling profit margins and rising valuations (as earnings fall) make for a pretty bearish one-two punch for the stock market. I can’t imagine investors being very eager to pay higher valuations for companies growing more slowly. That equation usually works in reverse. And there’s no reason I can see to expect these challenges to corporate profit margins to let up any time soon.

  • Wikileaks Reveals IMF Plan To "Cause A Credit Event In Greece And Destabilize Europe"

    One of the recurring concerns involving Europe’s seemingly perpetual economic, financial and social crises, is that these have been largely predetermined, “scripted” and deliberate acts.

    This is something the former head of the Bank of England admitted one month ago when Mervyn King said that Europe’s economic depression “is the result of “deliberate” policy choices made by EU elites.  It is also what AIG Banque strategist Bernard Connolly said back in 2008 when laying out “What Europe Wants“

    To use global issues as excuses to extend its power:

    • environmental issues: increase control over member countries; advance idea of global governance
    • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
    • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
    • EMU: create a crisis to force introduction of “European economic government”

    This morning we got another confirmation of how supernational organizations “plan” European crises in advance to further their goals, when Wikileaks published the transcript of a teleconference that took place on March 19, 2016 between the top two IMF officials in charge of managing the Greek debt crisis – Poul Thomsen, the head of the IMF’s European Department, and Delia Velkouleskou, the IMF Mission Chief for Greece.

    In the transcript, the IMF staffers are caught on tape planning to tell Germany the organization would abandon the troika if the IMF and the commission fail to reach an agreement on Greek debt relief. 

    More to the point, the IMF officials say that a threat of an imminent financial catastrophe as the Guardian puts it, is needed to force other players into accepting its measures such as cutting Greek pensions and working conditions, or as Bloomberg puts it, “considering a plan to cause a credit event in Greece and destabilize Europe.”

    According to the leaked conversation, the IMF – which has been pushing for a debt haircut for Greece ever since last August’s 3rd Greek bailout – believes a credit event as only thing that could trigger a Greek deal; the “event” is hinted as taking place some time around the June 23 Brexit referendum.

    As noted by Bloomberg, the leak shows officials linking Greek issue with U.K. referendum risking general political destabilization in Europe.

    The leaked transcript reveals how the IMF plans to use Greece as a pawn in its ongoing negotiation with Germany’s chancelleor in order to achieve the desired Greek debt reduction which Germany has been pointedly against: in the leak we learn about the intention of IMF to threaten German Chancellor Angela Merkel to force her to accept the IMF’s demands at a critical point.

    From the transcript:

    THOMSEN: Well, I don’t know. But this is… I think about it differently. What is going to bring it all to a decision point? In the past there has been only one time when the decision has been made and then that was when they were about to run out of money seriously and to default. Right?

     

    VELKOULESKOU: Right!

     

    THOMSEN: And possibly this is what is going to happen again. In that case, it drags on until July, and clearly the Europeans are not going to have any discussions for a month before the Brexits and so, at some stage they will want to take a break and then they want to  start again after the European referendum.

     

    VELKOULESKOU: That’s right.

     

    THOMSEN: That is one possibility. Another possibility is one that I thought would have happened already and I am surprised that it has not happened, is that, because of the refugee situation, they take a decision… that they want to come to a conclusion. Ok? And the Germans raise the issue of the management… and basically we at that time say “Look, you Mrs. Merkel you face a question, you have to think about what is more costly: to go ahead without the IMF, would the Bundestag say ‘The IMF is not on board’? or to pick the debt relief that we think that Greece needs in order to keep us on board?” Right? That is really the issue.

     

    * * *

     

    VELKOULESKOU: I agree that we need an event, but I don’t know what that will be. But I think Dijsselbloem is trying not to generate an event, but to jump start this discussion somehow on debt, that essentially is about us being on board or not at the end of the day.

     

    THOMSEN: Yeah, but you know, that discussion of the measures and the discussion of the debt can go on forever, until some high up.. until they hit the July payment or until the leaders decide that we need to come to an agreement. But there is nothing in there that otherwise is going to force a compromise. Right? It is going to go on forever.

    The IMF is also shown as continuing to pull the strings of the Greek government which has so far refused to compromise on any major reforms, as has been the case since the first bailout.

    As the Guardian notes, Greek finance minister Euclid Tsakalotos has accused the IMF of imposing draconian measures, including on pension reform. The transcript quotes Velculescu as saying: “What is interesting though is that [Greece] did give in … they did give a little bit on both the income tax reform and on the … both on the tax credit and the supplementary pensions”. Thomsen’s view was that the Greeks “are not even getting close [to coming] around to accept our views”. Velculescu argued that “if [the Greek government] get pressured enough, they would … But they don’t have any incentive and they know that the commission is willing to compromise, so that is the problem.”

    Below is Paul Mason’s summary of what is shaping up as the next political scandal.

    The International Monetary Fund has been caught, red handed, plotting to stage a “credit event” that forces Greece to the edge of bankruptcy, using the pretext of the Brexit referendum.

     

    No, this is not the plot of the next Bond movie. It is the transcript of a teleconference between the IMF’s chief negotiator, Poul Thomsen and Delia Velculescu, head of the IMF mission to Greece. 

     

    Released by Wikileaks, the discussion took place in Athens just before the IMF walked out of talks aimed at giving Greece the green light for the next stage of its bailout.

     

    The situation is: the IMF does not believe the numbers being used by both Greece and Europe to do the next stage of the deal. It does not want to take part in the bailout. Meanwhile the EU cannot do the deal without the IMF because the German parliament won’t allow it.

     

    * * *

     

    Let me decode. An “event” is a financial crisis bringing Greece close to default. Just like last year, when the banks closed, millions of people faced economic and psychological catastrophe.

     

    Only this time, the IMF wants to inflict that catastrophe on a nation holding tens of thousands of refugees and tasked with one of the most complex and legally dubious international border policing missions in modern history.

     

    The Greek government is furious: “we are not going to let the IMF play with fire,” a source told me.

     

    But the issue is out of Greek hands. In the end, as Thomsen hints in the transcript, only the European Commission and above all the German government can decide to honour the terms of the deal it did to bail Greece out last July.

     

    The transcript, though received with fury and incredulity in Greece, will drop like a bombshell into the Commission and the ECB. It is they who are holding E300bn+ of Greek debt. It is the whole of Europe, in other words, that the IMF is conspiring to hit with the shock doctrine.

    The Greeks are understandably angry and confused; As Bloomberg reported earlier, “Greece wants to know whether WikiLeaks report regarding IMF anticipating a Greek default at about the time of the U.K. June 23 referendum on its EU membership is the fund’s official position” government spokeswoman Olga Gerovasili says Saturday in e-mailed statement.  For its part, an IMF spokesman in e-mail Saturday said it doesn’t “comment on leaks or supposed reports of internal discussions.”

    Two side observations:

    1. has a “Snowden” leaker now emerged at the IMF; if so we can expect many more such bombshell accounts in the coming weeks; or perhaps the reason for the leak is less nuanced: a bugged hotel.

    2. it may be another turbulent summer in Europe.

    Source

  • "We Won The Votes, They're Trying To Steal Them" Trump Urges Tennesseans To Crash Establishment Party

    Building on the worst two week-period of his campaign, Donald Trump took to Twitter overnight to implore his Tennessean supporters to rise up, raging that the state’s Republican Party was "trying to steal" his delegates and urging them to crash a party meeting on Saturday morning to stop them – "We won the votes. They are trying to steal them. I can’t believe I am writing this. But the Tennessee Republican Party wants to steal your vote TOMORROW." As Politico reports Establishment leaders, alarmed by an intensifying backlash, have hired extra security for the event.

    It's been a tough couple of weeks for Trump, as The Establishment's full court press has narrowed his lead over Cruz…

     

    And now he is fighting back as Politico reports, Tennesse GOP establishmentarians prepare to assign delegates for a state he won strongly,

    Morris urged supporters to crash the party's 10 a.m. Saturday executive committee meeting by arriving a half-hour in advance. “There is a small group of Tennessee establishment insiders pulling a fast one. DON’T LET THIS HAPPEN,” he wrote.

    Party leaders, alarmed by an intensifying backlash throughout the night, have hired extra security for the event — which party chairman Ryan Haynes noted had been scheduled to take place in a small, unsecured conference room — and they're considering canceling the event altogether.

    "We've seen what's happened at other events around the country," Haynes said, referencing spurts of violence at some Trump campaign rallies. "The last thing we'd want to see is something get disorderly.”

     

    Added Haynes, "We've been in contact with individuals in law enforcement here in Tennessee.”

    The skirmish is the latest in the increasingly fierce battle for delegates to the Republican National Convention in Cleveland.

    At issue are the state’s 14 at-large delegates that were not assigned in the March 1 primary but are set to be selected by the party’s executive committee. Trump won the Tennessee primary and many of the delegates were directly elected at that time. Morris wrote that Trump’s campaign had struck a deal with party leaders on Wednesday to fill the remaining at-large slots with Trump’s share of the vote.

     

    Haynes said Morris exploded earlier in the week when the party informed the campaign they'd only get six of their seven delegate choices at Saturday's meeting. Tennessee's GOP rules give the party the ultimate authority to name delegates, though it usually accepts input from the campaigns.

     

    "They informed us that they did not care about party procedures. They don't care about the Republican Party," Haynes said.

     

    Haynes added that on Friday, the list of delegates changed again and only four of Trump's original seven requests were included, prompting Morris' scathing call to supporters.

     

    “The State Party Chairman, Ryan Haynes, agreed to that ON WEDNESDAY,” Morris wrote. “Those pulling his puppet strings changed his mind and now apparently he wants to appoint delegates representing candidates who don’t support Donald Trump and WHO DID NOT RECEIVE ANY ALLOCATED DELEGATES on March 1.”

    One state executive committee member, Scott Smith, rebutted the Trump campaign's allegations in an email, saying that the root of the conflict is the fact that some of Trump's Tennessee supporters "depend on threats, manipulation, outlandish accusations and behavior."

  • U.S. Oil Production to Drop to 5 Million Barrels Per Day over Next 12 Months (Video)

    By EconMatters

    With the amazing drop in Oil Rigs just over the last two months, the pain for U.S. Oil Producers is just getting started, expect U.S. Oil Production to start dropping off a cliff. We delve into the Oil Data metrics as to why April, May and June are strong months to be invested from the long side in the Oil Market – the seasonally strong part of the market from a demand perspective.

     

     

     

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Apr 02

Today’s News 2nd April 2016

  • Trump's 1990 Playboy Interview: "We Are Being Laughed At Around The World…"

    While The Donald may come across as 'shooting from the hip', it appears based on this 1990 interview with Playboy that Trump has been thinking about the decline of America, the weakness and corruption of government, and the impact of foreign (Chinese, Mexican, and Japanese) trade practices on the average joe. As he says, "I don’t want to be President. I’m one hundred percent sure. I’d change my mind only if I saw this country continue to go down the tubes."

    This interview ran in the March 1990 issue of Playboy magazine.

    Via Playboy.com,

    You aren’t known for being shy at promotion; let’s start by playing a little game. Trump Tower is ______?
    The finest residential building anywhere.

    The Taj Mahal in Atlantic City is going to be ______?
    The most spectacular hotel-casino anywhere in the world.

    And the Trump Shuttle will be ______?
    Easily the number-one service to Washington and Boston.

    Your apartment sales are ______?
    The best. Trump Tower and Trump Parc have seventy percent of the top sales in New York per square foot.

    Why?
    Simple: People know they’re going into a building where no expense is spared, where the level of materials and finishes will be the best, where the location will be the best. Many European and Japanese investors literally give their subordinates instructions to buy apartments only in Trump buildings. A Japanese investor just paid me twenty million bucks for seven apartments he’s turning into one.

    OK. But here we are at the start of a new decade. How do you respond when people call you ostentatious, ego-ridden and a greedy symbol of the Eighties?
    Rich men are less likely to like me, but the working man likes me because he knows I worked hard and didn’t inherit what I’ve built. Hey, I made it myself; I have a right to do what I want with it.

    With so much poverty on the city streets, isn’t it embarrassing for you to flaunt your wealth?

    There has always been a display of wealth and always will be, until the depression comes, which it always does. And let me tell you, a display is a good thing. It shows people that you can be successful. It can show you a way of life. Dynasty did it on TV. It’s very important that people aspire to be successful. The only way you can do it is if you look at somebody who is.

    And for you, sitting snugly inside the one hundred and eighteen rooms of your Palm Beach mansion– People understand that the house in Florida is business. I use it very seldom. I could be happy living in a studio apartment.

    Oh, come on.
    I mean it; the houses, the planes and the boat are just investments. I paid twenty-nine million dollars for the Khashoggi yacht; two years later, I’ll be selling it for more than one hundred million dollars and getting a bigger one.

    Why in the world do you need a bigger yacht?
    I don’t. But the Khashoggi boat is worth more only if I sell it. This new one will–believe it or not–be even more spectacular and bring tremendous acclaim to Trump properties in Atlantic City.

    What is it that attracts you to all this glitz?
    I have glitzy casinos because people expect it; I’m not going to build the lobby of the IBM office building in Trump Castle. Glitz works in Atlantic City, and yet the Plaza Hotel has been brought back to its original elegance of 1907. So I don’t use glitz in all cases. And in my residential buildings, I sometimes use flash, which is a level below glitz.

    Then what does all this–the yacht, the bronze tower, the casinos–really mean to you?
    Props for the show.

    And what is the show?
    The show is “Trump” and it is sold-out performances everywhere. I’ve had fun doing it and will continue to have fun, and I think most people enjoy it.

    Do you think the ones who hate it are jealous?
    They could be whatever–but the vast majority dig it.

    Calvin Klein, who doesn’t have a fraction of your wealth, has often said he feels guilty about his. Do you? It’s not overriding, but I do have it.

    You don’t sound guilty at all.
    I do have a feeling of guilt. I’m living well and like it, I know that many other people don’t live particularly well. I do have a social consciousness. I’m setting up a foundation; I give a lot of money away and I think people respect that. The fact that I built this large company by myself–working people respect that; but the people who are at high levels don’t like it. They’d like it for themselves.

    Do you see yourself as greedy?
    I don’t think I’m greedy. If I were, I wouldn’t give to charities. I run the Wollman Skating Rink in New York City for nothing and I gave away the royalties from my book. I give millions for charity each year. If I were really greedy….

    You mean like Leona Helmsley, the convicted hotel queen?
    Yes, like Leona Helmsley. She is a vicious, horrible woman who systematically destroyed the Helmsley name. I know Leona better than anybody does but Harry [Helmsley]. If Harry had one fault, it was giving her too much leeway.

    When I was twenty, Harry was the big guy in town. I once drove my car down the street in Manhattan, saw him at a corner, stopped and introduced myself and offered him a ride. When I pulled over on the left side of the street, with traffic on the right, he asked me to get out of the car so he could get out on the left side. I thought to myself, This is a highly conservative guy. He never would have evaded taxes on his own. But Leona pushed and pushed him. He needed that money like you need fifty-six cents in your pockets, I’m telling you.

    Also, Leona was not a great business-woman but a very bad one. She sold me the St. Moritz Hotel and a few years later, I made more than a hundred million dollars on it. She ran that hotel badly. She set the women’s movement back fifty years. She is a living nightmare, and to be married to her must be like living in hell.

    On the other hand, your wife, Ivana, is doing a great job running the Plaza, right?
    Well, I have told Ivana, “Whatever Leona would do, do the opposite. [Laughs] Be nice to everybody.” And she is nice, anyway.

    Was it simple greed with Leona?
    Much more than greed. She’s out of her mind. Leona Helmsley is a truly evil human being. She treated employees worse than any human being I’ve ever witnessed and I’ve dealt with some of the toughest human beings alive

    What do you do to stay in touch with your employees?
    I inspect the Trump Tower atrium every morning. Walk into it … it’s perfect; everything shines. I go down and raise hell in a nice way all the time because I want everything to be absolutely immaculate. I’m totally hands-on. I get along great with porters and maids at the Plaza and the Grand Hyatt.

    I’ve had bright people ask me why I talk to porters and maids. I can’t even believe that question. Those are the people who make it all work…. If they like me, they will work harder … and I pay well.

    You lost some valued employees in a recent helicopter crash.
    Yes. I lost not only brilliant, key players in my company but true friends–and I couldn’t believe it. At first, I was shocked, called their wives, just kept functioning…. My own sense of optimism and life was greatly diminished. I never realized how deaths outside the family could have such a profound effect on me.

    What did you think when the shock wore off?
    [Pauses] It’s a tragic waste. I was also angry in that it was an event that I didn’t want to happen. Here was this press conference, a very mediocre event announcing a minor boxing match. I told these guys that they didn’t need to go, but they wanted to be there…. They gave their lives for something so unimportant. It’s been a rough time. [Pauses]

    What do you think of rich people in general?
    Rich people are great survivors and, by nature, they fall into two categories–those who have inherited and those who’ve made it. Those who have inherited and chosen not to do anything are generally very timid, afraid of losing what they’ve got, and who can blame them? Others are great risk takers and produce a hell of a lot more or go bust.

    As Merv Griffin did? After buying Resorts International from you, the company may be facing bankruptcy. What happened there?
    Merv is a good guy who I have really just gotten to know; we were both judges on the Miss America Pageant after our deal. I don’t want to bug him, but prior to buying Resorts, he was telling everybody what a great deal he made and, by inference, what a bad deal Trump made.

    But, in fact, you didn’t make such a bad deal.
    Well, let’s just say he didn’t out-Trump Trump. He has a huge amount of debt. But he is very efficient and has very good PR people. Business Week wrote a story titled How Donald Taught Merv the Art of the Deal. I was angry. And equally angry when People and Time magazines, with no goddamned research and no knowledge, incompetently reported that Merv had bested Donald. Can you imagine? They didn’t do any research. They just listened to PR people. Well, now they know the truth and have asked about following up or correcting stories. I said, “Forget it–it doesn’t matter.”

    What satisfaction, exactly, do you get out of doing a deal?
    I love the creative process. I do what I do out of pure enjoyment. Hopefully, nobody does it better. There’s a beauty to making a great deal. It’s my canvas. And I like painting it.

    I like the challenge and tell the story of the coal miner’s son. The coal miner gets black-lung disease, his son gets it, then his son . If I had been the son of a coal miner, I would have left the damn mines. But most people don’t have the imagination–or whatever–to leave their mine. They don’t have “it.”

    Which is?
    “It” is an ability to become an entrepreneur, a great athlete, a great writer. You’re either born with it or you’re not. Ability can be honed, perfected or neglected. The day Jack Nicklaus came into this world, he had more innate ability to play golf than anybody else.

    You obviously have a lot of self-confidence. How do you use that in a business deal?
    I believe in positive thinking, but I also believe in the power of negative thinking. You should prepare for the worst. If I’m doing a deal, I want to know how bad it’s going to be if everything doesn’t work rather than how good it’s going to be. I have a positive outlook, but I’m unfortunately also quite cynical. So if all the negatives happened, what would my strategy be? Would I want to be in that position? If I don’t, I don’t do the deal. My attitude is to focus on the down side because the up side will always take care of itself. If a deal is going to be great, it’s just a question of, How much am I going to make?

    How far are you willing to push adversaries? I will demand anything I can get. When you’re doing business, you take people to the brink of breaking them without having them break, to the maximum point their heads can handle–without breaking them. That’s the sign of a good businessman: Somebody else would take them fifteen steps beyond their breaking point.

    What if your pushing results in losing the deal?
    Then I pushed him too far. I would have made a mistake. But I don’t. I push to the maximum of what he can stand and I get a better deal than he gets.

    Another aspect of your deal making is how you handle the media. You managed to suppress an unflattering TV documentary about you funded by your archnemesis, [New York businessman and publisher] Leonard Stern. Do you also claim victory over him?
    Total victory, yes. But I don’t want to dwell on triumph or defeat.

    That may sound magnanimous, but, in fact, you’re known to exact revenge on people you think have tried to pull something on you.
    I think I’m fair, not tough, in business. But if somebody is trying to do an injustice to me, I fight back harder than anybody I know. When somebody tries to harm you or your family, you have an absolute right to fight back.

    Do you hate Stern?
    No. Stern is a nonentity to me. He obviously dislikes me enough to spend close to a million dollars trying to make a negative documentary

    You have a lot of enemies in New York City, among them a group that opposes your building a huge Trump City on the Hudson that will include the world’s tallest building–on the theory that it will ruin the West Side and cause unbearable congestion. What do you say to them?
    Point one: There were more people living on the West Side of New York in the Forties than there are today. Very few people understand that. Point two: Trump City is going to be an architectural masterpiece. Point three: The city desperately needs the taxes, the housing and the shopping that will produce billions of dollars in revenue. Yet that community group [West Pride] fights every job.

    Those people fight for the sake of fighting. I honestly believe that if I proposed an eighty-acre park, they would come out and fight me. Selfishly, they like what they have and don’t want to give it to anybody else. We need another Rockefeller Center–especially now that Mitsubishi has bought most of the one we had.

    Among other things, West Pride claims the largest building in the world would cast a mammoth shadow across the West Side, blocking out light and wrecking the ambience of the neighborhood.
    [Angrily] Every building casts a shadow, for God’s sake! I want this job to be dramatic. I strive for that. I don’t want it to be contextual, blending into everything else. It shouldn’t be like getting a haircut and telling the barber I don’t want anyone to know I’ve gotten one. I am competing here with the state of New Jersey, which is sucking the life-blood out of New York City. They’re beating us up. Trump City would take the play away from the development of the New Jersey waterfront. There will be nothing in New York to compete with Trump City!

    So you’re going to build it, come what may?
    I’ll build it, though it may not be now. I’ll wait until things get bad in the city, because every city in every nation has its ups and downs. If I had tried to get the zoning for Trump City in 1975, I would have gotten everything I wanted, because the city was absolutely at a low point. I may now wait for construction to stop, for interest rates to go up–then the city will desperately need Trump City.

    You often say that the key to your success is being a good deal maker and a good manager. Why?
    I’ve seen great deal makers go down the tubes because they haven’t known how to manage what they’ve had. Take [Saudi financier indicted for a felony] Adnan Khashoggi: He was a great deal maker but a bad businessman. Time will tell if Merv is a good manager. He is going to have to be.

    When you were growing up in Queens, your father was supposedly a harsh taskmaster. It has been theorized that your father instilled in you a great sense of inadequacy. True?
    That’s one hundred percent wrong. I was always very much accepted by my father. He adored Donald Trump and I’ve always known that. But I did want to prove to my father and other people that I had the ability to be successful on my own.

    You’ve often said that your father made you work as a teenager and taught you the value of the buck.
    My father never made me work. I liked to work during summers. I don’t understand these teenagers who sit home watching television all day. Where’s their appetite for competition? Working was in my genes.

    Still, your father was one tough son of a bitch, wasn’t he?
    He was a strong, strict father, a no-nonsense kind of guy, but he didn’t hit me. It wasn’t what he’d ever say to us, either. He ruled by demeanor, not the sword. And he never scared or intimidated me.

    Your older brother, Fred, who died from heart failure brought on by acute alcoholism, had a more difficult time with him, didn’t he?
    Take one environment and it will work completely differently on different children. Our family environment, the competitiveness, was a negative for Fred. It wasn’t easy for him being cast in a very tough environment, and I think it played havoc on him.

    I was very close to him and it was very sad when he died … toughest situation I’ve had….

    What did you learn from his experience?
    [Pauses] Nobody has ever asked me that. But his death affected everything that has come after it…. I think constantly that I never really gave him thanks for it. He was the first Trump boy out there, and I subconsciously watched his moves.

    And the lesson?
    I saw people really taking advantage of Fred and the lesson I learned was always to keep up my guard one hundred percent, whereas he didn’t. He didn’t feel that there was really reason for that, which is a fatal mistake in life. People are too trusting. I’m a very untrusting guy. I study people all the time, automatically; it’s my way of life, for better or worse.

    Why?
    I am very skeptical about people; that’s self-preservation at work. I believe that, unfortunately, people are out for themselves. At this point, it’s to many people’s advantage to like me. Would the phone stop ringing, would these people kissing ass disappear if things were not going well?

    I enjoy testing friendship…. Everything in life to me is a psychological game, a series of challenges you either meet or don’t. I am always testing people who work for me.

    How?
    I will send people around to my buyers to test their honesty by offering them trips and other things. I’ve been surprised that some people least likely to accept a trip from a contractor did and some of the most likely did not. You can never tell until you test; the human species is interesting in that way. So to me, friendship can be really tested only in bad times.

    I instinctively mistrust many people. It is not a negative in my life but a positive. Playboy wouldn’t be talking to me today if I weren’t a cynic. So I learned that from Fred, and I owe him a lot…. He could have ultimately been a happy guy, but things just went the unhappy way.

    How large a role does pure ego play in your deal making and enjoyment of publicity?
    Every successful person has a very large ego.

    Every successful person? Mother Teresa? Jesus Christ?
    Far greater egos than you will ever understand.

    And the Pope?
    Absolutely. Nothing wrong with ego. People need ego, whole nations need ego. I think our country needs more ego, because it is being ripped off so badly by our so-called allies; i.e., Japan, West Germany, Saudi Arabia, South Korea, etc. They have literally outegotized this country, because they rule the greatest money machine ever assembled and it’s sitting on our backs. Their products are better because they have so much subsidy.

    We Americans are laughed at around the world for losing a hundred and fifty billion dollars year after year, for defending wealthy nations for nothing, nations that would be wiped off the face of the earth in about fifteen minutes if it weren’t for us. Our “allies” are making billions screwing us.

    How do you feel about Japan’s economic pre-eminence?
    Japan gets almost seventy percent of its oil from the Persian Gulf, relies on ships led back home by our destroyers, battleships, helicopters, frog men. Then the Japanese sail home, where they give the oil to fuel their factories so that they can knock the hell out of General Motors, Chrysler and Ford. Their openly screwing us is a disgrace. Why aren’t they paying us? The Japanese cajole us, they bow to us, they tell us how great we are and then they pick our pockets. We’re losing hundreds of billions of dollars a year while they laugh at our stupidity.

    The Japanese have their great scientists making cars and VCRs and we have our great scientists making missiles so we can defend Japan. Why aren’t we being reimbursed for our costs? The Japanese double-screw the U.S., a real trick: First they take all our money with their consumer goods, then they put it back in buying all of Manhattan. So either way, we lose.

    You’re opposed to Japanese buying real estate in the U.S.?
    I have great respect for the Japanese people and list many of them as great friends. But, hey, if you want to open up a business in Japan, good luck. It’s virtually impossible. But the Japanese can buy our buildings, our Wall Street firms, and there’s virtually nothing to stop them. In fact, bidding on a building in New York is an act of futility, because the Japanese will pay more than it’s worth just to screw us. They want to own Manhattan.

    Of course, I shouldn’t even be complaining about it, because I’m one of the big beneficiaries of it. If I ever wanted to sell any of my properties, I’d have a field day. But it’s an embarrassment, I give great credit to the Japanese and their leaders, because they have made our leaders look totally second rate.

    A group of Japanese visitors to New York was recently asked if there were anything in the U.S. they would like to buy. The answer: towels.
    That’s fair trade: They’ll take the towels and we’ll buy their cars. It doesn’t sound like a good deal to me. They have totally outsmarted the American politician; they have no respect for us, because they’re getting a free ride. Of course, it’s not just the Japanese or the Europeans–the Saudis, the Kuwaitis walk all over us.

    The Arabs also spend plenty of money in your casinos, don’t they?
    They lose a million, two million at the tables and they’re so happy because they had such a great weekend. If you lost a million dollars, you’d be sick for the rest of your life, maybe. They write me letters telling me what a wonderful time they had.

    You have taken out full-page ads in several major newspapers that not only concern U.S. foreign trade but call for the death penalty, too. Why?
    Because I hate seeing this country go to hell. We’re laughed at by the rest of the world. In order to bring law and order back into our cities, we need the death penalty and authority given back to the police. I got fifteen thousand positive letters on the death-penalty ad. I got ten negative or slightly negative ones.

    You believe in an eye for an eye?
    When a man or woman cold-bloodedly murders, he or she should pay. It sets an example. Nobody can make the argument that the death penalty isn’t a deterrent. Either it will be brought back swiftly or our society will rot away. It is rotting away.

    For a man so concerned about our crumbling cities, some would say you’ve done little for crumbling Atlantic City besides pull fifty million dollars a week out of tourists’ pockets.
    Elected officials have that responsibility. I would hate to think that people blame me for the problems of the world. Yet people come to me and say, “Why do you allow homelessness in the cities?” as if I control the situation. I am not somebody seeking office.

    What about using your influence in Atlantic City to help the disadvantaged?
    Everybody has influence, but it is a Governmental problem. I take out those ads to wake up the Government about how Japan and others are ripping our country apart—

    Wait. Doesn’t it seem that with all your influence in Atlantic City you could do more to combat crime and corruption and put something back into the community?
    Well, crime and prostitution go up, and Atlantic City administrations are into very deep trouble with the law, and there are lots of problems there, no question about it. But there is a tremendous amount of money going to housing from the profits of the casinos.

    As somebody who runs hotels, all I can do, when you get right down to it, is run the best places, bring in as much money as possible, which in turn goes out for taxes. I contribute millions a year to various charities. Finally, by law, I’m not allowed to have Governmental influence; but if they passed legislation that allowed me to get more involved, I’d be very happy to do it. In the meantime, I have the most incredible hotels in the world in Atlantic City. The Taj Mahal will be beyond belief. And if I can awaken the government of Atlantic City, I have performed a great service.

    We’ve talked about building low-income housing; what have you done about that in other locations?
    I did that during the years I worked with my father; I did build both low-income housing and housing for the elderly. And now I’m going to be building more of it. The problem is, that stuff never gets written about.

    On the other hand, you were invited to consider building a luxury hotel in Moscow a few years ago. What was your trip to Moscow like?
    It was not long after the Korean plane was shot down over Russia. There I am up in my plane when my pilot announces, “We are now flying over the Soviet Union,” and I’m thinking to myself, What the hell am I doing here?

    Then I look out the window and see two Russian fighter planes … I later found out, guiding us in. I had insisted on having two Russian colonels flying with me–I felt safer, and my pilot doesn’t speak great Russian, which is putting it mildly, and I didn’t want problems in radio communications.

    Once you got to Moscow, how did the negotiations go?
    I told them, “Guys, you have a basic problem. Far as real estate is concerned, it’s impossible to get title to Russian land, since the government owns it all. What kind of financing are you gonna get on a building where the land is owned by the goddamned motherland?”

    They said, “No problem, Mr. Trump. We will work out lease arrangements.”

    I said, “I want ownership, not leases.”

    They came up with a solution: “Mr. Trump, we form a committee with ten people, of which seven are Russian and three are your representatives, and all disputes will be resolved in this manner.”

    I thought to myself, Shit, seven to three–are we dealing in the world of the make-believe here or what?

    What were your other impressions of the Soviet Union?
    I was very unimpressed. Their system is a disaster. What you will see there soon is a revolution; the signs are all there with the demonstrations and picketing. Russia is out of control and the leadership knows it. That’s my problem with Gorbachev. Not a firm enough hand.

    You mean firm hand as in China?
    When the students poured into Tiananmen Square, the Chinese government almost blew it. Then they were vicious, they were horrible, but they put it down with strength. That shows you the power of strength. Our country is right now perceived as weak … as being spit on by the rest of the world—

    Why is Gorbachev not firm enough?
    I predict he will be overthrown, because he has shown extraordinary weakness. Suddenly, for the first time ever, there are coal-miner strikes and brush fires everywhere–which will all ultimately lead to a violent revolution. Yet Gorbachev is getting credit for being a wonderful leader–and we should continue giving him credit, because he’s destroying the Soviet Union. But his giving an inch is going to end up costing him and all his friends what they most cherish–their jobs.

    Besides the real-estate deal, you’ve met with top-level Soviet officials to negotiate potential business deals with them; how did they strike you?
    Generally, these guys are much tougher and smarter than our representatives. We have people in this country just as smart, but unfortunately, they’re not elected officials. We’re still suffering from a loss of respect that goes back to the Carter Administration, when helicopters were crashing into one another in Iran.

    That was Carter’s emblem. There he was, being carried off from a race, needing oxygen. I don’t want my President to be carried off a race course. I don’t want my President landing on Austrian soil and falling down the stairs of his airplane. Some of our Presidents have been incredible jerk-offs. We need to be tough.

    A favorite word of yours, tough. How do you define it?
    Tough is being mentally capable of winning battles against an opponent and doing it with a smile. Tough is winning systematically.

    Sometimes you sound like a Presidential candidate stirring up the voters.
    I don’t want the Presidency. I’m going to help a lot of people with my foundation–and for me, the grass isn’t always greener.

    But if the grass ever did look greener, which political party do you think you’d be more comfortable with?
    Well, if I ever ran for office, I’d do better as a Democrat than as a Republican–and that’s not because I’d be more liberal, because I’m conservative. But the working guy would elect me. He likes me. When I walk down the street, those cabbies start yelling out their windows.

    Another game: What’s the first thing President Trump would do upon entering the Oval Office?
    Many things. A toughness of attitude would prevail. I’d throw a tax on every Mercedes-Benz rolling into this country and on all Japanese products, and we’d have wonderful allies again.

    Would you rescue our remaining hostages in Lebanon?
    Number one, in almost all cases, the hostages were told by our Government not to be there. If a man decides to become a professor at Beirut University, when he was told not to be there, and that person is captured—

    He deserves it?
    You feel very bad for him, but you cannot base foreign policy on his capture. With that being said, when they killed our Colonel Higgins, I would have retaliated militarily immediately. I would have hit something vital to them. And hit it hard. In any other case, I would let the takers of hostages know that they’d have one week to return that hostage. And after that week, all bets would be off. You would not have any more hostages taken, believe me. Weakness always causes problems.

    Do you think George Bush is soft?
    I like George Bush very much and support him and always will. But I disagree with him when he talks of a kinder, gentler America. I think if this country gets any kinder or gentler, it’s literally going to cease to exist. I think if we had people from the business community–the Carl Icahns, the Ross Perots–negotiating some of our foreign policy, we’d have respect around the world.

    What would President Trump’s position on crime be?

    I see the values of this country in the way crime is tolerated, where people are virtually afraid to say “I want the death penalty.” Well, I want it. Where has this country gone when you’re not supposed to put in a grave the son of a bitch who robbed, beat, murdered and threw a ninety-year-old woman off the building? Where has this country gone?

    What would be some of President Trump’s longer-term views of the future?
    I think of the future, but I refuse to paint it. Anything can happen. But I often think of nuclear war.

    Nuclear war?
    I’ve always thought about the issue of nuclear war; it’s a very important element in my thought process. It’s the ultimate, the ultimate catastrophe, the biggest problem this world has, and nobody’s focusing on the nuts and bolts of it. It’s a little like sickness. People don’t believe they’re going to get sick until they do. Nobody wants to talk about it. I believe the greatest of all stupidities is people’s believing it will never happen, because everybody knows how destructive it will be, so nobody uses weapons. What bullshit.

    Does any of that fuzzy thinking exist around the Trump office?
    On a much lower level, I would never hire anybody who thinks that way, because he has absolutely no common sense. He’s living in a world of make-believe. It’s like thinking the Titantic can’t sink. Too many countries have nuclear weapons; nobody knows where they’re all pointed, what button it takes to launch them.

    The bomb Harry Truman dropped on Hiroshima was a toy next to today’s. We have thousands of weapons pointed at us and nobody even knows if they’re going to go in the right direction. They’ve never really been tested. These jerks in charge don’t know how to paint a wall, and we’re relying on them to shoot nuclear missiles to Moscow. What happens if they don’t go there? What happens if our computer systems aren’t working? Nobody knows if this equipment works, and I’ve seen numerous reports lately stating that the probability is they don’t work. It’s a total mess.

    And how would President Trump handle it?
    He would believe very strongly in extreme military strength. He wouldn’t trust anyone. He wouldn’t trust the Russians; he wouldn’t trust our allies; he’d have a huge military arsenal, perfect it, understand it. Part of the problem is that we’re defending some of the wealthiest countries in the world for nothing…. We’re being laughed at around the world, defending Japan—

    Wait. If you believe that the public shares these views, and that you could do the job, why not consider running for President?
    I’d do the job as well as or better than anyone else. It’s my hope that George Bush can do a great job.

    You categorically don’t want to be President?
    I don’t want to be President. I’m one hundred percent sure. I’d change my mind only if I saw this country continue to go down the tubes.

    More locally, one of your least favorite political figures was Mayor Ed Koch of New York. You two had a great time going after each other: He called you “piggy, piggy, piggy” and you called him “a moron.” Why do you suppose he lost the election?
    He lost his touch for the people. He became arrogant. He not only discarded his friends but was a fool for brutally criticizing them. The corruption was merely a symptom of what had happened to him: He had become extremely nasty, mean-spirited and very vicious, an extremely disloyal human being.

    When his friends like Bess Myerson and others were in trouble, he seemed to automatically abandon them, almost before finding out what they’d done wrong. He could think only about his own ass–not the city’s. That was dumb: The only one who didn’t know his administration was crumbling around him was him. Power corrupts.

    You probably have more power than Koch did as mayor. And you’re getting more of it all the time. How about power’s corrupting you?
    I think power sometimes corrupts–“sometimes” has to be added.

    Also on the local scene, there’s a report that you wanted to be an owner of a New York–area baseball team in a proposed new baseball league–despite your bad experience as owner of the New Jersey Generals in the short-lived United States Football League.
    That’s not true anymore. It’s not a passion of mine. The sports business is a lousy business. If a player gets hurt or doesn’t perform, he wants to get his money anyway; if he performs better than expected, he wants to renegotiate his contract. I like boxing better.

    A clean, forthright sport. As one of Mike Tyson’s promoters, what can you tell us about him?
    I know Mike better than anybody and have strong opinions, pro and con. But it’s too early for me to say. I understand his obsessions, everything. And no, I don’t begrudge Don King if he’s able to get Mike Tyson to sign a contract to the benefit of Don King.

    You got to know him during his marriage to Robin Givens, didn’t you?
    Yeah; I loved it when Robin said she didn’t want any money and then sued him. He won the case against her. She was killed when she started in with the law, when she filed for divorce. Historically, this has been the case with champions. The champ can do no wrong.

    How is your marriage?
    Just fine. Ivana is a very kind and good woman. I also think she has the instincts and drive of a good manager. She’s focused and she’s a perfectionist.

    And as a wife, not a manager?
    I never comment on romance…. She’s a great mother, a good woman who does a good job.

    How did you feel when José Torres wrote his book, excerpted in Playboy, about Tyson’s sex life–the charges that he beat up women and had wild sexual escapades?
    It’s unfortunate for one of the great fighters in history to have all this crap hanging over his head. Or for politicians, for that matter. We’re living in an age when there are no boundaries left, which is unfortunate for our country. The problem is, we’re going to lose good talent because somebody likes looking at pretty women or pretty men.

    Somebody’s sex life may mean absolutely nothing to the job at hand, but when the written word gels out, we lose somebody good and the country goes to hell. I know politicians who love women who don’t even want to be known for that–because they might lose the gay vote. OK? If this is the kind of extreme we’re heading toward, we’re really in trouble.

    What is marriage to you? Is it monogamous?
    I don’t have to answer that. I never speak about my wife–which is one of the advantages of not being a politician. My marriage is and should be a personal thing.

    But you do enjoy flirtations?
    I think any man enjoys flirtations, and if he said he didn’t, he’d be lying or he’d be a politician trying to get the extra four votes. I think everybody likes knowing he’s well responded to. Especially as you get into certain strata where there is an ego involved and a high level of success, it’s important. People really like the idea that other people respond well to them.

    You and your wife are often a subject of very biting satire for magazines such as Spy, which calls you a “short-fingered vulgarian” and recently published a horrendous close-up photograph of your wife on its cover. How do you feel about that?
    Ten years ago, bad publicity was much harder for me to take than it is now. It is almost irrelevant.

    That’s all you can say about Spy?
    It’s a piece of garbage.

    We assume you take Forbes magazine more seriously; it claims you’re worth one point five billion dollars. But you say three point seven billion dollars. What’s the right figure?
    I don’t say anything. Business Week and Fortune have numbers much higher than Forbes’s. I know many people on the Forbes list who shouldn’t be there. It’s a very inaccurate survey. Malcolm Forbes seems to keep me low. Business Week and Fortune don’t have boats and they couldn’t care less.

    Speaking of Malcolm Forbes, why didn’t you accept his invitation to the Morocco bash?
    I wish I could have gone, but I couldn’t because of a schedule conflict.

    Would you spend three million dollars on a party for yourself?
    It was a great investment for Malcolm. He got fifty million dollars’ worth of free publicity. I think he should do it every day of his life. That’s like people who can’t understand why I’m building an even more spectacular boat than the Trump Princess. It’s going to be world class, beyond belief.

    Let’s talk about your main interest–buildings. Architecture critic Paul Goldberger of The New York Times hasn’t been kind to Trump buildings, panning them as garish and egotistical.
    Paul Goldberger has extraordinarily bad taste. He reviews buildings that are failures and loves them. Paul suffers from one malady that I don’t believe is curable. As an architecture critic, you can’t afford the luxury of having bad taste.

    The fact that he works for the Times, unfortunately, makes his taste important. And that’s why you see some monster buildings going up. If Paul left the Times or the Times left him, you would find that his opinion meant nothing.

    But it’s not just the architecture critics who criticize you for stamping your name on everything you own. Are you going to continue doing that forever?
    No. I own the Grand Hyatt Hotel; I don’t call it the Trump Hotel. I own the Plaza Hotel, not the Trump Plaza. But I will say that from a marketing point of view, putting my name on buildings is a plus. I’m now building Trump Palace and if I called it something else, I would get hundreds of dollars less per square foot. On the Trump Shuttle, I’ve owned it for six months and we are already taking over fifty percent of the market in Washington, Boston and New York. If I called it anything but the Trump Shuttle, it wouldn’t be nearly so successful. The Tour de Trump was actually going to be called the Tour de Jersey. We had four hundred and seventy-three reporters at a news conference for a damn bicycle race; how many would have been there for the Tour de Jersey? We would have gotten nowhere.

    You’re involved in so many activities, deals, promotions–in the deep of the night, after the reporters all leave your conferences, are you ever satisfied with what you’ve accomplished?
    I’m too superstitious to be satisfied. I don’t dwell on the past. People who do that go right down the tubes. I’m never self-satisfied. Life is what you do while you’re waiting to die. You know, it is all a rather sad situation.

    Life? Or death?
    Both. We’re here and we live our sixty, seventy or eighty years and we’re gone. You win, you win, and in the end, it doesn’t mean a hell of a lot. But it is something to do–to keep you interested.

    Do you agree with the T-shirt that says, WHOEVER HAS THE MOST TOYS WINS?
    Depends on your definition of winning. Some of my friends are unbelievably successful and miserable people. I truly believe that someone successful is never really happy, because dissatisfaction is what drives him. I’ve never met a successful person who wasn’t neurotic. It’s not a terrible thing … it’s controlled neuroses.

    What do you mean?
    Controlled neuroses means having a tremendous energy level, an abundance of discontent that often isn’t visible. It’s also not oversleeping. I don’t sleep more than four hours a night. I have friends who need twelve hours a night and I tell them they’re at a major disadvantage in terms of playing the game.

    And when you’re up at night, you’re totally alone?
    Yeah, yeah, because it’s a little tough to find anyone up at four in the morning.

    You mentioned that you have to be born with “it.” Do you suppose your children inherited “it” from you?
    Statistically, my children have a very bad shot. Children of successful people are generally very, very troubled, not successful. They don’t have the right shtick. You never know until they’re tested. But I do well with my children.

    Do you think they will have to make it?
    I would love them to be in business with me, but ninety-five percent of those children fail in a sophisticated big business. It takes confidence, intelligence, shtick. If any one of these traits is missing, you’re not going to make it.

    You’ve always said that you earned, not inherited, your empire, that adversity and uphill struggles made you stronger. What kind of adversity can your children experience?
    I’m a strong believer in genes, that my kids can be brought up without adversity and respond well if they have the genes. I have a friend who is extraordinarily smart. But he never became successful, because he couldn’t take pressure. He was buying a home and it was literally killing him–a man of forty with an I.Q. of probably a hundred and ninety. He called me one day for the umpteenth time, worrying about his mortgage and I was sitting in my chair, thinking to myself, Here I am, buying the shuttle, the Plaza Hotel, and I don’t lose an ounce of sleep over any of it. That’s lucky genes.

    Even with good genes, how can your kids ever feel they’ve lived up to what you’ve accomplished?
    I don’t know that they’ll have to. I would be happier if they were able to preserve rather than build. I’m not looking to have a great deal maker as a son, though I’d certainly like everything to run beautifully when I’m not around. I’d be happier if my son became a great manager rather than a great entrepreneur.

    My kids are extremely well adjusted. But I wonder what they think when they walk into Mar-a-Lago and see ceilings that rise to heights that nobody’s ever seen before. And when my daughter’s date picks her up at Trump Tower in a few years and sees the living room, how will he feel when he takes her out and tries to impress her with a studio apartment?

    Knowing all this, are you taking any precautions?
    It’s somewhat late. And I don’t think a paper route would work. But my son works on the boat.

    When you think about role models from history, what figures particularly inspired you?
    I could say Winston Churchill, but … I’ve always thought that Louis B. Mayer led the ultimate life, that Flo Ziegfeld led the ultimate life, that men like Darryl Zanuck and Harry Cohn did some creative and beautiful things. The ultimate job for me would have been running MGM in the Thirties and Forties–pre-television.

    There was incredible glamour and style in those days that’s gone now. And that’s when you could control situations. In those days, when your great actor was an alcoholic, and nobody ever found out–that was having tremendous control over things, which would be impossible today.

    You talk about glamour and style being gone–but isn’t that what you tried to bring back to New York?
    Yes, but not in show business, in my business. The Plaza Hotel is far more valuable than any movie I could make. If I put together a string of movies that were all hits, I couldn’t have made anywhere near what I made in real estate. I believe I’ve added show business to the real-estate business, and that’s been a positive for my properties and in my life.

    So building that second huge yacht isn’t an act of gaudy excess but another act in the show?
    Well, it draws people. It will be the eighth wonder of the world and will create an aura that seems to work. It will cost me two hundred million dollars. But I don’t need it! I could be very happy living in a one-bedroom apartment. I used to live that life. In the early Seventies, I lived in a studio apartment overlooking a water tank.

    If you were starting over again, in what business would you choose to make your fortune?
    Good question…. There’s something about mother earth that’s awfully good, and mother earth is still real estate. With the right financing, you’ve essentially invested no money. Publishing, movies, broadcasting are tougher, and there aren’t too many Rupert Murdochs, Si Newhouses, Robert Maxwells and Punch Sulzbergers. I’ll stick to real estate.

    What about the stock market?
    It’s a crap shoot. Real estate is something solid. It’s brick, mortar.

    Do you regret your statements to the press after the October 1987 crash, when you seemed to gloat about getting out in time when others were wiped out?
    No. I didn’t gloat. Somebody reported that I was out of the market and I confirmed it. I don’t know if that’s talent or luck or instinct. I then went back into the market after the crash. I think the cash market is the great one right now–cash is king, and that’s one of the beauties of the casino business.

    You seem very pleasant and charming during interviews, yet you talk constantly about toughness. Do you put on an act for us?
    I think everybody has to have some kind of filtering system. I’m very fair and I have had the same people working for me for years. Rarely does anybody leave me. But when somebody tries to sucker-punch me, when they’re after my ass, I push back a hell of a lot harder than I was pushed in the first place. If somebody tries to push me around, he’s going to pay a price. Those people don’t come back for seconds. I don’t like being pushed around or taken advantage of. And that’s one of the problems with our country today. This country is being pushed around by everyone—

    About your own toughness….
    Well, as I said, I study people and in every negotiation, I weigh how tough I should appear. I can be a killer and a nice guy. You have to be everything. You have to be strong. You have to be sweet. You have to be ruthless. And I don’t think any of it can be learned. Either you have it or you don’t. And that is why most kids can get straight A’s in school but fail in life.

    Is there a master plan to your deal making or is it all improvisational?
    It’s much more improvisational than people might think.

    As you continue to make more deals, as you accumulate more and more, there’s a central question that arises about Donald Trump: How much is enough?
    As long as I enjoy what I’m doing without getting bored or tired … the sky’s the limit.

  • Q1 Slams Hedgies 'Most Popular Trade' – Momo Crashes Most Since 2009

    In mid-February, we warned of the looming carnage for equity market-neutral funds, and sure enough, as Bloomberg reports, one of the most popular (and successful) hedge fund trades – playing the difference between high- and low-momentum stocks – crashed by the most since 2009 in Q1. After 6 years of almost unstoppable gains, equity market-neutral funds suffered their biggest losses since 2012 – comparable to the 2007 quant crisis devastation – as weak momo stocks massively outpeformed crushing the hedgies' models.

    In Q1, 2015's worst became the best and the best became the worst…

    “Being short those names was a really good trade during the second half of 2015. This is the flip side of that,” said Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors. “All these names which had been doing really bad have turned around and started performing. I would say a lot of it is people getting short squeezed.”

    Indeed it did…

    An investment approach that profits from the divergent paths of high- and low- momentum stocks over time, a strategy that had one of its biggest gains on record in 2015, seized up in the last three months, posting the worst quarter in six years. The plunge helped zap returns among a big category of quantitative hedge funds, the so-called market neutral group, whose year-to-date decline of 2.3 percent is the largest since 2012.

     

    While the tactic may be esoteric, the force that pummeled it is not: a growing revulsion among investors to shares whose main claim to fame in the past few years was that they kept going up. Anyone pursuing the strategy got into particular trouble shorting companies with the lowest price momentum, a section of the market that ended up being the quarter’s biggest winner.

     

    “Momentum was the dominant factor really significantly last year, more so than I can recall any time in my career. When market neutral performs like that, when it breaks, it breaks hard,” said Benjamin Dunn, president of Alpha Theory Advisors, which works with hedge funds overseeing about $6 billion. “All the returns to momentum that were generated, you saw that reverse this year.”

    And here is the reason why – mid-February (as Carney and Draghi bid stocks off the lows), it was weak momo stocks that massively outperformed strong momentum stocks…

    Entirely breaking the models…

     

    As Bloomeberg concludes,

    One cause of the momentum breakdown was “mean reversion,” according to JPMorgan strategist Marko Kolanovic, who predicted in January investors would rotate into value assets, seeking out shares priced at deep discounts to things like earnings and assets. Using long-short proxies, value beat momentum by 40 percent this year, buoyed by systematic strategies covering short positions, Kolanovic said in a March 17 note to clients.

     

    That turnaround may have roiled returns for hedge funds. While they were snapping up the best-performing stocks, hedge funds also reduced value stock holdings in every quarter of last year, making it the least popular of the 10 styles tracked by Evercore ISI.

    This did not end well the last time, as detailed at the time, during the week of August 6, 2007, a number of high-profile and highly successful quantitative long/short equity hedge funds experienced unprecedented losses.

    The losses at the time were initiated by the rapid unwinding of one or more sizable quantitative equity market-neutral portfolios.

     

    Given the speed and price impact with which this occurred, it was likely the result of a sudden liquidation by a multi-strategy fund or proprietary-trading desk, possibly due to margin calls or a risk reduction.

     

    These initial losses then put pressure on a broader set of long/short and long-only equity portfolios, causing further losses on August 9th by triggering stop-loss and de-leveraging policies.

    Which perhaps suggests there is more fall-out from this to come now that quarter-end is over. Things did not go well after the last crisis…

  • The Next Big Problem: "Stagflation Is Starting To Show Across The Economy"

    In the past few months, the Bureau of Labor Statistics has gone out of its way to show that U.S. worker compensation is finally rising. There is one problem with that: while that may be true on an hourly basis…

    … on a weekly basis, the picture is vastly different. What is happening is that weekly wage growth have gone nowhere in years, but because the average hours worked per week has declined and today hit a 2 year low of 34.4, it translates into more money per hour worked.

     

    But let’s assume that wages, or at least the perception thereof, is indeed rising – is this helping the average American? Well, as we showed earlier this week, the net “after expense” income of average Americans measured in real dollars has declined from $17K in 2004 to $6,000 in 2014 because as wages have declined dramatically, expenses have surged. In fact, according to the recent Pew study, by 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent, As such a 2.5%, or 3.5% or even 10% increases in wages will not manage to offset the surging expenditures, mostly on rent.

    All of this you will never see discussed in a sellside research report, which instead relies on the basic hourly earnings headline numbers. Instead, you will see charts like this from Wells Capital’s Jim Paulsen.

    And yet, even the analysts who are only looking at the most rudimentary data are now warning that a new problem is emerging for the US economy, a problem which is always present whenever wages are rising, while overall economic growth is stalling (as it is currently according to the Atlanta Fed with a 0.7% Q1 GDP) and corporate profits are about to plunge by the most since the financial crisis: stagflation. 

    In a note earlier today, Deutsche Bank laid out the following ominous warning:

    Worry not about the eight per cent drop in forecast earnings in the upcoming quarter reporting season. That aggregate figure is well telegraphed. Instead, pay attention to those companies with wafer-thin margins. Every year since the crisis, S&P500 stocks in the lowest quartile of ebitda margins have outperformed the market. Until, that is, last year when these least profitable companies trailed by 11 per cent. That is because after holding steady for six years, their already low margins nearly halved to 4.5 per cent while the median for S&P500 companies barely budged from 20 per cent. Benign cost pressures in recent years have allowed even the laggards to keep up. But if commodity prices start to rally, for example, or low unemployment finally gives employees some bargaining power, those companies living on minuscule margins may really start to sweat.

    What Deutsche Bank is referring to is the following chart which shows the explicit and inverse correlation between corporate profits and employee wages. What it demonstrates clearly is that if indeed labor income, i.e., wages, are rising, then profit margins have no choice but to fall even more; this means that if the stock market wishes to continue rising even higher it will only achieve this with margin expansion, which however can only be achieved by even more Fed intervention and more stimulative inflation, which then pushes wages even higher generating a self-defeating feedback loop.

     

    This is something we touched upon early in January when we made an observation on small business operating margins, namely that “If Companies Are Telling The Truth, Profit Margins Are About To Collapse The Most In The 21st Century.”

    Which brings us to the following Bloomberg TV interview with Wells Fargo’s Jim Paulsen in which the otherwise jovial permabull focuses on only one thing: the rising threat of stagflation. This is what he said:

    I think stagflation is starting to show – that idea of stronger nominal growth but weaker real growth is starting to show up across the economy. It certainly is showing up with real personal consumption slowing; it’s showing with slower job creation growth as the wage rate rises, and it’s showing up in weaker profits as the share of labor income rises reducing profit margins for corporations.

     

    I think to some extent companies are starting to feel that pinch of higher labor costs and since margins are near post-war highs to begin with, they don’t have much ability to raise them much further, but if labor costs now start to go up, they’ll probably suffer some margin erosion.

     

    What scares me about this is we’ve had a very weak growing recovery by historic standards, about 2% real growth, but what’s made it palatable to some degree, is that inflation has been so low and because of that interest rates have been so low. So even though laborers have only gotten 2% wage increases which doesn’t sound very good, until you recognize that because inflation has been virtually non-existent, real purchasing power, real wages have been growing very nicely.

    … At this point we would like to interject that while we love the strawman argument that real wages are “growing fast” as much as the next guy, the reality is that this is bullshit as the previously shown chart from Pew has demonstrated: whether Americans are spending for more items, or actual prices are soaring, the consumer’s net income as shown below, has plunged.

     

    Anyway, back to Paulsen who then says this:

    And now for the first time you start to have core costs rising, then even if we get a little faster nominal growth, the final result on the real outcome might not be nearly as positive as hoped. Yellen is trying to raise the inflation rate and I am thinking you better be careful what you wish for.

    Can this scenario tip us into a recession Paulsen is asked, his answer: “it’s possible. I am concerned that the Fed is so dovish in the face of rising core inflation.”

    Which means that now that the “very serious economists” are talking about it, get ready to hear much more about the “threat of stagflation” for the US economy, a threat which the Fed is powerless to defeat unless it is willing to launch another market crash.

  • ReaDY FoR SoDoMY…

    READY FOR SODOMY

  • Just A Warning From Ron Paul

    Ron Paul took to Twitter to explain how he feels about The Donald…

    As Paul notes, Yes, Donald Trump is shrewd and really wants to sell himself as an outsider. He understands how to stir the many people who are unhappy.

    But when you get beyond the theatrics, he's not really an outsider at all. Paul discusses this, as well as Ted Cruz and Hillary Clinton below on Fox Business:

    Watch the latest video at video.foxbusiness.com

  • Doug Casey Warns "We're Exiting The Eye Of The Giant Financial Hurricane"

    Via InternationalMan.com,

    (This is Doug Casey’s foreword to Casey Research’s Handbook for Surviving the Coming Financial Crisis.)

    Right now, we are exiting the eye of the giant financial hurricane that we entered in 2007, and we’re going into its trailing edge.

    It’s going to be much more severe, different, and longer lasting than what we saw in 2008 and 2009.

    In a desperate attempt to stave off a day of financial reckoning during the 2008 financial crisis, global central banks began printing trillions of new currency units. The printing continues to this day.

    It’s not just the Federal Reserve that’s printing. The Fed is just the leader of the pack. The U.S., Japan, Europe, China… all major central banks… are participating in the biggest increase in global monetary units in history.

    These reckless policies have produced not just billions but trillions in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will, in many ways, dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.

    This isn’t some vague prediction about the future. It’s happening right now. The Canadian dollar has lost 25% of its value since 2013. The Australian dollar has lost 30% of its value during the same time. The Japanese yen and the euro have crashed in value. And the U.S. dollar is currently just the healthiest horse on its way to the glue factory.

    These are gigantic losses for major currencies. After all, we’re not talking about small volatile stocks. We’re talking about the value of money in peoples’ bank accounts. These moves show we’re in the early stages of a currency crisis.

    At this point, it’s a lock cinch that the world’s premier paper currency – the U.S. dollar – will lose nearly all its value. I just don’t see any realistic way around it. Since the financial crisis began eight years ago, the U.S. government has created 3.5 trillion new dollars. In that same eight years, the U.S. government has borrowed $9 trillion – as much as it has borrowed in the previous 232-year history of the United States.

    Though politicians would like us to believe otherwise, actions have consequences. You simply cannot quadruple the money supply and double the national debt in eight years without catastrophic results.

    As this unfolds, your biggest risk isn’t the crashing stock market or the crashing bond market. Your biggest problem, and also the one most people just don’t see, is political. Your government is by far the most serious threat to your money and wellbeing.

    Why do I say that? Like any organism, the prime directive of a government is to survive. When faced with a threat to its survival, a broke government will do anything it can to stay alive. President Roosevelt confiscated Americans’ gold in 1933. And in just the last few years, we’ve seen broke governments raid private pensions and confiscate cash directly from people’s bank accounts.

    As we head into a currency crisis for the record books, I think currency controls are a lock. Governments have used currency controls since the days of the Roman Empire. A country debases its currency, raises taxes beyond a certain level, and makes regulations too onerous. Naturally, productive people react by getting their capital, and then themselves, out of Dodge.

    But the government can’t have that, so it puts on currency controls that prevent people from moving assets outside the country. In effect, currency controls force people to stay with a sinking ship.

    I’ll be genuinely surprised if some form of currency controls isn’t instituted within two years. If you don’t get significant assets out of your home country now, you may soon find it costly and very difficult to do so.

    I’ve written many times about the importance of internationalizing your assets, your mode of living, and your way of thinking. I suspect most readers have treated those articles as a travelogue to some distant and exotic land: interesting fodder for cocktail party chatter but basically academic and of little immediate personal relevance.

    I hope this book will shake you out of that mindset. There’s a very real risk that if you don’t act soon, you may find yourself penned like a sheep and your options extremely limited.

    This book will teach you how to move some of your money and investments outside the reach of your home government. You’ll learn how to open a foreign bank account… the best ways to store gold for maximum safety… what you need to know before buying foreign real estate, and much, much more.

    We’ve done most of the legwork for you. But it’s up to you to act.

    The next few years are going to be quite catastrophic. Hundreds of millions of people will slip into poverty when the currency crisis destroys their savings.

    The good news? If you take the steps outlined in this book, you won’t be one of them.

    If you’re interested in obtaining this book, you can obtain a hard copy in the mail. Click here for more details or to download the PDF now.

  • Friday Humor: Most Financially Responsible Act Of A 17-Year-Old's Life

    COLORADO SPRINGS, CO — Saying the turn of events will greatly benefit the 17-year-old’s economic security, sources confirmed Friday that local high school senior Emily Harrison’s failure to get into the University of Southern California, a private academic institution, will be the single most financially responsible act of her entire life.

    According to reports, Harrison’s rejected application, which she spent weeks preparing in hopes of spending four years at her “dream school,” will save the young student a total of nearly $370,000, including $205,768 in tuition, $3,714 in fees, $57,392 in room and board, and $101,670 in student loan interest payments.

     

     

    The rejection, which led a visibly devastated Harrison to agonize over whether she should have participated in more extracurricular activities or obtained additional letters of recommendation, will reportedly allow her to avoid a period of 10 years or more in which she would have struggled to repay her loans, inevitably racking up credit card debt to cover basic necessities and ultimately leaving her unable to buy a home.

    Sources said the teen will still face financial disaster if she follows through on her long-term plan to enter a PhD program, which would require her to spend approximately one-fifth of her adult life bringing in little to no income.

    Source: The Onion

    *   *   *

    Indeed, while this satire is humorous, as Charles Hugh-Smith recently detailed, a system that piles debt on students in exchange for a marginal or even zero-return on their investment is morally and financially bankrupt.

    Every once in a while you run across an insider's narrative of a corrupt, morally bankrupt sector that absolutely nails the sector's terminal rot. Here is that nails-it narrative for higher education: Pass, Fail: An inside look at the retail scam known as the modern university.

    Here are excerpts of the article, which was published in Canada but is equally applicable to higher education in the U.S.:

    A university degree, after all, is a credential crucial for economic success. At least, that’s what we’re told. But as with all such credentials—those sought for the ends they promise rather than the knowledge they represent—the trick is to get them cheaply, quickly, and with as little effort as possible. My students’ disaffection is the real face of this ambition.

     

    I teach mostly bored youth who find themselves doing something they neither value nor desire—and, in some cases, are simply not equipped for—in order to achieve an outcome they are repeatedly warned is essential to their survival. What a dreadful trap.

     

    One in particular matches perfectly with the type of change I’ve observed on my watch: the eradication of content from the classroom.

     

    All efforts to create the illusion of academic content are acceptable so long as they are entertaining, and successful participation requires no real effort and no real accountability.

     

    Remove your professor hat for a moment and students will speak frankly. They will tell you that they don’t read because they don’t have to. They can get an A without ever opening a book.

     

    But don’t worry—you won’t go bust because of this failure, not in the modern university. So long as your class is popular and fun, you’ll be favoured by the administration and probably receive a teaching award. This, even though your students will leave your class in worse condition than they entered it, because you will have pandered to their basest inclinations while leaving their real intellectual and moral needs unmet.

     

    There is no clearer example of administrators’ contempt for faculty. But there is also no clearer example of their contempt for students.

     

    As money is siphoned from academic programs through attrition, it is channelled into a host of middle-management positions.

     

    From 1979 to 2014, central administration and staff ballooned by three and a half times, while the size of the faculty merely doubled.

     

    Parents, students, and governments keep supplying them with capital, assuming there will be a genuine return on investment. But since the institution no longer produces anything, no such return is forthcoming.

     

    Spending on the student services sector in Canadian universities increased an incredible six-fold between 1979 and 2014.

     

    The student services cabal is no longer there to support faculty in their work of educating students “but to compete with them to define the student experience.”

    Insiders are quiet after they read this, because they know it's true.

    The financial burden created by the higher education cartel is immense and expanding:

    To mask the enormity of the sums squandered on "education" that has little measurable results, the federal government has purchased most of the debt:

    No inflation here–just a 137% increase in 15 years:

    A system that piles debt on students in exchange for a marginal or even zero-return on their investment is morally and financially bankrupt.

  • Iran Moves To Take Key City From ISIS In Critical Sectarian Feud

    Believe it or not, the Iraqi army is on the verge of launching an attack on ISIS-held Mosul.

    The city – home to millions of Iraqis – is Bakr al-Baghdadi’s most important urban stronghold.

    Raqqa is the ISIS “capital”, but it’s easier to command. Mosul is a major city with a population that numbers in the millions. If ISIS were to lose its grip there, it would almost surely mark the beginning of the end for the self-styled “caliphate.”  

    Over the past three weeks, Mosul has come under pressure from Russian-backed Shiite militias, US-supported Iraqi regulars, and Kurdish Peshmerga fighters who at this point have no idea who is on their side and who isn’t. 

    Below, find excerpts from a new WSJ piece that outlines the pressure Islamic State faces from an international intelligence community that no longer finds them useful. 

    Last week, the Pentagon said the U.S. military had killed a man they identified as one of Islamic State’s top military officials. It didn’t give any further information, but Gen. Magsosi said the man, known as Abu Eman, was the top expert at the Mosul bomb lab.

     

    When Islamic State captured Mosul, Iraq’s second-largest city, in the summer of 2014, the university was one of the spoils. The university had a strong reputation around Iraq for its science departments, alumni say.

     

    By March 2015, dozens of Islamic State engineers and scientists had set up a research hub in the chemistry lab, which was full of equipment and chemicals, according to the people with knowledge of the university.

     

    Many of the regular staff, including professors specialized in organic, industrial and analytical chemistry, remained in the city at the time, but the new laboratories were staffed by Islamic State’s own men, according to one of those people.

     

    At least since August, dozens of individuals—presumed to be foreigners because they didn’t speak Iraqi Arabic—were seen moving through the labs, the two people said. They said they were told specialized units had been set up there for chemical explosives and weapons research as well as suicide-bomb construction.

     

    A separate group at the university’s technical college was dedicated to building suicide-bomb components, one of the two said.

    Of course it’s a little late to be getting that kind of feedback. Sure, ISIS is now in control of Mosul’s intellectual community and that includes the bombmakers.

    The question is whether these individuals will fold under pressure from the IRGC and admit what they know to the Ayatollah.

  • April "Fools" In March

    Submitted by Peter Schiff via Euro Pacific Capital,

    It may be almost impossible to underestimate the gullibility of professional Fed watchers. At least Lucy van Pelt needed to place an actual football on the ground to fool poor Charlie Brown. But in today’s high stakes game of Federal Reserve mind reading, the Fed doesn’t even have to make a halfway convincing bluff to make the markets look foolish.

    Just two weeks ago, the release of the Fed's March policy statement and the subsequent press conference by Chairwoman Janet Yellen should have made it abundantly clear that the Central Bank policy had retreated substantially from the territory it had previously staked out for itself. In December it had anticipated four rate hikes in 2016,  but suddenly those had been pared down to two. Based on the conclusion that the era of easy money had been extended for at least a few more innings, the dollar sold off and stocks and commodities rallied.

    But in the two weeks that followed the dovish March guidance, some lesser Fed officials, including those who aren't even voting members of the Fed's policy-setting Open Market Committee, made some seemingly hawkish comments that convinced the markets that the Fed had backed off from its decision to back off.

    The campaign began on March 19 when St. Louis Fed President James Bullard said that the Fed had largely met its inflation and employment goals and that it would be “prudent to edge interest rates higher.” (H. Schneider, Reuters) Two days later Bloomberg reported that Atlanta Fed President Dennis Lockhart had said, “There is sufficient momentum…to justify a further step…possibly as early as April,” (J. Randow, S. Matthews, 3/21/16)

    And it didn't stop there. On March 22, Philadelphia Fed President Patrick Harker said,“there is a strong case that we need to continue to raise rates…I think we need to get on with it.” (J. Spicer, Reuters) On March 24, Bullard chimed in again, saying that rate hikes “may not be far off,” appearing to back Lockhart’s suggestion for a surprise April hike. Suddenly, chatter erupted on Wall Street that the April FOMC meeting should be considered a “live” one, where a rate hike was possible. With such caution spreading, the markets reacted predictably: the dollar rallied, gold and stocks declined. 

    At the time I said, as I have been saying all year, that the Fed never had an intention to tighten further, and that it would continue to talk up the economy just to create the impression of health. But many believed that Janet Yellen would use her speech this week at the New York Economic Club (her first public comments since her March press conference) to underscore the comments made by her colleagues in the past two weeks. Instead she delivered a double-barreled repudiation of any potential hawkish sentiment. In fact, her talk could be viewed as the most dovish she has ever delivered since taking the Chair.

    The market reaction was swift. In fact, as the text of her address was released a few minutes before she hit the podium, gold jumped and the dollar dropped even before she started speaking. The only surprise was that there was any surprise at all.

    If market watchers actually looked at economic data instead of trying to parse the sentence structure of Fed apparatchiks, they would know that the economy is rapidly decelerating, and most likely heading into recession (if it’s not already in one). These conditions would prohibit an overtly dovish Fed from any kind of tightening. Just this week February consumer spending increased at a tepid .1%, in line with very modest expectations (Bureau of Economic Analysis). But to get to that flaccid figure, the much more robust .5% growth rate originally reported for January had to be revised down to .1%. If that major markdown had not occurred, February would have come in as a contraction. The sleight of hand may have fooled the markets, but the Fed's own bean counters had to take it seriously. The figures were the primary justification for the Atlanta Fed’s decision to slash its first quarter GDP estimate to just .6%. That estimate had been as high as 1.4% last Thursday and 2.7% back in February. Clearly something isn't working. But whatever it is, Janet Yellen won't speak its name.  

    In her speech in New York, Yellen was careful to mention that the Fed has not reduced its full year growth forecast of 2.5% to 3.0% that it had laid out in December. This despite the fact that their first quarter predictions, which must be a big part of their full year predictions, have already been hopelessly shattered by the Atlanta Fed's updates. 

    If the Fed really believes that we are still on a solid growth track, then two major questions should immediately come to mind:

    1) Given that she acknowledges greater than expected financial stresses and expected deceleration abroad, what could possibly be the catalyst that will suddenly reverse our economic trajectory, and

     

    2) If it really does believe that this miracle will occur, why has the Fed abandoned the monetary policy trajectory that it announced in December?

    The answer to the first question is a mystery. For much of the past year, Yellen stressed the improvements in the labor market, as evidenced by the low unemployment rate. But that figure has been thoroughly debunked by those who correctly point out that job creation in the U.S. has been dominated by low-paying part-time jobs that detract from economic health rather than add to it. But while Yellen clung to her rosy domestic outlook, she acknowledged the significant slowdown abroad. But if these global concerns are sowing caution at the Fed, why does she expect the U.S. to buck the trend?

    She is correct that that many countries around the world have badly missed First Quarter forecasts. But she totally ignores the fact that the U.S. has been one of the bigger disappointments. For instance, since the end of last year, expectations for Q1 growth have declined 12.5% for Germany, 30% for Canada, 45% for Norway, and 57% for Japan (Bloomberg, 3/30/16). But based on the current estimates from the Atlanta Fed, the U.S. economy is growing at a rate that is 75% slower than the 2.4% projection Yellen and the Fed had forecast back in December. So why does the Fed acknowledge unexpected weakness abroad, yet ignore even greater unexpected weakness in the U.S.? Could it be that Yellen does not want to be seen as one of those “fiction peddlers” that President Obama criticized in his State of the Union address who have the audacity to suggest that the U.S. economy is not strong?

    But the bigger question is not why the Fed is mindlessly cheer-leading, that is after all part of its job description, but how it can justify altering its monetary policy while holding fast to its economic forecasts. To square that circle,Yellen said that the Fed had erred in its assumptions as to what constitutes a “neutral” policy level whereby rates are neither stimulating nor restrictive. She said that based on her global concerns, neutral policy should now be considered close to 0% rather than the 2% that the Fed had hinted at earlier. She also said that the range of factors that the Fed considers in reaching its rate decisions had evolved beyond simply looking at the traditional inputs of GDP growth, inflation and unemployment to include global risk factors that could impact the U.S. In other words, the Fed is not simply “data dependent” but is now “globally data dependent,” a stance that could allow it to point to any potential crisis anywhere in the world as a rationale not to raise rates. Already many observers are suggesting that the June “Brexit” vote in the UK will be a justification to take a rate hike off the table for the June FOMC meeting.

    Of course, this ever-expanding list of criteria should be viewed as what it really is: a continual shifting of goal posts that will prevent the Fed from EVER having to raise rates again (at least until a rapidly rising CPI forces its hand). It may have incorrectly believed it could get away with a series of increases when it first started raising in December, but those expectations may have wilted when the markets and the economy dropped so decisively in the immediate wake of December’s 25 basis point increase. Yet even though markets have recovered, I believe they have only done so because the Fed has backed off. In fact, if that initial rate hike was a trial balloon for future hikes, its flight was about as successful as the Hindenburg’s. As such, the Fed hardly wants to risk another sell-off that it may be unable to reverse.

    So the handwriting is on the wall for anyone literate enough to read it. The Fed is stuck in a monetary Roach Motel from which it may never escape. Keynesian economists like to discuss a “liquidity trap” but their policies have created an undeniable “stimulus trap” that I believe will remain in place until the whole merry-go-round spins out of control.

    The quarter that just ended yesterday saw the biggest quarterly declines in the U.S. dollar in five years (T. Hall, Bloomberg, 3/30/16), and the strongest quarter for gold in 30 years (R. Pakiam, Bloomberg, 3/30/16). These moves completely took the Wall Street establishment by surprise. But given the historic rally enjoyed by the dollar over the past five years, three months’ worth of declines may just be a small down payment on the declines the dollar may experience in the years ahead.

    Despite having fallen for all of the Fed’s prior head fakes,  some economists are taking today’s March payroll report, which showed the creation of 215,000 jobs and a tick up in the labor participation rate to 63.0% (Bureau of Labor Statistics), as a sign that the Fed will now have to shift back into a hawkish stance. Putting aside the fact that the majority of the new jobs were part-time and went to people who already had at least one, and that the official unemployment rate actually ticked up, one wonders how much more of this will we have to witness before economists  finally realize that there will likely never be a real ball to kick.

  • Who's The Real Threat To America? CIA School Bus Edition

    In the wake of the terrorist attacks that left nearly two dozen killed and some 100 people injured, officials in Brussels (not to mention presidential candidates in the US) are wondering whether police in Belgium should have tortured Salah Abdeslam last weekend.

    To let Donald Trump and others tell it, torturing Abdeslam would likely have yielded valuable information that may well have prevented the attacks that left some 34 people dead last week. 

    Meanwhile, “the terrorists” are planning attacks on Belgium’s nulclear facilities – or at least that’s what the mainstream media wants you to believe. 

    As you can see from the following headline dump however, the real threat to peace in the Western world may emanante from sheer incompetence.

  • NATO: Worse Than "Obsolete" – It's A Crony Capitalist's Dream

    Submitted by Justin Raimondo via AntiWar.com,

    Unlike many libertarians, I love presidential election season, because that’s when generally ignored foreign policy issues are discussed beyond the small circle of Washington wonks. And that’s why I’m having such fun with Donald Trump – much to the annoyance of some of my readers, both libertarians and liberals alike: because he’s provoking a much-needed discussion about who benefits (and loses) from “American leadership” on the world stage. Most useful is his recent assertion that the North Atlantic Treaty Organization (NATO) is “obsolete.”

    So it is. When the Berlin Wall fell, and the Soviet Union dissolved, the rationale for NATO disintegrated along with it. However, as libertarians know all too well, government programs (especially those that benefit the corporate sector) never die, nor do they fade away: they just keep growing to the degree that their constituency wields political clout. In NATO’s case, this clout is considerable.

    When the citizens of Berlin did what Ronald Reagan urged Gorbachev to do – “Mr. Gorbachev, tear down that wall!” – the Soviet leader tried to negotiate with the West. And, to his mind, he succeeded: an understanding was reached with Washington that the Russians would allow German reunification on the condition that the NATO alliance would not expand eastward.

    That promise was not kept. Instead, the lobbyists, both foreign and domestic, went into overdrive in a campaign to extend NATO to the very gates of Moscow. It was a lucrative business for the Washington set, as the Wall Street Journal documented: cushy fees for lobbyists, influence-buying by US corporations, as well as political tradeoffs for the administration of George W. Bush, which garnered support for the Iraq war from Eastern  Europe’s former Warsaw Pact states in exchange for favorable treatment of their NATO applications.

    The Committee to Expand NATO, later re-dubbed the US Committee on NATO, had at its core many of the founding members of Bill Kristol’s Project for a New American Century (PNAC) which played such an instrumental role in agitating for the invasion of Iraq. Yet it was too lucrative to exclude “progressives” of the Clintonian variety, bringing together neoconservatives like Paul Wolfowitz, Robert Kagan, Stephen Hadley, and Richard Perle, with liberal internationalists such as Will Marshall, of the Progressive Policy Institute, and Sally Painter, a former Commerce Department official under Bill Clinton –turned-lobbyist, who raked in hundreds of thousands in contracts from aspiring NATO countries and their corporate clients in the US.

    Founder and president of the NATO Committee was Bruce Jackson, at the time finance director of Bob Dole’s presidential campaign, and vice-president in charge of planning and strategy for Lockheed – today Lockheed-Martin – the biggest military contractor in the country.

    The NATO expansion project fit neatly in with Jackson’s day job: all NATO applicants must upgrade their military forces in order to meet uniform standards, and this meant a windfall for the military-industrial complex – with Lockheed first in line. The Lockheed connection was reinforced by Randy Scheunemann, a member of the Committee’s board, and president of Orion Strategies, a public relations firm whose clients include Lockheed.

    The Clinton administration fully supported NATO expansion, and the Committee’s activities brought together the White House, members of Congress from both parties, and the Washington lobbyists and their foreign clients for a spate of conferences, dinners, and private meetings. Reams of propaganda were aimed at the mass media, and the political class, including a very visible presence at the national conventions of both political parties.

    In short, NATO expansion was – and is – a crony capitalist’s dream, albeit not the sort that gets the same amount of attention from “libertarian” critics of such boondoggles as the Ex-Im Bank, who regularly remind us that Boeing is the Bank’s biggest customer. Forgotten (or evaded) is the fact that Boeing (or Lockheed-Martin, General Dynamics, etc.) gets billions whenever a new applicant is added to NATO’s ranks and has to modernizes its forces.

    The NATO expansionists won their battle: Poland, Hungary, and the Czech Republic joined in 1999: Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia were added in 2004. Albania and Croatia came on board in 2006. The latest applicants are tiny Montenegro, a splinter shaved off of the former Yugoslavia, which will probably be admitted this summer, and Georgia, which is not even in Europe, and is still fighting to join the club: its inclusion is controversial in part because it would be seen as throwing down the gauntlet to Russia, with whom it fought a brief war in 2008 over the breakaway Republic of Ossetia.

    Therein lies the real danger posed by NATO expansion – and, indeed, the existence of the alliance thirty years after the Soviet implosion. As Sen. Robert A. Taft put it in a 1949 nationally broadcast speech opposing US entry into NATO, he said:

    “It obligates us to go to war if at any time during the next 20 years anyone makes an armed attack on any of the 12 nations. Under the Monroe Doctrine we could change our policy at any time. We could judge whether perhaps one of the countries had given cause for the attack. Only Congress could declare a war in pursuance of the doctrine. Under the new pact the President can take us into war without Congress. But, above all the treaty is a part of a much larger program by which we arm all these nations against Russia… A joint military program has already been made… It thus becomes an offensive and defensive military alliance against Russia. I believe our foreign policy should be aimed primarily at security and peace, and I believe such an alliance is more likely to produce war than peace. A third world war would be the greatest tragedy the world has ever suffered. Even if we won the war, we this time would probably suffer tremendous destruction, our economic system would be crippled, and we would lose our liberties and free system just as the Second World War destroyed the free systems of Europe. It might easily destroy civilization on this earth…

     

    “There is another consideration. If we undertake to arm all the nations around Russia from Norway on the north to Turkey on the south, and Russia sees itself ringed about gradually by so-called defensive arms from Norway and. Denmark to Turkey and Greece, it may form a different opinion. It may decide that the arming of western Europe, regardless of its present purpose, looks to an attack upon Russia. Its view may be unreasonable, and I think it is. But from the Russian standpoint it may not seem unreasonable. They may well decide that if war is the certain result, that war might better occur now rather than after the arming of Europe is completed…

     

    “How would we feel if Russia undertook to arm a country on our border; Mexico, for instance?

     

    “Furthermore, can we afford this new project of foreign assistance?”

    Which brings us to Trump’s critique: that NATO is a “bad deal” because we bear a disproportionate share of the costs. He is quite correct on this score. As of today, the US and Estonia are the only two NATO members keeping to the “requirement” that their military spending equals two percent of GDP. Former Defense Secretary Robert Gates pointed this out in a 2011 speech in which he predicted that NATO’s future was sure to be “dim if not dismal.” Our shiftless allies are all too “willing and eager for American taxpayers to assume the growing security burden left by reductions in European defense budgets,” he said.

    Added to the direct costs of NATO is the expense of stationing over 60,000 troops in Europe, maintenance of our many bases, and the opportunity costs of money that could have been diverted to productive domestic uses. Taft, it seems, was right that the costs of NATO would turn out to be “incalculable.”

    And then there is yet another cost – the price of risking World War III.

    NATO expansion has led to Russian rearmament and the nullification of arms treaties negotiated as the cold war neared its endpoint. The Western powers have launched provocative military “exercises” that cannot be seen by the Russians as anything other than a dress rehearsal for war – and the Kremlin has reacted accordingly.

    With his plan – or, rather, inclination – to abandon the old NATO and replace it with some sort of multilateral counterterrorist operation, and his insistence that our “allies” pay up, Trump is forcing an issue onto the stage that hasn’t been seen since the days of Bob Taft. And with the bogeyman of Communism absent, he is free to say he could get along with Vladimir Putin and only catch flak from committed neocons.

    NATO isn’t just an expensive luxury of the sort we can no longer afford – it is a tripwire that could be set off by a minor border conflict involving Moldova, the status of Kaliningrad, or – more likely – another round of hostilities in Ukraine.

    Would we start World War III in defense of the oligarchs of Kiev?

    I wouldn’t put it past them.

    That’s why, no matter what the fate of Trump’s presidential bid, we all owe him for raising this vital issue – and within the GOP, no less, a party which has been, up until now, a bastion of support for the NATO-crats and the new cold war against Russia.

  • New York Follows California, Will Raise Minimum Wage To $15/Hour

    Earlier his week, California paved the way for a $15/hour minimum wage, in a move that essentially communicated the following message: “..to hell with economics.”

    The living wage issue is one of the most controversial debates playing out in America today and it goes right to the heart of partisan politics.

    Anyone who’s “feeling the Bern” so to speak, believes they’re entitled to make enough flipping burgers to feed their family. And you know what? They’re wrong. Dead wrong.

    Either, i) they don’t have the skill set they need to find a job that pays a decent wage, ii) they have other personal problems that keep them from securing gainful employment, or iii) the US economy has simply become a service sector, minimum wage job creation machine that severely limits job seekers’ opportunities and forever relegates the vast majority of society to the bottom of the pyramid in what is increasingly becoming a feudal system.

    Note that our rather harsh assessment doesn’t actually put the blame on workers.

    Sorry, but society doesn’t value a dollar menu cheeseburger as much as it values a porcelain cavity filling. So the guy (or girl) putting the burger in a bag makes $8/hour while the dentist makes $100. That doesn’t mean the burger flipper is “worth” less of a person than the dentist in metaphysical terms. Sure, sometimes the people handing you a Taco Bell bag at the drive-through might have spit in your burrito, but you know what? the dentist who fills your cavity might be having an affair with the hygienist who just cleaned your teeth. In the back of the office. Just before you signed in and got comfortable in the chair.

    The point is that what’s missing in this equation are the breadwinner, skilled labor jobs that allow everyday people who i) have attained a decent education and acquired a skill that’s useful to society, and ii) are willing to work hard 10 hours a day, to get a job where they can simultaneously benefit the global economy while making enough money to support their families.

    Raising the minimum wage to $15 or $20 or even $30/hour isn’t going to fix that. And neither are labor unions. This is an existential problem that needs to be addressed at the highest possible levels. Of course it won’t. The good folks that inhabit the Eccles building will point to record low unemployment to justify rate hikes (when they want to, but when they don’t they’ll point to China and subpar inflation to justify keeping things on hold) and to support the contention that the US economy is on solid footing.

    Here’s a bit of color on the New York mandatory minimum issue via Reuters:

    Governor Andrew Cuomo and state legislative leaders reached a deal on Thursday to raise New York state’s minimum wage towards $15 per hour, but fell short of a uniform state-wide increase.

     

    The deal outlines a faster rise in New York City, but carves out a slow lane for small businesses and surrounding counties. In less prosperous areas north of the city it rises to $12.50 per hour before a state review of the law’s impact.

     

    The minimum wage agreement was part of a broad budget deal that Cuomo announced late on Thursday. He said the plan included 12 weeks of paid family leave and $4.2 billion in tax cuts. The $147 billion budget caps spending growth at 2 percent.

     

    “I believe that this is the best plan the state has produced in decades,” Cuomo told a news conference.

     

    Under the terms of the deal the minimum wage would rise from its current $9 per hour to $15 over three years in New York City starting on Dec. 31, 2016. City businesses with up to 10 employees would be given four years to implement the measure.

     

    Long Island and Westchester County around New York City would be given six years to push through the increases while the rest of the state would see the minimum wage rise to $12.50 in five years, with indexed increases to $15 possible after review.

     

    There is also a provision to suspend the increases from 2019 if economic conditions worsen.

    Great. You’ll now make $15/hour to serve downtown lattes to Jamie Dimon’s assistant and on the off chance someone important happens to venture up to mid-town (which they won’t), you may get a $5 tip in the plastic cup. 

    Of course you still won’t be able to afford your upper east side apartment without an annoying roommate, nor will you have any hope of making anything of your life other than ensuring that you know the difference between a latte and a cappuccino.

    But don’t worry. Your vote counts. Because Hillary will fix this.

    Or Trump will.

    Or Bernie will.

    Or Cruz will.

    Or wait… is this hopeless? 

    Maybe you’ll just stay broke until the “right” person comes along…

    * * *

    Bonus: from Bloomberg…

    Raising wages by government fiat seems to be catching on. The lowest-paid workers in Britain and California — two of the world’s largest economies — are only the latest beneficiaries of plans to lift the minimum wage.

    The goal in every case is commendable, but the method is far from ideal. On Friday, Britain’s minimum wage will increase to 7.20 pounds ($10.36) an hour for workers age 25 and older, rising each year until it is expected to be above 9 pounds by 2020. California has agreed to set a $15 minimum wage by 2022. New York Governor Andrew Cuomo wants to do the same in his state.

    At least 25 U.S. cities have raised their minimum wage since 2014. Germany did so last year, and more increases are planned. Japanese Prime Minister Shinzo Abe hascalled for a 3 percent increase in the minimum wage each year.

    It’s hard to quarrel with the goal of a “higher wage, lower welfare, lower tax” society, as the U.K.’s government puts it. But the minimum wage is a two-edged instrument, because it raises the cost of hiring unskilled labor. Any increase, therefore, runs the risk of raising unemployment — and the bigger the increase, the bigger the risk. In addition, governments aren’t being honest about who bears the costs. At least some of the increase in employers’ costs will be passed along as higher prices to consumers.

    It’s hard to say exactly what the effects of this minimum-wage activism will be. The economic literature on the subject is voluminous — but inconclusive. A 2014 Congressional Budget Officestudy concluded that a $10.10 minimum wage in the U.S. would lift 900,000 out of poverty but result in the loss of 500,000 low-wage jobs. Other studies say the employment effects would be smaller. There’s little experience as yet with minimums as high as $15.

    Another problem, especially with national minimums, is that labor-market conditions vary a lot from place to place. Britain’s minimum applies equally to London, where the wage floor by 2020 will be 47 percent of local median income, and Sheffield, where it will be 71 percent. The one-size-fits-all approach is going to cause problems for Germany as it tries to absorb an enormous influx of unskilled immigrants.

    If governments overdo it and push the minimum too high, correcting the error might not be easy. Lowering the minimum will arouse political resistance. The California proposal includes “off ramps” that would allow the government to pause the annual increases, but it couldn’t lower the floor — and current rates of inflation would take a long while to do that without assistance.

    A safer and more honest way to support the wages of the low-paid is with a subsidy, using programs such as the U.S.’s earned income tax credit. Rather than reducing the demand for unskilled labor, a subsidy increases it. The drawback is political rather than economic — the cost to taxpayers is explicit. This approach, therefore, calls for brave leadership, which is not always in supply.

    The best way to raise low wages is to raise productivity by helping workers to acquire skills and by ensuring that new entrants to the workforce are well educated. Reform along these lines requires not just political courage but also patience, because the benefits might not be apparent for years.

    In the short term, raising the minimum wage — modestly, and with sufficient flexibility to allow for local market conditions — might do more good than harm. Relieving poverty in work deserves to be a high priority. But smarter ways of doing it shouldn’t be sidelined, and caution should be the watchword.

  • "Maced Girl" Who Punched Trump Supporter May Be Charged By Police

    One of the truly remarkable things about Donald Trump’s run for the White House is the extent to which he has proven to be immune to criticism. 

    In many ways, the GOP frontrunner is a living, breathing negative ad for himself. Whether you hate him or you love him, you hold your breath when he opens his mouth because you understand there’s a decent chance something absolutely off the wall is about to come spilling out and you’re never really sure whether this will be “the one” – the Trumpism that finally pushes too far beyond the sensibilities of even the most ardent supporters. 

    Incredibly, Trump still hasn’t met his Waterloo. He’s called Mexicans drug dealing rapists. He suggested that John McCain is a loser for getting himself captured in ‘Nam. He’s theoretically banned the world’s fastest growing religion from North America. He’s promised to tax Chinese imports at 40%. He’s implied he’ll force Mexico to built a giant cage around itself to keep its people from escaping. And now he’s suggested that if abortion were illegal, he’d need to figure out the best way to punish women who break the law. 

    But here’s the thing: it works.

    Trump is onto something. Apparently, America’s blood is boiling and “The Donald” has tapped right into a vein.

    Now, the downtrodden masses – i.e. an electorate that’s sick and tired of the entrenched political aristocracy inside the Beltway and utterly fed up with being told to “eat cake” by the legions of modern day Marie Antoinettes that flit around Capitol Hill and Mahogany Row with their thumbs glued to Blackberry scroll balls that went extinct on Main Street a half decade ago – are mainlining the Trump brand of political heroine. Millions of Americans are nationalists without even knowing it. They’re speaking out against EM mercantilism without the slightest conception of what that means. And most importantly, they’re prepared to bet two-and-a-half centuries of history on a campaign platform built on an appeal to one man’s ad hoc version of Realpolitik.

    Would a Trump presidency usher in a new era of American prosperity? Almost certainly not. But note we said “almost.” A Clinton presidency will definitely not change anything. And neither would a Cruz presidency or a Kasich administration. In short, Americans know two things for sure at this point: 1) both Trump and Bernie Sanders would bring real (as opposed to Obama-brand) “change” to America; 2) Trump can win his party’s nomination, while Bernie can’t.

    The takeaway: if you want real change, you vote Trump.

    In short, by simply saying what a whole lot of people are thinking anyway, Trump has instilled his campaign with a degree of authenticity that’s impossible for other candidates to emulate and that makes him virtually unstoppable save a misstep or two (or three) when someone like Chris Matthews presses him on specifics.

    What the billionaire’s detractors have failed to understand is that the only way to beat Trump is essentially to join him. That is, you have to show his support base that the establishment is prepared to address their concerns.

    Simply insulting his intelligence and/or making a scene at his rallies will not only not work (there’s a fun double negative), it will invariably backfire, which brings us full circle to what we said at the outset: Trump. Is. Teflon.

    Need proof? Take the 15-year-old girl who quite a few people probably thought was set to become the pepper-sprayed face of the “peaceful” Trump protester movement. What was initially billed as an indiscriminate attack on an underage girl who, according to some reports, was being “groped” taharrush gamea-style by a gang of roudy neo-Trump-Nazis, quickly morphed into a far different story wherein a belligerent teenager, unable to tolerate what she perceived as an afront to American democracy, punches an old man in the face and then is pepper sprayed. 

    Now, authorities have recommended that someone file a disorderly conduct charge against the girl who insists that she “felt pressure on her breasts.”

    “Clearly her punch was illegal,” police chief David Moore told reporters.

    So once again, attempts to derail Trump have backfired in dramatic fashion. No longer is the headline “15-Year-Old Girl Pepper Sprayed By Trump Fanatics,” it is now “Police Recommend Charge Against Girl At Trump Rally.”  From the AP:

    Investigators said Thursday that they’re recommending a disorderly conduct charge be filed against a 15-year-old girl who was pepper-sprayed after she punched a man at a rally for Republican presidential front-runner Donald Trump in Wisconsin.

     

    Video of the altercation shows a crowd of people in a parking lot outside the rally in Janesville on Tuesday. The girl can be seen holding an anti-Trump sign and arguing with a 59-year-old man.

     

    The video shows the man turning away with his hands in the air. Seconds later, the girl punches him in the face. Another man wearing a red Trump hat then pepper-sprayed the girl and disappeared into the crowd.

     

    The girl told police the first man groped her breast. But Chief David Moore told reporters during a news conference Thursday that additional video doesn’t show any evidence the man groped her and that 12 out of 13 witnesses said they didn’t see him do anything.

     

    Moore said the man who was punched didn’t want to press assault charges against the girl, but investigators have recommended juvenile authorities charge her with disorderly conduct for what he called “an act of violence.” He said time passed between the alleged groping and the punching and the man and the girl were several feet apart when she threw the punch.

     

    The chief said investigators won’t pursue charges of filing a false police report against the girl. He said she genuinely believes she felt pressure on her breast. However, he said, quarters were tight and people were brushing up against one another throughout the crowd.

     

    “Clearly her punch was illegal,” he said.

  • The Path To The Final Crisis

    Submitted by Pater Tenebrarum via Acting-Man.com,

    Reader Questions on Negative Interest Rates

    Our reader L from Mumbai has mailed us a number of questions about the negative interest rate regime and its possible consequences. Since these questions are probably of general interest, we have decided to reply to them in this post.

     

    1-key-negative-interest-rates-02192016-LG

    The NIRP club – negative central bank deposit rates – click to enlarge.

     

     

    Before we get to the questions, a few general remarks: negative interest rates could not exist in an unhampered free market. They are an entirely artificial result of central bank intervention. The so-called natural interest rate is actually a non-monetary phenomenon – it simply reflects time preferences. Time preferences are an inviolable category of human action and are always positive.

    Market interest rates consist of the natural interest rate plus two additional components: a price (or inflation) premium that reflects the expected decline in money’s purchasing power, and a risk premium or entrepreneurial profit premium that reflects the perceptions of lenders of a borrower’s creditworthiness and generates an entrepreneurial profit for those engaged in lending.

    One often reads that interest is the “price” of money, but that is actually not quite correct. It is really a price ratio, the difference between the valuation of present against that of future goods. An apple one can obtain today will always be worth more than a similar apple one can obtain at some point in the future. If time preferences were to decline to zero, people would stop consuming altogether. All efforts would be directed toward providing for the future, but they would never see that future, because they would starve to death before it arrives.

    In theory, time preferences can rise almost to infinity: for instance, if an asteroid were to hit Earth in two week’s time and we knew for sure that it would destroy the planet, it would no longer make sense to provide for the future. Saving, investment and production would stop, and everybody would confine himself to consumption. But the opposite can never happen, since we cannot just stop consuming. As long as time passes and there is a “sooner” and a “later”, there simply cannot be zero or negative interest.

     

    Human Action

    A far more detailed explanation of the topics summarized in the introductory remarks above can be read in Human Action by Ludwig von Mises.

     

    Fiduciary Media vs. Covered Money Substitutes

    Now let us look at L’s questions. He writes:

    I am interested in knowing more about negative interest rates. I feel at some stage it might lead to people pulling out their cash out of the bank. I am trying to figure out what happens when they do it en masse (Let us forget how they are going to store it for the moment).

     

    Can it bring a bank down? Since banks seem to have a lot of deposits, no loans to make, it ends up as excess reserves, on which they have to pay negative interest rate to the CB (in Europe now) and thus they do not want it. In fact RBS I read somewhere refused a big deposit from an Institutional Investor. In such a case I am not able to understand how pulling deposits out of a bank can bring a bank down. Does it mean even if the bank has excess reserves a bank run can bring it down?

    In a fractionally reserved system, any withdrawals from bank deposits will in theory create a “reverse multiplier effect”. Hypothetically speaking, if a banking system were to operate under a 10% minimum reserve requirement and was “fully loaned up”, having created $90 in additional money for every $10 on deposit, it would be forced to call in loans if people started withdrawing money from their deposits.

    The banks in our example can only be “fully loaned up” under the assumption that all newly created deposit money was kept within the banking system, that all banks extended loans to the full capacity allowed by the reserve requirement, and that any imbalances between banks were canceled out via interbank lending of reserves. In that case the credit multiplier is simply given by the formula d/r (d=deposits, r=reserve ratio).

    In reality, reserve requirements haven’t played a role in the banking systems of developed economies for a long time, in the sense that have not represented an obstacle to credit expansion. As a result, the vast majority of deposit money extant prior to the 2008 financial crisis consisted of fiduciary media, i.e., uncovered money substitutes.

    People had numbers in their accounts, but there was almost no standard money held in reserve covering these numbers. This has changed dramatically since 2008 as a result of “QE”. While the percentage of covered money substitutes in the US banking system was a mere 0.35% on the eve of the 2008 crisis, it stood at 23.67% at the end of February 2016. The true money supply has expanded enormously, but the percentage that consists of fiduciary media is far smaller than previously:

     

    2-Covered money substitutes, percentage

    The percentage of covered money substitutes in the US banking system (calculated as the ratio between total bank reserves and TMS-2 excl. currency). Note that in the annotation it should actually say “the banks had created almost $100 per 35 cents on deposit” – one must deduct the 35 cents…  🙂 – click to enlarge.

     

    In other words, nowadays the large percentage of uncovered money substitutes is no longer such a big problem. Bank reserves can always be transformed into cash currency when customers are withdrawing money from demand deposits. Still, deposits are an important funding source for many banks, so we don’t think they would be very happy if people started emptying their deposits en masse.

    More importantly though, while banks haven’t been constrained by reserve requirements for a long time (e.g. in the euro area official reserve requirements ystand at a mere 1%, while in the US reserve requirements have been circumvented through sweeps since the mid 1990s), they are definitely constrained by new regulations regarding capital requirements and leverage ratios (details on the Basel III regulations and the EU’s new capital rules can be easily found via Google).

    So a bank run could certainly still not be shrugged off as a non-event. After all,  bank reserves deposited with the central bank represent the cash assets of commercial banks. It obviously makes a difference whether or not they have those. It has to be assumed though that central banks will do whatever it takes to mitigate such an event, just as they have done in 2008.

    Lastly, negative interest rates on bank reserves do represent a problem for banks. In Germany they are referred to as “penalty rates”, since they are an additional cost for commercial banks that they cannot really escape (since QE continues to create more and more reserves, whether they like it or not). The low interest rate environment has also had a sizable negative impact on their net interest margins.

    Why central bankers ever thought that this was a good idea is completely beyond us. But then again, the last time a central banker said or did anything that made sense was probably in the 1950s.

     

    Hoarding of Cash Currency

    There is not enough currency to go around, so what is likely to happen, do CBs start printing them? What else could they do? Also what could be its effect as they may not be able to print it as fast as people want to pull it out and that could cause serious panic and panic can bring the system down.

    We don’t believe this would be a big problem. Yes, a lot of currency would indeed have to be printed, but there exists a fairly large stock of vault cash that could be used to satisfy those at the head of the queues, so there would presumably be enough time to print sufficient amounts of new currency.

    In extremis, the authorities will per experience impose restrictions on withdrawals or declare what is euphemistically called a “bank holiday”, i.e, they’ll simply order the banks to close. This has recently happened in Cyprus and Greece, and before that in Argentina. It is usually the precursor to the outright confiscation of bank deposits. This is nowadays called a “haircut”, as if one were just visiting a hair-stylist (formerly known as a barber).

     

    3-vault cash

    Vault cash held by US banks – currently approx. $72 billion. Note the big spike in vault cash after the WTC attack – this shows that large amounts of additional cash can indeed be mobilized quite quickly – click to enlarge.

     

    Stemming the Tide

    When $500 billion was pulled out from money market funds in 2008, the Fed woke up to the fact that there was something amiss and did a lot of things. What are the possible measures they are likely to take now? What happens if it does not stem the tide?

    First of all,  we would note here that ever since negative interest rates on bank reserves have been imposed, there has been a concerted media campaign with assorted statist bien pensants  arguing in favor of a cash ban under a multitude of pretexts (apart from breathing air, criminals use cash, and we have to make central bank intervention more effective). These were the usual suspects, such as e.g. Mr. Summers and Mr. Rogoff in the US (representing the two main wings of establishment-approved statist economic thought, namely Keynesianism and Monetarism) and their counterparts in other countries.

    Consider that in spite of having to pay penalty rates on reserves, commercial banks have as a rule not passed negative rates on to their customers, precisely because they fear that this could lead to a run on deposits. Obviously, if our vaunted central planners continue to try to force people to increase their spending and consumption (putting the cart before the horse is their idea of creating “economic growth”), the idea of simply making cash withdrawals impossible must seem tempting. For obvious reasons, banks would also not be averse to this. And lastly, a cash ban would utterly destroy financial privacy, installing a system of total control.

    However, as we have previously discussed, extending negative interest rates beyond the realm of bank reserves would hasten the arrival of a profound crisis, as it would lead to widespread capital consumption. The complex latticework of the economy’s structure of production would become increasingly fragile as entrepreneurs would withdraw their capital to consume it or to render it inert (by e.g. buying gold) in order to wait for better times.

    Apart from this campaign to either ban cash or make its use beyond certain amounts illegal (cash payments exceeding certain thresholds have already been banned in several European countries), we can be fairly certain that there are no limits to the creativity of central bankers when it comes to fighting a crisis of confidence. But there are other limits: whatever they decide to do will only work as long as confidence in state-issued fiat money itself doesn’t evaporate.

     

    Government Bonds vs. Cash

    How can government bonds be better investment than physical cash in such an environment? Cash becomes a interest earner in a deflationary environment. Thus why will not Institutional Investor not hold cash instead of buying bonds (Munich Re has started doing this in a small way)? Then what happens to the bond market?

    Assuming confidence in state-issued fiat money as such remains strong, it seems obvious that cash should be preferred over bonds sporting negative yields. So why are these bonds still in demand, given that they generate a guaranteed loss if held to maturity?

    For one thing there are speculative reasons – some buyers expect to sell them at still higher prices and even more deeply negative yields.  Apart from that though, there are a numerous other reasons why government bonds remain in demand.

    For instance, financial repression is imposed via various government regulations: the same capital and solvency rules that constrain the activities of banks in many ways these days also give them a strong incentive to hold government bonds, which have been assigned a risk-weighting of zero.

    Insurers are also subject to regulatory pressures with respect to capital, liquidity and the assets they may hold. Government bonds are also widely used as collateral in repo transactions so many financial institutions need to have an inventory of such bonds in order to be able to operate in these markets.

     

    4-Negative yielding bonds

    As of February, approx. $7 trillion in government bonds were sporting negative yields-to-maturity – click to enlarge.

     

    Moreover, big investors may actually prefer to hold government bonds at a small loss rather than keeping cash on deposit with banks, because short term government bonds are considered less risky. Large deposits could come under threat if a bank becomes insolvent and its losses are too large to be absorbed by its shareholders and bondholders – especially under the new “bail-in” regime.

    Government bonds are usually highly liquid, and can be sold at any time if cash is needed.  Short term bills of highly rated government debtors are actually akin to secondary media of exchange, since they are widely accepted as collateral in financial transactions. Many may consider storing cash in a vault as problematic in terms of flexibility, as it cannot be deployed quickly. T-bills on the other hand can be sold at a mouse click.

     

    5-German 5 yr yield

    Germany’s 5 year government bond yield: minus 33 basis points – click to enlarge.

     

    What Munich Re. has done is of course under consideration by a number of other insurers and pension funds as well. After all, the more deeply government bond yields fall into negative territory, the more competitive the costs of storing and insuring large amounts of cash will become. However, as we know e.g. from Switzerland, the authorities are actively discouraging institutional investors from taking such steps, even though they would be perfectly legal (see “The War on Cash Migrates to Switzerland” for details on this).

    We actually don’t think the government bond market is under much of a threat from an increase in cash hoarding. What represents the biggest potential threat to the bond market would be a crisis of confidence focused on state-issued money itself – but that would be bad for cash as well. This is the kind of crisis our central planners are likely to eventually provoke, for the simple reason that they fail to take the very long term effects of their radical ad hoc policies into account.

    Naturally monetary bureaucrats believe such a thing is impossible, because they are convinced  they will be able to maintain confidence in fiat money by taking certain measures such as raising interest rates, draining liquidity from the system, and so forth. It sounds simple enough, but it ignores the economic and political pressures the authorities will probably face when the time to implement such measures comes.

    It also ignores the “potential energy” harbored by the enormous amounts of money that have been created already. A loss of confidence is not a linear event. Usually, confidence appears just fine until a certain unknowable threshold is crossed – and then it is lost in a flash.

     

    Conclusion

    Negative interest rate policy is inherently self-defeating, as are more traditional forms of monetary pumping. The aim is to rescue a system that has been brought to the verge of implosion after too much unsound debt and too much malinvested capital have accumulated, by creating even more unsound debt and provoking even more capital misallocation. This, in a word, is insane. While debt continues to grow, the economy’s ability to create the wealth that will be required to repay it is concurrently undermined.

    We cannot be sure what shape the next crisis will take, although it seems likely that it will be yet another “deflation scare”, mainly caused by falling asset prices. However, we do know what the last crisis of the current system will look like. It will entail a crumbling of the public’s faith in fiat money and the institutions that issue and administer it.

    Ironically, repeated deflation scares are actually hastening the arrival of this long-term outcome, as they provoke ever more extreme policy responses, all of which tend to end up boosting the amount of outstanding money and credit.

     

    6-TMS-2

    US money supply TMS-2: economic downturns and “deflation scares” continually provoke money printing on an ever more breathtaking scale – click to enlarge.

     

  • State Department Suspends Probe Of "Top Secret" Clinton Emails

    While the media goes into a frenzy every time someone is punched or maced at a Trump rally, or frankly any time Trump says anything out of place (and lately he has has had more than his fair share of supply), what according to many is the real scandal, is quietly being doused with the media obligingly looking the other way.

    Moments ago, AP reported that the State Department has suspended its internal review into whether former Secretary of State Hillary Clinton or her top aides mishandled emails containing information now deemed “top secret.”

    Spokeswoman Elizabeth Trudeau said Friday the department had paused the review to avoid complicating or impeding an ongoing FBI investigation into Clinton’s use of a private server while she was America’s top diplomat. She said the review would remain “on hold” pending completion of the FBI probe. The review could result in counseling, warnings or other action if findings show information was mishandled.

    It will most likely result in absolutely nothing, and with the DOJ stonewalling the FBI probe which supposedly has 147 agents on the case, “nothing” is also what the ultimate outcome of any and all probes involving the future president of the US will be, something the broader betting market has also figured out.

    An FBI spokesman did not immediately respond to request for comment in a phone call from the AP.

  • Weekend Reading: Bulls vs Bears – Who Will Win?

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    As March marked the beginning of spring, the bulls were stampeded by a “perfect storm” of Central Bank actions. From the ECB dropping rates into negative territory and launching a bigger “quantitative easing” program, to the Federal Reserve backing off its plans to hike interest rates this year, the “accommodative support” gave the bulls the clearance they needed to pile back into equities.

    With a short-term improvement in the technical underpinnings of the markets and an improvement in overall sentiment, the short-covering fueled rally pushed the S&P 500 back into positive territory for the year. That is where the bulls find their victory. 

    Yet, despite all of the “whooping and hollering” by the bulls, there has actually been little progress made. Yes, the rally from the lows has been very inspiring, but it is the same rally as seen from the previous two lows.

    SP500-MarketUpdate-040116

    With volume declining on the rally as short-covering fades, the thrust of Central Bank actions now behind us, the focus will once again turn to the economic and fundamental data. From that standpoint, the “bears” remain firm in the commitments. With profit margins and earnings on the decline, economic data weak and interest rates hovering near lows, there is little support for an ongoing bull rally. 

    Fundamentals-Technicals-Bull-Bear

    But then again, the current rally has defied expected logic up to this point. Will it continue, or will it die a quick death? With traditional summer weakness fast approaching, that is the question that must be answered and the subject of this weekend’s reading. It’s the bulls versus the bears – who will win?

    CENTRAL BANKING

    MARKETS & EARNINGS

    ECONOMY & OIL 

    OTHER GOOD READS

    “There is nothing so disastrous as a rational investment policy in an irrational world” – John Maynard Keynes

  • Stocks Spike On "Good Jobs" As Crude Crashes

    "Off the lows"…

     

    So this just happened…

     

    But it doesn't really matter when all it takes is a phone call…

     

    Post-Payrolls, stocks faded until the US open, and then took off…

     

    Thanks to Dennis Gartman, The Dow surged 250 points off the lows…

     

    On the day, good jobs was bad news but good ISM was good news…

     

    On the week, Small Caps soared but Trannies were unable to get out green…

     

    Year-to-date, Russell 2000 and Nasdaq remain the red as Trannies outperform…

     

    VIX was battered almost every day…trading to 13.00!

     

    With VIX in control, stocks decoupled from bonds and FX carry….

     

    And Stocks totally decoupled from oil today at the US open…

     

    Despite the equity strength, bonds also surged with yields down 6bps (30Y) to 15bps (5Y) on the week…

     

    The USD Index tumbled most in 2 months to its lowest close since Oct 2015…(driven by a surge in JPY)

     

    The USD Index suffered a "Death Cross" this week – will it be a false alarm like in October?

     

    Gold managed to close the in the green (best week in a month) as crude was clobbered…

     

    This was Crude's first losing week in 7 weeks – pushing crude to one-month lows…

     

    So on the week – Stocks Up, Bonds Up, Gold Up, Dollar Down, Oil Down…

    Charts: Bloomberg

    Bonus Chart: Reminder – You Are Here

  • The American Voter Summarized In 1 Cartoon

    Presented with no comment…

     

    Source: The Burning Platform

  • The Trade Wars Begin: China Retaliates To Steel Tariffs With Global Anti-Dumping Duties

    When looking back in history, December 23, 2015 may be the date the global trade wars officially began. On that day, as we reported at the time, the U.S. imposed a 256% tariff on Chinese steel imports.

    It did so perhaps with good reason: with its local end markets mothballed, China was desperate to dump as much excess capacity as possible offshore with shipments of steel, oil products and aluminum all reaching new highs according to trade data from the General Administration of Customs, and the result was a dramatic drop in US prices.

    On the other hand, with Chinese mills, smelters and refiners all producing far more than can be purchased domestically amid slowing domestic demand, as well as the government’s anti-pollution crackdown, China’s decision to ship the excess overseas was also understandable.

    As Bloomberg wrote at the time, “the flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.”

    2016 was expected to get even worse: Colin Hamilton, head of commodities research, said the the price of hot-rolled coil, used in everything from fridges to freight containers, may decline about 13 percent next year. China’s steel exports, which have ballooned to more than 100 million metric tons this year, may stay at those levels for the rest of the decade as infrastructure and construction demand continues to falter.

    To be sure, it was India who launched the first shot, when it announced that it plans to step up its protection for debt-laden domestic steelmakers by imposing a minimum price on steel imports among other measures, Steel Secretary Aruna Sundararajan said in December. The import curbs are necessary to ensure a “level-playing field” for Indian companies after restrictions imposed in September failed to stop a decline in prices, she said.

    And then it was the US’ turn, when shortly after India unleashed protectionist measures, the US Department Of Commerce announced that  corrosion-resistant steel imports from China were sold at unfairly low prices and will be taxed at 256 percent. The move was clearly aimed at China: imports from India, South Korea and Italy would be taxed at lower rates, while imports from Taiwan and Italy’s Marcegaglia SpA would not face anti-dumping tariffs.

    We left it off by saying that “now that the US has fired the first trade war shot, it will be up to China to retaliate. It will do so either by further devaluing its currency or by reciprocating with its own protectionist measures against the US, or perhaps by accelerating the selling of US Treasurys. To be sure, it has several choices, clearly none of which are optimal from a game theory perspective, but now that the US has openly “defected” from the “prisoner’s dilemma” game, all bets are off.”

    To be sure, just a few weeks later China proceeded with another dramatic devaluation of the Yuan, which may or may not have been accompanied by an aggressive selling of Treasury.

    However the missing link was China unveiling its own protectionist response: a necessary and sufficient condition for fully symmetric trade wars.

    It did so earlier today when, accused of flooding world markets with cheap steel, it imposed its own anti-dumping duties as high as 46.3% on electric steel products imported from Japan, South Korea and the European Union, the Ministry of Commerce said on Friday.

    According to Reuters, the overseas suppliers include JFE Steel Corp, Nippon Steel and Sumitomo Metal Corp and POSCO, the ministry said in a notice posted on its website (www.mofcom.gov.cn). The ministry did not identify any EU supplier.

    What is curious is that China, by far the world’s biggest steel producer, imports relatively small quantities of high-end steel products, including electric steel used in power transformers and generators. In other words the move was mostly symbolic, and a confirmation that China now believes it is being treated unfairly enough to where it can demand in-kind protectionism which will only escalate as the end demand to the global supply glut is simply not there.

    The tariffs come at a time when the UK is up in arms over the decision by Tata Steel, the owner of much of UK’s steel industry, to sell its local plants in the process liquidating about 15,000 jobs. Tata blamed a flood of cheap Chinese supplies which means now that China has re-escalaed, thousands of newly laid off ironworkers in the UK (and elsewhere) will have a new global target which to blame for their troubles.

    We doubt it will end there, because one trade wars begin, the logical consequences of currency wars, they rarely end amicably or on short notice, and on numerous occasions devolve into outright, conventional wars.

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Apr 01

Today’s News 1st April 2016

  • "We're Going To War" – Oliver Stone Fears The Dangerous Extremism Of Neocon Hillary Clinton

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    When fear becomes collective, when anger becomes collective, it’s extremely dangerous. It is overwhelming… The mass media and the military-industrial complex create a prison for us, so we continue to think, see, and act in the same way… We need the courage to express ourselves even when the majority is going in the opposite direction… because a change of direction can happen only when there is a collective awakening… Therefore, it is very important to say, ‘I am here!’ to those who share the same kind of insight.

     

    — Thich Nhat Hanh, Buddhist Monk, The Art of Power

    Oliver Stone has penned a powerful and emotional takedown of Hillary Clinton, focusing on her insane neocon foreign policy chops in a piece published in the Huffington Post titled, Why I’m for Bernie Sanders.

    What follows are just a few paragraphs, I suggest reading the entire thing:

    We’re going to war — either hybrid in nature to break the Russian state back to its 1990s subordination, or a hot war (which will destroy our country). Our citizens should know this, but they don’t because our media is dumbed down in its “Pravda”-like support for our “respectable,” highly aggressive government. We are being led, as C. Wright Mills said in the 1950s, by a government full of “crackpot realists: in the name of realism they’ve constructed a paranoid reality all their own.” Our media has credited Hillary Clinton with wonderful foreign policy experience, unlike Trump, without really noting the results of her power-mongering. She’s comparable to Bill Clinton’s choice of Cold War crackpot Madeleine Albright as one of the worst Secretary of States we’ve had since … Condi Rice? Albright boasted, “If we have to use force it is because we are America; we are the indispensable nation. We stand tall and we see further than other countries into the future.”

     

    Hillary’s record includes supporting the barbaric “contras” against the Nicaraguan people in the 1980s, supporting the NATO bombing of the former Yugoslavia, supporting the ongoing Bush-Iraq War, the ongoing Afghan mess, and as Secretary of State the destruction of the secular state of Libya, the military coup in Honduras, and the present attempt at “regime change” in Syria. Every one of these situations has resulted in more extremism, more chaos in the world, and more danger to our country. Next will be the borders of Russia, China, and Iran. Look at the viciousness of her recent AIPAC speech (don’t say you haven’t been warned). Can we really bear to watch as Clinton “takes our alliance [with Israel] to the next level”? Where is our sense of proportion? Cannot the media, at the least, call her out on this extremism? The problem, I think, is this political miasma of “correctness” that dominates American thinking (i.e. Trump is extreme, therefore Hillary is not).

     

    This is why I’m praying still for Bernie Sanders, because he’s the only one willing, at least in the name of fiscal sanity, to cut back on our foreign interventions, bring the troops home, and with these trillions of dollars no longer wasted on malice, try to protect the “homeland” by actually rebuilding it and putting money into its people, schools, and infrastructure.

     

    Albert Camus, talking about the doomed Spanish Civil War in the 1930s wrote, “Men of my generation have had Spain in our hearts. It was there that they learned … that one can be right and yet be beaten, that force can vanquish spirit, and that there are times when courage is not rewarded.” It’s true the light was extinguished for generations in Spain. America was sleeping, but it finally did the right thing and went to war against Fascism. I believe Fascism is still our greatest enemy and its face is everywhere in our so-called “democracies.” It was always about the moneyed interests that had the power. That is what Fascism is and that is the danger we are in now. Sanders talks about money, listen to him. He talks cogently about money and its power to distort. He’s the only one who has raised his voice against the corruption in our politics. Clinton has embraced this corruption.

    Of course, Google told us all we needed to know several months ago:

    Screen Shot 2016-03-31 at 11.49.42 AM

    For more on Hillary and her neocon foreign policy agenda, see:

    Bernie Sanders to Hillary Clinton – “I’m Proud to Say Henry Kissinger is Not My Friend”

    “You Want to Be Free and Dead?” – Billionaire Hillary Clinton Donor Says to Sacrifice Civil Liberties for “Safety”

    Not a Joke – War Criminal Hillary Clinton is Now Running on Her Foreign Policy “Strengths”

    “We Came, We Saw, He Died” – Revisiting the Incredible Disaster That Is Libya

    The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya

  • Visualizing The Automation Potential Of U.S. Jobs (Fast-Food Workers & Truckers Beware)

    We noted last week that 1.3 million industrial robots would be installed between 2015 and 2018, and this would more than double the stock of active robots around the world.

    While many of those robots will be used in the automotive and electronics sectors, VisualCapitalist's Jeff Desjardins notes that there are many other roles that robots will be filling in the future. Surprisingly, according to global consultant McKinsey & Co, not all of these jobs are low-skill, low-wage jobs, either.

    Mckinsey ran a comprehensive study of nearly 800 different jobs in the United States, ranging from CEOs to fast food workers. Between these roles, they found 2,000 individual work activities, and assessed them against 18 different capabilities that could potentially be automated. In their analysis, they found that 45% of work activities representing $2 trillion in wages can already by automated based on proven technology that currently exists. A further 13% of work activities in the U.S. economy could be automated if the technologies used to understand and process human language were brought up to the median human level of competence.

    (click image for fully interactive version)

     

    WHO’S IN, WHO’S OUT?

    The interactive visualization above charts specific careers on their automation potential (out of 100%) along with the hourly average wage of the job.

    What is most interesting about the analysis is that automation potential doesn’t correlate with low-skill, low-wage jobs as much as one may think. While it’s true that the three million fast food workers across the country have an automation potential of 74%, and that heavy truck driving activities can be 69% automated, there are also great counter-examples: for example, only 7% of manual labor and 22% of janitorial activities could be automated.

    Likewise, high-paying jobs are not necessarily robot-proof.

    Doctors (23%), nurses (29%), and even CEOs (25%) all have significant amounts of their jobs that can be automated with current technology. Almost half (47%) of what pharmacists do can be done by a robo-pharmacist, and 72% of commercial pilot activities can be done through computers.

    Not interested in having a robot fill your shoes? Mckinsey notes at the end of their analysis that both creativity and sensing emotion are extremely difficult to automate. Focus on building skills and competencies in these categories, and you’ll be just fine (for now, at least).

  • The Rebellion Will Not Go Away

    Authored by Gaius Publius via DownWithTyranny.com,

    The Sanders- and Trump-led (for now) political rebellion is not going to go away. There are only two questions going forward:

    • Will it remain a political rebellion, one that expresses itself through the electoral process, or will it abandon the electoral process as useless after 2016? 
    • Will it be led by humanitarian populism from the left, or authoritarian populism from the right?

    Why is this rebellion permanent, at least until conditions improve? Because life in the U.S. is getting worse in a way that can be felt by a critical mass of people, by enough people to disrupt the Establishment machine with their anger. And because that worsening is seen to be permanent.

    Bottom line, people are reaching the breaking point, and we're watching that play out in the 2016 electoral race.

    Yes, It Is a Rebellion

    There's no other way to see the Sanders and Trump surges except as a popular rebellion, a rebellion of the people against their "leaders." If one of them, Sanders or Trump, is on the ballot in November running against an Establishment alternative, Sanders or Trump, the anti-Establishment candidate, will win. That candidate will cannibalize votes from the Establishment side.

    That is, Sanders will attract a non-zero percentage of Trump-supporting voters if Cruz or Paul Ryan runs against him, and he will win. By the same token, Trump will attract a non-zero percentage Sanders-supporting voters (or they will stand down) if Clinton runs against him, and she will lose to him.

    (In fact, we have a good early indication of what percentage of Sanders supporters Clinton will lose — 20% of Sanders primary voters say they will sit out the general election if Clinton is the candidate, and 9% say they will vote for Trump over Clinton. By this measure, Clinton loses 30% of the votes that went to Sanders in the primary election.)

    If they run against each other, Sanders and Trump, Sanders will win. You don't have to take my word for it (or the word of any number of other writers). You can click here and see what almost every head-to-head poll says. As I look at it today, the average of the last six head-to-head polls is Sanders by almost 18% over Trump. In electoral terms, that's a wipeout. For comparison, Obama beat McCain by 6% and Romney by 4%.

    Note that Sanders is still surging, winning some states with 80% of the vote (across all states he's won, he averages 67% of the vote), while Trump seems to have hit a ceiling below 50%, even in victory. The "socialist" tag is not only not sticking, it's seen positively by his supporters. And finally, just imagine a Trump-Sanders debate. Sanders' style is teflon to Trumps', and again, I'm not alone in noticing this.

    Whichever anti-Establishment candidate runs, he wins. If both anti-Establishment candidates face off, Sanders wins. The message seems pretty clear. Dear Establishment Democrats, you can lose to Sanders or lose to Trump. Those are your choices, and I'm more than happy to wait until November 9 to find out what you chose and how it turned out. Not pleased to wait, if you choose wrongly, but willing to wait, just so we're both aware of what happened.

    The Rebellion Is Not Going Away

    I won't be happy with you though, Establishment Democrats, if you choose badly. And I won't be alone. Because even if you succeed with Clinton, Establishment Democrats, or succeed in giving us Trump in preference to giving us Sanders, the rebellion is not going away.

    If you look at the Trump side, it's easy to see why. Are wages rising with profits? No, and Trump supporters have had enough. (They don't quite know who to blame, but they're done with things as they are.) Will they tolerate another bank bailout, the one that's inevitable the way the banks are continuing to operate? They haven't begun to tolerate the last one. They already know they were screwed by NAFTA. What will their reaction be to the next trade deal, or the next, or the next? (Yes, it's not just TPP; there are three queued up and ready to be unleashed.)

    Trump supporters, the core of them, are dying of drugs and despair, and they're not going to go quietly into that dark night. The Trump phenomenon is proof of that.

    On the Sanders side, the rebellion is even clearer. Sanders has energized a great many voters across the Democratic-independent spectrum with his call for a "political revolution." But it's among the young, the future of America, that the message is especially resonant. For the first time in a long time, the current generation of youth in America sees itself as sinking below the achievements of their parents.

    The Guardian:

    US millennials feel more working class than any other generation

     

    Social survey data reveals downshift in class identity among 18-35s, with only a third believing they are middle class

     

    Millennials in the US see themselves as less middle class and more working class than any other generation since records began three decades ago, the Guardian and Ipsos Mori have found.

     

    Analysing social survey data spanning 34 years reveals that only about a third of adults aged 18-35 think they are part of the US middle class. Meanwhile 56.5% of this age group describe themselves as working class.

     

    The number of millennials – who are also known as Generation Y and number about 80 million in the US – describing themselves as middle class has fallen in almost every survey conducted every other year, dropping from 45.6% in 2002 to a record low of 34.8% in 2014. In that year, 8% of millennials considered themselves to be lower class and less than 1% considered themselves to be upper class.

    Of course, that leads to this:

    The large downshift in class identity among young adults may have helped explain the surprisingly strong performance in Democratic primaries of the insurgent presidential candidate Bernie Sanders, who has promised to scrap college tuition fees and raise minimum wages.

    Will those voters, so many of them self-described "independents," return to the Democratic Party? Only if the Party offers them a choice they actually want. If the Party does not, there will be hell to pay on the Democratic side as well. America is making them poorer — Establishment Democratic policies are making them poorer — and they're done with it. The Sanders phenomenon is proof of that.

    Will the Very Very Rich Stand Down?

    The squeeze is on, and unless the rich who run the game for their benefit alone decide to stand down and let the rest of us catch our breath and a break, there will be no letting up on the reaction. What we're watching is just the beginning. Unless the rich and their Establishment enablers stand down, this won't be the end but a start, and just a start.

    I'll identify the three branches to this crossroad in another piece. It's not that hard to suss out those three paths, so long as you're willing to look a few years ahead, into the "middle distance" as it were. The ways this could play out are limited and kind of staring right at us.

    But let's just say for now, America faces its future in a way that hasn't happened since the Great Depression, another period in which the Constitution was rewritten in an orderly way (via the political process). Which means that for almost every living American, this is the most consequential electoral year of your life.

    I know. I'm not happy about that either.

  • Did Trump Just Commit A Major Error: Why Renouncing Republican Pledge Could Cost Him 50 Delegates

    As of this moment, Donald Trump has 736 delegates and is (mostly) smoothly sailing to the nomination with Ted Cruz almost 273 behind him at 463. However, there is suddenly an all too real chance that 273 lead can melt to as little as 173 with Trump’s delegate count dropping by 50 as a result of what happened during this week’s CNN townhall meeting when as previously reported, Trump reneged on his pledge to support the GOP candidate. The reason is that by doing so, he may have jeopardized his hold on South Carolina’s 50 delegates.

    As Time reports, the Palmetto State was one of several that required candidates to pledge their loyalty to the party’s eventual nominee in order to secure a slot on the primary ballot. Though Trump won all of the state’s 50 delegates in the Feb. 20 primary, anti-Trump forces are plotting to contest their binding to Trump because of his threat on the pledge Tuesday.

    The loyalty pledge is nothing new in South Carolina, where it has been required for decades, but took on new focus in light of Trump’s public musings about a third party run or withdrawing his support from the eventual nominee if he is stopped at a contested convention.

    As a reminder, when asked about if he still would pledge to support the eventual Republican nominee during a town hall Tuesday with CNN’s Anderson Cooper, Trump said “No. I don’t anymore,” adding that he has been “treated very unfairly.”

     

    As Time adds, while Trump has been hiring staff to ensure he hangs on to delegates in what could be a messy convention fight, the latest threat appears to be an error on his part.

    South Carolina Republican Party Chairman Matt Moore gave credence to the anti-Trump claims: “Breaking South Carolina’s presidential primary ballot pledge raises some unanswered legal questions that no one person can answer,” he told Time. “However, a court or national convention Committee on Contests could resolve them. It could put delegates in jeopardy.”

    More from Time:

    When Trump filed for the ballot in South Carolina he signed a pledge stating to “hereby affirm that I generally believe in and intend to support the nominees and platform of the Republican Party in the November 8, 2016 general election.”

     

    South Carolina has yet to select delegates to the convention and it is a state where Trump may already be on the defensive with delegates. South Carolina delegates to the national convention must have been delegates or alternates to the state’s 2015 GOP convention, a requirement that benefits candidates who appeal to the establishment.

     

    Those delegates would be bound to Trump on the first ballot according to state and RNC rules. The challenge, which could only be filed once delegates are selected, would seek to allow them to be free-agents on the first ballot, thereby keeping Trump further from the key 1,237 figure he needs to secure the nomination. Similar challenges could also be filed in other states that added loyalty pledges.

    The news of the potential loss of delegates came as Trump met with RNC chairman Reince Priebus Thursday. Trump said afterward he had a “nice meeting” to talk about party unity with RNC Chairman Reince Priebus. “Looking forward to bringing the party together,” Trump said on Twitter. “And it will happen!”

    Priebus said the meeting was scheduled days ago and included a discussion about the process heading into the party’s July convention in Cleveland. “We did talk about unity and working together and making sure when we go to Cleveland, and come out of Cleveland, that we’re working in the same direction,” Priebus told the Fox News Channel.

    That said, Priebus will surely be delighted by the prospect of Trump losing 50 votes and making a convention that much more likely.

    Then again, if Trump is about to lose his delegates for reneging on his South Carolina pledge, then what about Ted Cruz whose response when asked if he would support Trump was that he “is not in the habit of supporting someone who attacks [his] wife and family.” That sounds like a no to us. Or how about Kasich who said “if the nominee is somebody who’s hurting the country and dividing the country I can’t stand behind him“, which is another no.

    Or is this just one more of those times when Trump does not do the “political thing” and gives an unequivocal answer to a question to which everyone else implicitly responded the same way, and will now have to deal with the fall out. The answer, most unequivocally, is yes.

  • AsiaPac Data Deluge: China Good, South Korea Bad, Japan Ugly

    An avalanche of data from AsiaPac tonighht was a very mixed bag…

    South Korean trade data continued to shrink:

    • *SOUTH KOREA MARCH EXPORTS FALL 8.2% Y/Y
    • *SOUTH KOREA MARCH IMPORTS FALL 13.8% Y/Y

    And deflation is wahing ashorer…

    • *SOUTH KOREA MARCH CONSUMER PRICES FALL 0.3% M/M

    *  *  *

    Japanese data was a disastrophe…Every single aspect of the Tankan survey missed expectations – from Large manufacturing business outlooks to small service business current conditions…

    But Finance Minister Aso had some helpful things to say…

    • *ASO: CAN SEE SOME WEAKNESS IN ECONOMIC SENTIMENT IN TANKAN (umm, yeah!)
    • *ASO: OVER LONGER TERM, AM VERY COMFORTABLE REGARDING ECONOMY (oh ok then, we won't worry)

    So rest easy my friends, Japan is safe to take leveraged long bets on for one more day. Oh one more thing, that whole NIRP, low rates, encourage lending, transmission mechanism thing… FUBAR!!

     

    FinMin Aso had some comments on that too..

    • *ASO: BANKS HAVE MONEY, DON'T HAVE ANYONE TO LEND IT TO

    So the entire Keynesian model just hit the endgame of debt saturation? That explains why he said this….

    • *ASO: MONETARY EASING, FISCAL STIMULUS HAVE LIMITS

    Which directly contradicts Kuroda who just yesterday said…

    • *KURODA: DON’T THINK THERE IS LIMIT FOR BOJ EASING NOW

    So Limits or No Limits? Who cares – just buy moar stuff… because Japanese Manufacturing PMI just collapsed to its lowest since records began in Feb 2013…

    Moar easing or else… and that will merely anger the Chinese further into retaliation.

    *  *  *

    And then came China…

    Cheers were heard from around the world as China's Services PMI jumped off 7 year lows (from 52.7 to 53.8), however this is still below January's levels – not exactly an exuberant bounce after a trillion of fresh credit injections…

    • *CHINA NON-MANUFACTURING PMI AT 53.8 IN MARCH

    And then Manufacturing hit with a big bounce back into expansion…

    • *CHINA MANUFACTURING PMI AT 50.2 IN MARCH

     

    This is a major problem for Janet, because if China is back in recovery, then The Fed no longer has to worry about China's economy when deciding on the next rate hike.

    Of course what all this means is that Caixin's China PMI (due in 30 minutes) will be a miss to baffle everyone with bullshit.

    The reaction is "buying" of course…

     

    But China hates it…

     

    And just as predicted…

    • *CHINA MARCH CAIXIN MANUFACTURING PMI 49.7; EST. 48.3

    The highest since Feb 2015…

     

    And the market realizes that "good" China news is a disaster as it removes a major Fed excuse for not hiking…

  • 2016: The End Of The Global Debt Super Cycle

    Submitted by Etai Friedman via Palisade-Research.com,

    After the stock market crash of 1987, The Federal Reserve embarked on a path that led to the biggest debt bubble in the history of the world. The day after the 1987 crash (Oct. 20, 1987) Alan Greenspan, Chairman of the Fed, announced to the world that The Fed stood ready to provide whatever liquidity was needed by the banking system to prevent the crash from turning into a systemic financial crisis. That was the day the Fed “put” was born.

     

     

    A put is an option that allows its owner to sell a specified amount of a particular asset at a predetermined price by a specific date. As an example, if an investor had a February 90 put on Apple’s stock that investor would have the right to sell 100 shares at 90 a share until the third Friday in February when the option expired. An investor would only exercise that put if Apple’s stock price dropped below 90 a share before expiration. As it stands Apple’s stock price is 94.02 as of Friday’s close so no rational investor would exercise that put. But if on Monday Apple’s stock crashed and was trading 60 a share than the investor would exercise his put and gladly sell his stock at 90 a share to the person who sold him the put. So in effect after 1987 The Fed was acting as a giant put for the financial markets, a role it had heretofore not played.

    In September of 1998 Long Term Capital Management, a highly leveraged high profile hedge fund, sustained losses that threatened its solvency. The fund with a few billion in equity had $80 billion in assets and all of its trades were going against the firm. LTCM’s equity was going to be wiped out within days. Warren Buffet and a consortium of investors offered to bail out the fund by paying fire sale prices for the assets and shutting down the fund. LTCM’s management balked and looked to The Fed for a better solution. The Fed engineered a bailout by numerous banks that left LTCM’s management in place with some of their wealth to spare. Once again, The Fed intervened in a market calamity and this time bailed out an extremely reckless hedge fund that should have been allowed to fail. The Fed’s put engendered moral hazard in the hedge fund community by allowing reckless and destabilizing behavior to go unpunished.

    In December of 1999, The Fed injected enormous amounts of liquidity into the banking system to fend off any potential problems from the Y2K problem. If you recall, The Fed was worried that banking computer systems might erroneously register 1900 as the year on January 1, 2000 due to perceived deficiencies in banking software. To avert any panic, The Fed stuffed money into the banking system to make sure no calamities ensued. The stock market which was already in the midst of a mania in the tech sector effectively had kerosene poured on the fire. The extra banking liquidity found its way into the stock market and sent the tech bubble into overdrive. After the new year passed without so much as a hiccup The Fed withdrew the excess liquidity and the tech bubble peaked in March 2000 and then collapsed.

    This is where the story of the debt bubble begins. Prior interventions by The Fed promoted moral hazard and rampant speculation but up to this point they did not need to employ debt to prop up the U.S. economy. That all changed after the internet stock mania collapsed, trillions in wealth was destroyed, and the U.S. economy went into recession. The Fed was once again worried that the crash in technology stocks would cause a systemic financial crisis so they embarked on an interest rate cutting program that saw the Fed Funds Rate drop from 6.5% to 1% from 2000 to 2003. This in effect morphed the tech stock bubble into a housing bubble. Adjustable rate mortgage yields plunged in value and accelerated a housing boom already in progress. The public, encouraged by low rates and lax underwriting standards stampeded into housing sending prices through the roof. Mortgage debt exploded and home equity values skyrocketed buffeting the tech collapse induced recession. The average American increased their leverage to all-time highs. Figure 1 shows that by the fourth quarter of 2007 household debt payments as a percentage of disposable income hit a record 13.2% up from 10.5% just 15 years earlier.

    Figure 1

    1

    The Fed meanwhile did not normalize rates until 2005 when the Fed Funds Rate was back up to 4% on its way to 5.25% by 2006, the year the housing boom peaked.  Total debt in the U.S. went from $18 trillion in 2001 to $30 trillion by 2007. Comparatively speaking it took 35 years for total debt in the U.S. to go from under $1 trillion to $4 trillion. As we all know the collapse in housing prices revealed that trillions in mortgage backed securities were not actually AAA rated and the collapse in value of these securities almost took the financial system with them.

    Large investment banks, like Bear Stearns and Merrill Lynch, became insolvent and were forced to merge with better capitalized banks. Lehman Bros. was allowed to fail and brought the global financial system to its knees. The Fed, now headed by Ben Bernanke, went into overdrive slashing the Fed Funds rate to zero percent and essentially backstopping all financial institutions and depositors’ cash and near cash investments.

    A new tool was introduced by The Fed, called Quantitative Easing, which allowed The Fed to purchase mortgage backed securities and other long dated debt to push down long term interest rates and encourage lending. Rates at both the front end and the back end of the yield curve plunged to historic lows with the hope that people and businesses would begin to borrow again and get the economy growing. These extreme measures stopped the free fall in financial assets and began a six-year expansion that was both meager and debt fueled.

    During and following The Global Financial Crisis consumers in some developed countries deleveraged but the rest of the economy, namely governments and businesses, leveraged up. From the first quarter of 2008 to the second quarter of 2015 total debt in the U.S. increased from $30 trillion to $40 trillion. Globally, total debt grew from $142 trillion in the fourth quarter of 2007 to $200 trillion in the second quarter of 2014, an increase of $58 trillion. Total global debt as a percentage of global GDP grew from 269% in 2007 to 286% in 2014. The massive central bank intervention during The Global Financial Crisis prevented a deleveraging of the global economy and actually encouraged more leverage to stimulate growth. Once again the planet was borrowing from future growth to propel current growth. This was indeed a short sighted solution to an existential crisis faced by the world. Kicking the can down to 2016 has now come to its logical end.

    During 2015 the strength of the global economy began to be questioned as commodity prices collapsed, Chinese economic growth slowed, and global trade slowed. For the first time since the European Sovereign Debt Crisis credit spreads began to widen and low rated corporate debt and leveraged loans began declining in value. As seen by Figure 2 Corporate Net Debt to Ebitda rose to record levels while Ebitda began to decline.

    Figure 2

    2

    Declining oil prices crushed low rated high yield energy debt. Figure 3 shows that prices of CCC rated debt collapsed in the fourth quarter of 2015.

    Figure 3

    3

    Also in the first quarter of 2016 low rated commercial real estate debt plunged in value as seen in Figure 4.

    Figure 4

    4

    The credit markets are signaling that the debt fueled expansion that began in 2010 is turning to bust. This is the most precarious moment in financial market history because as the world slides into recession global central banks have no ability to soften the oncoming recession with debt creation. Globally interest rates are close to zero and even negative in Europe and Japan. Long term government bond yields are also extremely low. This is sending a very clear and ominous signal that the world cannot service more debt and in fact needs to deleverage and get on more solid financial footing.

    The last time the world deleveraged was during The Great Depression. The defining quality of The Great Depression was the destructive deflation that gripped the economy. Deflation destroys financial asset values like stocks and corporate bonds and hard assets like real estate. It also lowers incomes while making debt more expensive to service as debt to income ratios rise. The world economy is on the precipice of another Great Depression.

    This state of affairs demands a dramatic repositioning of investment portfolios. Investors who choose to remain passive but want to preserve their wealth need to liquidate their investments in stocks and corporate bonds and hold cash only.  Investors who are more opportunistic can hold a combination of cash and U.S. government bonds. U.S. government bonds have already begun to rally so buying at current levels is not quite as attractive as it was a month ago but we expect negative interest rates to eventually visit America so there is still considerable upside. Figure 5 shows that inflation expectations continue to plunge even as The Fed erroneously is raising interest rates.

    Figure 5

    5

    The more aggressive investor can find opportunities to earn high returns employing strategies that will benefit from a financial collapse and a severe, deflationary recession. These strategies include shorting stock index futures, getting long VIX futures, etfs, and options, getting long stock index option volatility via index etfs, and on a limited basis shorting individual company stocks whose business plans will be acutely affected by economic developments.

    We would not simply be short financial assets every day because we recognize that the markets will initially be quite volatile which means sharp bear market rallies in between dramatic declines in financial assets. We would initially be positioned to benefit from this two-way volatility and as the declines become more severe and investors begin to throw in the towel the fund will be more short oriented.

    We recognize that The Fed will not sit idly by as this bear market intensifies. However limited their options they will employ them and they may provide brief respite from the bear market. We believe The Fed will stop raising interest rates and begin cutting them in 2016 taking them into negative territory. We also believe The Fed will embark on QE4, although it is not clear what assets they will purchase. What is clear is that rate cuts and QE4 will offer brief pauses in financial asset declines but will not ultimately arrest those declines.

    Major fiscal policy adjustments will be needed and this will depend on who takes the White House in 2017. A Democratic win would be a negative while a Republican win by certain candidates may pave the way for major fiscal policy changes. For instance, Ted Cruz’s flat tax would be particularly beneficial and soften the blow of the economic contraction as more money will be directly put into Americans’ hands.

    We also believe the next President needs to strip The Fed of their dual mandate of price stability and full employment. The Fed should no longer be tasked with ensuring full employment and debt creation should be disincentivized through changes to the tax code.

    Lastly, we would like to highlight we take no pleasure in what we see coming to pass in the financial markets and simply wants to offer investors the opportunity to earn high returns in what otherwise will be an environment devoid of financial opportunities and of declining employment.

  • Hong Kong Retail Sales Crash Most Since 1999 As Stocks Soar 14%

    The last few weeks have seen Hong Kong's Hang Seng index surge over 14% which – if one believes the mainstream media – must mean renewed confidence in world economic growth and that everything is awesome. However, that narrative just got destroyed as Hong Kong retail sales in February just crashed by the most since 1999 as fewer Chinese tourists visited the city during the Lunar New Year holiday and as one analyst warned, sales will "continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term."

     

    As Bloomberg details, retail sales dropped 21 percent in February to HK$37 billion ($4.8 billion) year on year, according to a statement from Hong Kong’s statistics department. Combining January and February, sales fell 14 percent.

    The monthly decline is the worst since January 1999 when sales were also down 21 percent.

     

     

    “Apart from the severe drag from the protracted slowdown in inbound tourism, the asset market consolidation might also have weighed on local consumption sentiment,” a government said in a statement on Thursday. “The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects.”

     

    Chow Tai Fook Jewellery Group Ltd., the world’s largest-listed jewelry chain, and Sa Sa International Holdings Ltd. reported slumping sales over the holiday when mainland Chinese tourists to the territory dropped 12 percent during Feb. 7-13. The stock market rout and a slowing Chinese economy have affected consumer sentiment for luxury goods, Chow Tai Fook has said.

     

    Sales of jewellery, watches and clocks, and valuable gifts dropped 24 percent, while those of electrical goods and photographic equipment plunged 27 percent, according to Thursday’s statement.

    The government will monitor closely its repercussions on the wider economy and job market, it said,  but as Bloomberg adds,

    Mainland China tourists “are unlikely to come back in the short term,” said Forrest Chan, an analyst at CCB International Securities Ltd. Hong Kong residents are also consuming less due to stagnant property values and the weak stock market, he said.

     

    “Hong Kong’s retail market will continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term,” Chan said in a telephone interview.

  • Worst Case Scenario: 73% Down From Here

    Submitted by Jim Quinn via The Burning Platform blog,

    As the stock market gyrates higher and lower in a fairly narrow range, the spokesmodels and talking heads on CNBC breathlessly regurgitate the standard bullish mantra designed to keep the muppets in the market. They are employees of a massive corporation whose bottom line and stock price depend upon advertising revenues reaped from Wall Street and K Street. They aren’t journalists. They are propagandists disguised as journalists. Their job is to keep you confused, misinformed, and ignorant of the true facts.

    Based on the never ending happy talk and buy now gibberish spouted by the pundit lackeys, you would think we are experiencing a bull market of epic proportions and anyone who hasn’t been in the market has missed out on tremendous gains. There’s one little problem with that bit of propaganda. It’s completely false. The Fed turned off the QE spigot at the end of October 2014 and the market has gone nowhere ever since.

    QE1 began in September 2008, taking the Fed balance sheet from $900 billion to $2.3 trillion by June 2010. This helped halt the stock market crash and drove the S&P 500 up by 50% from its March 2009 lows. QE2 was implemented in November 2010 and increased the Fed balance sheet to $2.9 trillion by the end of 2011. This resulted in an unacceptable 10% increase in the S&P 500, so the Fed cranked up their printing presses to hyper-speed and launched the mother of all quantitative easings, with QE3 pushing their balance sheet to $4.5 trillion by October 2014, when they ceased their “Save a Wall Street Banker” campaign.

     

     

    As Main Street dies, Wall Street has been paved in gold.

     

    The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections. Yellen and her gang of central bank drug dealers keep the patient from dying by continuing doses of ZIRP and psychologically comforting dialogue designed to cheer up Wall Street bankers.

    QE3 ended 17 months ago and shockingly the S&P 500 is exactly where it was 17 months ago. How many bull markets go flat for 17 months? As John Hussman accurately points out, we are experiencing a topping formation in the third and biggest bubble of the last 16 years. It’s a long way down from here.

    With the S&P 500 Index at the same level it set in early-November 2014, and the broad NYSE Composite Index unchanged since October 2013, the stock market continues to trace out a massive arc that is likely to be recognized, in hindsight, as the top formation of the third financial bubble in 16 years.

    The chart below shows monthly bars for the S&P 500 since 1995. It’s difficult to imagine that the current situation will end well, but it’s quite easy to lose a full-cycle perspective when so much focus is placed on day-to-day fluctuations. The repeated speculative episodes since 2000 have taken historically-reliable valuation measures to extremes seen previously only at the 1929 peak and to a lesser extent, the 1937 peak (which was also followed by a market loss of 50%). Throughout history, at each valuation extreme – certainly in 2000, 2007 and today – investors have openly embraced rich valuations in the belief that they represent some new, modern and acceptable “norm”, failing to recognize the virtually one-to-one correspondence between elevated valuations and depressed subsequent investment outcomes.

    So we’ve had the stock market going nowhere for 17 months, with valuations at obscene levels based on all historical precedents, corporate profits falling for three straight quarters, real wages of working people stagnant at 1988 levels, and home prices soaring to unreachable heights due to hot money from China, Wall Street hedge funds, and the ever resilient and late flipper class. Consumer spending, which accounts for 67% of our economy, is dead in the water as Obamacare, soaring rents, rising food costs and 0% interest on savings accounts drain the life out of middle class households. The average person (not Wall Street bankers, government apparatchiks, or other parasites of the establishment) is experiencing and has been experiencing a recession for years.

    Low interest rates and double talk from clueless academic Federal Reserve lackeys cannot and will not prop up the stock market forever. Corporate buybacks, financed with cheap debt, by insanely greedy CEOs is the last leg in this wobbly stool. This will come to a screeching halt as profits collapse and the market goes south.

    Stocks always fall during a recession and we have entered a recession, whether it is broadcast by the corporate controlled media or not. The last 17 months have offered the public an opportunity to exit near the top. Anyone who hasn’t taken advantage of this opportunity will be regretful in the not too distant future. With valuations twice historical norms, there is no place to go but down. Hussman understands history better than the brainless twits on CNBC.

    Wall Street analysts talk endlessly on financial television about low interest rates “justifying” current valuations, without completing the story that even if this were true,  these rich valuations still imply predictably dismal future returns on stocks, particularly on a 10-12 year horizon.

    Every bear market in history, including those that completed recent cycles, has taken valuations to the point where expected long-term returns approached or exceeded 10% annually. This is also true for bear markets prior to the 1960’s when interest rates regularly hovered at levels similar to the present.

    On a combined set of historically-reliable measures, we presently estimate that valuations are more than twice their historical norms; twice the level that has routinely been pierced to the downside in even the most run-of-the-mill market cycle completions across a century of history, regardless of the level of interest rates.

    Warren Buffett’s favorite valuation method for the market (Market Cap/GDP), which he has disregarded now that he has sold out to the crony capitalist establishment, is at extreme levels only seen at historic market tops (1929, 2000, 2007). Based upon basic mathematical equations and history, according to Hussman, the S&P 500 will be no higher in 2028 than it is today. I wonder how many financial advisors have put that in their neat little investment models? How many Boomers and Gen Xers can handle a 0% return over the next 12 years?

    With the S&P 500 still within a few percent of its record 2015 high, investors have a critical opportunity here to understand the difference between a run-of-the-mill outcome and a worst-case scenario. The present ratio of MarketCap/GDP is about 1.2, which we fully expect to be followed by nominal total returns in the S&P 500 of about 2% annually over the coming 12 years. Given the current dividend yield on the S&P 500 actually exceeds 2%, the historically run-of-the-mill expectation from current valuations is that the S&P 500 Index itself will be below current levels 12 years from today, in 2028.

    The arrogant ego maniacal pricks, who inhabit the upper echelons of the Wall Street towers of babel, confidently disregard facts, history, and basic risk management concepts as they are about to inflict the third market collapse in sixteen years upon the unsuspecting public. Hussman‘s projections in 2000 were right and his projections today will be proven right.

    I realize that a projection like this seems preposterous. Unfortunately, this just reflects objective evidence that has remained reliable over a century of market cycles. Recall that our real-time projection for 10-year S&P 500 total returns in 2000 was correctly negative even on the basis of optimistic assumptions. The basic arithmetic was the same.

    Now for the kicker. Throughout history the stock market has experienced secular bull and bear markets where valuations go from extremely overvalued to extremely undervalued. The secular bear market from 1966 until 1982 was followed by a secular bull market from 1982 until 2000. In 2008/2009 we were headed towards a secular low, but the Fed intervened in order to save their Wall Street owners from bankruptcy. The system was not purged of its excesses. The chaff was not separated from the wheat. Therefore, the secular lows have not happened yet.

    Using basic mathematical relationships which have held for over 100 years of stock market performance, Hussman concludes a run of the mill reversion to the mean will result in a 50% stock market loss. In order to reach a secular low in valuations, we would experience a 73% loss from here. That seems inconceivable to a population of normalcy bias blinded, iGadget distracted, math challenged CNBC believers. Will you let cognitive dissonance rule your decision making or will you use reason to understand the peril directly ahead?

    Notice that expected market returns of about 6% have historically been associated with a MarketCap/GDP ratio of 0.8. The historical norm associated with 10% equity returns has been about 0.6. The secular lows of 1949 and 1982 hit ratios about 0.33. So a rather minimal completion of the current cycle would take the market down by about -33% from here (=0.8/1.2-1), a run-of-the-mill cycle completion would be about -50%, and a truly worst-case scenario would take the market down by about -73% to a secular valuation low in the current market cycle. One can’t rule anything out given reckless monetary policy, fragile European banks, excessive covenant-lite lending and so forth, but I don’t expect more than a run-of-the-mill cycle completion here.

    I’m afraid the lesson of history is that people never learn from the lessons of history. It’s always different this time. People will ignore the facts until it is too late. Every historically accurate statistical valuation method proves we are in the mother of all bubbles, created by Federal Reserve sociopaths. Every reliable economic indicator is flashing red for recession. There is absolutely no doubt this market is going to crash. It’s just a matter of when and by how much. If you think you can get out in time, be my guest and buy some more Amazon, Google, and Facebook on margin. Or you can heed the lessons of history as laid out by John Hussman. Your choice.

    The central lesson to be learned from market history – and particularly from yield-seeking bubbles – is not that valuations are irrelevant, nor that central bank intervention is capable of sustaining bubbles permanently. Rather, the lessons are: 1) market internals, and the investor risk-preferences they convey, are the hinge between overvalued markets that remain elevated and those that collapse, and 2) unlike prior market cycles, even extreme “overvalued, overbought, overbullish” conditions were insufficient to derail speculation in the face of reckless monetary policy since 2009 – one had to wait until market internals deteriorated explicitly before adopting a hard-negative market outlook.

    If one learns those hard-won lessons about the importance of investor risk-preferences and market internals over portions of the market cycle, one need not fall prey to the delusion that easy money can support stocks once risk-aversion sets in (recall 2000-2002 and 2007-2009), and one need not make the mistake of discarding the essential lessons that valuations have taught in complete market cycles across a century of history.

  • Olympics In Doubt As Brazil Sports Minister Quits, Rio Governor Says "This Is The Worst Situation I've Ever Seen"

    In less than five months, Brazil is expected to host the Summer Olympics.

    If you follow LatAm politics, you know that that is an absolute joke. Last summer, the country descended into political turmoil and the economy sank into what might as well be a depression. Nine months later, inflation is running in the double digits, output is in freefall, and unemployment is soaring. On Wednesday, the government reported its widest primary budget deficit in history and less than 24 hours later, the central bank delivered a dire outlook for growth and inflation.

    Meanwhile, VP Michel Temer’s PMDB has split with Dilma Rousseff’s governing coalition, paving the way for her impeachment and casting considerable doubt on the future of the President’s cabinet.

    On Thursday, we learn that sports minister George Hilton has become the latest casualty of the political upheaval that will likely drive Rousseff from office in less than two months. “Brazil’s sports minister is resigning four months before the country hosts the Olympics, amid continuing uncertainty over the fate of six other cabinet ministers,” The Guardian wrote this afternoon, before noting that earlier this month, “Hilton left his party in an apparent bid to hold onto his job.”

    Hilton had been sports minister for just over a year and although we’re sure any and all Brazilian cabinet positions come with lucrative graft opportunities, we imagine Hilton won’t end up regretting his decision to distance himself from the government and from this year’s Summer Olympics.

    After all, there are quite a few very serious questions swirling around the Rio games. For instance: Will the water be clean enough for athletes to compete in? Will there be enough auxiliary power to keep the lights on? And, most importantly, will the games take place at all?

    Millions of Brazilian citizens have recently taken to the streets to call for Rousseff’s ouster and to protest the return of former President Luiz Inacio Lula da Silva to government. It’s exceedingly possible that if House Speaker Eduardo Cunha can’t manage to get the impeachment job done, the populace will simply march on the Presidential palace.

    How any of the above is compatible with hosting the largest sporting event in the history of the world is beyond us and George Hilton apparently has reservations himself. As does Francisco Dornelles, acting governor of Rio de Janeiro. “This is the worst situation I’ve seen in my political career,” Dornelles said this week, referencing the state’s finances. “I’ve never seen anything like it.” Here’s more from AP: 

    Dornelles didn’t provide numbers, but he said plunging tax income is behind the state’s financial crisis.

     

    Much of Rio’s tax income comes from the Petrobras oil company, which is embroiled in a big corruption probe that has snared several top politicians and businessmen. Last week, Petrobras reported a record quarterly loss of $10.2 billion due to a large reduction in the value of some assets amid lower oil prices.

     

    Dornelles said that it would take a “large effort” for the state to meet all its obligations and that it was looking for credit and other measures to add to diminishing revenues. He suggested that selling state property was one option.

    Yes, it will take “a large effort” for Rio to get back on track. Which probably means it’s going to take a similarly “large effort” for Brazil to figure out how to fund the already over budget Olympic Games in August amid an outright economic collapse. Indeed, the country doesn’t even have any idea who the President is going to be when the Olympic torch is lit in August. 

    At this juncture, the only thing we can say is that we hope the lawyers for all of the advertising partners who just spent a total of $1 billion with NBC’s executive vice president of advertising sales Seth Winter took a good look at the fine print before signing on the dotted line and cutting the checks.

  • John McCain Linked Nonprofit Received Million Dollar Donation From Saudi Arabia

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

     

    Former Democratic Sen. Bob Graham, who in 2002 chaired the congressional Joint Inquiry into 9/11, maintains the FBI is covering up a Saudi support cell in Sarasota for the hijackers. He says the al-Hijjis’ “urgent” pre-9/11 exit suggests “someone may have tipped them off” about the coming attacks.

     

    Graham has been working with a 14-member group in Congress to urge President Obama to declassify 28 pages of the final report of his inquiry which were originally redacted, wholesale, by President George W. Bush.

     

    “The 28 pages primarily relate to who financed 9/11, and they point a very strong finger at Saudi Arabia as being the principal financier,” he said, adding, “I am speaking of the kingdom,” or government, of Saudi Arabia, not just wealthy individual Saudi donors.

     

    Sources who have read the censored Saudi section say it cites CIA and FBI case files that directly implicate officials of the Saudi Embassy in Washington and its consulate in Los Angeles in the attacks — which, if true, would make 9/11 not just an act of terrorism, but an act of war by a foreign government.

     

    – From the post: The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack

    For just and obvious reasons, it’s illegal under U.S. law for foreign governments to finance individual candidates or political parties. Unfortunately, this doesn’t stop them from bribing politicians and bureaucrats using other opaque channels.

    A perfect example is the shady, influence peddling slush fund known as The Clinton Foundation, which entered the public consciousness last year and was the central topic of multiple posts here at Liberty Blitzkrieg. Although they remain the reining champions of cronyism, being a shameless, corrupt fraud isn’t limited to the Clintons. It shouldn’t surprise anyone that a John McCain linked nonprofit has been found accepting million dollar contributions from the most barbaric, backwards nation on planet earth: Saudi Arabia. Naturally, the absolute monarchy remains a very close ally of the U.S. government.

    Bloomberg reports:

     

    A nonprofit with ties to Senator John McCain received a $1 million donation from the government of Saudi Arabia in 2014, according to documents filed with the U.S. Internal Revenue Service.

     

    The Arizona Republican has strictly honorary roles with the McCain Institute for International Leadership, a program at Arizona State University, and its fundraising arm, the McCain Institute Foundation, according to his office. But McCain has appeared at fundraising events for the institute and his Senate campaign’s fundraiser is listed in its tax returns as the contact person for the foundation.

    Forget John McCain for a moment. How appropriate is it for so-called “institutions of higher learning” to be accepting million dollars contributions from an absolute monarchy where women can’t drive and with obvious ties to 9/11?

    Though federal law strictly bans foreign contributions to electoral campaigns, the restriction doesn’t apply to nonprofits engaged in policy, even those connected to a sitting lawmaker.

    This law/loophole obviously needs to be changed.

    Groups critical of the current ethics laws say that McCain’s nonprofit effectively gives Saudi Arabia — or any other well-heeled interests — a means of making large donations to politicians it hopes to influence.

     

    “Foreign governments are prohibited from financing candidate campaigns and political parties,” Craig Holman, the government affairs lobbyist for ethics watchdog Public Citizen, said. “Funding the lawmakers’ nonprofit organizations is the next best thing.”

     

    The Saudi donation to the McCain Institute Foundation may be the first congressional instance of that trend coming to light.

     

    “The extent of this practice is difficult to gauge, of course,” Holman said, “because we only know about it when a nonprofit or foreign government voluntarily reveals that information.”

    While it’s commendable that the McCain Institute Foundation came clean in this instance, the law should definitely be changed to make disclosure a requirement. The last thing this country needs are additional channels for special interests to bribe politicians.

    The institute didn’t originally disclose the 2014 donation from the Royal Embassy of Saudi Arabia. After an inquiry from Bloomberg News, the website was updated to note that the institute received more than $100,000 from the Saudi embassy. Documents filed with the IRS state that the donation totaled $1 million.

     

    Since its launch in 2012, the institute has been “guided by the values that have animated the career” of McCain and his family, its mission statement says. It focuses on advancing “character-driven global leadership,” and runs an internship program, a debate series and hosts events on national security, human trafficking and other issues.

    “Guided by the values that have animated the career of McCain and his family?” Let’s take a look at a few of these “values.”

    Video of the Day – John McCain Threatens Protesters with Arrest, Calls them “Low-Life Scum”

    Incredible Tweets from John McCain on Libya and Syria from 2009 and 2011

    Saudi Arabia Sentences Journalist to Five Years in Prison for Insulting the Kingdom’s Rulers

    The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack

    Saudi Arabia Sentences Poet to Death for “Renouncing Islam”

    Saudi Arabia Prepares to Execute Teenager via “Crucifixion” for Political Dissent

    The institute’s executive director is Kurt Volker, a former ambassador to the North Atlantic Treaty Organization who also serves as a senior international adviser to lobbying firm BGR Group. BGR Group’s clients include Chevron, Raytheon Co. and the Center for Studies and Media Affairs at the Saudi Royal Court. Its nonprofit arm, the BGR Foundation, also donated at least $100,000 to the institute, according to its website.

    It’s starting to make sense now isn’t it.

    “It’s only natural that a longtime and vocal supporter of the Saudi-U.S. alliance might be embraced by them this way,” said David Andrew Weinberg, a senior fellow with the conservative think tank Foundation for the Defense of Democracies. Weinberg estimates that Persian Gulf countries alone have contributed more than $100 million to presidential libraries and charities promoted by former presidents.

    Nothing to see here. Move along peasants.

    But such contributions usually don’t have to be disclosed, so it’s unclear how much money from the Saudi embassy or other foreign sources has gone to groups with ties to current and former U.S. officials or lawmakers.

     

    But the foundation did receive its initial funding — about $8.6 million — from money left over from McCain’s 2008 presidential run, in a transaction permitted under campaign finance laws.

     

    McCain has appeared at events for the institute, including its fundraising efforts and its annual, invitation-only conference held in Sedona, Arizona. The annual conference has also featured Vice President Joe Biden and a 2014 appearance by Clinton before she was officially a presidential candidate. CEOs from GE, Chevron, Wal-Mart, Freeport and FedEx — all of whose companies or charitable arms have contributed more than $100,000 to support the institute — have also spoken.

     

    Some of the institute’s larger donors, including hedge fund manager Paul Singer and investor Ron Perelman, also contributed $100,000 to Arizona Grassroots Action PAC, a super-PAC that’s supporting McCain as he seeks his sixth term in the Senate.

    Paul Singer, John McCain and the Saudis. Sure makes you feel all warm and fuzzy.

  • China Unveils 'Trumpian' Tariffs On All Foreign Goods

    Having glad-handed with President Obama just this morning, and complained of a "sluggish global economy," that ironically his credit-fuelled mal-investment maelstrom enabled via its deflationary forces, Chinese President Xi appears to have moved on from currency wars to protectionism as WSJ reports China is tightening its grip on cross-border e-commerce, imposing a new tax system on all overseas purchases. While Trumpian tariffs are dismissed as crazy talk by America's establishment, it seems China took first-mover advantage to boost "Made-in-China" products at the expense of the rest of the world.

    As The Wall Street Journal reports,

    The changes, announced by the Finance Ministry last week, include raising the so-called parcel tax that is currently imposed on overseas retail products that e-commerce firms ship into China. On top of that, such goods sent directly to consumers will now be treated as imports and will be subject to tariffs and value-added and consumption taxes, whose rates vary depending on the type and value of goods.

     

    The ministry said the changes, which become effective April 8, are intended to put foreign and domestic products on an equal footing. But industry analysts said the move seems designed to give a boost to “made-in-China” products and could dent a small, but growing market for foreign goods sold by Alibaba Group Holding Ltd., JD.com Inc. and other e-commerce players.

     

    …

     

    The new levies could dampen some demand, just as an increasing number of retailers world-wide are hoping to sell into China, says Charles Whiteman, senior vice president of client services for MotionPoint, a technology company that helps international retailers sync their e-commerce websites across languages and currencies.

     

    “Increases in prices always have the effect of driving demand down,” but the effect will be “modest,” Mr. Whiteman said. “It probably won’t be too noticeable for branded products,” which consumers are willing to pay a premium for.

    The changes in taxes come as the Chinese economy is slowing down and the deceleration is crimping tax revenues. Tax revenues grew 4.8% last year, compared with 7.8% in 2014. Beijing is looking for new sources of growth and revenue, and is trying to guide the economy to rely more on consumption and less on investment and industry. At the same time, Beijing is anxious to build up domestic businesses to provide jobs.

    Calculating the impact of the changes on merchandise is difficult given that different categories of goods carry different rates. A company that sells infant formula milk, for example, will pay nearly 12% more in taxes if the sale is under 500 yuan because previous exemptions don’t apply, according to Mr. Tan, the analyst.

     

    Luxury goods like jewelry will see extra taxes between 9% and 17%, while some levies on personal-hygiene and cosmetic products could fall since the changes rescind the previous heavier parcel tax on those products.

    So President Obama – what will you do now? Perhaps Mr. Trump is worth talking to for some ideas?

  • The Reason Anbang Pulled The Starwood Offer: It Couldn't Prove It Has The Funds

    Several days ago, we explained how China’s bizarro M&A scramble was nothing more than a rushed attempt to park as much capital in the US (and offshore) as possible before Beijing gets wise enough and cracks down on this latest loophole to evade Chinese capital controls, we had this to say about the farcical, and now pulled, $14 billion Anbang offer for Starwood, owner of the W Hotels, Sheraton and St Regis brands:

    Seen in this light the recent deal in which a Chinese insurer is seeking to buy one of the world’s biggest hotel chains makes all the sense in the world: big Chinese investors are not seeking to actually generate profits on future M&A, they are merely looking to preserve capital and are doing so by overpaying for acquisitions around the globe.

    As such the biggest question, and wildcard in this, and all other Chinese megadeals in the recent record splurge for US assets, was what is the source of financing: after all the last thing Anbang and peers was for the government to start cracking down on just how they were funnelling funds offshore.

    As the FT reported moments ago, “Wu Xiaohui, Anbang’s chairman, this week brushed away questions about the source of his funding and warnings from the Chinese insurance regulator by assuring Caixin, a respected Chinese business publication, that Anbang had Rmb1tn in assets.“

    Furthermore, Anbang’s pursuit of Starwood came into question last week after a Chinese news outlet reported the country’s insurance regulator may invoke a rule that restricts domestic companies from investing more than 15 per cent of their total assets abroad.

    That may have been the gamechanger.

    And, as was announced late this afternoon, Anbang unexpectedly pulled its Starwood offer, and for a very specific reason. According to the FT, an investor consortium led by China’s Anbang Insurance has lost the bidding war for Starwood Hotels & Resorts, after failing to demonstrate that it had the financing in place to back up its latest $14bn offer, according to a person directly involved.

    This means that either the entire hostel (sic) bid was a sham from the beginning, or Anbang’s chairman Wu Xiaohui and his various “related party” co-owners got a tap on the collective shoulder from the government who told it the jig was up.

    Worse, this means that not only is Anbang out of the game and that Starwood has to go back crawling to Marriott hoping the terms of the latest purchase proposal are still valid, but that suddenly China’s M&A spree may be over as fast as it started.

    FT adds that the end of Anbang’s pursuit of Starwood “marks the sharpest setback for Chinese bidder who have accounted for a record share of global merger and acquisition activity in 2016.”

    It also risks reviving long-held questions in the minds of sellers and their advisors about the seriousness of some Chinese suitors. Anbang’s consortium had shared no details in public about the sources of its financing, and offered no comment on Thursday about whether it had fully funded its offer.

    We now know it had no financing in place whatsoever, and either it was the government that stepped in, or Starwood’s stakeholders said they do not accept suitcases full of recently laundered cash as a form of payment.

    In any event, those eight items we listed last night in “8 Things The Chinese Are Scrambling To Buy In America“, are now 7, and may soon be 6, 5, 4 and so on.

    * * *

    There is, of course, a far simpler explanation why Anbang pulled the deal: the entire company is a fraud, as the following NYT profile of its shady internal dealing strongly hints:

    He is often compared in the media to Warren E. Buffett. Like the American billionaire, he is leveraging his control of an insurance company to become one of the biggest names in global finance. Like Mr. Buffett, he looks to be acquiring an immense personal fortune. But that is where the comparisons between Wu Xiaohui, the chairman of the Anbang Insurance Group of China, and Mr. Buffett come to a halt.

     

     

    Mr. Wu has links to some of the most powerful families in China. He married Zhuo Ran, the granddaughter of Deng Xiaoping, China’s former paramount leader in the 1980s and much of the 1990s. That name, uncommon in Chinese, appears in corporate records tied to at least two of the 37 holding companies.

     

    His exact holdings in Anbang are not clear. A close examination of Anbang’s shareholding structure shows that the 37 companies control more than 93 percent of Anbang, while two Chinese state-owned companies own the rest. The 37 shareholders are linked by common phone numbers, email addresses and interlocking ownership, according to company records filed with the Chinese government and available online.

     

    * * *

     

    One Anbang shareholder — a coal mining company in China’s western region of Xinjiang — is owned by another mining company, Zhongya Huajin, that listed a Zhuo Ran as its first legal representative, though that person has since resigned.

     

    Zhongya Huajin shares an official website address with a different Anbang shareholder, a Beijing real estate company. Collectively, those companies own nearly 4.6 billion shares of Anbang, or more than 7 percent. The companies could not be reached for comment, and their common website now contains only links to pornography and gambling services.

     

    Five shareholders list the same legal email address in government filings. Phones at those companies rang unanswered, and a message to that address was not returned.

     

    Calls to Anbang’s listed phone number were not answered. Nobody replied to a list of questions delivered to its Beijing headquarters, with its enormous lobby — the size of several basketball courts — and its large chandelier. An Anbang employee said the company did not answer media questions.

    But aside for China’s “legitimate” financial mega-companies being borderline fraud, the country with the $35 trillion in bank “assets” has everything else under control. We promise.

  • Maybe You're Confused By The Fed – But Wall Street Isn't

    Authored by Mark St.Cyr,

    As I type this the “markets” are once again sprinting higher to the highest levels of 2016. At the rate they are going it’s theoretically possible we could take out the all time high by lunch. After all – “it’s a great time to buy stawks,” no?

    Everyone seems to have been caught off guard by Janet Yellen’s speech at the Economic Club of New York™. Why this is so alludes me. The reason? This is a gathering of “her” people. i.e., Wall Street. Too think she would intone anything of a hawkish nature at this highly publicized event was ludicrous. Especially after her comments at the latest FOMC presser where she defensively professed prudence in choosing inaction – as action, once again.

    However, there was one striking change in both tone and demeanor from that conference of only a few weeks ago to this one: The palpable ebullience displayed by all..

    The difference was absolutely striking. Lots of grins and smiles everywhere which also included not only the Chair woman herself, but especially from her colleague N.Y. Fed. president William Dudley who introduced her. Again, don’t take my word. Find a rerun on-line in your search engine of choice and see for yourself. One thing is very, very, very, (did I say very?) apparent. There wasn’t a dry eye in the house. I’d wager tears of joy flowed like the cocktails: freely and frequent.

    The dulcet tones that caused such bliss? I believe there were two verses followed by a table thumping chorus that stood out far above any others. (and if not for cameras the participants attending might have stood up on the tables and danced in unison.)

    The first verse contained the words everyone with a month ending quarter wanted to hear when it came to where the Fed. stands on raising further (if at all) “proceed cautiously.”  The second was a reiteration of “international developments” was first and foremost. “Data dependent” not so much. However, it was the chorus, that too my ears was really the highlight for Wall Street. It’s when Ms. Yellen stated:

    “Financial market participants appear to recognize the FOMC’s data-dependent approach because incoming data surprises typically induce changes in market expectations about the likely future path of policy,…” (You can read the transcript in its entirety here. And I suggest you do as to draw your own conclusions)

    Why would such be as I implied “a thumping chorus?” Here’s how I put it in a recent article that many brushed aside as coincidence not causation. To wit:

    “The “markets” and its real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency.”

    Now some will say “It was a private event, you can’t compare the two! You’re just nitpicking.” And that’s fine, it’s a fair response. However, being someone who has made speeches for a living, and, has had to be the bearer of bad news or directives that many participants in the audience were surely not going to want to hear (even if they had too.) I can tell you from first hand experience participants have quite the clue on what the tenor and tone of what you’re about to say before you ever hit the podium. And my speeches aren’t released beforehand unlike the Chairwoman’s was with a released transcript prior. (And the markets took off higher in unison precisely when that transcript was released. Coincidence? Or HFT, headline reading algorithmic front running causation? You be the judge.)

    Don’t let that point be lost, for it is a very subtle yet important insight for those looking for clues. Do you think that audience would have been all smiles and laughter before, during, or after had she been there to reiterate any of the “hawkish” commentary coming out of subsequent Fed. officials at other venues over the past week or so? Again, truly ponder that point for it’s not as trivial of an insight as it may seem at first blush.

    (On an aside. For those wondering if I’m trying to be coy when using my own example inferring they were probably the local bridge club, as opposed to, some conference or meeting on par with the participants at some “Economic Club” as to negate my thesis. All I’ll say is at one in particular that fit that bill, the “participants” in attendance were the C-suite of many a national brand; with global reach and markets; with annual sales in the multi-billion dollar club. I say this only for clarification – nothing more. So take it as you will.)

    I’ve heard analysts and many others of late comment how this Fed. official, or that Fed. official has said this, when they just did that! Hawkish tones from this one, dovish tones from that one. I’m sorry, there shouldn’t be any more confusion. If you’re up around 2050ish SPX you’re going to hear “chirps” to give an illusion that maybe, just maybe, the Fed. might move towards normalization. i.e., As I’ve stated previously “fortitude central.” So expect it. However: At 1810ish SPX? Welcome to that other term I coined “capitulation central.” Here is where the only thing you’ll hear is how good (green) the Fed. is going to turn all that bad (red) with its toolbox of __________(fill in the blank.) Rinse – repeat.

    However, I will say there has been one defining point from The Chair she first iterated at the latest FOMC presser, and reiterated once again at this latest speech. Personally I felt this would remain an unspoken truth rather, than openly admitted to. This point and moment was when Ms. Yellen, in fact, set the tone as for anyone who was truly listening (and Wall Street was all ears!) that the Federal Reserve has decided via its own directive and initiative: to put its U.S. congressional mandated directives (e.g., employment and inflation) secondarily to “international developments” whenever it decides. And it has decided that time is now.

    To my ears – this was brazenly breathtaking in its implied scope and reach, with implication that are now truly up for grabs in everything we once took or believed to have known in both free markets, as well as capitalism itself.

    This is not some misunderstanding or confused inference on my part. This point has been realized (and the list is growing) by many with far more gravitas in the world of finance than I have. If you now listen, read, or watch many a financial pundit, what you are now hearing is their own astonishment at the realization Ms. Yellen declared by both current policy direction, and implied statements: the Fed. is now “Central Bank of the world.” And that is the phrase they are using – not me implying.

    “International developments” everyone now knows and takes as central bank parlance to mean: China. And the chairwoman in her speech made it quite clear “international developments” are what now drives Fed. policy action. Again, don’t take my word for it. You can find a transcript or watch the speech for yourself and draw your own conclusions.

    Besides, if this is not the case; then how does one square the circle of the Fed’s mandate? For all intents and purposes the congressional mandated raison d’ être have now been reached within any tolerant measurement. The U.S. stock market is once again within spitting distance of it’s never before seen in human history high. So: how is it that all this “good” causes not even the modest of follow through as implied via the December 2015 rate hike decision with its explanations and certitude. But rather: the normalization schedule (inferred via the Dot Plot) in-turn gets reduce by half only 3 months later? And…the Chair herself implies that to may be too many? Something doesn’t square here if we’re doing so well does it.

    That said: there is an inherent, overarching, problem within this now stated “international development” meme that I’m not sure the Fed. has really thought through. And it’s this…

    If “international developments” (i.e. China) have now taken first position over U.S. data, one can only summarize that the Fed. is now following, as well as, instituting a policy as the self-anointed mop-up team for the sins and/or consequences of spill over of a communist run economy.

    Capitalism, free markets, and everything else associated with it such as U.S. savers, insurance companies, bond holder, etc., etc., will take a back seat: Not lead. Nor – do anything that may hurt or foster any harmful effects caused by the mal-investment or debt crisis inherent caused by a nation following communistic policies and interventions within its own market, economy, and currency.

    In other words: China will continue to be allowed to make a mess. The Fed. will play “janitor” of the monetary policy world. Talk about “leading from behind.” Actually, don’t talk about it: That’s not good for Wall Street. As if you were still confused.

    Now there may be no more confusion as to exactly where the Fed. now stands. But confidence they can actually manage all this with positive consequential follow through? Without it all turning into some iteration resembling the Sorcerer’s apprentice? That’s a whole ‘nother matter entirely.

  • Trump Nomination Odds Tumble As 'Brokered Convention' Bets Soar

    Update: The latest poll from left-leaning Publi Policy Polling found that Cruz leads with 38 percent support, with Trump right behind at 37 percent — within the margin of error.

    Amid campaign-manager-assault-gate and the abortion fiasco, Donald Trump appears to be facing his own Waterloo. Polls show Cruz up by 10 points in Wisconsin and that has sent the odds of a brokered convention soaring to almost 70% and pushed Trump's odds of gaining the nomination down to 50%.

     

     

    Interestingly, Paul Ryan's odds are surging…

     

    Of course some context shows that Trump is merely back to mid-February levels of support (from the bettors) but still this trend is not the friend of the disenfranchised in America.

    It appears once again The Establishment is winning… even as The Hill reports, the GOP is at a breaking point…

    "This race is kind of at its boiling point," said Matt Mackowiak, a GOP strategist and contributor to The Hill. "As ugly as it is now, the two losing candidates at the convention are going to feel even worse."

     

    Instead of helping to unify the GOP behind a candidate, as the primary process typically does, the race has instead created deep wounds between the candidates that are unlikely to heal.

     

    The antagonism has been heightened by a particularly vicious stretch of campaigning involving allegations of adultery and pictures of the candidates’ wives.

     

    "I believe that we're beyond the point in the campaign where we feel we can unify. There’s been too much bad blood that's been created," said GOP strategist David Payne, who said he would like to see Cruz win the nomination before the convention.

    Finally, it seems the American public is starting to get fed up with the constant mainstream media coverage of Trump's very utterance or mean glance… Most GOP voters (63%), incl. 33% of Trump supporters, say too much press coverage of Trump.

  • "There Are No More Hotel Beds At All": Sweden's Tourism Industry Collapses As Resorts Become Refugee Centers

    “Whichever way we slice the data, the growth in working age population stands out as a key driver of economic growth for most countries. A healthy dependency ratio, a skilled workforce, together with strong institutions and an absence of major resource imbalances is usually the formula for country-level success. But with most DMs weighed down by ageing populations, a key question is this – can people inflows counter challenging demographics? The short answer is yes.”

    That’s what Goldman said last autumn as Europe’s refugee crisis began to spiral out of control. We’re not sure if it had occurred to the bank just how large the people flows into Western Europe would end up being because the implication in the excerpted passage above is that the influx of people may actually be a good thing economically speaking if it ameliorates negative demographic shifts.

    Of course Goldman may be proven right in the long-run, but in the short-term the mass migration is straining Western Europe’s resources and now looks set to drive up the unemployment rate in Germany.

    “German joblessness was unchanged in March, snapping a run of five consecutive declines, in a sign that Europe’s largest economy may be struggling to absorb a wave of refugees,” Bloomberg wrote, earlier today, adding  that “Germany admitted more than 1 million migrants in 2015 alone [which] increased the pool of potential workers.”

    A new report from Berlin’s labor agency suggests that it will likely be years before the country experiences any benefit from the migration wave. “It can be expected that the labor supply will expand because of migration and the number of unemployed refugees will rise,” as it will take time for migrants to master the language and obtain the qualifications they’ll need to join the labor force.

    Meanwhile, in Sweden, the toursim industry is being choked off by the migrant flows. According to SvD Naringsliv, the Swedish Migration Board’s move to transform tourist facilities into asylum centers means they’ll be no more room for vacationers – literally.

    (Astrid Lindgren is running short on accommodations – its guest house and hostel will house refugees this summer)

    “In some municipalities, there will be no hotel beds at all,” Lena Larsson, CEO at Smaland Tourism said. Here’s more (Google translated): 

    For example, expected the large visiting goal Astrid Lindgren stand without quality accommodation when both the guest house and hostel continues to be asylum facilities in the summer.

     

    The players in the tourism industry looks understood the seriousness of the background of the war in Syria, but several highlights that the consequences of the Migration Board’s procurement for the tourism industry in Sweden “must be clarified.”

     

    It is so big changes to Visit Småland now has to scan the entire range. It is very uncertain how it will be this summer, says Lena Karlsson.

     

    Another example can be found on the west coast. There, says Lars-Eric Fields, president of Södra Bohuslän tourism, the impact on summer tourism is likely to be so big that you have to take stock of the range of partners throughout western Sweden. According Fields also affected touristic prime locations, which Socialite House “Batellet” on the island of Marstrand and city hotel in Lysekil which are both refugee accommodations in the summer.

     

    Another sample can be collected by Vänern. Where does the Migration Board’s shops to tourist nights in the spa town Lundsbrunn replaced by 870 asylum places, which admittedly can quickly raise the plant’s own turnover to about SEK 100 million per year, but which also affects the district’s normal tourism. Clearly, fewer tourist beds provide less surface for ancillary tourism – for example from Tarnaby mountain village reported that the chairlift can no longer be operated for lack of tourist beds.

     

    The situation is thus similar in many areas. Oland Tourism says, however, that all cabin accommodation falls away in the summer, as Boda Baden, Mölltorp and Littorinabyn.

     

    Uncertainty about the summer tourism is also noticeable in the Swedish Tourist Association where 15 hostels during the winter has served as places of asylum, including Farosund. Now in the end requires the STF decision from the franchisees if they remain in the tourism or remain

     

    Immigration Service asylum accommodation. One who decided Maria Karlsson, who owns the hostel in Skåne Hammenhög where the resort now count to five asylum accommodation.

    So there you have it, folks. An industry that brings in around $32 billion per year (and that doesn’t count the $12 billion tourists spend on food, entertainment, and transportation) is about to disappear entirely thanks to the housing needs of Mid-East migrants. 

    If you want to get a good idea of just how important tourism is to Sweden’s economy, have a look at the following graph which shows employment growth in tourism versus the overall labor market trend:

    And here is the final insult: Sweden’s toursim industry employs around 160,000 people. The number of refugees Sweden took in from the Mid-East in 2015 was… drumroll… 160,000. 

  • Copper Continues To Crumble Amid Record China Inventories

    Having bounced miraculously off the early January lows – despite no significant fundamental shift – scrambling all the weay up to its 200-day moving-average, copper prices have been tumbling for the last 7 days, the longest losing streak since early Jan. “Worries over Chinese demand is still weighing on the market,” warns one analyst and rightly so as, just like the oil complex, copper inventories (in China) just hit a record high.

    Miracle ramp…

     

    Is fading now as stockpiles soar…

     

    Rising supply of late-cycle commodities, including copper and aluminum, together with uncertain Chinese demand may continue to weigh on metal prices this year, according to Bloomberg Intelligence analyst Zhu Yi. Copper inventories tracked by the Shanghai Futures Exchange are at a record.

    “Worries over Chinese demand is still weighing on the market,” Robin Bhar, an analyst at Societe Generale SA in London, said by phone.

     

    Of course much of this ‘inventory’ is collateral for China’s crazy CCFDs enabling smaller players to get loans and stay alive considerably longer than they should. If any liquidation occurs of these zombies then prices will accelerate lower as CCFDs are unwound.

  • For Canada's Banks This Is "The Next Shoe To Drop", And Why It Will Drop This Spring

    Roughly around the time the market troughed in early February, we asked “After The European Bank Bloodbath, Is Canada Next?” The reason for this question was simple: we said that “when compared to US banks’ (artificially low) reserves for oil and gas exposure, Canadian banks are…not.”

     

    Stated otherwise, we warned that the biggest threat facing Canada’s banking sector is how woefully underreserved it is to future oil and gas loan losses.

    We added that unlike their US peers, “Canadian banks like to wait for impairment events to book PCLs rather than build reserves, in effect throwing the entire process of reserving for future losses out of the window.”

    We then cited an RBC analysis according to which a 7% loss reserve would be sufficient to offset loan losses in what is shaping up as the biggest commodity crash in history. We disagreed:

    We wish we could be as confident as RBC that this is sufficient, however we are clearly concerned that if and when Canada’s banks finally begin to write down their assets and flow the impariments though the income statement, that things could go from bad to worse very quickly, and not necessarily because Canada’s banks are under or over provisioned, but for a far simpler reason – once the market focuses on Canadian energy exposure, it will realize just how little information is freely available, and if European banks are any indication, it will sell first and ask questions much later if at all.

     

    However, indeed assuming a worst case scenario, one in which the banks will have to “eat” the losses and suffer impairments, then the question emerges just how much capital do these banks truly have, which in turn goes back full circle to our post from the summer of 2011 which led to much gnashing of teeth at the Globe and Mail.

     

    We wonder what its reaction will be this time, and even more so, what its reaction will be if the market decides that when it comes to “the next domino to fall”, it was indeed Canada which courtesy of a generous global central bank regime which flooded the world with excess liquidity, and which China is now actively soaking up, allowed Canada’s banks to quietly skirt under the radar for many years; a radar that has finally registered a ping.

    We were, of course, referring to the Globe and Mail’s reaction to our post from 2011 that despite the sterling facade, Canadian banks are really woefully undercapitalized.

    And while we still await for the G&M to note this ping, here is Canada’s Financial Post, confirming everything we said almost a month ago, and explaining what the “next shoe to drop” for Canadian banks will be. The Post’s answer: “Relatively low oil loan provisions.”

    Sounds familiar?

    Here are the FP’s details which are already well known to our readers.

    Canadian banks are taking lower provisions for oil and gas related credit losses than their U.S. counterparts, prompting observers to dig into the reasons behind the trend.

     

    Reserves related to oil and gas loans held by U.S. banks are four to five times higher than those held by the Canadian banks, according to analysts at TD Securities, who believe accounting treatments and interpretations are, at least in part, behind the striking difference.

     

    In a note Tuesday, the TD analysts led by Mario Mendonca said loan quality within the portfolios could also be another reason, with historical loss trends suggesting Canadian banks are more conservative lenders. Still, they said there is more to than that, including how aggressive each country’s regulators are, and interpretations under two different accounting regimes: U.S. Generally Accepted Accounting Principles (GAAP), and IFRS.

     

    A close reading “reveals what we view as a material difference in loss recognition,” the analysts wrote.

     

    FP0330_BMO_Loan_Loss_Provisions

    FP0330__Banks_Loan_Loss_Provisions-C-GS

    It appears Canadian banks are… different.

    Under U.S. GAAP, they said, a loan is impaired when it is probable a credit will be unable to collect on all amounts due, based on current information and events. IFRS accounting considers a loan impaired based on “objective evidence” surrounding a financial asset or group of financial assets.

     

    “We believe that either there is a very significant difference in the two accounting regimes or the standards are being interpreted in very different ways,” the TD analysts wrote.

     

    In addition, they said U.S. banks are more likely than their Canadian counterparts to use a special form of provisioning known as a collective allowance because there is a greater acceptance in the United States of releasing these reserves in the future if conditions improve.

    Like, in the case of a global financial system bailout. Of course, nothing prevents Canadian banks to release these reserves too. The problem is that one has to take them first, and doing so would soak up so much capital it may expose the bank’s balance sheet as a hollow sham.

    That said, now that everyone is finally pointing the finger at their gaping reserve holes, Canadian banks have begun to increase provisions for credit losses, reflecting the early impact of low oil prices.

    It is too late.

    The TD analysts said they expect “the next shoe to drop” in Canada when second-quarter results are posted this spring. “Despite the recent move in oil, futures are flat year-to-date and prices are still down materially since the fall 2015 determinations,” they wrote. “This should result in further pressures on borrowing bases and the potential for covenant breaches.”

     

    Combined with expected “prodding” from the Office of the Superintendent of Financial Institutions (OSFI), Canada’s key bank regulator, “we expect impairments and credit losses to climb,” the analysts said.

    All of this could have been avoided if Canada’s banks did not try to be just a little “too clever.” Instead, now they have a bleak future to look forward to, one where, in just a few months, the European bank bloodbath will shift over, as we first warned nearly two months ago, to Canada, something which both the mainstream media and “respected” analysts now admit.

  • Fed Levitation & The Looming Liquidity Trap

    Submitted by Lance Roberts via RealInvestment Advice.com,

    Fed Levitation

    What is going on at the Federal Reserve? On Tuesday, Janet Yellen comes out and announces that despite inflation being on the rise and employment below 5%, she is not going to raise the Fed Funds rate 4-times this year, nor even two times this year, but rather most likely none. Of course, this “one and done” scenario is what I suggested back in December following the first rate hike given the ongoing deterioration in the underlying economic backdrop. 

    However, on Wednesday, Chicago Federal Reserve President Charles Evans comes out and suggests he would support another interest rate increase in June.

    So what is it? Are we “data dependent” or are we more concerned about “global economic weakness?”  Or, is this just part of the Fed’s careful orchestration to support asset markets?

    I think it may just be the latter as the Fed comes to the realization they have gotten themselves caught in a “liquidity trap.”  Here is their dilemma?

    • Low interest rates have failed to spark organic economic growth which would lead to an inflationary pressure build.
    • While QE programs fueled higher asset prices, the “wealth effect” did not transfer through the real economy as the programs acted as a “wealth transfer” from the middle-class.
    • The Fed cannot afford to have a major reversion in asset prices which would crush consumer confidence pushing the economy into a recession.
    • The unintended consequence of announcing rate hikes was a surge in the U.S. dollar, as discussed earlier this week, as foreign funds chased higher yields. This surge in the dollar crushed corporate profits and oil prices putting a further strain on economic growth.
    • Further monetary policy accommodations would risk a surge in asset prices that expands the current over-valuation of markets and magnify the eventual reversion.

    The Federal Reserve has carefully orchestrated a very balanced messaging process to support asset markets but taper enthusiasm by sending contradictory messages. Yellen suggests ongoing “accommodation” which pushed liquidity into “risk” assets. That excitement is immediately tapered by a contradictory message that “less accommodation” is still likely. 

    The Federal Reserve is trying very clearly to accomplish several goals through their very confusing “forward guidance:”

    1. Keep asset prices above the recent lows to avoid triggering a rash of potential “margin calls” that would fuel a more rapid price reversion in the markets.
    2. Talk down the “dollar” to provide a boost to exports (which makes up roughly 45% of corporate profits) and commodity prices. The Fed-assisted boost in oil prices also gives TBTF banks the room necessary to off-load bad energy-related debt exposure before the next price decline and run of defaults.
    3. The Fed also realizes they cannot allow market prices to overheat to the upside and, therefore, use offsetting language to quell expectations.

    SP500-MarketUpdate-033116

    It’s genius.

    Like the “little Dutch boy,” the Fed currently has a finger stuck in every hole of the dike. The only question is how long is it before the Federal Reserve runs out of “fingers” to plug the next leak?

     

    Employment Not All That It Seems

    A couple of weeks ago, I hosted a presentation for a packed ballroom discussing the outlook for the markets and economy over the rest of the year. (I will be posting the video next week.)

    Since all eyes are on the “employment report” tomorrow, I thought I would share with you two slides from that presentation on the real state of employment in the U.S.

    For example, take a look at the first slide below.

    Employment-BirthDeath-Analysis-033116

    This chart CLEARLY shows that the number of “Births & Deaths” of businesses since the financial crisis have been on the decline. Yet, each month, when the market gets the jobs report, we see roughly 200k plus jobs created as shown in the chart below.

    Employment-Trends-031516

    Included in those reports is an “ADJUSTMENT” by the BEA to account for the number of new businesses (jobs) that were “birthed” (created) during the reporting period. This number has generally “added” jobs to the employment report each month.

    The chart below shows the differential in employment gains since 2009 when removing the additions to the monthly employment number though the “Birth/Death” adjustment. Real employment gains would be roughly 4.43 million less if you actually accounted for the LOSS in jobs discussed in the first chart above. 

    Employment-BirthDeath-Adjusted-033116

    The chart above assumes that ZERO jobs were created through the start of new businesses since 2009. However, as both Gallup and the data above show, we have been LOSING roughly 70,000 jobs a year due to “deaths” outnumbering “births” making the numbers above even worse. 

    Think about it this way. IF we were truly experiencing the strongest streak of employment growth since the 1990’s, should we not be witnessing:

    1. Surging wage growth as a 4.9% unemployment rate gives employees pricing power?
    2. Economic growth well above 3% as 4.9% unemployment leads to stronger consumption?
    3. A rise in imports as rising consumption leads to demand for goods.
    4. Falling inventories as sales outpace production.
    5. Rising industrial production as demand for goods increases.

    None of those things exist currently.

    The issue lies with the “seasonal adjustment” factors which run through the entirety of economic data published by the various government agencies. Many of these seasonal adjustments have been skewed since the financial crisis due to the economic ramifications following the crash. Furthermore, due to El Nino and La Nina, winter weather patterns have swung from extremely warm (2012 and 2015) to extremely cold (2013 and 2014) which have wrecked havoc with reporting.

    All of these seasonal adjustment factors have led to an overstating of headline economic data. Unfortunately, when digging below the surface, the truth is ultimately revealed.

    Is it intentional? Probably Not.  Is it relevant? Absolutely. 

     

    The Savings Rate Conundrum

    Interesting take from Tom McClellan on the savings rate:

    “When money market funds were created in the mid-1970s, Americans were suddenly confronted with the opportunity to earn a more appropriate reward for deferring their compensation, and for instead saving their money.  But curiously, Americans did not do as B.F. Skinner would have suggested they would do.

     

    They did not increase their savings behavior in response to the greater reward for doing so.  Instead, they started a long downward trend in the savings rate, saving less and less of their income even though they could earn more in real terms for doing so.  And that downward trend in the savings rate just happened to coincide with a secular bull market for stock prices.

     

    But since 2005 we are seeing the monthly savings rate data show an upward trend.  This change in behavior makes complete sense.  Baby Boomers are facing imminent retirement, and thus they are mounting a last-minute campaign to save up enough to live off of without eating cat food, or turning to their formerly helicoptered children for support.  At the same time, the “Millennials” or “Echo-Boomers” are just now moving out of their parents’ basements, and have not yet become a major economic force.  So the Echo-Boomers are not yet making up in consumption for what their parents are saving.”

    PersSavRate_Mar2016

    “One problem is that episodes of this behavior of people saving more tend to be associated with negative growth rate periods for stock prices.  That’s a bummer for stock market bulls.  So what you should do as a prudent bullish rat is to save your own food pellets while simultaneously encouraging your neighbors to eat all of theirs, and thus make the stock market indices rise.  Good luck with that plan.”

    Tom is correct in his assessment about what is currently happening with savings. However, he missed one very important component about what happened in the 80-90’s as savings fell – the rise in consumer leverage.

    Savings rates didn’t fall just because consumers decided to just spend more. If that was the case economic growth rates would have been rising on a year-over-year basis. The reality, is that beginning in the 1980’s, as the economy shifted from a manufacturing to service-based economy, productivity surged which put downward pressure on wage and economic growth rates. Consumers were forced to levered up their household balance sheet to support their standard of living. In turn, higher levels of debt-service ate into their savings rate.

    The problem today is not that people are not “saving more money,” they are just spending less as weak wage growth, an inability to access additional leverage, and a need to maintain debt service restricts spending. For Millennials, yes, they may be emerging from their parents basements, but they are also tasked with trying to pay-off student loan debt with a low-wage-paying service job. 

    GDP-PCE-Wages-Struggle-033116

    It is indeed a “new economy.” 

    Just some things to think about.

  • Q1 2016: Gold Glows Amid The Greatest Stock Market Comeback In The History Of Investing

    The market ended red today…

     

    But The Dow and The S&P ended Q1 in the green after a yuuge drop…

     

    In fact this was the greatest comeback in the history of stocks… (Q1 2016's 11.3% drawdown is the biggest on record for a quarter that ended green)

     

    While US stocks managed to scramble back into the green for Q1, European stocks (and especially banks) ended down hard despite Draghi's unleashing more buying…

     

    But the Aug-Dec analog remains in place as we just dipped and ripped…

     

    And breadth is playing the same unimpressed game as it did in Oct 2015…

     

    This looks familiar…

     

    But Gold (and Silver) are the biggest winners in Q1…

    While stocks had a huge bounce their Q1 performance was meh, except Trannies

    • Dow Transports +5.9% – Best quarter since Q4 2014
    • HYG (High Yield bonds) +1.4% – Best Quarter since Q1 2014
    • Energy Sector +2.7% – Best quarter since Q2 2014
    • Treaasury Bond Index +2.95% – Best quarter since Q2 2012
    • Gold +16.1% – Best quarter since Q3 1986
    • USD Index -4.1% – Worst quarter since Q3 2010
    • Copper +2.4% – Best quarter since Q2 2014

    Utes were the best sector in Q1 but Financials and Healthcare (biotechs) were battered…

     

    Treasury yields end the quarter lower with the belly down a stunning 55bps and 30Y -40bps… not exactly what The Fed had in mind in Dec…

     

    Having held steady for January, The USD Index tumbled in feb and further in march led by JPY strength, Cable was weakest in Q1 of the majors…

     

    Crude remains red for the year in Q1 despite the USD plunge but copper managed to creep into the green. Gold and Silver soared…

     

    *  *  *  *  *

    March was an epic month of extremes…

    • S&P +6.99% in March – 2nd best month since Oct 2011
    • Financial Stocks +6.6% – Best month since March 2012
    • USD Index -3.7% in March – 2nd worst month since Sept 2010
    • WTI +14.1% in March – 2nd best month since Oct 2011
    • Treasury Index -0.1% in March – worst month since Nov 2015
    • Gold -0.4% in March – worst month since Nov 2015
    • HYG +2.2% in March – 2nd best month since June 2012

    March equity performance is stunningly similar across all indices, with Trannies fading off their highs…

     

    With Energy and Financials soaring…

     

    Treasury yields end the month on a tear with 2Y lower and the rest of the curve modestly higher (despite the soaring stock market)…

     

    The USDollar Index had a tough time in March. led by AUD strength (and JPY ended flat)..

     

    Crude was the biggest winner in March (but fading as the short-squeeze ended) with gold unchanged…

     

    *  *  *

    On the week so far…

     

    Post-Yellen, Stocks standalone as Crude, Gold and Bonds are practically unchanged…

     

    VIX had its biggest monthly drop since Oct 2015…

     

    While on the topic of VIX, we note that VXX shares outstanding has been soaring (since TVIX stalled amid 6 month highs NAV premiums)…

     

    Treasury yields are collapsing into month-end…

     

    The US Dollar index continued its slide today…

     

    Copper and Crude slid today despite weaker USD but PMs were bid into month-end…

     

     

    Crude soared 60% off its mid-Feb lows and is back in the green for the quarter. This was driven by the biggest surge in net spec longs (as shorts covered) since 2011. The last time this happened… oil fell 35% in the following 4 months…

     

     

    Charts: Bloomberg

    Bonus Chart: S&P is over 70 points rich to The Fed balance sheet currently…

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Mar 31

Today’s News 31st March 2016

  • Governments Admit that Much of Modern History Has Been Manipulated By False Flag Attacks

    Presidents, Prime Ministers, Congressmen, Generals, Spooks, Soldiers and Police ADMIT to False Flag Terror

    In the following instances, officials in the government which carried out the attack (or seriously proposed an attack) admit to it, either orally, in writing, or through photographs or videos:

    (1) As admitted by secret Russian police files that are part of the Hoover Institution’s archives, the Russian Tsar’s secret police set off bombs and killed people in order to blame and arrest labor agitators. And see this.

    (2) Japanese troops set off a small explosion on a train track in 1931, and falsely blamed it on China in order to justify an invasion of Manchuria. This is known as the “Mukden Incident” or the “Manchurian Incident”. The Tokyo International Military Tribunal found: “Several of the participators in the plan, including Hashimoto [a high-ranking Japanese army officer], have on various occasions admitted their part in the plot and have stated that the object of the ‘Incident’ was to afford an excuse for the occupation of Manchuria by the Kwantung Army ….” And see this.

    (3) A major with the Nazi SS admitted at the Nuremberg trials that – under orders from the chief of the Gestapo – he and some other Nazi operatives faked attacks on their own people and resources which they blamed on the Poles, to justify the invasion of Poland.

    (4) Nazi general Franz Halder also testified at the Nuremberg trials that Nazi leader Hermann Goering admitted to setting fire to the German parliament building in 1933, and then falsely blaming the communists for the arson.

    (5) Soviet leader Nikita Khrushchev admitted in writing that the Soviet Union’s Red Army shelled the Russian village of Mainila in 1939 – while blaming the attack on Finland – as a basis for launching the “Winter War” against Finland. Russian president Boris Yeltsin agreed that Russia had been the aggressor in the Winter War.

    (6) The Russian Parliament, current Russian president Putin and former Soviet leader Gorbachev all admit that Soviet leader Joseph Stalin ordered his secret police to execute 22,000 Polish army officers and civilians in 1940, and then falsely blamed it on the Nazis.

    (7) The British government admits that – between 1946 and 1948 – it bombed 5 ships carrying Jews attempting to flee the Holocaust to seek safety in Palestine, set up a fake group called “Defenders of Arab Palestine”, and then had the psuedo-group falsely claim responsibility for the bombings (and see this, this and this).

    (8) Israel admits that in 1954, an Israeli terrorist cell operating in Egypt planted bombs in several buildings, including U.S. diplomatic facilities, then left behind “evidence” implicating the Arabs as the culprits (one of the bombs detonated prematurely, allowing the Egyptians to identify the bombers, and several of the Israelis later confessed) (and see this and this).

    The U.S. Army does not believe this is an isolated incident.  For example, the U.S. Army’s School of Advanced Military Studies said of Mossad (Israel’s intelligence service):

    “Ruthless and cunning. Has capability to target U.S. forces and make it look like a Palestinian/Arab act.”

    (9) The CIA admits that it hired Iranians in the 1950′s to pose as Communists and stage bombings in Iran in order to turn the country against its democratically-elected prime minister.

    (10) The Turkish Prime Minister admitted that the Turkish government carried out the 1955 bombing on a Turkish consulate in Greece – also damaging the nearby birthplace of the founder of modern Turkey – and blamed it on Greece, for the purpose of inciting and justifying anti-Greek violence.

    (11) The British Prime Minister admitted to his defense secretary that he and American president Dwight Eisenhower approved a plan in 1957 to carry out attacks in Syria and blame it on the Syrian government as a way to effect regime change.

    (12) The former Italian Prime Minister, an Italian judge, and the former head of Italian counterintelligence admit that NATO, with the help of the Pentagon and CIA, carried out terror bombings in Italy and other European countries in the 1950s through the 1980s and blamed the communists, in order to rally people’s support for their governments in Europe in their fight against communism.

    As one participant in this formerly-secret program stated: “You had to attack civilians, people, women, children, innocent people, unknown people far removed from any political game. The reason was quite simple. They were supposed to force these people, the Italian public, to turn to the state to ask for greater security” … so that “a state of emergency could be declared, so people would willingly trade part of their freedom for the security” (and see this) (Italy and other European countries subject to the terror campaign had joined NATO before the bombings occurred). And watch this BBC special. They also allegedly carried out terror attacks in France, Belgium, Denmark, Germany, Greece, the Netherlands, Norway, Portugal, the UK, and other countries.

    The CIA also stressed to the head of the Italian program that Italy needed to use the program to control internal uprisings.

    False flag attacks carried out pursuant to this program include – by way of example only:

    (13) In 1960, American Senator George Smathers suggested that the U.S. launch “a false attack made on Guantanamo Bay which would give us the excuse of actually fomenting a fight which would then give us the excuse to go in and [overthrow Castro]”.

    (14) Official State Department documents show that, in 1961, the head of the Joint Chiefs and other high-level officials discussed blowing up a consulate in the Dominican Republic in order to justify an invasion of that country. The plans were not carried out, but they were all discussed as serious proposals.

    (15) As admitted by the U.S. government, recently declassified documents show that in 1962, the American Joint Chiefs of Staff signed off on a plan to blow up AMERICAN airplanes (using an elaborate plan involving the switching of airplanes), and also to commit terrorist acts on American soil, and then to blame it on the Cubans in order to justify an invasion of Cuba. See the following ABC news report; the official documents; and watch this interview with the former Washington Investigative Producer for ABC’s World News Tonight with Peter Jennings.

    (16) In 1963, the U.S. Department of Defense wrote a paper promoting attacks on nations within the Organization of American States – such as Trinidad-Tobago or Jamaica – and then falsely blaming them on Cuba.

    (17) The U.S. Department of Defense also suggested covertly paying a person in the Castro government to attack the United States: “The only area remaining for consideration then would be to bribe one of Castro’s subordinate commanders to initiate an attack on Guantanamo.”

    (18) A U.S. Congressional committee admitted that – as part of its “Cointelpro” campaign – the FBI had used many provocateurs in the 1950s through 1970s to carry out violent acts and falsely blame them on political activists.

    (19) A top Turkish general admitted that Turkish forces burned down a mosque on Cyprus in the 1970s and blamed it on their enemy. He explained: “In Special War, certain acts of sabotage are staged and blamed on the enemy to increase public resistance. We did this on Cyprus; we even burnt down a mosque.” In response to the surprised correspondent’s incredulous look the general said, “I am giving an example”.

    (20) A declassified 1973 CIA document reveals a program to train foreign police and troops on how to make booby traps, pretending that they were training them on how to investigate terrorist acts:

    The Agency maintains liaison in varying degrees with foreign police/security organizations through its field stations ….

     

    [CIA provides training sessions as follows:]

     

    a. Providing trainees with basic knowledge in the uses of commercial and military demolitions and incendiaries as they may be applied in terrorism and industrial sabotage operations.

     

    b. Introducing the trainees to commercially available materials and home laboratory techniques, likely to he used in the manufacture of explosives and incendiaries by terrorists or saboteurs.

     

    c. Familiarizing the trainees with the concept of target analysis and operational planning that a saboteur or terrorist must employ.

     

    d. Introducing the trainees to booby trapping devices and techniques giving practical experience with both manufactured and improvised devices through actual fabrication.

     

    ***

     

    The program provides the trainees with ample opportunity to develop basic familiarity and use proficiently through handling, preparing and applying the various explosive charges, incendiary agents, terrorist devices and sabotage techniques.

    (21) The German government admitted (and see this) that, in 1978, the German secret service detonated a bomb in the outer wall of a prison and planted “escape tools” on a prisoner – a member of the Red Army Faction – which the secret service wished to frame the bombing on.

    (22) A Mossad agent admits that, in 1984, Mossad planted a radio transmitter in Gaddaffi’s compound in Tripoli, Libya which broadcast fake terrorist transmissions recorded by Mossad, in order to frame Gaddaffi as a terrorist supporter. Ronald Reagan bombed Libya immediately thereafter.

    (23) The South African Truth and Reconciliation Council found that, in 1989, the Civil Cooperation Bureau (a covert branch of the South African Defense Force) approached an explosives expert and asked him “to participate in an operation aimed at discrediting the ANC [the African National Congress] by bombing the police vehicle of the investigating officer into the murder incident”, thus framing the ANC for the bombing.

    (24) An Algerian diplomat and several officers in the Algerian army admit that, in the 1990s, the Algerian army frequently massacred Algerian civilians and then blamed Islamic militants for the killings (and see this video; and Agence France-Presse, 9/27/2002, French Court Dismisses Algerian Defamation Suit Against Author).

    (25) In 1993, a bomb in Northern Ireland killed 9 civilians. Official documents from the Royal Ulster Constabulary (i.e. the British government) show that the mastermind of the bombing was a British agent, and that the bombing was designed to inflame sectarian tensions. And see this and this.

    (26) The United States Army’s 1994 publication Special Forces Foreign Internal Defense Tactics Techniques and Procedures for Special Forces – updated in 2004 – recommends employing terrorists and using false flag operations to destabilize leftist regimes in Latin America. False flag terrorist attacks were carried out in Latin America and other regions as part of the CIA’s “Dirty Wars“. And see this.

    (27) Similarly, a CIA “psychological operations” manual prepared by a CIA contractor for the Nicaraguan Contra rebels noted the value of assassinating someone on your own side to create a “martyr” for the cause. The manual was authenticated by the U.S. government. The manual received so much publicity from Associated Press, Washington Post and other news coverage that – during the 1984 presidential debate – President Reagan was confronted with the following question on national television:

    At this moment, we are confronted with the extraordinary story of a CIA guerrilla manual for the anti-Sandinista contras whom we are backing, which advocates not only assassinations of Sandinistas but the hiring of criminals to assassinate the guerrillas we are supporting in order to create martyrs.

    (28) An Indonesian government fact-finding team investigated violent riots which occurred in 1998, and determined that “elements of the military had been involved in the riots, some of which were deliberately provoked”.

    (29) Senior Russian Senior military and intelligence officers admit that the KGB blew up Russian apartment buildings in 1999 and falsely blamed it on Chechens, in order to justify an invasion of Chechnya (and see this report and this discussion).

    (30) As reported by the New York Times, BBC and Associated Press, Macedonian officials admit that in 2001, the government murdered 7 innocent immigrants in cold blood and pretended that they were Al Qaeda soldiers attempting to assassinate Macedonian police, in order to join the “war on terror”. luring foreign migrants into the country, executing them in a staged gun battle, and then claiming they were a unit backed by Al Qaeda intent on attacking Western embassies”.  Macedonian authorities had lured the immigrants into the country, and then – after killing them – posed the victims with planted evidence – “bags of uniforms and semiautomatic weapons at their side” – to show Western diplomats.

    (31) At the July 2001 G8 Summit in Genoa, Italy, black-clad thugs were videotaped getting out of police cars, and were seen by an Italian MP carrying “iron bars inside the police station”. Subsequently, senior police officials in Genoa subsequently admitted that police planted two Molotov cocktails and faked the stabbing of a police officer at the G8 Summit, in order to justify a violent crackdown against protesters.

    (32) The U.S. falsely blamed Iraq for playing a role in the 9/11 attacks – as shown by a memo from the defense secretary – as one of the main justifications for launching the Iraq war.

    Even after the 9/11 Commission admitted that there was no connection, Dick Cheney said that the evidence is “overwhelming” that al Qaeda had a relationship with Saddam Hussein’s regime, that Cheney “probably” had information unavailable to the Commission, and that the media was not ‘doing their homework’ in reporting such ties. Top U.S. government officials now admit that the Iraq war was really launched for oil … not 9/11 or weapons of mass destruction.

    Despite previous “lone wolf” claims, many U.S. government officials now say that 9/11 was state-sponsored terror; but Iraq was not the state which backed the hijackers. (Many U.S. officials have alleged that 9/11 was a false flag operation by rogue elements of the U.S. government; but such a claim is beyond the scope of this discussion. The key point is that the U.S. falsely blamed it on Iraq, when it knew Iraq had nothing to do with it.).

    (Additionally, the same judge who has shielded the Saudis for any liability for funding 9/11 has awarded a default judgment against Iran for $10.5 billion for carrying out 9/11 … even though no one seriously believes that Iran had any part in 9/11.)

    (33) Although the FBI now admits that the 2001 anthrax attacks were carried out by one or more U.S. government scientists, a senior FBI official says that the FBI was actually told to blame the Anthrax attacks on Al Qaeda by White House officials (remember what the anthrax letters looked like). Government officials also confirm that the white House tried to link the anthrax to Iraq as a justification for regime change in that country. And see this.

    (34) According to the Washington Post, Indonesian police admit that the Indonesian military killed American teachers in Papua in 2002 and blamed the murders on a Papuan separatist group in order to get that group listed as a terrorist organization.

    (35) The well-respected former Indonesian president also admits that the government probably had a role in the Bali bombings.

    (36) Police outside of a 2003 European Union summit in Greece were filmed planting Molotov cocktails on a peaceful protester.

    (37) Former Department of Justice lawyer John Yoo suggested in 2005 that the US should go on the offensive against al-Qaeda, having “our intelligence agencies create a false terrorist organization. It could have its own websites, recruitment centers, training camps, and fundraising operations. It could launch fake terrorist operations and claim credit for real terrorist strikes, helping to sow confusion within al-Qaeda’s ranks, causing operatives to doubt others’ identities and to question the validity of communications.”

    (38) Similarly, in 2005, Professor John Arquilla of the Naval Postgraduate School – a renowned US defense analyst credited with developing the concept of ‘netwar’ – called for western intelligence services to create new “pseudo gang” terrorist groups, as a way of undermining “real” terror networks. According to Pulitzer-Prize winning journalist Seymour Hersh, Arquilla’s ‘pseudo-gang’ strategy was, Hersh reported, already being implemented by the Pentagon:

    “Under Rumsfeld’s new approach, I was told, US military operatives would be permitted to pose abroad as corrupt foreign businessmen seeking to buy contraband items that could be used in nuclear-weapons systems. In some cases, according to the Pentagon advisers, local citizens could be recruited and asked to join up with guerrillas or terrorists…

    The new rules will enable the Special Forces community to set up what it calls ‘action teams’ in the target countries overseas which can be used to find and eliminate terrorist organizations. ‘Do you remember the right-wing execution squads in El Salvador?’ the former high-level intelligence official asked me, referring to the military-led gangs that committed atrocities in the early nineteen-eighties. ‘We founded them and we financed them,’ he said. ‘The objective now is to recruit locals in any area we want. And we aren’t going to tell Congress about it.’ A former military officer, who has knowledge of the Pentagon’s commando capabilities, said, ‘We’re going to be riding with the bad boys.’”

    (39) United Press International reported in June 2005:

    U.S. intelligence officers are reporting that some of the insurgents in Iraq are using recent-model Beretta 92 pistols, but the pistols seem to have had their serial numbers erased. The numbers do not appear to have been physically removed; the pistols seem to have come off a production line without any serial numbers. Analysts suggest the lack of serial numbers indicates that the weapons were intended for intelligence operations or terrorist cells with substantial government backing. Analysts speculate that these guns are probably from either Mossad or the CIA. Analysts speculate that agent provocateurs may be using the untraceable weapons even as U.S. authorities use insurgent attacks against civilians as evidence of the illegitimacy of the resistance.

    (40) In 2005, British soldiers dressed as Arabs were caught by Iraqi police after a shootout against the police. The soldiers apparently possessed explosives, and were accused of attempting to set off bombs.  While none of the soldiers admitted that they were carrying out attacks, British soldiers and a column of British tanks stormed the jail they were held in, broke down a wall of the jail, and busted them out.  The extreme measures used to free the soldiers – rather than have them face questions and potentially stand trial – could be considered an admission.

    (41) Undercover Israeli soldiers admitted in 2005 to throwing stones at other Israeli soldiers so they could blame it on Palestinians, as an excuse to crack down on peaceful protests by the Palestinians.

    (42) Quebec police admitted that, in 2007, thugs carrying rocks to a peaceful protest were actually undercover Quebec police officers (and see this).

    (43) A 2008 US Army special operations field manual recommends that the U.S. military use surrogate non-state groups such as “paramilitary forces, individuals, businesses, foreign political organizations, resistant or insurgent organizations, expatriates, transnational terrorism adversaries, disillusioned transnational terrorism members, black marketers, and other social or political ‘undesirables.’” The manual specifically acknowledged that U.S. special operations can involve both counterterrorism and “Terrorism” (as well as “transnational criminal activities, including narco-trafficking, illicit arms-dealing, and illegal financial transactions.”)

    (44) The former Italian Prime Minister, President, and head of Secret Services (Francesco Cossiga) advised the 2008 minister in charge of the police, on how to deal with protests from teachers and students:

    He should do what I did when I was Minister of the Interior … infiltrate the movement with agents provocateurs inclined to do anything …. And after that, with the strength of the gained population consent, … beat them for blood and beat for blood also those teachers that incite them. Especially the teachers. Not the elderly, of course, but the girl teachers yes.

    (45) At the G20 protests in London in 2009, a British member of parliament saw plain clothes police officers attempting to incite the crowd to violence.

    (46) Egyptian politicians admitted (and see this) that government employees looted priceless museum artifacts  2011 to try to discredit the protesters.

    (47) In 2011, a Colombian colonel admitted that he and his soldiers had lured 57 innocent civilians and killed them – after dressing many of them in uniforms – as part of a scheme to claim that Columbia was eradicating left-wing terrorists. And see this.

    (48) Rioters who discredited the peaceful protests against the swearing in of the Mexican president in 2012 admitted that they were paid 300 pesos each to destroy everything in their path. According to Wikipedia, photos also show the vandals waiting in groups behind police lines prior to the violence.

    (49) In 2012, NBC News’ chief foreign correspondent, Richard Engel, was kidnapped in Syria. NBC News said that Engel and his reporting team had been abducted by forces affiliated with the Syrian government. He reported that they only escaped when some anti-Syrian government rebels killed some of the pro-government kidnappers.

    However,  it turns out that they were really kidnapped by U.S. backed rebels fighting the Syrian government … who wore the clothes of, faked the accent of, scrawled the slogans of, and otherwise falsely impersonated the mannerisms of people associated with the Syrian government. In reality, the group that kidnapped Engel and his crew were affiliated with the U.S.-supported Free Syrian Army, and NBC should have known that it was blaming the wrong party. See New York Times and the Nation’s reporting.

    (50) A Colombian army colonel has admitted that his unit murdered 57 civilians, then dressed them in uniforms and claimed they were rebels killed in combat.

    (51) On November 20, 2014, Mexican agent provocateurs were transported by army vehicles to participate in the 2014 Iguala mass kidnapping protests, as was shown by videos and pictures distributed via social networks.

    (52) The highly-respected writer for the Telegraph Ambrose Evans-Pritchard says that the head of Saudi intelligence – Prince Bandar – recently admitted that the Saudi government controls “Chechen” terrorists.

    (53) Two members of the Turkish parliament, high-level American sources and others admitted that the Turkish government – a NATO country – carried out the chemical weapons attacks in Syria and falsely blamed them on the Syrian government; and high-ranking Turkish government admitted on tape plans to carry out attacks and blame it on the Syrian government.

    (54) The Ukrainian security chief admits that the sniper attacks which started the Ukrainian coup were carried out in order to frame others. Ukrainian officials admit that the Ukrainian snipers fired on both sides, to create maximum chaos.

    (55) Burmese government officials admitted that Burma (renamed Myanmar) used false flag attacks against Muslim and Buddhist groups within the country to stir up hatred between the two groups, to prevent democracy from spreading.

    (56) Israeli police were again filmed in 2015 dressing up as Arabs and throwing stones, then turning over Palestinian protesters to Israeli soldiers.

    (57) Britain’s spy agency has admitted (and see this) that it carries out “digital false flag” attacks on targets, framing people by writing offensive or unlawful material … and blaming it on the target.

    (58) U.S. soldiers have admitted that if they kill innocent Iraqis and Afghanis, they then “drop” automatic weapons near their body so they can pretend they were militants

    (59) Similarly, police frame innocent people for crimes they didn’t commit. The practice is so well-known that the New York Times noted in 1981:

    In police jargon, a throwdown is a weapon planted on a victim.

    Newsweek reported in 1999:

    Perez, himself a former [Los Angeles Police Department] cop, was caught stealing eight pounds of cocaine from police evidence lockers. After pleading guilty in September, he bargained for a lighter sentence by telling an appalling story of attempted murder and a “throwdown”–police slang for a weapon planted by cops to make a shooting legally justifiable. Perez said he and his partner, Officer Nino Durden, shot an unarmed 18th Street Gang member named Javier Ovando, then planted a semiautomatic rifle on the unconscious suspect and claimed that Ovando had tried to shoot them during a stakeout.

    Wikipedia notes:

    As part of his plea bargain, Pérez implicated scores of officers from the Rampart Division’s anti-gang unit, describing routinely beating gang members, planting evidence on suspects, falsifying reports and covering up unprovoked shootings.

    (As a side note – and while not technically false flag attacks – police have been busted framing innocent people in many other ways, as well.)

    (60) A former U.S. intelligence officer recently alleged:

    Most terrorists are false flag terrorists or are created by our own security services.

    (61) The head and special agent in charge of the FBI’s Los Angeles office said that most terror attacks are committed by the CIA and FBI as false flags. Similarly, the director of the National Security Agency under Ronald Reagan – Lt. General William Odom said:

    By any measure the US has long used terrorism. In ‘78-79 the Senate was trying to pass a law against international terrorism – in every version they produced, the lawyers said the US would be in violation.

    (audio here).

    (62) Leaders throughout history have acknowledged the “benefits” of of false flags to justify their political agenda:

    “Terrorism is the best political weapon for nothing drives people harder than a fear of sudden death”.
    – Adolph Hitler

     

    “Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”
    – Hermann Goering, Nazi leader.

     

    “The easiest way to gain control of a population is to carry out acts of terror. [The public] will clamor for such laws if their personal security is threatened”.
    – Josef Stalin

    Postscript:   Of course, sometimes atrocities or warmongering are falsely blamed on the enemy as a justification for war … when no such event ever occurred. This is sort of like false flag terror … without the terror.

    For example:

    • The NSA admits that it lied about what really happened in the Gulf of Tonkin incident in 1964 … manipulating data to make it look like North Vietnamese boats fired on a U.S. ship so as to create a false justification for the Vietnam war
    • One of the central lies used to justify the 1991 Gulf War against Iraq after Iraq invaded Kuwait was the false statement by a young Kuwaiti girl that Iraqis murdered Kuwaiti babies in hospitals.  Her statement was arranged by a Congressman who knew that she was actually the daughter of the Kuwaiti Ambassador to the U.S. – who was desperately trying to lobby the U.S. to enter the war – but the Congressman hid that fact from the public and from Congress
    • Pulitzer prize-winning journalist Ron Suskind reported that the White House ordered the CIA to forge and backdate a document falsely linking Iraq with Muslim terrorists and 9/11 … and that the CIA complied with those instructions and in fact created the forgery, which was then used to justify war against Iraq. And see this and this
    • Time magazine points out that the claim by President Bush that Iraq was attempting to buy “yellow cake” Uranium from Niger:

    had been checked out — and debunked — by U.S. intelligence a year before the President repeated it.

    • The “humanitarian” wars in Syria, Libya and Yugoslavia were all justified by false reports that the leaders of those countries were committing atrocities against their people. And see this

  • Why Did the 9/11 Commission Not "Follow the Money?", by Lars Schall

    In the below article, independent investigative journalist Lars Schall explores the time-honored tradition of following the money in an attempt to discover answers to yet unanswered questions regarding the terrorist attacks of 9/11 in New York City. Here is his report below.

     


    Why Did The 9/11 Commission Not “Follow the Money”?

     

    Lars Schall has put some material together that brings him to the question why the time-proven approach to “follow the money” was dismissed when it came the funding of the biggest terror attack on US soil.

    By Lars Schall

     


    Bill:

    Howdy! I am an investigative financial journalist from Germany, who’s in the process of finishing a book trilogy on the topic of the so-called “Deep State”. Related to that project, I examined the case of a software program called the Prosecutor’s Management Information System (PROMIS), a database system developed by INSLAW Inc., a U.S. information technology company, which was founded by William A. Hamilton, a former analyst with the National Security Agency (NSA). Indeed, in mid-2012, when he became aware of my research connected to PROMIS, Mr. Hamilton contacted me to ask me for help with investigating some certain aspects of the PROMIS case.’

     

    Here’s a recent confirmation for this fact.

     

    Lars:


    I am pleased to confirm that I contacted you for help in investigating aspects of the INSLAW Affair in which the U.S. Department of Justice secretly misappropriated the PROMIS legal case management software from INSLAW, Inc., one of its software vendors, and disseminated stolen copies beyond the U.S. Department of Justice for U.S. and Israeli intelligence database projects, including NSA’s Follow the Money Project for real-time electronic surveillance of wire transfers of money and letters of credit through the banking system; Israel’s sale of a version of PROMIS equipped with a special data retrieval capability to foreign intelligence and law enforcement agencies of both friendly and adversarial governments worldwide to facilitate the theft of their intelligence secrets while producing profits for intelligence insiders; the CIA’s deployment of PROMIS to virtually every component of the U.S intelligence community as ’compatible database software’ for the gathering and dissemination of U.S. intelligence information between and among the entities that ’produce’ the intelligence information and the entities that ’consume’ the intelligence product; the CIA’s deployment of PROMIS to the leading semi-conductor manufacturers in the world so NSA could exercise real-time electronic surveillance of the manufacturing and illicit sale of integrated circuits engineered for advanced defense and military applications; and the sale by a Drug Enforcement Administration (DEA) proprietary company in Cyprus to the drug interdiction entities of Middle Eastern governments of a back-door version of PROMIS so DEA could augment its own drug trafficking intelligence information with the intelligence information stolen from these Middle Eastern governments.

    Bill Hamilton

    Founder and President INSLAW, Inc.

    Washington, D.C.

     

    The Prosecutor’s Management Information System (PROMIS) was originally developed by INSLAW for the US Justice Department. However, according to Guy Lawson’s book entitled Octopus, that sophisticated piece of software “had been so successful that the American intelligence agency apparatus had secretly stolen the software to put it to use covertly. The CIA had reconfigured the code and installed it in 32-bit Digital Equipment Corporation VAX minicomputers. The agency had used front companies to sell the new technology to banks and leading financial institutions like the Federal Reserve. Hidden inside the computer was a ‘trapdoor’ that enabled intelligence agencies to covertly monitor financial transactions digitally for the first time. (…) In Bob Woodward’s book Veil, former CIA director William Casey said the secret money-tracking system had been one of his proudest achievements. (1)

     

    In May 1998, Dr. Norman Bailey published a monograph entitled The Strategic Plan That Won The Cold War, which references the importance of NSA’s Follow the Money Signals Intelligence (SIGINT) mission and also includes a Foreword written by William P. Clark, President Reagan’s National Security Advisor in 1982 and 1983, extolling the role of Reagan’s NSC staff in “bringing about the end of the cold war.” (2) Dr. Bailey also acknowledged several years before on the public record while being interviewed by the Public Broadcasting System (PBS) that NSA undertook its so called Follow the Money Program.

     

    While being interviewed by PBS for a July 12, 1989 television documentary entitled Follow the Money, he stated that the Reagan White House tasked the NSA in 1981 with implanting “powerful computing mechanisms” in three major wire transfer clearinghouses: CHIPS (the Clearing House Interbank Payment System) in New York City, which reportedly records payments and settlements for foreign trade, foreign exchange, and syndicated loans for its 139 member banks in 35 countries; CHAPS in London, which reportedly performs similar functions for Sterling-denominated transactions; and SIC in Basel, Switzerland, which reportedly records the same types of transactions when they involve Swiss Francs. Dr. Bailey described the new NSA SIGINT penetration of the banking sector as giving the United States the capability to follow the money flowing from foreign governments to international terrorists through the international banking system, intercepting the fund transfer messages from one bank to another as they occurred in real time. (3)

     

    When he was interviewed for a July 23, 2008 article by Tim Shorrock in Salon Magazine, Dr. Bailey was quoted as stating that INSLAW’s “PROMIS was the principal software element used by the NSA” for its real-time surveillance of bank transfers. (4)

     

    In a personal message that I received in June 2013, Dr. Bailey told me:

    “I was appointed Director of Planning and Evaluation on the staff of the National Security Council at the White House in early 1981, when Ronald Reagan took over the presidency. In that capacity I coordinated national security planning throughout the government and evaluated the results of operations undertaken as a result. One of the projects I personally initiated was the tracing of the funding of activities contrary to the national security interests of the United States back to their sources. This activity was given the nickname ’follow the money’. I worked especially with the Treasury Department, the Federal Reserve Board and the National Security Agency in carrying out this project (which is very much ongoing today). During this period I visited the NSA twice, and during my visits was told that the principal software utilized for the purpose of tracing money movements was PROMIS. At that time this meant nothing to me, as I was not a computer specialist, but rather a financial and monetary economist. Only much later did I realize that the NSA must have been given this software by the Department of Justice, which had originally utilized it to track cases. I had little to do with the Justice Department in my position, and even if I had known that such a transaction had taken place I would have found nothing wrong with it in principle, assuming the laws regarding patent protection and payment for patented products had been processed normally. That is absolutely all I know from personal experience: the NSA began to use PROMIS software sometime in 1981.”


    As mentioned before, in his book, Veil: The Secret Wars of the CIA 1981-1987, Bob Woodward quotes CIA Director William Casey as claiming that one of his proudest achievements as President Reagan’s CIA Director was the “penetration of the international banking system, allowing a steady flow of data from the real, secret set of books kept by many foreign banks …” (5)

     

    Moreover, a June 5, 1986 email message from David Wigg to Colonel Oliver North, originally classified SECRET/CODE WORD but later partially declassified and released in redacted form as a result of the Iran-Contra investigations, discusses a Reagan National Security Council (NSC) staff proposal to expand NSA’s SIGINT penetration of the banking sector to add another approximately 400 major commercial banks. The email message reported on a meeting that same day with the two top officials of the Justice Department’s Office of Legal Counsel to obtain a legal opinion, binding on the Executive Branch and authorizing the planned expansion. David Wigg, who had served as CIA Director Casey’s liaison from the CIA to the NSC staff before transferring to the NSC staff, (6) described its objective as helping to “track financial flows through Syria, Libya, Iran, etc. through the 400 or so principal banks that make up the interbank market; to notify and work with European Govs. To fill gaps in our coverage and to cooperate with us in freezing/seizing assets as appropriate (all on a confidential basis).” (7)

     

    The use of NSA’s bank surveillance project in the fight against international terrorism led to the decision by President Ronald Reagan to bomb Libya. That decision was based on precise Follow the Money SIGINT evidence that Libya had financed a terrorist attack in Germany that killed an American soldier. “The highly classified initiative, known as ‘Follow the Money,’ had allowed the Reagan administration to trace the Libyan government’s secret funding of a terrorist group that had bombed a disco in Berlin in 1986, killing an American soldier and wounding two hundred civilians.“ (8)

     

    In the Preface of The 9/11 Commission Report, released in 2004, the 9/11 Commission writes near the very beginning:

    “Our aim has not been to assign individual blame. Our aim has been to provide the fullest possible account of the events surrounding 9/11 and to identify lessons learned.“


    It looks as if the lesson learned is that you can ignore the funding of a terror attack that kills more than 3.000 people on American soil, while during the presidency of Ronald Reagan the U.S. Government took the funding issue of a terror attack in Berlin extremely serious. Why do I say so? Because in Chapter 5, the 9/11 Commission states with respect to the funding issue of the 9/11 attacks:

    “Ultimately the question is of little practical significance.”


    However, ask yourself, if you do not really investigate this question, is “the fullest account of the events surrounding 9/11” still possible? Interestingly enough, NSA’s Follow the Money mission exists until today and was expended in recent years. According to the German magazine Der Spiegel in 2013:

    “Indeed, secret documents reveal that the main NSA financial database Tracfin, which collects the ’Follow the Money’ surveillance results on bank transfers, credit card transactions and money transfers, already had 180 million datasets by 2011. The corresponding figure in 2008 was merely 20 million. According to these documents, most Tracfin data is stored for five years.” (9)

     

    Furthermore, Der Spiegel reported:


    “Classified documents compiled by the US intelligence agency NSA (…) show how comprehensively and effectively the intelligence agency can track global flows of money and store the information in a powerful database developed for this purpose.
    ’Follow the Money’ is the name of the NSA branch that handles these matters. (…) Financial transfers are the ‘Achilles’ heel’ of terrorists, as NSA analysts note in an internal report. Additional fields of activity for their ’financial intelligence’ include tracking down illegal arms deliveries and keeping tabs on the increasingly lucrative domain of cybercrime. Tracing international flows of money could help reveal political crimes, expose acts of genocide and monitor whether sanctions are being respected. (…) The classified documents show that the intelligence agency has several means of accessing the internal data traffic of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a cooperative used by more than 8,000 banks worldwide for their international transactions. The NSA specifically targets other institutes on an individual basis. Furthermore, the agency apparently has in-depth knowledge of the internal processes of credit card companies like Visa and MasterCard. (…) The collected information often provides a complete picture of individuals, including their movements, contacts and communication behavior. The success stories mentioned by the intelligence agency include operations that resulted in banks in the Arab world being placed on the US Treasury’s blacklist. (…) [T]he documents reveal the close involvement of the US Treasury in selecting the program’s spying targets. Indeed, according to the documents, there is an exchange of personnel in which NSA analysts are transferred for a number of months to the relevant department in the US Treasury.“     (10)

     

    This report by Der Spiegel certainly documents that the NSA and the US Treasury are still interested in the financial activities related to terrorism. This is underlined by the fact that the US Treasury established in 2004 – the same year in which the 9/11 Commission Report was released – a special branch called the Office of Terrorism and Financial Intelligence (TFI), which oversees the Office of Terrorist Financing and Financial Crimes (TFFC). Its mission: “to combat terrorist financing domestically and internationally”. (11)

     

    CNN stated in a detailed 2010 report that the US Treasury is:

    “…one of the key players in the war on terrorism and smack in the middle of nearly every major international conflict in which the United States is involved. (…) Inside Treasury, the work is done by a low-profile but high-impact unit known as the Office of Terrorism and Financial Intelligence. (…) Treasury is the world’s only government finance agency with its own in-house intelligence unit. It has offices as far flung as Riyadh, Islamabad, Kabul and Abu Dhabi. They’re the ones seizing or freezing assets of suspected bad guys — from terrorists to drug runners. They’re a part of the U.S. intelligence apparatus, sharing information with the CIA and the FBI, among others.

    ‘Treasury is the only finance ministry in the world to have an intel shop that is very much focused on financial intelligence, getting access to information about the networks that support terrorists, weapons proliferation or narcotics traffickers,’ said David Cohen, assistant secretary for terrorist financing. (…) The Office of Terrorism and Financial Intelligence was put together six years ago following the big federal agency shuffle that created the Department of Homeland Security.
    The office has more than 700 attorneys, investigators, analysts and financial experts. And the financial intelligence unit is housed with other Treasury teams, such as the financial crimes unit, that need intel on alleged dirty money transactions. (…) Sometimes the office’s work has drawn controversy. For example, since the Sept. 11 terrorist attacks, Treasury has had access to a database of intra-European financial transactions, despite protests about privacy violations.” (12)

     

    Obviously, the U.S. Government disagrees with the 9/11 Commission in a substantial way when it comes to the “practical significance” of this specific issue, i.e. the financing of terrorism. In the 9/11 Commission Report, they tell you not a single thing about the “Follow the Money” program and its capabilities. Moreover, they give you no clue what the U.S. intelligence agencies actually did to track down the financial activities of the alleged 9/11 hijackers and their handlers. And they even made a false statement when they wrote “that the National Money-laundering Strategy Report for 2001 ’didn’t mention terrorist financing in any of its 50 pages’, when in fact that report “mentions it 17 times”. (13)

    When you see it through the prism of 9/11, isn’t it justified to ask why the U.S. Government has a “Follow the Money” program at all, if the funding of 9/11 was “of little practical significance”?

     

    Maybe the answer to this question depends on which kind of story the 9/11 Commission had in mind that it wanted to tell the public. An account as the following written by British investigative journalist Nafeez Ahmed is for sure at odds with the “mythical historical narrative” that 9/11 has become. He writes:
    “In his book Intelligence Matters (2004), Senator Bob Graham, co-chair of the
    Congressional Inquiry into 9/11, discusses the contents of a top secret CIA memo dated 2nd August 2002 about two 9/11 hijackers, Khalid Almihdhar and Nawaf Alhazmi. The CIA memo concluded that there is ’incontrovertible evidence that there is support for these terrorists within the Saudi government.’

    The 28 page section of the Congressional report including discussion of the CIA memo was classified, but some of its contents were leaked, and related issues revealed in press reports. Early in 2000, when Almidhar and Alhazmi arrived at Los Angeles airport, they were picked up by a fellow Saudi, Omar al-Bayoumi, who gave them $1,500 in cash, moved them into his apartment building, and helped them apply for flight school. Al-Bayoumi worked for Dallah Avco, a Saudi-based airline chaired by Prince Bandar’s father, Prince Sultan bin Abdulaziz. The firm is a major contractor for the Saudi Ministry of Defense and Aviation.

     

    In the following months, al-Bayoumi and his associates received regular cashier’s cheques of around $2,000 a month, totaling tens of thousands of dollars. These came from Prince Bandar and his wife, Princess Haifa bin Faisal. Both Bandar and his wife claimed the money was donated for charitable purposes (one payment track was made after one of al-Bayoumi’s associates requested assistance from the Saudi embassy for thyroid treatment), and that they had no idea it was being diverted to fund the 9/11 hijackers.

    After 9/11, British authorities questioned al-Bayoumi in London about the Saudi money trail to bin Laden’s hijackers. They had discovered secret papers with the private phone numbers of senior Saudi government officials concealed beneath the floorboards of his flat in London. The investigation went nowhere: al-Bayoumi was soon released, and disappeared into Saudi Arabia.” (14)

    Fact is, you won’t find this addressed in any way in the final report of the 9/11 Commission. The same is true when it comes to the allegations against a man by the name of Omar Sheikh Saeed. Why should anybody bother about this man?

     

    Well, Nafeez Ahmed writes:

    “In his memoirs, In the Line of Fire, Gen. Musharraf revealed that Omar Sheikh Saeed was a MI6 agent who had executed certain missions on behalf of the British intelligence agency, before travelling to Pakistan and Afghanistan where he met Osama bin laden and Mullah Omar. Sheikh Saeed was first recruited by MI6 while at the London School of Economics, recounts Musharraf. The agency persuaded him to join anti-Serb demonstrations during the Bosnia conflict, and later sent him to Kosovo to join the jihad. Musharraf argues that at some point, Saeed likely became ’a rogue or double agent.’

    Musharraf’s claims are no doubt self-serving, deflecting from the widely-reported fact that Sheikh Saeed was an ISI asset. But they chime with other facts in the public record. Former US Justice Department prosecutor John Loftus, for instance, who held top secret national security clearances, has confirmed that MI6 was working with leaders of the now banned British group al-Muhajiroun?—?Omar Bakri Mohammed, Abu Hamza and Haroon Rashid Aswat (who would later become bin Laden’s bodyguard)?—?to recruit British Muslims to fight in Kosovo in 1996.
    Sheikh Saeed would have been part of that MI6-backed funnel. Others in Musharraf’s government were convinced that Sheikh Saeed was also a CIA asset. In a little-noted article on Saeed’s murky background in March 2002, the Pittsburgh Tribune-Review reported that: ’There are many in Musharraf’s government who believe that Saeed Sheikh’s power comes not from the ISI, but from his connections with our own CIA.’ Officials believe that ’Saeed Sheikh was bought and paid for.’” (15) At the Inter-Services Intelligence (ISI), Brigadier Ijaz Shah, the former Director-General of Intelligence Bureau of Pakistan, was “the handler for Omar Saeed Sheikh, who was involved in the kidnapping of Wall Street Journal journalist Daniel Pearl in 2002”, reported Pakistani security specialist Arif Jamal. “Omar Saeed Sheikh surrendered to Brigadier Shah who hid him for several weeks before turning him over to authorities.” (16)

     

    As Nafeez Ahmed explains:

    “Brig. Shah’s connection to Omar Sheikh Saeed is deeply troubling. Sheikh Saeed was not simply accused of murdering Daniel Pearl?—?he was al-Qaeda’s finance chief during the 9/11 attacks. After 9/11, Indian intelligence officials confirmed that then ISI director Gen. Mahmoud Ahmad had ordered Omar Saeed to wire at least $100,000 to the chief 9/11 hijacker, Mohammed Atta. As I documented in my books The War on Truth (2005) and The War on Freedom (2002), which was among 99 books selected for the 9/11 Commissioners to use as part of their inquiries, multiple US intelligence investigations corroborated the Indian allegations. US authorities had further confirmed that Sheikh Saeed had wired as much as $500,000 if not more to several of the 9/11 hijackers?—?all at the behest of the ISI. Despite this, US authorities took no measures to designate or extradite either Sheikh Saeed or his ISI boss, Mahmoud Ahmad. As former British Cabinet Minister Michael Meacher observed: ‘It is extraordinary that neither Ahmad nor Sheikh have been charged and brought to trial on this count [of financing 9/11]. Why not?’” (17) And John Newman, “a former executive assistant to the director of the NSA who spent 20 years in the US Army Intelligence and Security Command, pointed out that despite Sheikh Saeed’s kidnapping of British citizens and related terror offenses, he faced no indictments from the US or Britain, and was even able to travel back to London in January 2000. He had also kidnapped American citizens, but faced no indictments from the US until after 9/11.
    ‘Did the United States not indict Saeed Sheikh because he was a British informant? Did the agency [CIA] receive information provided by Saeed Sheikh from British or Pakistani intelligence?’ asked Newman rhetorically at a 2005 Congressional briefing on the findings of the 9/11 Commission Report.

    ‘This would help explain why Saeed Sheikh was not indicted and escaped justice for his crimes and traveled freely around England… If the foregoing analysis has any merit, Western intelligence agencies were receiving reports from a senior al-Qaeda source. Once again, however, al-Qaeda had used Western intelligence to accomplish its own mission. Saeed Sheikh was probably a triple agent.’ Ahmed Omar Sheikh Saeed’s role in the 9/11 attacks on behalf of the head of the ISI, Newman noted, was completely ignored by the 9/11 Commission Report.“ (18)

     

    Another researcher is skeptical when it comes to the allegations that Nafeez Ahmed is talking about. His name: Peter Dale Scott. The former Professor for English at the University of California in Berkeley writes in his book, The Road to 9/11:

    “In October 2001, shortly after the catastrophic events of 9/11, U.S. and British newspapers briefly alleged that the paymaster for the 9/11 attacks was a possible agent of the Pakistani intelligence service ISI, Ahmed Omar Saeed Sheikh (or Sheik Syed). There was even a brief period in which it was alleged that the money had been paid at the direction of the then ISI chief, Lieutenant-General Mahmoud Ahmad. (19) The London Guardian reported on October 1, 2001, that ’U.S. investigators believe they have found the ‘smoking gun’ linking Osama bin Laden to the September 11 terrorist attacks. . . . The man at the centre of the financial web is believed to be Sheikh Saeed, also known as Mustafa Mohamed Ahmad, who worked as a financial manager for Bin Laden when the Saudi exile was based in Sudan, and is still a trusted paymaster in Bin Laden’s alQaida organization.’ (20) This story was corroborated by CNN on October 6, citing a ’a senior-level U.S. government source’ who noted that ’Sheik Syed’ had been liberated from an Indian prison as a result of an airplane hijacking in December 1999.

    The man liberated in this way was Ahmed Omar Saeed Sheikh, a notorious kidnapper raised in England and widely reported as a probable agent of the ISI. (21) One newspaper, the Pittsburgh Tribune-Review, suggested he may have been a double agent, recruited inside al Qaeda and the ISI by CIA. (22) Others have since argued that Saeed Sheikh worked for both the United States and Britain, since ’both American and British governments have studiously avoided taking any action against Sheikh despite the fact that he is a known terrorist who has targeted U.S. and UK citizens.’ (23)

    Subsequent newspaper stories reported on the undoubted relationship of Saeed Sheikh to the ISI, to FBI claims that he wired $100,000 to 9/11 hijacker Mohamed Atta’s bank account, (24) to a CNN report that these funds came from Pakistan, (25) and to the uncontested statement that (as later stated in the indictment of the so-called twentieth hijacker Zacarias Moussaoui) ’on September 11, 2001, Mustafa Ahmed al-Hawsawi left the U.A.E. for Pakistan.’ (26)

    The most sensational charge, alluded to earlier, came from Indian intelligence sources: that Saeed Sheikh had wired the money to Atta at the direction of Lieutenant-General Mahmoud Ahmad, then director of the ISI.” (27)

    “All these important and alarming charges are ignored in the 9/11 Commission Report, in which the Saeed Sheikh born in London is not mentioned. (28) Instead, the report assured its readers in a carefully drafted comment that ’we have seen no evidence that any foreign government—or foreign government official—supplied any funding.’ (29) It was later reported, however, that ’the Pakistan foreign office had paid tens of thousands of dollars to lobbyists in the U.S. to get anti-Pakistan references dropped from the 9/11 inquiry commission report.’ (30) The U.S. government and the mainstream media’s decisions to drop the Saeed Sheikh story in October 2001 were clearly political. On September 20, 2001, President Bush delivered his memorable ultimatum to ’every nation, in every region. . . . Either you are with us, or you are with the terrorists.’ There was probably no leader for which the choice was more difficult, or the outcome more unpredictable, than General Pervez Musharraf in Pakistan. But on October 7, Musharraf fired his pro-Taliban ISI chief, General Mahmoud Ahmad, along with two other ISI leaders. (31) As the historian John Newman, a former U.S. Army Intelligence analyst, has commented: ’The stakes in Pakistan were very high. As Anthony Zinni explained to CBS on 60 Minutes, ‘Musharaf may be America’s last hope in Pakistan, and if he fails the fundamentalists will get hold of the Islamic bomb.’ Musharaf was also vital to the war effort, and was the key to neutralizing Islamists and rounding up Al Qaeda operatives in Pakistan.’ (32)

    A number of books, in reporting the Saeed Sheikh story, have focused on the fact that General Ahmad was in Washington on 9/11, meeting with such senior U.S. officials as CIA director George Tenet. (33) In my opinion the mystery of 9/11 must be unraveled at a deeper level, the ongoing groups inside and outside governments, in both Pakistan and America, which have continued to use groups like al Qaeda and individuals like Ahmad, for their own policy purposes. (…) They [the relationships between these groups] are far too complex to be reduced to two or three individuals. The ongoing collaboration of the ISI and CIA in promoting terrorist violence has created a complex conspiratorial milieu, in which governments now have a huge stake in preventing the emergence of the truth.” (34)

     

    The 9/11 Commission surely would have had the chance to address the issue. But again, it decided the question was “of little practical significance”.

    Let me remind you on the idea of “follow the money”. Fred Shapiro, author of the book, The Yale Book of Quotations, wrote in 2011 for example: “The forthcoming Dictionary of Modern Proverbs, to be published by Yale University Press, quotes (…) a 1975 book by Clive Borrell and Brian Cashinella, Crime in Britain Today: ‘Mr. [James] Crane usually offers this piece of sound advice to all new officers joining his fraud department: ‘Always follow the money. Inevitably it will lead to an oak-paneled door and behind it will be Mr. Big.’ It is a tip that has paid off in scores of cases.’” (35)

     

    The alternative catchphrase “Money trail” refers to the same idea of following the movement of money, e.g. from one person to another, from one organization to another, from one bank account to another, in order to find out what is really happening. So, why did the 9/11 Commission deem this tried and tested approach useless? Yours truly leaves the silent answer to the reader’s wisdom.

     

    Best regards,

    Lars Schall.

     

     

     

    SOURCES:

    (1) Guy Lawson: “Octopus – Sam Israel, The Secret Market, and Wall Street’s Wildest Con”, New York, Crown Publishers, 2012, page 144. On the PROMIS saga see also Cherie Seymour: “The Last Circle – Danny Casolaro’s Investigation into The Octopus and the PROMIS Software Scandal”, Walterville, TrineDay, 2011.

    (2) See Norman A. Bailey: “The Strategic Plan that Won the Cold War – National Security Decision Directive 75”, published here: http://www.iwp.edu/news_publications/book/the-strategic-plan-thatwon-

    the-cold-war

    (3) For the transcript of the PBS documentary “Follow the Money” see Lars Schall: “Follow the Money: The NSA’s real-time electronic surveillance of bank transactions”, published at LarsSchall.com on February 2nd, 2014 under: http://www.larsschall.com/2014/02/02/follow-themoney-

    the-nsas-real-time-electronic-surveillance-of-bank-transactions/

    (4) See Tim Shorrock: “Exposing Bush’s historic abuse of power”, published at Salon on September 23, 2008 under: http://www.salon.com/2008/07/23/new_churchcomm/

    (5) Compare Elliot L. Richardson: “INSLAW’s ANALYSIS and REBUTTAL of the BUA REPORT:

    Memorandum in Response to the March 1993 Report of Special Counsel Nicholas J. Bua to the Attorney General of the United States Responding to the Allegations of INSLAW, Inc.”, published here: http://textfiles.com/law/rebuttal.txt

    (6) David Wigg also earlier worked with William Casey when Casey headed the Export/Import Bank (1974-76).

    (7) The National Security Archives at George Washington University published a collection of White House emails that Iran-Contra investigators had recovered from the Reagan National Security Council IBM mainframe computer after the NSC staff had deleted them as the Iran-Contra scandal began to unfold. See here: http://nsarchive.gwu.edu/white_house_email/. The documents

    were later also published as a book, see Tom Blanton (ed.):
    “White House E-Mail: The Top Secret Computer Messages The Reagan/Bush White House Tried to Destroy”, New Press, New York, 1995. For an online reference to the email message from David Wigg to Oliver North see J. Orlin Grabbe: “Plot to Spy on Banks Outlined in White House Email”, January 2, 1997, published at Mem Research under: https://www.memresearch.org/grabbe/email.htm

    (8) Guy Lawson: “Octopus”, loc. cit., page 144.

    (9) See Laura Poitras, Marcel Rosenbach and Holger Stark: “’Follow the Money’: NSA Monitors Financial World”, published at Spiegel Online on September 16, 2013 under:

    http://www.spiegel.de/international/world/how-the-nsa-spies-on-internati…

    (10) Ibid.

    (11) Compare “U.S. Treasury Department Announces New Executive Office for Terrorist Financing and Financial Crimes”, published at the website of the U.S. Treasury on March 3, 2003 under:

    https://www.treasury.gov/press-center/press-releases/Pages/js77.aspx

    (12) Compare Jennifer Liberto: “Treasury’s quiet war”, published at CNN on February 16, 2010

    under: http://money.cnn.com/2010/02/16/news/international/Treasury_intelligence…

    (13) Jim Hogue: “Follow the Money? God forbid”, published at Baltimore Chronicle on January 29, 2008 under: http://www.baltimorechronicle.com/2008/012908Hogue.shtml.
    Hogue points in this article at “an unusual surge in the currency component of the M1 money supply” in the U.S. in July and August of 2001 that was “never investigated”. Related to this specific case see also Lars Schall:

    “How does ’dirty money’ become ’clean money’?”, published at
    LarsSchall.com on September 27, 2012 under: http://www.larsschall.com/2012/09/27/how-does-dirty-money-become-clean-m…,

    and Lars Schall: “9/11: Currency joins insider trade claims”, published at Asia Times Online on September 13, 2013 under: http://www.atimes.com/atimes/Global_Economy/GECON-01-

    130913.html

    (14) Nafeez Ahmed: “The bin Laden death mythology”, published at Insurge Intelligence on July 3, 2015 under:

    https://medium.com/insurge-intelligence/the-bin-laden-death-mythology-9a…

    (15) Ibid.

    (16) Ibid. Ahmed writes: “Jamal refers to an interview in 2000 with a Pakistani security official, who disclosed Shah’s relationship with Ahmed Omar Sheikh Saeed on condition of anonymity.”

    (17) Michael Meacher: “The Pakistan connection”, published at “The Guardian” on July 22, 2004

    under: http://www.theguardian.com/world/2004/jul/22/usa.september11

    (18) Nafeez Ahmed: “The bin Laden death mythology”, loc. cit.

    The following footnotes from 19 to 33 are taken from Peter Dale Scott: “The Road to 9/11 – Wealth, Empire, and the Future of America”, University of California Press, Berkeley, 2007, pp. 334-335:

    (19) Griffin, 9/11 Commission Report: Omissions and Distortions, 104–7; Ahmed, War on Truth, 137–44; and Peter Dale Scott, “The CIA’s Secret Powers: Afghanistan, 9/11, and America’s Most Dangerous Enemy, Critical Asian Studies 35, no. 2 (2003): 233–58.

    (20) Julian Borger and John Hooper, “Trail Links Bin Laden Aide to Hijackers,” Guardian, October 1, 2001, http://www.guardian.co.uk/wtccrash/story/0,,561001,00.html.Cf. Griffin, 9/11

    Commission Report: Omissions and Distortions, 109–10. The investigators were later identified as the FBI (Wall Street Journal, October 10, 2001; CNN, October 28, 2001; and Times [London], November 16, 2001).

    (21) For example, Daniel Klaidman, “Federal Grand Jury Set to Indict Sheikh,” Newsweek, March 13, 2002: U.S. officials suspect “that Sheikh has been a ‘protected asset,’ of Pakistan’s shadowy spy service, the Inter-Services Intelligence, or ISI.” The story was enhanced by Indian intelligence sources with a more sensational claim: that Saeed Sheikh had wired the money to hijacker Mohamed Atta at the direction of Lieutenant-General Mahmoud Ahmad, the director of the ISI at the time (Wall Street Journal,October 10, 2001). Indian sources later downplayed this anti-Pakistani
    allegation by suggesting that the money came instead from a ransom paid to another terrorist, Aftab Ansari in Dubai, when a Kolkata businessman, Partha Roy Burman, was kidnapped in July 2001 (B. Muralidhar Reddy, “Omar Sheikh Arrested, Says Pearl Is Alive,” The Hindu, February 13, 2002).

     

    (22) “Did Pearl Die Because Pakistan Deceived CIA?” Pittsburgh Tribune-Review, March 3, 2002,

    http://www.pittsburghlive.com/x/pittsburghtrib/s_20141.html “There are many in Musharraf’s government who believe that Saeed Sheikh’s power comes not from the ISI, but from his connections with our own CIA. The theory is that with such intense pressure to locate bin Laden, Saeed Sheikh was bought and paid for.”

    (23) Ahmed, War on Truth, 142; cf. John Newman, “Omissions and Errors in the Commission’s Final Report: Rep. McKinney 9/11 Congressional Briefing,” August 18, 2005,

    http://911readingroom.org/bib/whole_document.php?article_id=422; Musharraf, In the Line of Fire,

    225: “It is believed in some quarters that while Omar Sheikh was at the LSE [London School of Economics] he was recruited by the British intelligence agency MI6. It is said that MI6 persuaded him to take an active part in demonstrations against Serbian aggression in Bosnia and even sent him to Kosovo to join the jihad. At some point he probably became a rogue or double
    agent.”

    (24) Maria A. Ressa, “India Wants Terror Spotlight on Kashmir,” CNN, October 8, 2001,

    http://archives.cnn.com/2001/WORLD/asiapcf/south/10/08/india.ressa/.

    (25) “Sources: Suspected Terrorist Leader Was Wired Funds through Pakistan,” CNN, October 1, 2001, http://archives.cnn.com/2001/US/10/01/inv.pakistan.funds/: “As much as $100,000 was wired in the past year from Pakistan to Mohamed Atta.” Subsequent developments lent weight to the Pakistani connection, such as the arrest of Atta’s alleged controls, Ramzi Binalshibh and Khalid Shaikh Mohammed, in Pakistan.

    (26) United States District Court for the Eastern District of Virginia, Alexandria Division. United States of America v. Zacarias Moussaoui, #108.

    (27) “India Helped FBI Trace ISI-Terrorist Links,” Times of India, October 9, 2001; Wall Street Journal, October 10, 2001.

    (28) The appendixes note, in a list of names, a “Sheikh Saeed al Masri” as an “Egyptian; head of al Qaeda finance committee.” Instead, following a previous reversal in the U.S. media, the financial role attributed earlier to Sheikh Saeed is now given to “Mustafa al Hawsawi,” the name (or pseudonym) used for the financial transactions (9/11 Commission Report, 436). The only
    reference to any Sheikh Saeed in the text says that the Egyptian (or Kenyan) Sheikh Saeed “argued that al

    Qaeda should defer to the Taliban’s wishes” and not attack the United States directly (9/11 Commission Report, 251). The report treats Sheikh Saeed and al-Hawsawi as two people, whereas earlier they had been identified in U.S. media reports as the same person.

    (29) 9/11 Commission Report, 172.

    (30) “Pakistan Weekly Spills 9/11 Beans,” Telegraph (Calcutta), March 13, 2006,

    http://www.telegraphindia.com/1060313/asp/nation/story_5962372.asp. The Telegraph story cited the Friday Times, a Pakistani weekly, which claimed the story was based on “disclosures made by foreign service officials to the Public Accounts Committee at a secret meeting in Islamabad.”

    (31) Kamran Khan and Molly Moore, “Leader Purges Top Ranks of Military, Spy Services,” Washington Post, October 8, 2001; Thompson, Terror Timeline, 260–61. It was widely reported that Mahmoud was let go for being too sympathetic to the Taliban (for example, Alan Sipress and Vernon Loeb, “CIA’s Stealth War Centers on Eroding Taliban Loyalty and Aiding Opposition,” Washington
    Post, October 10, 2001).

    (32) Newman, “Omissions and Errors in the Commission’s Final Report.”

    (33) For example, Ahmed, War on Truth, 137–46; Griffin, 9/11 Commission Report: Omissions and Distortions, 103–9.

    (34) Peter Dale Scott: “The Road to 9/11”, loc. cit., pp. 132-134.

    (35) See Fred Shapiro: “Follow the Money”, published at Freakonomics on September 23, 2011

    under: http://freakonomics.com/2011/09/23/follow-the-money/

  • From Democracy To Pathocracy: The Rise Of The Political Psychopath

    Submitted by John Whitehead via The Rutherford Institute,

    “Politicians are more likely than people in the general population to be sociopaths. I think you would find no expert in the field of sociopathy/psychopathy/antisocial personality disorder who would dispute this… That a small minority of human beings literally have no conscience was and is a bitter pill for our society to swallow — but it does explain a great many things, shamelessly deceitful political behavior being one.”—Dr. Martha Stout, clinical psychologist and former instructor at Harvard Medical School

    Twenty years ago, a newspaper headline asked the question: “What’s the difference between a politician and a psychopath?”

    The answer, then and now, remains the same: None.

    There is no difference between psychopaths and politicians.

    Nor is there much of a difference between the havoc wreaked on innocent lives by uncaring, unfeeling, selfish, irresponsible, parasitic criminals and elected officials who lie to their constituents, trade political favors for campaign contributions, turn a blind eye to the wishes of the electorate, cheat taxpayers out of hard-earned dollars, favor the corporate elite, entrench the military industrial complex, and spare little thought for the impact their thoughtless actions and hastily passed legislation might have on defenseless citizens.

    Psychopaths and politicians both have a tendency to be selfish, callous, remorseless users of others, irresponsible, pathological liars, glib, con artists, lacking in remorse and shallow.

    Charismatic politicians, like criminal psychopaths, exhibit a failure to accept responsibility for their actions, have a high sense of self-worth, are chronically unstable, have socially deviant lifestyle, need constant stimulation, have parasitic lifestyles and possess unrealistic goals.

    It doesn’t matter whether you’re talking about Democrats or Republicans.

    Political psychopaths are all largely cut from the same pathological cloth, brimming with seemingly easy charm and boasting calculating minds. Such leaders eventually create pathocracies—totalitarian societies bent on power, control, and destruction of both freedom in general and those who exercise their freedoms.

    Once psychopaths gain power, the result is usually some form of totalitarian government or a pathocracy. “At that point, the government operates against the interests of its own people except for favoring certain groups,” author James G. Long notes. “We are currently witnessing deliberate polarizations of American citizens, illegal actions, and massive and needless acquisition of debt. This is typical of psychopathic systems, and very similar things happened in the Soviet Union as it overextended and collapsed.”

    In other words, electing a psychopath to public office is tantamount to national hara-kiri, the ritualized act of self-annihilation, self-destruction and suicide. It signals the demise of democratic government and lays the groundwork for a totalitarian regime that is legalistic, militaristic, inflexible, intolerant and inhuman.

    So why do we keep doing it over and over again?

    There’s no shortage of dire warnings about the devastation that could be wrought if any one of the current crop of candidates running for the White House gets elected. Yet where the doomsayers go wrong is by ignoring the damage that has already been inflicted on our nation and its citizens by a psychopathic government.

    According to investigative journalist Zack Beauchamp, “In 2012, a group of psychologists evaluated every President from Washington to Bush II using ‘psychopathy trait estimates derived from personality data completed by historical experts on each president.’ They found that presidents tended to have the psychopath’s characteristic fearlessness and low anxiety levels — traits that appear to help Presidents, but also might cause them to make reckless decisions that hurt other people’s lives.”

    The willingness to prioritize power above all else, including the welfare of their fellow human beings, ruthlessness, callousness and an utter lack of conscience are among the defining traits of the sociopath.

    When our own government no longer sees us as human beings with dignity and worth but as things to be manipulated, maneuvered, mined for data, manhandled by police, conned into believing it has our best interests at heart, mistreated, jailed if we dare step out of line, and then punished unjustly without remorse—all the while refusing to own up to its failings—we are no longer operating under a constitutional republic.

    Instead, as I point out in my book Battlefield America: The War on the American People, what we are experiencing is a pathocracy: tyranny at the hands of a psychopathic government, which “operates against the interests of its own people except for favoring certain groups.”

    Worse, psychopathology is not confined to those in high positions of government. It can spread like a virus among the populace. As an academic study into pathocracy concluded, “[T]yranny does not flourish because perpetuators are helpless and ignorant of their actions. It flourishes because they actively identify with those who promote vicious acts as virtuous.”

    People don’t simply line up and salute. It is through one’s own personal identification with a given leader, party or social order that they become agents of good or evil.

    Much depends on how leaders “cultivate a sense of identification with their followers,” says Professor Alex Haslam. “I mean one pretty obvious thing is that leaders talk about ‘we’ rather than ‘I,’ and actually what leadership is about is cultivating this sense of shared identity about ‘we-ness’ and then getting people to want to act in terms of that ‘we-ness,’ to promote our collective interests. . . . [We] is the single word that has increased in the inaugural addresses over the last century . . . and the other one is ‘America.’”

    The goal of the modern corporate state is obvious: to promote, cultivate, and embed a sense of shared identification among its citizens. To this end, “we the people” have become “we the police state.”

    We are fast becoming slaves in thrall to a faceless, nameless, bureaucratic totalitarian government machine that relentlessly erodes our freedoms through countless laws, statutes, and prohibitions.

    Any resistance to such regimes depends on the strength of opinions in the minds of those who choose to fight back. What this means is that we the citizenry must be very careful that we are not manipulated into marching in lockstep with an oppressive regime.

    Writing for ThinkProgress, Beauchamp suggests that “one of the best cures to bad leaders may very well be political democracy.” He advocates for the media holding politicians accountable for their actions and the actions of their staff. While psychopaths may not care about how their actions harm other people, notes Beauchamp, “they very much do care about being able to hold on to their positions of power. A system that actually holds people accountable to the broader conscience of society may be one of the best ways to keep conscienceless people in check.”

    That said, if we allow the ballot box to become our only means of pushing back against the police state, the battle is already lost.

    Resistance will require a citizenry willing to be active at the local level.

    If you wait to act until the SWAT team is crashing through your door, until your name is placed on a terror watch list, until you are reported for such outlawed activities as collecting rainwater or letting your children play outside unsupervised, then it will be too late.

    This much I know: we are not faceless numbers. We are not cogs in the machine. We are not slaves.

    We are human beings, and for the moment, we have the opportunity to remain free—that is, if we tirelessly advocate for our rights and resist at every turn attempts by the government to place us in chains.

    The Founders understood that our freedoms do not flow from the government. They were not given to us only to be taken away by the will of the State. They are inherently ours. In the same way, the government’s appointed purpose is not to threaten or undermine our freedoms, but to safeguard them.

    Until we can get back to this way of thinking, until we can remind our fellow Americans what it really means to be a free American, and until we can learn to stand our ground in the face of threats to those freedoms and encourage our fellow citizens to stop being cogs in the machine, we will continue to be treated like slaves in thrall to a bureaucratic police state run by political psychopaths.

  • 8 Things The Chinese Are Scrambling To Buy In America

    There has been some confusion in recent months about the unprecedented M&A buying spree unleashed by Chinese investors on international, but mostly U.S. targets, a spree which has already resulted in a record amount of Chinese outbound M&A capital, manifesting in $41 billion in US deals in just the first quarter, already double the full amount for 2015…

     

    … funded by just as ridiculous amounts of debt:

     

    The truth is that there is nothing confusing about this: M&A is merely the last surviving loophole allowing domestic oligarchs to bypass Chinese capital controls and park billions in equity on U.S. and international soil. It also explains the complete lack of price sensitivity when Chinese bidders rush to purchase any desired target as can be seen in the most recent example involving global hotel chain Starwood and its Chinese acquiror, shady insurance company Anbang. The reason is that contrary to conventional M&A where the transaction IRR is determined by the purchase price (the lower the better), for Chinese “bizarro M&A” deals, the more capital that can be invested offshore, the better – it simply means that even more capital will evade the Chinese financial system.

    In many ways, Chinese “bidders” are now the full-blown replica of what Japanese buyers were in the 1980s, when at the height of the Japanese stock bubble, every US assets was fair game, including golf courses and, of course, the the Rockefeller Center.

    * * *

    So what U.S. assets are these rabid Chinese buyers after? Here, courtesy of Bloomberg, is a sample of what Chinese money is buying.

    Luxury Hotels

    Strategic Hotels & Resorts Inc.’s portfolio includes Four Seasons properties in Austin and Silicon Valley, as well as the Intercontinental Miami and Chicago. China’s Anbang Insurance Group Co. is paying about $6.5 billion to buy the hotel group from Blackstone Group LP—just three months after the New York-based private equity firm acquired it.

     

    More Luxury Hotels

    Anbang is also currently the lead bidder for Starwood Hotels & Resorts Worldwide Inc., after twice topping Marriott International Inc.’s bid. Starwood owns real estate valued at about $4 billion, including the St. Regis in New York. Anbang’s latest offer values Starwood at about $14 billion.

     

    Refrigerators, Dishwashers, and Coffee Machines

    General Electric Co. agreed to sell its appliances business to China’s Haier Group Co. for $5.4 billion in January—$2 billion more than Electrolux AB had agreed to pay for the business before the deal collapsed amid opposition from the U.S. Justice Department. Haier will need antitrust approval from authorities in the U.S., Mexico, Canada, and Colombia.

     

    Cranes

    Zoomlion Heavy Industry Science & Technology Co., a Chinese industrial machinery manufacturer, is pursuing Westport, Conn.-based cranemaker Terex Corp. After Terex agreed to a merger with Finnish competitor Konecranes Oyj, Zoomlion made an unsolicited counter-bid in January; last week it upped the offer to $31 a share.

     

    The Dark Knight’s Hollywood Producer

    China’s richest man agreed in January to buy Legendary Entertainment LLC, producer of Godzilla and the Dark Knight trilogy and co-producer of Jurassic World, for as much as $3.5 billion. Wang Jianlin is set to become the first Chinese person to control a Hollywood film company.

     

    Software Distributors

    Computer, networking, and software distributor Ingram Micro Inc. was snapped up in February by an arm of China’s HNA Group Co. for an equity value of about $6 billion. Ingram Micro will continue to be run from Irvine, Calif., and will become part of the Chinese conglomerate that acquired airport luggage handler Swissport International AG last year and missed out on London City Airport last month.

     

    A Gay Dating App

    Beijing Kunlun Tech Co., an Internet games company that helped introduce Angry Birds to China, bought a majority stake in Grindr, the world’s biggest gay social networking app. Chairman Zhou Yahui’s company offered $93 million in cash for 60 percent of New Grindr LLC and is now scouting for other potential U.S. investments.

     

    A Stock Exchange

    The Chicago Stock Exchange said in February that a Chinese investor group, Chongqing Casin Enterprise Group, agreed to acquire it. The 134-year-old bourse handles only about 0.5 percent of U.S. stock trading, but the deal, which needs regulatory approval, would be the first Chinese acquisition of a U.S. exchange.

    * * *

    And lest there is any confusion that the acquiring companies are nothing but frauds, make that mega frauds, here is an excerpt from the NYT’s profile of China’s Anbang, and its chairman Wu Xiaohui, one of China’s richest men:

    He is often compared in the media to Warren E. Buffett. Like the American billionaire, he is leveraging his control of an insurance company to become one of the biggest names in global finance. Like Mr. Buffett, he looks to be acquiring an immense personal fortune. But that is where the comparisons between Wu Xiaohui, the chairman of the Anbang Insurance Group of China, and Mr. Buffett come to a halt.

     

     

    Mr. Wu has links to some of the most powerful families in China. He married Zhuo Ran, the granddaughter of Deng Xiaoping, China’s former paramount leader in the 1980s and much of the 1990s. That name, uncommon in Chinese, appears in corporate records tied to at least two of the 37 holding companies.

     

    His exact holdings in Anbang are not clear. A close examination of Anbang’s shareholding structure shows that the 37 companies control more than 93 percent of Anbang, while two Chinese state-owned companies own the rest. The 37 shareholders are linked by common phone numbers, email addresses and interlocking ownership, according to company records filed with the Chinese government and available online.

     

    * * *

     

    One Anbang shareholder — a coal mining company in China’s western region of Xinjiang — is owned by another mining company, Zhongya Huajin, that listed a Zhuo Ran as its first legal representative, though that person has since resigned.

     

    Zhongya Huajin shares an official website address with a different Anbang shareholder, a Beijing real estate company. Collectively, those companies own nearly 4.6 billion shares of Anbang, or more than 7 percent. The companies could not be reached for comment, and their common website now contains only links to pornography and gambling services.

     

    Five shareholders list the same legal email address in government filings. Phones at those companies rang unanswered, and a message to that address was not returned.

     

    Calls to Anbang’s listed phone number were not answered. Nobody replied to a list of questions delivered to its Beijing headquarters, with its enormous lobby — the size of several basketball courts — and its large chandelier. An Anbang employee said the company did not answer media questions.

    And there you have it: global money laundering at an absolutely epic scale, now masked as Mergers and Acqusitions.

  • PBOC Slams Yuan Shorts Again – Strengthens Currency Most Since 2005

    It appears the messaging from The People's Bank Of China to The Fed was heard loud and understood. Having exercised its will to weaken the Yuan (implying turmoil is possible), Janet Yellen delivered the dovish goods and so China 'allowed' the Yuan to rally back. In a double-whammy for everyone involved the biggest 3-day strengthening of the Yuan fix since 2005 also pushed Yuan forwards back to their richest relative to spot since Aug 2014 – once again showing their might against the dastardly speculative shorts.

    As we warned previously, it appeared a 'message' was being sent to The Fed via Yuan weakness  – first ahead of The FOMC meeting and then, as several hawks got vocal, ahead of Janet's speech. Her uber-dovishness was rewarded as China 'allowed' the Yuan to rise and thus the USDollar to weaken…

     

    And since Janet delivered, PBOC has strengthened the Yuan Fix by the most since 2005!!

     

    Crushing shorts as Yuan forwards collapse back to their 'richest' relative to spot since Aug 2014…

     

    And just like Keyser Soze, they were gone. So while the old mantra of "Don't fight The Fed" may apply to some, it most certainly does not apply to The PBOC…

  • The More Corrupt The State, The More Numerous The Laws

    Submitted by Nick Giambruno via InternationalMan.com,

    Today, I’m going to share one of the most important things I’ve learned traveling around the world: There’s a crucial difference between committing a real crime and breaking the law.

    I’ve seen it firsthand in the Middle East as well as many other places.

    The difference is huge and few people understand it.

    While laws vary dramatically across countries, almost every country in the world universally considers real crimes immoral. A real crime involves harm or the threat of harm to person or property. Think murder, theft, or arson.

    Virtually every government prohibits real crimes. Most also prohibit a lot of other things…

    When someone breaks the law, it’s often not a real crime at all. He may have merely violated a particular government’s law without threatening or harming anyone or anything.

    Keep in mind that the idea of a victimless crime is an oxymoron. If there is no victim, there is no real crime.

    Insulting the Dear Leader in North Korea, being a woman who’s driving a car in Saudi Arabia, or possessing certain plants in the U.S. government all violate laws. But none of these activities harm or threaten people or property. They’re not real crimes. They simply violate the laws of certain governments.

    Of course, I am not suggesting that anyone break the law anywhere, even if it wouldn’t harm people or property. As a practical matter, it’s foolhardy to violate any government’s laws while you’re within its reach. That is, unless you prefer the lifestyle of an outlaw or a martyr.

    It would be risky to disparage the Dear Leader while in North Korea, or to possess an unapproved plant in the U.S., and so forth.

    Distinguishing between real crimes (i.e., harming or threatening to harm people or property) and breaking the law is critical to your personal freedom. The next step is for you to minimize your exposure to arbitrary, make-believe “crimes” invented by your home government.

    You can do this by diversifying internationally. That means moving some of your savings abroad in the form of physical gold to a safe jurisdiction, owning real estate in another country, opening foreign bank/brokerage accounts, and obtaining a second passport, among other things. Taking these steps will significantly dilute the power bureaucrats in your home country have over you.

    This is what this publication is all about: maximizing your personal freedom and worldwide financial opportunities.

    The more laws, regulations, and edicts your home government subjects you to, the more important it is to diversify internationally.

    This problem is particularly obvious in the U.S., where every level of government is continually passing more laws…especially the federal government. There are so many vague, overly broad federal laws criminalizing mundane activities that it’s impossible for anyone to be 100% compliant.

    Many people think felonies only consist of major crimes like robbery and murder. But that isn’t true. An ever-expanding mountain of laws and regulations has criminalized even the most mundane activities.

    It’s not as hard to commit a felony as you might think. Many victimless “crimes” are felonies.

    A study by civil liberty lawyer Harvey Silverglate found that the average American inadvertently commits three felonies a day.

    Today, there are thousands of federal crimes, and the number is constantly increasing. It brings to mind the words of the great Roman historian Tacitus: “The more corrupt the state, the more numerous the laws.”

    Here’s what Doug Casey says.

    Corruption can be defined as the taking of bribes of one type or another by officials in order to allow subjects to avoid taxes or regulations. Political corruption doesn't, therefore, occur in totally free markets simply because there's no taxation or regulation to avoid. Inevitably, and completely predictably, the more taxed and regulated a society is, the more necessarily corrupt it is.

    Today in the U.S., the government won’t necessarily go after you if you break a law. After all, most everyone has technically broken some law. Instead, the government decides whom to go after and chooses which laws to enforce. A creative prosecutor can always find some crime to charge you with if he looks hard enough.

    This doesn’t sound like the land of freedom and opportunity. It sounds like an out-of-control government.

    If you think it’s bad now, just wait until American politicians get even more financially desperate. Like most governments in financial trouble, we think the U.S. will keep choosing the easy option…money printing on a massive scale.

    This is a huge threat to your financial security. Politicians are playing with fire and inviting a currency catastrophe. The socio-political consequences are likely to be even more severe than the financial ones.

    This is a big reason why we think everyone should own some gold. Gold is the ultimate form of wealth insurance. It has preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.

  • Yellen-Driven Short-Squeeze Sends Bonds To Best Quarter In 4 Years

    After The Fed jawboned the world into the largest aggregate net short position in Treasuries in Q4 since 2010, its rapid realization that all is not well in the real world – and subsequent talking (and walking) back of rate-hike expectations – has sparked the biggest short-squeeze in 6 years and sent Treasuries up by the most since 2012. With odds collapsing for any more rate-hikes in 2016, as Yellen admits their forecasts are worthless, it seems – just as in 2010 – the bonds shorts have a way to go.

    The Fed should “proceed cautiously” in raising interest rates, Yellen said in New York. The chance of a move by the end of 2016 has declined to 64 percent, from 73 percent at the end of last week, futures prices compiled by Bloomberg indicate.

    The 10-year note yield slumped eight basis points on Tuesday, the most in seven weeks, and fell two basis points earlier Wednesday. U.S. government securities have returned 3 percent this quarter, based on Bloomberg World Bond Indexes.

     

     

    Yellen’s speech "was more dovish than I expected,” said Wontark Doh, head of overseas fixed-income investment in Seoul at Samsung Asset Management Co. Ltd., which manages $200 billion. “The upside for Treasury yields is limited."

     

    "Yellen came out as dovish and as forceful as she was" at the Fed meeting in March, when officials kept rates unchanged and scaled back forecasts for how high they’ll rise this year, said Barra Sheridan, a rates trader at Bank of Montreal in London. "I didn’t think April was a live meeting before Yellen spoke yesterday and I definitely don’t now — nor does the market."

    All driven by the biggest Treasury short-squeeze in 6 years (which was forced upon investors by The Fed's jawboning)…

    And finally, the constant jabber from The Fed demandingthat investors short bonds continues…

    Central-bank policies have pushed long-term Treasury yields to “very low” levels, San Francisco Fed Bank President John Williams said in Singapore before Yellen’s appearance. He said the threat of a “pretty big correction” in bonds supports the argument for gradual rate increases.

    How's that working out for you? It appears fighting The Fed in bond-land has worked very well recently.

    As The Wall Street Journal reports, bond traders are confused and concerned…

    “It is confusing because the recipe keeps on changing,” said Anthony Cronin, a Treasury bond trader at Societe Generale. “I think it does create more volatility because there is just so much uncertainty over what is important to the Fed.”

     

    Most concerning to Mr. Cronin was Ms. Yellen discussion of “potential global risks.’”

     

    This uncertainty “can do more harm in itself and become self-fulfilling,’” he said. “Why would a company commit to investing in their business if the Fed Chair is worried about the economy slowing from overseas developments?”

     

    The Fed’s mixed messages rippled through U.S. government bond yields, the dollar and gold over the past week.

     

    …

     

    “I believe that Yellen really believes that the downside risks of tightening too soon far outweigh the risk of waiting and maybe being a little late,” said Tom di Galoma, managing director at Seaport Global Securities LLC. “The Fed is market dependent at this point and not data dependent.”

    As we have said for a long time, The Fed is Dow Data-Dependent.

  • Presenting, "The Company That Bribed The World"

    This won’t exactly come as a surprise: the global oil industry is corrupt. 

    We are, after all, talking about the most financialized commodity in the history of the world, and up until a few years ago, it was controlled by a cartel comprised entirely of nations run by caricatures and stereotypes that the Western public generally regarded as a kind of necessary evil in a world that revolves around fossil fuels.

    More recently, we’ve seen how oil funds terrorism and how crude prices are manipulated by the Gulf monarchies to secure “ancillary diplomatic benefits” in the never-ending quest to perpetuate Sunni hegemony in the Arabian Peninsula.

    In short, blood money and oil money are synonymous concepts and at the end of the day, any geopolitical dispute that can’t be explained by sectarianism, tribalism, or some other ancient cultural rift, can very likely be explained by a dispute over energy. 

    Given the above, we weren’t at all shocked to learn that a heretofore obscue firm based in Monaco has made a killing by perfecting the art of oil market bribery and corruption. But even if the story isn’t surprising, it is nonetheless intriguing and with that in mind we present below excerpts from “The Company The Bribed The World,” a collaborative piece by Huff Post and Fairfax Media.

    *  *  * 

    From The Huffington Post

    A massive leak of confidential documents has for the first time exposed the true extent of corruption within the oil industry, implicating dozens of leading companies, bureaucrats and politicians in a sophisticated global web of bribery and graft.

    After a six-month investigation across two continents, Fairfax Media and The Huffington Post can reveal that billions of dollars of government contracts were awarded as the direct result of bribes paid on behalf of firms including British icon Rolls-Royce, US giant Halliburton, Australia’s Leighton Holdings and Korean heavyweights Samsung and Hyundai.

    The investigation centres on a Monaco company called Unaoil, run by the jet-setting Ahsani clan. Following a coded ad in a French newspaper, a series of clandestine meetings and midnight phone calls led to our reporters obtaining hundreds of thousands of the Ahsanis’ leaked emails and documents.

    The trove reveals how they rub shoulders with royalty, party in style, mock anti-corruption agencies and operate a secret network of fixers and middlemen throughout the world’s oil producing nations.

    The leaked files expose as corrupt two Iraqi oil ministers, a fixer linked to Syrian dictator Bashar al-Assad, senior officials from Libya’s Gaddafi regime, Iranian oil figures, powerful officials in the United Arab Emirates and a Kuwaiti operator known as “the big cheese”.

    It is the Monaco company that almost perfected the art of corruption.

    It is called Unaoil and it is run by members of the Ahsani family – Monaco millionaires who rub shoulders with princes, sheikhs and Europe’s and America’s elite business crowd. At the head are family patriarch Ata Ahsani and his two dashing sons, Cyrus and Saman.

    Their charities support the arts and children, and Ahsani family members sit on the boards of NGOs with ex-politicians and billionaires. Ten years ago, a spreadsheet showed they had cash, shares and property worth 190 million euros. They are members of the global elite.

    Bankers in New York and London have facilitated Unaoil’s money laundering, while the Ahsanis have built a major property investment business in central London. Since 2007, Unaoil has been certified by anti-corruption agency Trace International. This in itself raises serious questions about the worth of such international accreditation.

    But for the western companies confronted with questions under anti foreign bribery laws in their own jurisdictions, Unaoil appears to be a reputable and discrete middle-man, giving listed businesses what is known as “plausible deniability”.

    Iraq
    After the US led coalition won the second gulf war, it went to guard the oil ministry – leaving the Baghdad museum undefended to be looted of its treasures.

    But they did not save the oil industry from thieves. The Unaoil files reveal that Western companies, in concert with Iraq’s new elite, themselves began a sustained campaign of looting.

    Unaoil paid at least $25 million in bribes via middlemen to secure the support of powerful officials – while complaining internally that they were “assholes, and greedy”.

    Between 2004 and 2012, Unaoil corruptly influenced a Who’s Who of the country’s oil industry: the Deputy Prime Minister of Iraq turned education minister Hussain al-Shahristani; Oil Minister Abdul Kareem Luaibi (who was replaced in 2014); the Director General of the South Oil Company, Dhia Jaffar al-Mousawi, who in 2015 became a deputy minister; and top oil official Oday al-Quraishi.

    Iran

    Everything works and progresses on connections, relations with special talent”. So wrote an Iranian fixer, part of Unaoil’s remarkable network of insiders dedicated to paying and pocketing bribes. After the recent relaxing of United Nations, US and European sanctions, this network has become even more valuable.

    In 2006, this Unaoil operative complained in emails that one of the company’s clients, UK firm Weir Pumps (now owned by US firm SPX), owed him hundreds of thousands of dollars which he had promised to use in part to sling to others in Iran.

    “[It] is the end of Iranian new year here, expectations high, I am short in cash, and about five million pounds of business with Weir [is] in danger… Because I can not fulfill my obligations to my team of Supporters.”

    If the money was not forthcoming, he warned, Weir Pumps risked “melting like a piece of ice, day by day.”

    “…over half a million dollars of my consultancy fee… I have already spend it for the promotion of their businesses in Iran.”

    A separate set of leaked memos from 2006 said Unaoil would pay “10 k/month” to secure the support of the managing director of a firm chaired by a high ranking Iranian official, part owned by an Iranian government entity and overseen by a board with “political influence.”

    Libya

    In 2004, when the West began removing sanctions against Libya, and the regime of Colonel Gaddafi started dealing with foreign companies, Unaoil stood ready.

    By 2011, its network of corrupt insiders included officials and front men able to influence the dealings of many of Libya’s most important oil and gas agencies.

    In late 2008, a Canadian drilling firm, Canuck Completions, told Unaoil it was “curious about … what type of Baksheesh is needed to present to these men in order to get work” in Libya.

    Among Unaoil’s corrupt insiders was the powerful Libyan official, Mustafa Zarti, a confidant for the Gaddafi regime. Unaoil’s files describe Zarti as “good friends of President Ghadafi’s [sic] son of Libya and have lot of influence in lobbying the jobs in Libya”. Unaoil agreed to secretly pay Zarti millions of dollars. In return he would use his influence to advantage Unaoil’s clients.

    “MZ [Zarti] sits on the board of LFIC [Libyan Foreign Investment Committee] … which controls… Oil fund ($6bn) … He sees his role as us executing and him fixing issues we come across. MZ has agreed to bring all his oil & gas work to us,” a September 2006 Unaoil memo said.

    Unaoil’s multinational clients in Libya included Malaysian giant Ranhill, Korean conglomerate ISU and Spanish company Tecnicas Reunidas.

    Syria and Yemen

    In Syria, Unaoil turned to a middleman close to the regime of Syrian president Bashar al-Assad.

    In 2008 and 2009, Unaoil promised the man 2.75 million euros who helped its British client Petrofac win contracts from Assad regime petroleum companies. “Strictly confidential” emails from 2008 show this middleman promised to pay others to win these contracts.

    But when he was not paid on time, he complained the delays were causing problems with “friends” in Syria.

    “It is becoming very unpleasant [sic] for me not delivering as expected,” he wrote to Unaoil in December 2009.

    Petrofac is understood to be unaware of Unaoil’s involvement in its Syrian dealings and in response to questions said it “aspires to the highest standards of ethical behaviour”.

    In Yemen, Unaoil paid millions to a. Swiss account belonging to fixer and businessman Haitham Alaini, the son of the former Yemeni prime minister. In return, Alaini used his contacts in the Yemen to help Unaoil.

  • "It's A Big, Scary World Out There," BofA Warns, And Only Janet Can Save Us

    On Tuesday, Janet Yellen delivered what some observers called her finest “performance” since ascending to the monetary throne in February of 2014.

    Of course in the post-crisis world, central bankers are only praised when they make dovish pronouncements. Hawks are heretical. To tighten is to sin.

    The conundrum for Yellen is that she appears to have been talked into going along with the global easing bias for a few more months at the G20 – data be damned. That is, despite the fact that the US economy is about to hit full employment (and we’ll ignore the fact that the numbers are goalseeked and that the only jobs being created are lowly service sector positions), Yellen has to find an excuse to avoid adopting too steep a “flight path” for rates, lest the dollar should soar causing commodities to plunge anew and triggering massive outflows from EM.

    With no way to justify a dovish tilt based on the dual mandate (inflation isn’t exactly where the FOMC would like it to be, but compared to Japan and Europe it looks rather robust), Yellen did the only thing she could this month: she admitted (just as she did in September) that the reaction function now includes international financial markets and, more specifically, China.

    That admission was greeted with a high degree of skepticism last autumn, but it would appear that now, having proven that it’s at least possible to hike 25 bps without the entire world coming to an end, the market is more than happy to see the Fed stand pat if it means forestalling global turmoil. As we noted this morning, some Fed officials didn’t get the message and so on Tuesday, Yellen the “mother lion” was forced to “swat her misbehaving cubs back into line” (to quote Bloomberg’s Richard Breslow) with an uber dovish speech at the Economic Club of New York.

    The message the vaunted Fed chair sought to drive home was simple: it wouldn’t matter if the unemployment rate dropped to 1% and inflation expectations spiked above the FOMC’s target overnight – it’s simply too dangerous out there for the Fed to lean hawkish. Or, as BofA puts it in a new note: “It’s a big scary world out there.” Excerpts are below.

    *  *  *

    From BofA:

    It’s a big scary world out there

    Fed Chair Janet Yellen, in her speech and subsequent Q&A at the Economic Club of New York, was very clear in conveying her message that the weak global backdrop is preventing the Fed from hiking rates very much. While the Fed’s baseline economic scenario was roughly unchanged between the December and March FOMC meetings – given appropriate monetary policy accommodation – uncertainties are higher due to a weaker path of projected global growth. In other words the reduction in the dot plot to two rate hikes this year at the March meeting, from four hikes in December, is thought appropriate to mitigate the impacts of the weaker global backdrop. That reinforces the impression from the last FOMC meeting that the Fed is willing to risk higher inflation over the longer term in order reduce shorter term uncertainties. Hence the increase in 5-year, 5-year forward inflation expectations and simultaneous decline in equity vol following today’s comments by Chair Yellen (Figure 1).

    Why the Fed matters

    To illustrate why the Fed’s clear shift to a more dovish stance is so effective in reducing uncertainties in financial markets, consider our recent survey of US credit investors. Arguably at least three – if not all – of the top-4 investor concerns – China, Oil prices, Geopolitical risk and Slow recovery (in that order, Figure 2) – are mitigated to some extent by the more dovish Fed. First of all a more aggressive Fed rate hiking cycle would likely accelerate China’s capital flight which, with an open capital account, leads to the equivalent of monetary policy tightening in China at a time where the weak economy needs the opposite. Furthermore, to stem such capital flight incentivizes the PBOC to pursue more aggressive currency depreciation, which is very deflationary through commodities. Second the stronger dollar associated with a more aggressive Fed puts downward pressure on oil prices – instead the USD weakened 0.8% today. Third to some extent even geopolitical risk is related to lower oil prices. Fourth the stronger dollar and lower oil prices could initially be negative for the US economy through the manufacturing sector – before consumers eventually do react to lower prices at the pump.

  • The Reason Why The Young #NeverTrump Protester Was Maced: Punching An Elderly Man In The Face

    In this morning’s media frenzy story du jour, a 15-year-old girl, who was protesting at a Trump rally in Wisconsin, ended up being pepper sprayed, or at least that’s how most of the media portrayed the incident. Since we were unsure what had happened, we specifically stated that “who knows what actually happened here and we won’t endeavor to speculate although it does appear that the pepper spraying was in retaliation for an initial provocation by the young girl.”

     

    There was, however, more to the story than headlines such as this one from Time Magazine “15-Year-Old Girl Assaulted at Donald Trump Rally, Police Say” suggest.

    As the following Youtube clip from Rebel Pundit reveals, the unnamed female #NeverTrump protester was only maced after she first punched an elderly man in the face: the moment is clearly caught on tape 28 seconds into the following clip.

     

    Andrew Marcus, who works on these video projects with Rebel Pundit, posted this image.

     

    As the LegalInsurrection website notes, “I don’t know the man’s age, but in many states a physical assault on a person over a certain age (usually 60 or 65) get accelerated charging, turning what would be a misdemeanor battery into a felony.”

    It adds: “we saw this extensively when Trump’s Chicago rally was shut down after near riots by anti-Trump activists who infiltrated the rally venue. And we saw it yesterday at a Trump rally in Janesville, WI….  It’s the same agenda used against the Tea Party — to portray an overwhelmingly peaceful group of people as violent, and to portray the violent leftist perpetrators as victims.”

    And speaking of the Janesville WI, protest, we wonder if the young girl was being compensated (to the tune of $15/hour) by anonymous sources, the same ones who had previously put up the following CraigsList posting seeking to recruit “Paid Protesters at Trump Rally.”

  • We're Not Going To Make It… (Without Real Sacrifice)

    Submitted by Chris Martenson via PeakProsperity.com,

    Right now I'm on a Metro North train heading the NYC. I’ve been invited to sit on an advisory council at the UN on building a sustainable energy future.

    I’ll let you know how the meeting goes, after I take a few selfies to immortalize the experience in case I'm not invited back. 

    Why might I not? Because I can either be a good boy, hold my tongue, and get to serve on more committees (maybe); or I can speak the truth as I see it.

    It's not a hard decision: I'll be going with the latter. I really don’t know how to do differently any more; it’s a matter of internal integrity.

    Now, I may not understand the ‘truth’ any better than the next person. But I do have access to a lot of data that seems to confirm this one idea: Humanity is not going to painlessly wean itself off of fossil fuels.

    Instead, we’ll hit some sort of a wall: be it a food/population crisis, a climate crisis, or a debt/fiscal/economic crisis.  Each of those candidates has it roots in our global society's addition to fossil fuels.

    No growth in fossil fuels and we get no growth in our debt-based economy. Translation: we’ll have a debt/financial crisis.

    No fossil fuels and our entire method of industrial agriculture breaks down. Food crisis anyone?

    Now, we won’t suddenly run out of fossil fuels. But we are going to find it increasingly difficult to extract more and more of them. And other limits like oceanic acidification and climate change may force us to move away from fossil fuels for a totally different set of reasons.

    No matter the path we take, we need to transition sooner or later. We should know that.

    Poor Math

    One of the things I did in the book version of The Crash Course was to run the basic numbers to make the case that, unless we immediate decide to pursue the equivalent of a Manhattan Project (times) an Apollo Project (times) some whole number like 10, we're not going to make anything even remotely resembling a seamless transition to alternative energy.

    Fortunately, there are now more groups carefully studying the math and making the same case:

    Renewable energy demands the undoable

    Mar 27, 2016

     

    LONDON, 27 March, 2016 – The world is increasingly investing in renewable energy. Last year, according to UN figures, global investment in solar power, wind turbines and other renewable forms of energy was $266 billion.

     

    But right now, the report says, renewable energy sources deliver just 10.3% of global electrical power. Neither the report’s authors nor anyone else thinks that is enough to slow climate change driven by rising global temperatures as a consequence of greenhouse gas emissions from fossil fuels.

     

    In the last century, this has already climbed by 1°C. In Paris in December 2015, 195 nations agreed on a global plan to limit global warming to a figure no more than 2°C above the long-term average for most of human history.

     

    This will be difficult, according to Glenn Jones, professor of marine sciences at Texas A&M University in the US.

     

    In 2015, the world installed the equivalent of 13,000 five-megawatt wind turbines. But to contain global warming to a figure less than 2°C nations would have to ramp up renewable investment by 2028 to the annual equivalent of 485,000 such wind turbines.

     

    “That’s a 37-fold increase in the annual installation rate in only 13 years just to achieve the wind power goal,” Professor Jones said.

    (Source)

    There’s some really important information in this study, not the least of which is the realization that, to achieve just the wind power goal, the world would have to increase its rate of wind tower installation by 3,700% (or 37 fold).

    This translates into going from installing 36 towers per day (the current rate) to 1,329 per day. Every day. 365 days a year. For 13 years straight. With no breaks.

    But our fossil fuel addiction goes well beyond the desire/need for electricity. Transportation fuels are just as essential to our current human condition.

    The article continues:

    He and a colleague argue in the journal Energy Policy that during each hour of every day 3.7 million barrels of oil are pumped from wells; 932,000 tons of coal are dug; 395 million cubic metres of natural gas are piped from the ground; and 4.1 million tons of CO2 is released into the atmosphere.

     

    In that same hour, another 9,300 people are added to the global population. By 2100, the world will be home to 11 billion of us.

     

    “It would require rates of change in our energy infrastructure and energy mix that have never happened in world history and that are extremely unlikely to be achieved,” he says.

     

    “So the question becomes, how will they be fed and housed and what will be their energy source? Currently 1.2 billion people in the world do not have access to electricity, and there are plans to try to get them on the grid. The numbers you start dealing with become so large that they are difficult to comprehend,” Professor Jones says.

     

    “To even come close to achieving the goals of the Paris Agreement, 50% of our energy will need to come from renewable sources by 2028, and today it is only 9%, including hydropower. For a world that wants to fight climate change, the numbers just don’t add up to do it.”

    3.7 million barrels of oil per hour, along with nearly a million tons of coal and 400 million cubic meters of gas.  Every day, for 365 days a year.  

    The numbers are indeed difficult to comprehend. But they just don’t measure up to our hopes for the future. At the current pace of energy transition, we’re not only going to miss the climate targets we've set, but we’re also going to miss the chance gracefully deal with the continued growth in both our debt pile and population.

    This chart explains why.  As fast as renewable energy sources have grown, fossil fuels have grown, too. They remain ~80% of the world's total energy consumption:

    (Source – Gail Tverberg)

    While people excitedly point out the growth rates in energy renewables, they often fail to note either/both the scale involved and/or the fact that a tiny percentage growth in fossil fuels will utterly dwarf a large percentage gain in renewables.

    This is the dynamic that the numbers in the above study are warning us of. Loudly.  

    It’s nothing personal. It’s just math. But it’s going to get very personal over the next years and decades as the world is finally forced to confront the idiocy of attempting infinite growth on a (quite) finite planet.

    And it's for this reason I am going to have a hard time being a good little committee member and sign off on some cheery report suggesting we can achieve a sustainable energy future if we all just try a little harder.

    We’re going to need to try harder than any generation has ever had to try on anything, ever in all of history, to remake our energy infrastructure.

    Meanwhile…

    The Predicament That Stares Us In The Face

    These days it’s very hard to scan the headlines without running into seriously troubling ecological data.

    The two ocean related articles below recently jumped out at me, both of which are related to the implications of oceanic warming:

    Underwater Heat Wave Devastates Great Barrier Reef

    Mar 29, 2016

     

    CANBERRA, Australia—An underwater heat wave is devastating huge swaths of Australia’s Great Barrier Reef, marine researchers have found.

     

    An aerial survey of the chain of 3,000 coral outcrops—a Unesco world-heritage site and the only living system visible from space—found 95% of its northern area, roughly half the reef’s length, had been hit by a bleaching event that began six months ago. Damage to the southern area is still being assessed.

     

    “This has been the saddest research trip of my life,” said Terry Hughes, a professor at Australia’s James Cook University and expert in coral bleaching. “Almost without exception, every reef we flew across showed consistently high levels of bleaching, from the reef slope right up onto the top of the reef.”

    (Source)

    This bleaching is caused by the loss of the symbiotic algae upon which coral depends, causing the coral organisms to die from starvation.

    Another important bottom-of-the-food-chain organism, phytoplankton, has been disappearing from a variety of ocean basins with the Indian Ocean being one that recently made the news:

    OCEAN PASTURES OF INDIAN OCEAN DISAPPEARING RAPIDLY

    Feb 2, 2016

     

    Research reveals that phytoplankton stocks in the region fell an alarming 30 percent over just the last 16 years. This most recent tally of the collapse of this vital ocean pasture ecosystem compounds the observed collapse that has been documented since the early 1950’s!

     

    The collapse of ocean pasture ecosystems is taking place in all of the world’s ocean, not just in the Indian Ocean. Indeed many of those ocean basins are in a much worse condition of pasture collapse than the Indian Ocean.

    (Source)

    As the study itself concluded, the cause was due to hot surface water blocking mixing with the nutrient dense(er) lower waters:

    We find that these trends in chlorophyll are driven by enhanced ocean stratification due to rapid warming in the Indian Ocean, which suppresses nutrient mixing from subsurface layers. Future climate projections suggest that the Indian Ocean will continue to warm, driving this productive region into an ecological desert.

    (Source)

    These are by no means rare exceptions plucked from a sea of otherwise positive news.  The world’s ecosystems are having a really rough time absorbing the scope and the pace of changes that humans are creating.

    The grief expressed above by the scientists who study these ecosystems tells the tale.   

    Conclusion

    The world is just not yet serious enough about the urgency of transitioning away from fossil fuels.  The math says that without a tremendous change in behavior, far greater than anything currently on display, we simply won’t “get there” waiting for market forces to do the job for us.

    We’ll have to make and adhere to very different priorities. Such as completely redirecting our entire defense budgets to the process of retooling our entire relationship to energy.

    We’ll need our buildings to use less energy. And we’ll need to live closer to where we work and play.

    Our food will have to be grown differently. And it will have to travel less far to get to our plate.

    Electricity will have to come from sources other than fossil fuels too.

    Is it possible to figure this out in time? Well, whether it is or not is sort of beside the point. Because these changes are going to be forced on us anyways if we don't.

    So I guess I could be an optimist on the UN panel by telling them that I have 99% confidence that humans will someday be powering 100% of their energy needs from the sun.

    I’ll just leave out that what I mean is that, in 100 or 200 years, humans will have painfully reverted back to a 1600’s-style subsistence farming lifestyle.

    The point of this article is to refocus our attention on the need for each of us to lead the way, to begin our own individual energy transitions without waiting for some top-down solutions to come forward. The calvary simply isn't going to show up.

    In our podcasts with Joel Salatin, Singing Frogs farm and Toby Hemenway, we've been surfacing examples of the ways in which we can begin farming regeneratively and relationally today.  You can do this on your own if you garden. Or you can support local farmers/CSAs that will do this for you. 

    Anybody paying into a pension or trying to manage an endowment that needs to be there in 30 or 40 years (or forever, as is the case for university endowments) needs to understand that projections based on prior rates of economic growth are fantasies, hatched when we had the luxury of pretending there were no energy limits.

    The restructuring of our energy economy, if taken under our own terms and on our own timelines, will utterly crush traditional economic growth as we’ve come to know and love it.

    If taken under more dire terms, there may not even be a recognizable economy for a very long time.  

    These are serious matters. They deserve serious consideration and even more serious answers.

    Every little step each of us can make, both for its direct impact and for its leadership effects, is actually vitally important.

    So one question we might ask ourselves is: How can I use less energy today, enjoy life just as much (if not more), and be part of the solution?

    The future is gong to be very different from the past. And the only thing that could come along to ameliorate the situation from an energy-food-survival standpoint would be a brand new source of energy. Something along the lines of workable, scalable fusion or if LENR (Low-Energy Nuclear Reaction) pans out and is quickly adopted.

    As long as we are collectively relying on ~80% of our primary energy coming from fossil fuels, we're on the opposite path from creating a world worth inheriting.

    And the extent to which we fail to run he numbers and appreciate the scale and the scope and the timing involved, preferring perhaps to content ourselves with just the renewables side of the story, is the extent to which we are failing to appreciate the challenges we face.

    So my challenge for myself is to see how much I can further cut back my own energy use — something I've already done in good measure by heating my water using the sun, insulating my home, and having a relatively efficient vehicle.  But there’s still a lot more I can do. 

    How about you?

  • Meanwhile In San Francisco – $400/Month To Live In A Box In Someone's Living Room

    We’ve spent quite a lot of time documenting the inexorable rise in housing prices across some of the world’s red hot markets.

    Take Vancouver, for instance, where according to National Bank, one third of all homes sold in 2015 went to Chinese buyers whose voracious demand has driven prices into the stratosphere in both British Columbia and Ontario. Here’s what $2.5 million will get you in Point Grey:

    Or how about London, where things are so out of control that it will cost you £500 to live under someone’s stairs:

    Then there’s San Francisco, where the median home price is now well over $1 million. Indeed, as we noted just yesterday, San Francisco home prices rose 10.5% in January and, along with properties in Seattle and Portland, have now surpassed their housing bubble highs:

    And when last we checked in on Silicon Valley, a tent in someone’s backyard goes for $46 a night (you get an extension cord, one shower a day, and wi-fi).

    But if you aren’t the camping type, there’s another option: you can always build yourself a wooden box and put it in someone’s living room. “The median rent for a one bedroom apartment in San Francisco is a stunning $3,670 a month, and a bedroom in a shared apartment will set you back at least $1,500 for a decent location on the peninsula,” Gizmodo writes, on the way to recounting the story of Peter Berkowitz, a 25-year-old illustrator who devised an innovative way to save on rent in the Bay Area’s lunatic market. Here’s more:

    Peter Berkowitz is my new favorite guy. The 25-year-old illustrator recently moved to San Francisco and instead of settling for some landlord’s price-gouging, he found some other cool kids who let him build a box in their living room. Peter’s rent is just $400 a month.

     

    This box-in-the-living room idea, now that’s something I can get behind. You’re lucky to have any space at all to yourself in San Francisco’s housing shortage, but it’s damn near impossible to find such a cozy little sleep pod like this. Peter built the thing with his bare hands for only $1,300 and even included a little window and some fairy lights so that it feels less like coffin and more like a magical escape from the dystopia that is the city by the bay. It’s eight feet by 3.5 feet (a little longer and wider than a coffin). The real perk though is that it’s 4.5 feet tall (much taller than a coffin). And look, there’s a cute little shelf for his MacBook.

     


     

    One time I lived in a closet in London for £250 a month, roughly the same as what Peter’s paying for his box. I was able to stand up straight in my closet, but I was not able to stretch my arms out in both directions. It was no problem, though, because I was broke as hell and got to use the living room from time-to-time. I even had a girlfriend for a little while.

     

    In all seriousness, it’s absurd that Frisco living has come to this. It’s bad for everyone who’s not some overpaid Facebook employee, and it’s bad for America. The housing crisis also isn’t entirely the tech companies’ fault, although they could be doing a lot more to fix it. Take a hint from Peter. He seems like a real get-up-and-go guy. Well, more like get-up-slightly-hunched-over-and-crawl-out-of-your-box-and-into-a-living-room kind of guy. I like this guy.

    It may be cliché, but this is one time where you really can blame China and if Beijing really does intend to liberalize the capital account while simultaneously orchestrating a far deeper devaluation of the RMB, you can bet things are going to get even crazier in the world’s hottest housing markets. 

    Trade idea: long prefab living room cubicles.

  • Brazil Posts Largest Budget Deficit Ever As Rousseff Cries "Coup," Olympic Ad Sales Top $1 Billion

    On Tuesday, embattled Brazilian President Dilma Rousseff was dealt a bitter blow when PMDB – the party of VP Michel Temer and House Speaker Eduardo Cunha – officially left the coalition government.

    “Dialogue, I regret to say, has been exhausted,” Tourism Minister Henrique Eduardo Alves, a PMDB leader and former speaker of the lower house of Congress, said on Monday as he resigned from Rousseff’s cabinet.

    To let the market tell it, a complete political meltdown is great news. As we showed yesterday and as we’ve discussed on a number of occasions this month, the more precarious things get politically in Brazil, the harder the BRL and Brazilian risk assets rally. Why? Because the assumption is that when it comes to the country’s floundering economy, anything is preferable to the current arrangement. With output in free fall, inflation running in the double digits, and unemployment marking an inexorable rise, it’s difficult to imagine how things could possible get any worse.

    Indeed, the prospect that Rousseff and Lula will be sent packing has created so much upward pressure on the BRL that the central bank has begun selling reverse swaps to keep a lid on the currency lest its rapid appreciation should end up short circuiting a much needed economic adjustment.

    Meanwhile, Brazilian stocks have soared this year amid the turmoil. Of course this state of affairs simply isn’t sustainable. As Craig Botham, an emerging markets economist at Schroder Investment Management put it, “you don’t invest in a place where you don’t know who’s in charge.“

    Right. And you also don’t invest in a place where the economic fundamentals get worse by the day.

    Just this morning, for instance, we got the latest read on the fiscal deficit and it was, for lack of a better word, a disaster. The budget gap was the largest on record and came in wildly above expectations. Long story short, the primary deficit printed at 2.1% in February, up from 1.75% the previous month. “While revenues are falling sharply due to the economic situation, at a rate of 12 to 13 percent (a year), expenses continue to grow,” Tulio Maciel, head of the central bank’s economic research department told reporters on Wednesday.

    Meanwhile, debt-to-GDP continues to rise. Here’s Goldman with the full breakdown of today’s dismal data:

    The overall public sector fiscal deficit (primary surplus minus interest payments) remained broadly stable at a very large 10.8% of GDP in February, substantially above the 6.6% deficit recorded a year ago. The 12-month net interest bill dropped to 8.6% of GDP in February compared to 9.1% of GDP in January. The consolidated public sector primary fiscal deficit climbed to 2.1% of GDP from 1.75% of GDP the month before.

     

    Gross general government debt worsened to 67.6% of GDP in February, up from 67.4% of GDP in February and 57.2% of GDP at end-2014.

     


     

    A deep, permanent, structural fiscal adjustment remains front-and-center on the policy agenda to restore both domestic and external balance. In our assessment, at the end of the fiscal consolidation process Brazil needs to end up with a primary surplus of 3.0% to 3.5% of GDP. This would be the level of primary surplus that would put gross public debt on a clear declining trajectory, something that is required forBrazil to rebuild fiscal buffers and regain room to use fiscal policy counter-cyclically, whenever needed and appropriate.

     

    Ultimately, a weaker BRL and a deep structural fiscal adjustment are key pillars to restore domestic (i.e., lower inflation) and external balance (i.e., to promote and consolidate the adjustment of the current account). However, given the very modest scope and slow pace of fiscal consolidation, and its far-from-ideal quality, the burden of current account adjustment will likely continue to fall disproportionately on monetary policy and the BRL.

    Now obviously, there’s a long, long way to go for Brazil to get back to primary surplus at all, let alone push the black ink up to 3% of GDP. The idea that this is going to turn around the second Rousseff leaves the Presidential palace is laughable at best. And speaking of laughable, have a look at this rather amusing bit from Citi: 

    • Rousseff impeachment won’t sustain Brazil rally
    • As the likelihood of President Dilma Rousseff’s impeachment increases “investors will take a step back.
    • “It might be the case of buying the rumor and selling the fact.”

    In other words: investors might suddenly wake up to the fact that an intractable political crisis is most assuredly not risk positive.

    Meanwhile, Rousseff is back on the tape likening the impeachment proceedings to a coup. “Presidents must be chosen in free elections,” she proclaimed on Wednesday. Countdown to impeachment: around 45 days. 

    Finally, it’s worth noting that according to the latest figures, NBC has sold $1 billion in national ads for the Summer Olympics in Rio. “We’ve surpassed the $1 billion mark four months ahead of (the 2012 Summer Games in) London,” Seth Winter, NBC Sports’ executive vice president of advertising sales, said in a statement.

    $1 billion. That’s a lot of refunds, Seth.

  • Depressing Survey Results Show How Extremely Stupid America Has Become

    Submitted by Michael Snyder via The Economic Collapse blog,

    Ten years ago, a major Hollywood film entitled “Idiocracy” was released, and it was an excellent metaphor for what would happen to America over the course of the next decade.  In the movie, an “average American” wakes up 500 years in the future only to discover that he is the most intelligent person by far in the “dumbed down” society that he suddenly finds himself in. 

    Sadly, I truly believe that if people of average intellect from the 1950s and 1960s were transported to 2016, they would likely be considered mental giants compared to the rest of us.  We have a country where criminals are being paid $1000 a month not to shoot people, and the highest paid public employee in more than half the states is a football coach.  Hardly anyone takes time to read a book anymore, and yet the average American spends 302 minutes a day watching television.  75 percent of our young adults cannot find Israel on a map of the Middle East, but they sure know how to find smut on the Internet.  

    What in the world has happened to us?  How is it possible that we have become so stupid?  According to a brand new report that was recently released, almost 10 percent of our college graduates believe that Judge Judy is on the Supreme Court…

    The American Council of Trustees and Alumni publishes occasional reports on what college students know.

    Nearly 10 percent of the college graduates surveyed thought Judith Sheindlin, TV’s “Judge Judy,” is a member of the U.S. Supreme Court. Less than 20 percent of the college graduates knew the effect of the Emancipation Proclamation. More than a quarter of the college graduates did not know Franklin D. Roosevelt was president during World War II; one-third did not know he was the president who spearheaded the New Deal.

    It can be tempting to laugh at numbers like these until you realize that survey after survey has come up with similar results.

    Just consider what Newsweek found a few years ago…

    When NEWSWEEK recently asked 1,000 U.S. citizens to take America’s official citizenship test, 29 percent couldn’t name the vice president. Seventy-three percent couldn’t correctly say why we fought the Cold War. Forty-four percent were unable to define the Bill of Rights. And 6 percent couldn’t even circle Independence Day on a calendar.

    Even worse were the extremely depressing results of a study conducted a few years ago by Common Core…

    *Only 43 percent of all U.S. high school students knew that the Civil War was fought some time between 1850 and 1900.

    *More than a quarter of all U.S. high school students thought that Christopher Columbus made his famous voyage across the Atlantic Ocean after the year 1750.

    *Approximately a third of all U.S. high school students did not know that the Bill of Rights guarantees freedom of speech and freedom of religion.

    *Only 60 percent of all U.S. students knew that World War I was fought some time between 1900 and 1950.

    Of course survey results can be skewed, and much hinges on how the questions are asked.

    However, even studies that are scientifically conducted confirm how stupid America has become.  In fact, a report from the Educational Testing Service found that Americans are falling way behind much of the rest of the industrialized world.  The following comes from CBS News…

    Americans born after 1980 are lagging their peers in countries ranging from Australia to Estonia, according to a new report from researchers at the Educational Testing Service (ETS). The study looked at scores for literacy and numeracy from a test called the Program for the International Assessment of Adult Competencies, which tested the abilities of people in 22 countries.

     

    The results are sobering, with dire implications for America. It hints that students may be falling behind not only in their early educational years but at the college level. Even though more Americans between the ages of 20 to 34 are achieving higher levels of education, they’re still falling behind their cohorts in other countries. In Japan, Finland and the Netherlands, young adults with only a high school degree scored on par with American Millennials holding four-year college degrees, the report said.

    Out of 22 countries that were part of the study, the Educational Testing Service found that Americans were dead last in tech proficiency, dead last in numeracy and only two countries performed worse than us when it came to literacy proficiency…

    Half of American Millennials score below the minimum standard of literacy proficiency. Only two countries scored worse by that measure: Italy (60 percent) and Spain (59 percent). The results were even worse for numeracy, with almost two-thirds of American Millennials failing to meet the minimum standard for understanding and working with numbers. That placed U.S. Millennials dead last for numeracy among the study’s 22 developed countries.

    So why has this happened?

    Why have we become such an extremely stupid nation?

    Well, at least a portion of the blame must be directed at our system of education.  The following is an excerpt from an article written by reporter Mark Morford.  In this article, he shared how one of his friends which had served for a very long time as a high school teacher in Oakland, California was considering moving out of the country when he retired due to the relentless “dumb-ification of the American brain”…

    It’s gotten so bad that, as my friend nears retirement, he says he is very seriously considering moving out of the country so as to escape what he sees will be the surefire collapse of functioning American society in the next handful of years due to the absolutely irrefutable destruction, the shocking — and nearly hopeless — dumb-ification of the American brain. It is just that bad.

     

    Now, you may think he’s merely a curmudgeon, a tired old teacher who stopped caring long ago. Not true. Teaching is his life. He says he loves his students, loves education and learning and watching young minds awaken. Problem is, he is seeing much less of it.

    And of course things don’t get much better when it comes to our college students.  In a previous article, I shared some statistics from USA Today about the rapidly declining state of college education in the United States…

    -“After two years in college, 45% of students showed no significant gains in learning; after four years, 36% showed little change.”

    -“Students also spent 50% less time studying compared with students a few decades ago”

    -“35% of students report spending five or fewer hours per week studying alone.”

    -“50% said they never took a class in a typical semester where they wrote more than 20 pages”

    -“32% never took a course in a typical semester where they read more than 40 pages per week.”

    I spent eight years studying at some of the finest public universities in the country, and I can tell you from personal experience that even our most challenging college courses have been pathetically dumbed down.

    And at our “less than finest” public universities, the level of education can be something of a bad joke.  In another previous article, I shared some examples of actual courses that have been taught at U.S. universities in recent years…

    -“What If Harry Potter Is Real?”

    -“Lady Gaga and the Sociology of Fame”

    -“Philosophy And Star Trek”

    -“Learning From YouTube”

    -“How To Watch Television”

    Could you imagine getting actual college credit for a course entitled “What If Harry Potter Is Real?”

    This is why many of our college graduates can barely put two sentences together.  They aren’t being challenged, and the quality of the education most of them are receiving is incredibly poor.

    But even though they aren’t being challenged, students are taking longer to get through college than ever.  Federal statistics reveal that only 36 percent of all full-time students receive a bachelor’s degree within four years, and only 77 percent of all full-time students have earned a bachelor’s degree by the end of six years.

    Of course our system of education is not entirely to blame.  The truth is that young Americans spend far more time consuming media than they do hitting the books, and what passes for “entertainment” these days is rapidly turning their brains to mush.

    According to a report put out by Nielsen, this is how much time the average American spends consuming media on various devices each day…

    Watching live television: 4 hours, 32 minutes

    Watching time-shifted television: 30 minutes

    Listening to the radio: 2 hours, 44 minutes

    Using a smartphone: 1 hour, 33 minutes

    Using Internet on a computer: 1 hour, 6 minutes

    When you add it all up, the average American spends more than 10 hours a day plugged into some form of media.

    And if you allow anyone to pump “programming” into your mind for 10 hours a day, it is going to have a dramatic impact.

    In the end, I truly believe that we all greatly underestimate the influence that the mainstream media has on all of us.  We willingly plug into “the Matrix” for endless hours, but then somehow we still expect “to think for ourselves”.

    There are very few of us that can say that we have not been exposed to thousands upon thousands of hours of conditioning.  And all of that garbage can make it very, very difficult to think clearly.

    It is not because of a lack of input that we have become so stupid as a society.  The big problem is what we are putting into our minds.

    If we continue to put garbage in, we are going to continue to get garbage out, and that is the cold, hard reality of the matter.

  • European Peripheral Corporate Bond Yields Tumble To Record Lows Ahead Of Draghi's Monetization

    On the day Mario Draghi announced that the ECB would launch a historic corporate bond monetization program, the first of its kind, we said that we expect bond yields to tumble imminently as the market frontruns the ECB’s open-market purchases of corporate bonds and soaks up all available supply in the market. Not even we expected what would happen next though.

    As the WSJ writes, four years after ECB President Mario Draghi‘s famous “whatever it takes” speech sparked a decline in the cost of servicing sovereign debt in the Eurozone’s shattered periphery, the same is now seems to be happening for corporate bond issuers in those countries.

    It references the Bank of America Merrill Lynch’s nonfinancial bond index for the Eurozone periphery which includes countries like Italy, Spain, Portugal and Ireland (which earlier today issued a 100 Year bond courtesy of the very same ECB), and which touched its lowest yield to maturity ever on Tuesday, at 0.76%.

    Once again, Draghi has worked his verbal magic unleashing a buying spree before the ECB has bought even one single bond, all because other buyers are now completely price indiscriminate and fully aware they have the ECB’s backstop.

    Perhaps the recent record low yields are a warning: the previous record low yield for the index was 0.78%, which was reached just before the so called bund tantrum of Spring 2015, when credit across Europe sold off, and yields jumped.

    However, back then, the buying impetus was driven by the ECB’s sovereign QE program when, unlike now, there was no explicit backstop to corporate bond risk. There is now.

    The WSJ also points out that yields on other classes of debt have also declined, but not to the levels recorded in the early months of last year. 

    Financial companies, whose bonds the ECB will not buy, are still a little way from their lows. In March last year, the yield to maturity of the Bank of America Merrill Lynch index for financial companies in the periphery fell to 1.12%, and it’s now at 1.35%.

     

    The index for non-financial companies in the eurozone but outside the periphery also has a higher average yield than it did in April 2015.

    This “arbitrage” will be fixed: once ravenous yield chasers run out out of peripheral bonds to buy and the market becomes dangerously illiquid – as we also warned will happen – buying activity will shift to corporate bonds in the core. At that point, once all yields are at record low yields, if not negative, the ECB will proceed to monetize financial bonds as well.

    The WSJ’s conclusion:

    Since the ECB’s bond buying program is designed to spur lending by reducing the cost to corporations, record low yields are good news: for now, at least.

    We disagree: what the chart above shows is yet another asset class that is now completely dislocated from its fundamentals, just like European sovereign bonds, which are trading not on their underlying merit but because the ECB has to buy them. The same is happening in the corporate financial space. And, once the corporate non-financial market ends up broken and there is no more supply, the ECB will be forced to expand its bond buying universe again, launching the monetization of junk bonds, convertibles and ultimately equities.

    At that point, no news and no fundamentals news will matter any more, and the only driver of “markets” will be whether the ECB’s credibility is intact, which in turn will make it a political issue as will the “valuation” of the markets.

    And then, one day, when for whatever reason the ECB’s mandate to monetize everything is taken away (whether as a result of German revulsion or the political collapse of the Eurozone) prices will once again find their fundamental “fair value.” One thing that is certain: it will be far, far lower than where it is with the explicit backing of central banks to buy anything and everything.

  • A Brief Rebuttal To Jim Cramer

    In response to what seemed like a rather stunning statement by CNBC entertainer Jim Cramer that "Fed Chief Yellen is speaking for the common person," we thought the following simple chart might provide some useful food for thought when considering everything that escapes his mouth…

     

     

    So yep – jawbone all you like, but actions speak louder than words and enabling companies to 'live' that should be dead and enabling executives to pump up share prices (via cheap debt-funded buybacks) at the expense of their 'expensive' labor force seems like anything but "speaking for the common person."

    Just like Greenspan and Bernanke before her, Janet Yellen has only one mandate – enable the elites to survive (and thrive) no matter what the cost.

  • US & China Are Collapsing Into Thucydides Trap

    Submitted by Simon Black via SovereignMan blog,

    In his History of the Peloponnesian War, ancient Greek historian Thucydides told us the tale of a dominant regional power (Sparta) that felt threatened by the rise of a competing power (Athens).

    Sparta felt so threatened, in fact, that all the moves they made to keep the Athenian rise in check eventually escalated the power struggle into an all out war.

    Modern political scientists call this the Thucydides Trap.

    The idea is that when, out of fear, a dominant power takes certain steps to keep its competitor at bay, these actions ultimately lead to war between the two.

    There’s a lot of concern that the US and China will fall into the Thucydides Trap.

    This is certainly a valid concern. Both are nuclear superpowers with some of the largest militaries in the world.

    But in 2016, modern warfare is not about tanks and aircraft carriers anymore. Modern warfare is insurgent, cyber, and financial.

    In fact, if you look at the state of the financial system and the tactical brinksmanship between the US and China, it’s clear that the two are already in a Thucydides Trap.

    This power struggle is leading to financial warfare of nuclear proportions; and as with any war, there will be a lot of casualties.

    Just over the last several months we’ve seen many exchanges of fire between the two nations.

    • The US government claimed legal jurisdiction over the Bank of China, one of the largest banks on the mainland.
    • The Chinese launched the Asian Infrastructure Investment Bank, a supernational bank designed to compete with the Western-dominated IMF.
    • The US blacklisted one of China’s largest telecom companies, forbidding any US company from doing business with China’s ZTE.
    • China has been rapidly expanding its global payment network, UnionPay to become a direct competitor with Western systems like Maestro, Visa, and Mastercard.

    And don’t forget, China could unleash its nuclear option at any time– dumping its vast trillion+ pool of US government debt, which would potentially cause a major crisis for the US dollar.

    It’s a bit sad, because almost EVERY action of the US government only escalates the conflict further… and the Chinese eagerly follow suit.

    This is how World War III starts. And it will be financial.

    Listen in to today’s podcast and learn more about how this conflict will unfold… and how to not to end up as collateral damage.

    (click image for link to podcast)

  • Noose Tightens On Clinton As Second Federal Judge Grants Discovery In E-Mail Fiasco

    There have been some interesting developments in the Hillary Clinton e-mail saga over the past two weeks.

    In response to an FOIA request, conservative legal advocacy group Judicial Watch obtained documents which seem to show that Clinton was well aware her BlackBerry wasn’t secure from the very beginning of her tenure as the nation’s top diplomat. Correspondence between Senior Coordinator for Security Infrastructure Donald Reid, long-time Clinton aide Cheryl Mills and the NSA suggests the former First Lady had become “addicted” to her BlackBerry and essentially refused to use the secure desktop computer provided to her by security officials.

    (Mills and her boss)

    The e-mails published by Judicial Watch show Clinton and Mills went to great lengths to get around the ban on BlackBerry devices in Mahogany Row and the language in the correspondence clearly proves that the Secretary knew conducting State business from her unsecure phone was outside of the guidelines prescribed by the NSA. “These documents show that Hillary Clinton knew her BlackBerry wasn’t secure,” Judicial Watch president Tom Fitton said.

    Further, one of the e-mails Mills sent to Clinton regarding the pair’s discussions with the NSA is dated February 13. That’s a problem because it seems to contradict statements Clinton made about when she began using her private e-mail server for work related correspondence.

    Although, as we noted on Monday, there’s some ambiguity, there are legitimate questions around why she did not turn over that e-mail and others sent prior to March 18. One explanation seems to be that, again quoting Fitton, “she didn’t want Americans to know about her February 13, 2009, email that shows that she knew her Blackberry and email use was not secure.”

    Now, in the latest developments from the never-ending Clinton e-mail saga, a second federal judge will allow Judicial Watch to seek sworn testimony from officials. “U.S. District Court Judge Royce Lamberth entered an order Tuesday agreeing that Judicial Watch can pursue legal discovery — which often includes depositions of relevant individuals — as the group pursues legal claims that State did not respond completely to a FOIA request filed in May 2014 seeking records about talking points then-U.S. Ambassador to the United Nations Susan Rice used for TV appearances discussing the deadly attack on U.S. facilities in Benghazi in September 2012,” Politico writes. “Lamberth is the second federal judge handling a Clinton email-related case to agree to discovery, which is unusual in FOIA litigation.”

    As Reuters goes on to note, Judicial Watch has “filed several lawsuits, including one seeking records about the 2012 attack in Benghazi, Libya, that killed U.S. Ambassador Christopher Stevens and three other Americans.”

    “Where there is evidence of government wrong-doing and bad faith, as here, limited discovery is appropriate, even though it is exceedingly rare in FOIA cases,” Lamberth wrote in the order. “The government argues that this does not show a lack of good faith, but that is what remains to be seen, and the factual record must be developed appropriately for the Court to make that determination,” Lamberth wrote.

    Although the ruling is, to quote Fitton again, “remarkable,” the “practical impact of could be limited” because, as Politico goes on to point out, U.S. District Court Judge Emmet Sullivan – the first judge to give the go ahead for Judicial Watch to seek sworn testimony – has already received a discovery plan and will rule on it by the end of next month. In other words, Lamberth’s ruling is just icing on the proverbial cake.

    “Discovery will allow us to get into the shifting explanations,” Fitton says.

    Indeed. Or, as we put it on Monday:

    “..the story keeps changing, and indeed that’s the whole problem. At this point it’s abundantly clear that Clinton would have been far better off telling the truth from the very beginning and the fact that incremental information continues to surface certainly seems to suggest that the former First Lady fully intends to admit only what someone else – in this case Judicial Watch – can prove.”

    Well thanks to judges Sullivan and Lambreth, the group may be able to prove a bit more.

    *  *  *

    Clinton Order

  • ISIS Threat Math 101

    Do the math, Mr. President…

     

     

    Source: Investors.com

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Mar 30

Today’s News 30th March 2016

  • Yesterday's Dystopian Fiction Is Today's New World Order

    Submitted by 'Jeremiah Johnson', retired Green Beret, via SHTFPlan.com,

    Many of the things that are happening this very moment have direct parallels in literature of the past.  Whether it is an account such as the “Gulag Archipelago” by Solzhenitsyn or a work of “fiction” such as “1984” by George Orwell is irrelevant.  Elements of the history or the storyline (regarding the former and the latter works) are now becoming thoroughly inculcated into the fabric of modern reality.

    All of the measures taken by the Soviet Union to crush and control its population are beginning to manifest themselves today in the United States.  The courts are “stacked” to reflect the decision of the regime and not to rule by law.  The Military Industrial Complex contracts are still being shuffled, along with government policies that just happen to substantiate those business interests with kickbacks for all.  Laws serve political and corporate interests, and the lawmakers themselves do not represent any of their constituents: they are self-serving thieves, selling out their country and its populace for money and power.

    The police departments have (for all intents and purposes) been “federalized,” with budgets and marching orders becoming increasingly dependent upon federal and not local or state policies.  Sheriffs who follow their appointed roles as duly-elected law enforcement officials upholding Constitutional guidelines are being “phased out” of existence.  The changed demographics of “forced” insertions of illegal aliens and “refugees” into populations are rapidly negating the remainder of the two-party system to ensure that the Democratic party takes control ad infinitum.

    Orwell envisioned it.  His work is labeled a work of fiction, although all of the measures Oceania pursued are either currently in place in the United States or they’re being developed.  There is mass surveillance, increasing by the day.  The “internet of things,” as coined by former General David Petraeus, is almost primed to allow “telescreens” to watch our every movement, and a camera on every corner to back them up.  Orwell hated totalitarianism, having been exposed to it in his short but accomplished lifetime, and he knew man’s propensity was to move toward the enslavement of his fellow man.

    The development of new weapons by DARPA and the MIC are not toward a foreign enemy so much as the purpose of using them against the citizenry.  Drones, robots, nanotechnology, and every other “gizmo” able to be employed are all being drawn from behind the black curtain to unleash upon the citizens.  Also, the world’s situation is directly paralleling “1984” as three great spheres of influence…Europe, Asia, and North America…are being created by the powers that be.  Global governance in “thirds” is probably the NWO end state, as outlined by Orwell for a very significant reason: control with as much ethnic and cultural homogeneity as possible.

    It stands to reason that an Oriental (“Eastasia,” in “1984”) empire/totalitarian state would control the Oriental nations, rather than split it up between populations that are not as closely related linguistically and culturally.  We are seeing those shifts of influence into the divisions outlined by Orwell now, as the nations jockey for position and power.  Just as in “1984,” where it stated that even two of the super-states in alignment and concerted efforts could not together topple the third, perhaps the same is with our world.

    The shift is toward totalitarianism, and the populations have been (and are being) conditioned to accept, if not embrace, collectivist thought and socialism.  A good example was a film called “the Mutant Chronicles,” in which there were four great super-states that were organized not as nations but as corporations, that made war with one another over resources.  We see the blending of government and corporation today in virtually every facet of life, with the illusion of elections and the illusion of choice upheld to keep the population around the dullard state of consciousness.

    What will save us from this?  Will we be able to save ourselves from it?  The more and more one watches freedoms disappearing by the day, the more one must wonder if there is a way to stem the tide.  Orwell and Solzhenitsyn…visionary and historian…gave us blueprints to follow…checklists with which to use as frameworks of reference for what is befalling us daily.  Someday it may be that the brief period of freedom enjoyed by the American people may be categorized as a “work of fiction” in a future that may not even allow anyone to read it.

  • (Poor) Judgment Matters – Hillary's "Inconsequential" Emails

    Authored by Ben Tanosborn,

    Indications are that the federal probe investigating the possible mishandling of classified materials on Hillary Clinton’s private email server while she served as Secretary of State is winding down.  And so far, neither the FBI nor the prosecutorial staff at the Justice Department has come up with information that point to Hillary or her aides knowingly, or negligently, discussing classified secrets over her non-secure email system… contrary to the hopes and “political prayers” of every soul in the Republican Party.

    Truth be said with logic and candor, Hillary faces little risk, if at all, of being prosecuted for using her private email system to conduct official business; and chances of her being found criminally liable approach the totally-unlikely.  To deny Hillary the brains to handle appropriately classified, or sensitive information that could be “classifiable,” borders on the absurd; accusations of this sort solely sprouting from the usual stinging sources of ultra-right talk radio… the likes of Russ Limbaugh, Glenn Beck et al.

    The lack of an indictment by the Justice Department, or even the lack of a more venial sin – the improper handling of some materials, will surely exonerate Hillary Clinton and put an end to the political controversy; but it does not clear her from a most important indictment of all: one where we, the governed citizens, accuse her of poor judgment; not just Republicans, but Democrats and Independents as well. 

    Hillary’s glass of very questionable judgment seems to have filled to the rim with bad political decisions going back to her support of Husband Bill’s poor decisions on international trade and criminal justice, cupped by her military hawkishness and consent to invade Iraq.  And, as US Secretary of State, a far-from-bright decision to use her private server to conduct government business.  Many would say that her allowable glass of bad judgment has spilled over; and with it, her qualifications to take the helm from Barack Obama.

    As inconsequential as the email issue might seem to most of us, judgment matters!

    And if judgment matters, the text of Hillary Clinton’s speeches should be critical to the Democratic Party faithful when making up their minds whether they would want her to be the party’s nominee.  The DNC’s complicity in failing to denounce the speeches’ secrecy is an affront to the truth, showing the machinations of dirty politics.         

    Damn, Hillary!  Just tell us what you said in those pearly speeches that you gave folks at Goldman Sachs.  Are you afraid that the text in such pricey speeches might give telltales of deceit?  Could the transcripts be so damaging as to throw your campaign in disarray, and give Bernie the upper hand?  And perhaps, just perhaps, deny you and Bill a second tenancy at the White House?

    We might suspect that the speeches only provided soothing assurances that Hillary’s future candidacy to the presidency, or her election, would not be detrimental to Wall Street’s interests, particularly those of Goldman Sachs.  What else can we deduce from the near $700,000 in emoluments given by a savvy investment firm!  It’s no secret to most that the Clintons, both Bill and Hillary, fit center-right in the political spectrum; that’s where they are, and that’s where they have been throughout their political careers.  Bernie Sanders pushing Hillary a short distance to the left, during the pre-nomination period, will not create a problem for her, or concern for Goldman Sachs.

    Ah!  But have Hillary and the establishment in the Democratic Party considered the possible future danger in keeping the text of these speeches hidden?  Wouldn’t it be a total catastrophe if Donald Trump was her Republican match in the general election?  Rest assured that all confidentiality in those speeches would cease, and he would make hay of her deceit; claiming her to be just another politician bought by money.

    Meantime Gentleman Bernie keeps giving Hillary Clinton a pass; first by declaring the email issue as inconsequential; now by not forcefully, yes forcefully, demanding full disclosure of her speeches to the audiences at Goldman Sachs. 

    As much as we like to claim democracy in the US, we constantly find ways to circumvent it.  Take the superdelegate issue in the Democratic Party:  In Washington, my home state, where we just had caucuses on Saturday with an overwhelming victory by Bernie Sanders over Hillary Clinton (73 percent to 27 percent), none of the 17 superdelegates are pledged to Bernie, while two key ones, Sen. Patty Murray and Sen. Maria Cantwell, continue pledged to Hillary Clinton.  Shouldn’t they be pledged to Bernie or at the very least stay uncommitted until the party’s convention?  A funny democracy, ours!

  • This (Crashing) Trend Is Not Your Friend

    Despite Yellen's best efforts today to basically dismiss any and all data as irrelevant going forward in The Fed's decision-making process, we suspect all eyes (and algos) will be firmly glued to this week's payrolls' data. Will it be another record month for Obama to crow about? Will Mark Zandi do the "told you so dance" to all the trump supporters who seem less exuberant about the recovery? One look at this chart  – and the disastrous trend – and we suspect, sooner-rather-than-later, the fecal matter will be striking the rotating object in America…

    As Bloomberg notes, a growing gap is developing between corporate profits and job growth in the U.S.

    Company earnings, a key driver of business spending and employment, tumbled in the fourth quarter and history shows that when they retreat, the economy often follows.

    So we wonder just what kind of seasonal-adjustments are being used to ensure this gap remains. Notice the "gap" in 1999… that did not end well.

    BofAML's Michael Contopoulos adds that it is no surprise that falling corporate earnings is a leading indicator for economic recessions – when corporates struggle to grow their bottom lines, they are forced to source liquidity through either the capital markets or cost cutting methods. And when funding either becomes unavailable or too expensive, companies must scale back through capex and/or personnel reductions.

    Although a US recession is not a necessary precondition for a turn in the credit cycle, but matters only so much as its influence on the shape of the next wave of defaults, we still look closely at how macroeconomic factors could affect corporate health. And it becomes concerning to us that after a 2nd consecutive decline in year over year corporate earnings, coupled with a lack of worker productivity and higher wages, that soon the very rosy jobs numbers may begin to disappoint.

    With personal spending increasing by a paltry 0.1% for each of the past 3 months, we believe consumer spending habits are already more conservative than they should be given low gasoline prices and currently favorable employment statistics. Should jobs numbers begin to disappoint, in our opinion consumers would be quick to pull back and save more of their income.

    Even a marginally weaker spender could have a substantial impact on the most vulnerable companies, forcing these weakest links to liquidate, fire and default. The potential for this added labor slack could lead to a further pullback in consumer spending and produce stress within the next weakest links in the chain. This self-perpetuating cycle, should it continue, could create a rolling blackout as defaults migrate from one sector to the next. And while Energy and Materials are currently in the crosshairs, we could envision a number of sectors that could come into focus and prove unable to withstand the added stress of a weaker consumer.

    To this end, we believe more attention should be paid to the current fundamentals of US corporates and the vulnerability of what are now considered ‘healthy’ high yield sectors to a wave of defaults that has the potential to spread into all industries. Although technicals are currently keeping the market afloat, we are not buyers of the market at current levels and believe fundamentals will ultimately force spreads wider.

  • Price Controls May Be On the Way

    Submitted by Paul-Martin Foss via The Mises Institute,

    If you thought negative interest rates were as bad as it could get with central banks, you might be in for a surprise. Central banks have been so spectacularly unsuccessful with their accommodative monetary policies that they are discussing pulling out all the stops to get the results they want. They fail to realize that the reason prices aren’t rising is because they really want and need to fall. Bad debts weren’t liquidated during the last financial crisis, the debtors were merely bailed out. Overpriced assets weren’t allowed to be reduced in price. Central banks pumped trillions of dollars into the economy to attempt to paper over the recession. Market forces want to drive prices down, while central banks attempt to prop them up. So what to do when central banks aren’t getting their way?

    Central bankers may very well recommend price controls in an attempt to “jolt the economy out of its doldrums.” Of course, economies don’t go into doldrums and they can’t be jolted out of them. Recessions are not something endemic to the economy but are rather the result of central bank monetary intervention. Because central banks refuse to acknowledge their culpability for causing recessions, their methods for responding to recessions end up being more of the same thing that caused them in the first place: monetary easing. And now that those methods are proving ineffective, more drastic measures might be on the way. Remember that the last time all-out wage and price controls were implemented in the United States was in the early 1970s, also a time of great monetary turmoil. In fact, the price controls were instituted by President Nixon at the same time as he closed the gold window in 1971.

    As Ludwig von Mises pointed out many decades ago, once you begin to institute price controls, you inevitably lead to socialism.

    It must add to the first decree concerning only the price of milk a second decree fixing the prices of the factors of production necessary for the production of milk at such a low rate that the marginal producers of milk will no longer suffer losses and will therefore abstain from restricting output. But then the same story repeats itself on a remoter plane. The supply of the factors of production required for the production of milk drops, and again the government is back where it started. If it does not want to admit defeat and to abstain from any meddling with prices, it must push further and fix the prices of those factors of production which are needed for the production of the factors necessary for the production of milk. Thus the government is forced to go further and further, fixing step by step the prices of all consumers’ goods and of all factors of production — both human, i.e., labor, and material — and to order every entrepreneur and every worker to continue work at these prices and wages.

    That is why no one should be surprised that the governments of Japan, Europe, and the United States might resort to price controls to try to achieve what monetary policy could not. It follows logically, after all, since central bankers are in the price-setting and price control game to begin with. The interest rates that central bankers target or set are themselves prices, prices of money being loaned overnight or of money being deposited with the central bank. The aim of targeting or setting those interest rates is to influence interest rates and prices in the broader economy. So if that limited price-fixing doesn’t work, governments will expand their efforts to fix even more prices. It may not come directly, at least at first, but rather through some sort of incentivization. Pressure may be brought to bear to raise wages, using tax policy as either a carrot or a stick. The aim and the effect, though, will be to move prices to where the government thinks they ought to be, not what the market can actually bear.

    If price controls are in fact enacted, it will make it all the more obvious that economic planning on the parts of central banks and governments must be firmly opposed. It will separate the wheat from the chaff, those who actually support economic freedom from those who are willing to rationalize central planning. Anyone who claims to stand for free markets, free trade, and limited government but who attempts to defend the existence or importance of the Federal Reserve or central banking is a liar. Either you support free markets and freedom of pricing or you support central bank price-fixing and creeping socialism. There is no third way or middle road — socialism and the free market are mutually incompatible. A little bit of socialism in the form of price-fixing is like a little bit of gangrene, if left unchecked it will eventually infect and kill the whole. Now that governments and central banks may endorse further price controls as a remedy, the monetary policy facade has been torn away to reveal the reality that it is just another tool that leads to intensified central planning. Will enough people rise to the occasion to oppose further transgressions against monetary and economic freedom, or will they shrug their shoulders as our society continues to slouch toward socialism?

  • The Difference Between Capitalism & Communism (Explained To President Obama)

    As President Obama explained in his Townhall in Cuba…

    To make a broader point, so often in the past there’s been a sharp division between left and right, between capitalist and communist or socialist. And especially in the Americas, that’s been a big debate, right? Oh, you know, you’re a capitalist Yankee dog, and oh, you know, you’re some crazy communist that’s going to take away everybody’s property. And I mean, those are interesting intellectual arguments, but I think for your generation, you should be practical and just choose from what works. You don’t have to worry about whether it neatly fits into socialist theory or capitalist theory — you should just decide what works.

     

    And I said this to President Castro in Cuba. I said, look, you’ve made great progress in educating young people. Every child in Cuba gets a basic education — that’s a huge improvement from where it was. Medical care — the life expectancy of Cubans is equivalent to the United States, despite it being a very poor country, because they have access to health care. That’s a huge achievement. They should be congratulated. But you drive around Havana and you say this economy is not working. It looks like it did in the 1950s. And so you have to be practical in asking yourself how can you achieve the goals of equality and inclusion, but also recognize that the market system produces a lot of wealth and goods and services and innovation. And it also gives individuals freedom because they have initiative.

     

    And so you don’t have to be rigid in saying it’s either this or that, you can say — depending on the problem you’re trying to solve, depending on the social issues that you’re trying to address what works. And I think that what you’ll find is that the most successful societies, the most successful economies are ones that are rooted in a market-based system, but also recognize that a market does not work by itself. It has to have a social and moral and ethical and community basis, and there has to be inclusion. Otherwise it’s not stable.

     

    And it’s up to you — whether you’re in business or in academia or the nonprofit sector, whatever you’re doing — to create new forms that are adapted to the new conditions that we live in today.

    Investors.com's Michael Ramirez succinctly explains the difference…

     

    And we leave it to RedState.com to rage…

    When I first started listening I was appalled. Communism and capitalism are much more than “interesting intellectual arguments.” They are one facet of how a society views its people, subject versus citizen, and the role of the government, master of the people or servant of the people. Then I thought, maybe I’m being too critical. But as he finished I was truly horrified at what I’d heard.

     

    First, we need to knock away the undergrowth. Let’s ignore the idea that there is a “sharp division” between left and right. That isn’t true and I’m not sure who, other than Obama, believes that. Certainly no one who lived in Latin America in the 1950s and 60s would. And no, Cuba does not have life expectancy comparable to the United States. Infants who die of birth defects and suicides do not count in Cuban statistics. And, ultimately, no one really knows what Cuban life expectancy is because it is not transparent of outside observation.

     

    The real point here would be that fundamentally, Obama is a Marxist. As far as he is concerned the conflict between East and West from the end of World War II until the collapse of the Soviet empire was between competing economic arrangements. That was not the case. It was the conflict between the autonomy of the person and the autonomy of the state. No where is his argument more obviously fallacious than in Argentina which has suffered under differing varieties of Peronism, an amalgamation of socialist and capitalist impulses under the banner of Argentine superiority.

     

    Doing “what works,” absent any guiding principles is dangerous. As far as Obama is concerned, letting Mexican drug cartels buy weapons in the United States is okay because his objective was creating a set of facts that justified more restrictive gun laws. One could actually argue that he was using “capitalism”, that is the sale of firearms, to achieve a “socialist” aim, disarming the American people. This is the same logic that led to the involuntary sterilization of undesirable people in the United States (three generations of imbeciles is enough, after all) and the extermination of undesirables in Nazi Germany. The only difference between the two is the grandiosity of scale and concept. Both are based on “what works.” “What works” is a subsidiary question that government should look at. The primary questions are “what is right” and “what is least intrusive upon the rights of the citizens.”

     

    The scary idea that “inclusion and equality” are core govermental goals is evident in ObamaCare forcing nuns to be provided with contraceptive coverage and in the way the beliefs of religious people are not allowed to be taken outside the church.

     

    Obama is profoundly un-American. Not from the standpoint that he is not an American per se, but because he has consciously rejected the very founding principles of the nation. Life, liberty, and the pursuit of happiness have been sent to the ashcan and we are left with “what works.”

  • MSNBC Host Admits Democratic Primary Rigged, While Station Simultaneously Rigs Coverage

    Submitted byMike Krieger via Liberty Blitzkrieg blog,

    While it might sound strange, a coronation of Hillary Clinton in the Democratic primary will mark the end of the party as we know it. There’s been a lot written about the “Sanders surge,” with much of it revolving around Hillary Clinton’s extreme personal weakness as a candidate. While this is indisputable, it’s also a convenient way for the status quo to exempt itself from fault and discount genuine grassroots anger. I’m of the view that Sanders’ support is more about people liking him than them disliking Hillary, particularly when it comes to registered Democrats. He’s not merely seen as the “least bad choice.” People really do like him.

     

    The Sanders appeal is twofold. He is seen as unusually honest and consistent for someone who’s held elected office for much of his life, plus he advocates a refreshingly anti-establishment view on core issues that matter to an increasing number of Americans. These include militarism, Wall Street bailouts, a two-tiered justice system, the prohibitive cost of college education, healthcare insecurity and a “rigged economy.” While Hillary is being forced to pay lip service to these issues, everybody knows she doesn’t mean a word of it. She means it less than Obama meant it in 2008, and Obama really didn’t mean it.

     

    – From the post: It’s Not Just the GOP – The Democratic Party is Also Imploding

    I just finished watching a surprisingly good and honest 14 minute segment on MSNBC’s Morning Joe which covered how the Democratic National Committee has been rigging the primary in favor of Hillary Clinton. Host Joe Scarborough even went so far as to admit the media’s complicity in the process with regard to superdelegates. He notes:

    “And I know the Republican party wishes they rigged the process as well as the Democratic party did right now, because they could rig it against Trump — but the Democratic party rigs their process so that these superdelegates, which by the way can move any direction they want, actually skew the process and the reporting so badly that the voters actually don’t have their say when it comes to voting.”

    This is a key issue that has been driving me up a wall lately. It is journalistic malpractice for media outlets to include superdelegates in the total tally when these Democratic operatives can switch their support at any point between now and the convention. As we learned in the post Did Hillary Clinton Really Win More New Hampshire Delegates Than Sanders Despite a Landslide Loss?:

    Q: From everything you’ve told me so far, I can’t understand why you’re calling Superdelegate votes “irrelevant.” It seems to me like they have the same voting power as a normal delegate, and this puts Sanders in a tremendous hole from the word “go.”

     

    A: Here’s why it doesn’t matter: Superdelegates have never decided a Democratic nomination. It would be insane, even by the corrupt standards of the Democratic National Committee, if a small group of party elites went against the will of the people to choose the presidential nominee.

     

    This has already been an incredibly tense election, and Sanders voters are already expressing their unwillingness to vote for Clinton in the general election. When you look at the astounding numbers from Iowa and New Hampshire, where more than 80 percent of young voters have chosen Sanders over Clinton, regardless of gender, it’s clear that Clinton already finds herself in a very tenuous position for the general election. It will be tough to motivate young supporters, but any hint that Bernie was screwed by the establishment will result in total abandonment.

     

    Democrats win when turnout is high, and if the DNC decides to go against the will of the people and force Clinton down the electorate’s throat, they’d be committing political suicide.

     

    The important thing to know here is that Superdelegates are merely pledged to a candidate. We know who they support because they’ve stated it publicly, or been asked by journalists. They are not committed, and can change at any time. If Bernie Sanders wins the popular vote, he will be the nominee. End of story.

    I completely agree with this assessment, which is why the media plays the key role in rigging this thing for Hillary Clinton. For example, consider the following “political reporting” published by Bloomberg yesterday: 

    Though Sanders picked up 55 delegates Saturday to Clinton’s 20, she still holds a commanding lead with 1,712 delegates of the 2,383 needed for a first-ballot nomination at the party’s national convention at Philadelphia in July. That includes 469 superdelegates—Democratic office-holders and party officials who aren’t bound by results from primaries and caucuses. Sanders has 1,004 total delegates.

    The truth is she doesn’t actually “have” those superdelegates, and if Sanders wins the delegates people actually vote for, he’ll probably get the nomination. As such, the media invents a number that isn’t actually real, and definitely not set in stone, to demoralize Sanders supporters and make them think the gap is too large to overcome. It’s absolutely disgusting.

    So given that Joe Scarborough alluded to this trick during his segment, you’d think the person in charge of graphics at MSNBC wouldn’t be so shameless. But you’d be wrong. This is how the station portrayed the race on several occasions during the segment:

    Screen Shot 2016-03-29 at 10.10.43 AM

    Here’s another example:

    Screen Shot 2016-03-29 at 11.14.35 AM

    Incredibly, the only graphic shown during the segment that even alluded to the fact that these numbers are inflated by superdelegates is the following:

    Screen Shot 2016-03-29 at 11.09.41 AM

    While better, the above still represents a completely dishonest portrayal of the race. This is the right way to do it, from the New York Times:

    Screen Shot 2016-03-27 at 12.02.24 PM

    If anything, superdelegates should be mentioned as a footnote only. Anything else represents a total lack of ethics, integrity and highlights why the public has nothing but derision for the American mainstream media.

    The clip is still worth watching.

  • Japanese Industrial Production Crashes Most Since 2011 Tsunami

    While we are sure this will not deter Japanese officialdom from declaring that QQE and NIRP is working and that the deflation-mindset is being beaten, the fact is that when February’s 6.2% collapse in Japanese industrial production is compared to the devastatingly poor plunge aftwer March 2011’s quake, tsusnami, and nuclear ‘event’, something has gone disastrously wrong in Japan.

    Across every sub-sector, it was a total disaster…

     

    Find the silver-lining in that – we dare you!

  • Fitch Downgrades Chicago After "Worst Possible Outcome" In State Supreme Court Pension Reform Bid

    Last week, Rahm Emanuel got some bad news. The Illinois Supreme Court agreed with Cook County judge Rita Novak’s ruling that the Chicago mayor’s scheme to put worker pension plans on a sustainable path was unconstitutional.

    “These modifications to pension benefits unquestionably diminish the value of the retirement annuities the members of (the city workers and laborers funds) were promised when they joined the pension system,” the high court wrote in its opinion. “Accordingly, based on the plain language of the act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority.”

    To be sure, the ruling didn’t come as a surprise. Indeed, it would have been next to impossible for the court to decide otherwise, given that the justices had effectively ruled on the exact same set of issues last May. As judge Novak put it in her opinion (delivered last summer), “the principle [that public pensions shall not be diminished or impaired] is particularly compelling where the Supreme Court’s decision is so recent, deals with such closely parallel issues and provides crystal-clear direction on the proper interpretation of the law.”

    That “crystal-clear direction” makes it all but impossible for officials to implement reform measures that will help ensure the city’s pension system doesn’t go belly up in the short span of 10 years. As we noted last week, the good news for taxpayers is that they’ll be off the hook in the short-term as money earmarked to sweeten the deal for pensions that went along with the reform plan will no longer be needed. “The city faces a short-term benefit of about $89 million that’s currently in escrow that can be used to help other areas of the budget,” Civic Federation President Laurence Msall said, before warning that “it will be a very hollow victory for the beneficiaries.” That’s because over the long haul, this is a disaster. “The ruling eases some immediate demands as the overturned law had stepped up the city’s required contributions,” Bloomberg wrote on Monday afternoon. “Without the restructuring, the unfunded liabilities of the municipal and laborers funds will climb by $900 million a year, making them insolvent by 2026 and 2029.”

    Right. Which means that unless city officials can come up with alternative ways to fill the holes, pensions will be more than “diminished and impaired” – they’ll disappear altogether like a Chinese short seller after a market rout.

    But the inviolable nature of pension benefits means that no matter how certain insolvency is, the court will never sanction a plan that seeks to alter the “implicit contract” between public sector employees and state and local governments.

    Needless to say, none of the above bodes well for the city’s credit rating.

    Moody’s decided to get out ahead of things last year when, on the heels of the Illinois Supreme Court’s ruling regarding a reform bid for state pensions, the ratings agency cut Chicago to junk. On Monday, Fitch cut the city by two notches to BBB- the lowest investment grade rating. “Last week’s Illinois Supreme Court ruling striking down pension reform legislation for two of the city of Chicago’s four pension plans was among the worst of the possible outcomes for the city’s credit quality,” Fitch said. “Not only did it strike down the pension reform legislation in its entirety, but it made clear that the city bears responsibility to fund the promised pension benefits, even if the pension funds become insolvent.” And make no mistake, they will become insolvent.

    Fitch’s decision affects nearly $10 billion in GO debt and nearly a half billion in sales tax revenue obligations.

    For their part, Moody’s calls the ruling “a credit negative setback.”

    “The ruling significantly limits the city’s ability to curb its $20 billion pension shortfall by restructuring benefits,” Moody’s said on Tuesday, before noting that it “expects Chicago to find an alternate plan to address unfunded liabilities” and any delay in doing so will “likely weaken” the city’s credit profile.

    In other words, Emanuel needs to figure out a way to address the underfunded liabilities and he needs to do it fast.

    The problem: there are no good options. Emanuel just raised property taxes (by a record amount no less) and the city has already borrowed $220 million this year. 

    It may be about time to get on the phone with Detroit and ask for pointers on how to efficiently navigate the bankruptcy process.

    *  *  *

    From Fitch

    Fitch Ratings has downgraded to ‘BBB-‘ from ‘BBB+’ the ratings on the following Chicago, Illinois obligations:

    –$9.8 billion unlimited tax general obligation (ULTGO) bonds;

    –$486 million sales tax revenue bonds.

    The Rating Outlook is Negative.

    SECURITY

    The ULTGO bonds are payable from the city’s full faith and credit and its ad valorem tax, without limitation as to rate or amount.

    The sales tax bonds have a first lien on the city’s 1.25% home rule sales and use tax and the city’s local share of state-distributed 6.25% sales and use tax. Additionally, there is a springing debt service reserve, funded over a 12-month period that would be triggered if coverage fell below 2.5x.

    KEY RATING DRIVERS

    PENSION RULING HEIGHTENS PRESSURE: Fitch believes last week’s Illinois Supreme Court ruling striking down pension reform legislation for two of the city of Chicago’s four pension plans was among the worst of the possible outcomes for the city’s credit quality. Not only did it strike down the pension reform legislation in its entirety, but it made clear that the city bears responsibility to fund the promised pension benefits, even if the pension funds become insolvent.

    CITY STRATEGY ANTICIPATED: The city expects to present a strategy to address the increased burden resulting from the ruling in the next several weeks. Given the lack of flexibility to alter the liability, Fitch believes the plan must rely on meaningful use of revenue and expenditure controls to meet much higher annual payments.

    UNDERLYING FUNDAMENTALS REMAIN SOUND: The ‘BBB-‘ rating recognizes the city’s role as an economic hub for the Midwestern region of the United States with a highly educated workforce and improving employment trends. Aside from its pension funding issues, Chicago’s financial profile has markedly improved in recent years, although full structural balance remains a challenge. The city’s independent legal authority to raise revenues remains a key credit strength.

    RATING SENSITIVITIES

    PATH TO PLAN SOLVENCY: The rating could stabilize at ‘BBB-‘ if the city presents a realistic plan that puts the pension funds on an affordable path toward solvency. The lack of such a plan would likely result in a downgrade as it would raise the risk that plan assets will be depleted and pension benefit payments would be made on a paygo basis, severely impairing financial flexibility.

    RATING CAPS: The ULTGO rating serves as a ceiling to the sales tax rating. A change of the ULTGO rating, therefore, would result in a change to the sales tax rating.

    CREDIT PROFILE

    LONGER-TERM LIABILITIES A CHIEF CONCERN

    The city continues to face credit challenges related to critically-underfunded pension obligations and rising associated costs. The Outlook for the city’s credit quality cannot be considered stable until such challenges are met in a sustainable fashion. Since last week’s ruling appears to eliminate the option of reducing the liability, the city will need to rely on its ability to increase revenues and control spending. Fitch will evaluate the direction of the rating and Outlook as their level of ability to do so becomes more apparent.

    The weight of the city’s extremely large unfunded pension liability is compounded by the high (8.7% of market value) debt burden, which is the product of substantial borrowing by the city as well as overlapping jurisdictions. Many of these overlapping governments also maintain underfunded pensions, and Fitch remains concerned that the funding requirements for all of these long-term liabilities will pressure the resource base in the coming years.

    The city maintains four single-employer defined benefit pension plans, all of which are poorly funded due to a statutory funding formula which has fallen far short of actuarial requirements. In fiscal 2014, the combined actual pension contribution amounted to just a quarter of the actuarially determined requirement. The combined unfunded liability for all four plans is reported at approximately $20 billion, yielding a very low funded ratio of 34% or an even lower estimated 32% when adjusted by Fitch to reflect a 7% rate of return assumption.

    PENSION REFORM CHALLENGE DECISION

    Last week’s court ruling struck down pension reform legislation covering two of the city’s four pension plans (Municipal and Laborers). The legislation included some changes to the benefit structure that reduce the liability, as well as a multi-year ramp up in contributions.

    The city contended its reform would preserve and protect benefits, rather than diminishing or impairing them. The basis for this contention was that prior to the pension reform legislation, under Illinois statute the city was not legally responsible for the unfunded liability of the Municipal and Laborers’ pension funds.

    The ruling struck down the benefit changes and confirmed the city’s responsibility for providing promised benefits. If the city does not implement a plan to increase funding, those funds face depletion in 10-13 years. The Municipal plan is the largest of the city’s four pension plans.

    POLICE AND FIRE PLANS REQUIRE INCREASED PAYMENTS

    The Police and Fire pension plans also faced increased funding requirements. The existing formula requires a contribution that would be sufficient to bring both systems to a 90% funding level by 2040. The state legislature passed a bill that would change the amortization period to 40 years and allow for a ramp up period to the 90% actuarially based funding level in 2020.

    Those two changes are estimated to lessen the increase in the first year’s (2016) payment from $550 million to $330 million. The legislature has not sent the bill to the governor for his signature. Once the legislature sends the bill to the governor, if not signed, it would become law 60 days. The city has arranged to fund the full, higher contribution for 2016, using short-term borrowing proceeds to fund the difference.

    PENSION CHALLENGES OVERSHADOW IMPROVED FINANCIAL PERFORMANCE

    Management has made significant progress toward matching ongoing revenues with non-pension annual expenditures. Fitch will not consider the city’s financial operations to be structurally balanced in the absence of a sustainable, actuarially-based pension funding structure. Successful execution of the city’s plan toward financially sustainable practices would be considered a positive rating factor. Remaining plan elements include the elimination of scoop-and-toss refundings by 2019, the use of current funds to pay legal settlements or judgments, and growth of the ‘rainy day fund.’

    The city ended the practice of appropriating reserves beginning with fiscal 2015. The $3.5 billion fiscal 2015 general fund budget was balanced with a reduced but still significant amount of one-time measures, including scoop-and-toss refunding. The city expects to end fiscal 2015 on budget, with no use of fund balance anticipated.

    The $3.6 billion fiscal 2016 general fund budget closed the previously identified budget gap of $232.6 million through a variety of recurring and one-time measures and no appropriation of general fund balance. Fitch believes the budget target is achievable given the city’s recent history of budgetary adherence. Despite the progress made, the city’s budget still requires some non-recurring measures for balance, which is concerning several years into an economic recovery.

    REVENUE CONTROL AND RESERVES KEY

    Fitch views the city’s home rule status as a credit strength, fostering revenue independence and flexibility. The general fund derives support from utility taxes, state sales taxes, transaction taxes, and recreation taxes among others. The general fund does not rely upon property taxes for operations, as they are earmarked for pensions, library expenses and debt service.

    The audited fiscal 2014 unrestricted general fund balance dropped to 3.6% from 4.6% of spending a year prior. Fitch views the approximately $626 million, equivalent to 19.4% of fiscal 2014 general fund spending, in the service concession and reserve fund as an important element of financial flexibility. A draw on reserves would signal an increasing reliance on non-recurring measures and could trigger a rating downgrade.

  • You Probably Want To Go Long Oil Tomorrow (Video)

    By EconMatters

    Strong API Report for this time of year, and Equities about to break out means short covering ahead for oil bears. Remember this is quarter end window dressing week as well! Expect some short covering in Oil ahead of the EIA Report on Wednesday.

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

  • Why We Have A Wage-Inequality Problem

    Submitted by Gail Tverberg via Our Finite World blog,

    Wage inequality is a topic in elections around the world. What can be done to provide more income for those without jobs, and those with low wages?

    Wage inequality is really a sign of a deeper problem; basically it reflects an economic system that is not growing rapidly enough to satisfy everyone. In a finite world, it is easy for an economy to grow rapidly at first. In the early days, there are enough resources, such as land, fresh water, and metals, for each person to get a reasonable-sized amount. Each would-be farmer can obtain as much land as he thinks he can work with; fresh water is readily available virtually for free; and goods made with metals, such as cars, are not expensive. There are many jobs available, and wages for most people are fairly similar.

    As population grows, and as resources degrade, the situation changes. It is still possible to grow enough food, but it takes large farms, with expensive equipment (but very few actual workers) to produce that food. It is possible to produce enough water, but it takes high-tech equipment and a handful of workers who know how to use the high-tech equipment. Metals suddenly need to be lighter and stronger and have other characteristics for the high tech industry, thus requiring more advanced products. International trade becomes more important to be able to get the correct mix of materials for the advanced products needed to operate the high-tech economy.

    With these changes, the economic system that previously provided many jobs for those with limited training (often providing on-the-job training, if necessary) gradually became a system that provides a relatively small number of high-paying jobs, together with many low-paying jobs. In the United States, the change started happening in 1981, and has gotten worse recently.

    Figure 1. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis IRS data, published in Forbes.

    Figure 1. Chart comparing income gains by the top 10% to those of the bottom 90%, by economist Emmanuel Saez. Based on an analysis IRS data; published in Forbes.

    What Happens When An Economy Doesn’t Grow Rapidly Enough?

    If an economy is growing rapidly enough, it is easy for everyone to get close to an adequate amount. The way I think of the problem is that as economic growth slows, the “overhead” grows disproportionately, taking an ever-larger share of the goods and services the economy produces. The ordinary worker (non-supervisory worker, without advanced degrees) tends to get left out. Figure 2 is my representation of the problem, if the current pattern continues into the future.

    Figure 2. Authors' depiction of changes to workers share of output of economy, as costs keep rising for other portions of the economy keep rising.

    Figure 2. Author’s depiction of changes to workers share of output of economy, if costs keep rising for other portions of the economy. (Chart is only intended to illustrate the problem; it is not based on a study of the relative amounts involved.)

    The reason for the workers’ declining share of the total is that we live in a finite world. We are using renewable resources faster than they replenish and continue to use non-renewable resources. The workarounds to fix these problems take an increasing share of the total output of the economy, leaving less for what I have called “ordinary workers.” The problems we encounter include the following:

    • Pollution control. Pollution sinks are already full. Continuing to use non-renewable resources (including burning fossil fuels) adds increased pollution. Workarounds have costs, and these take an increasing share of the output of the economy.
    • Energy used in energy production. When we started extracting energy products, the cheapest, easiest-to-extract energy products were chosen first. The energy products that are left are higher-cost to extract, and thus require a larger share of the goods the economy produces for extraction.
    • Water, metals, and soil workarounds. These suffer from deteriorating quantity and quality, leading to the need for workarounds such as desalination plants, deeper mines, and more irrigated land. All of these take an increasingly large share of the output of the economy.
    • Interest and dividends. Capital goods tend to be purchased through debt or sales of stock. Either way, interest payments and dividends must be made, leaving less for workers.
    • Increasing hierarchy. Companies need to be larger in size to purchase and manage all of the capital goods needed to work around shortages. High pay for supervisors reduces funds available to pay lower-ranking employees.
    • Government funding and pensions. Government programs grow in size in good times, but are hard to cut back in hard times. Pensions, both government and private, are a particular problem because the number of elderly people tends to grow.

    It should be no surprise that this type of continuing pattern of eroding wages for ordinary workers leads to great instability. If nothing else, workers become increasingly disillusioned and want to change or overthrow the government.

    It might be noted that globalization also plays a role in this shift toward lower wages for ordinary workers. Part of the reason for globalization is simply to work around the problems listed above. For example, if pollution becomes more of a problem, globalization allows pollution to be shifted to countries that do not try to mitigate the problem. Globalization also allows businesses to work around rising the rising cost of oil production; production can be shifted to countries that instead emphasized coal in their energy mix, with much lower energy used in energy production. With increased globalization, people who are primarily selling the value of their own labor find that wages do not keep up with the rising cost of living.

    Studies of Previous Economies that Experienced Declining Wages of Ordinary Workers

    Researchers Peter Turchin and Surgey Nefedov analyzed eight civilizations that collapsed in detail, and recorded their findings in the book Secular Cycles. According to them, the typical economic growth pattern of civilizations that collapsed was similar to Figure 3, below. Before the civilizations began to collapse (Crisis Stage), they hit a period of Stagflation. During that period of Stagflation, wages of ordinary workers tended to fall. Eventually these lower wages led to the downfall of the system.

    Figure 3. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

    Figure 3. Shape of typical Secular Cycle, based on work of Peter Turchin and Sergey Nefedov in Secular Cycles. Chart by Gail Tverberg.

    In many instances, a growth cycle started when a group of individuals discovered a way that they could grow more food for their group. Perhaps they cleared trees from a large plot of land so that they could grow more food, or they found a way to irrigate an area that was dry, again leading to sufficient food for more people. A modern analogy would be discovering how to use fossil fuels to grow more food, thus allowing population to rise.

    At first, population grew rapidly, and incomes tended to grow as  well, as the size of the group expanded to the carrying capacity of the improved land. Once the economy got close to the carrying capacity of the land, a period of Stagflation took place. There no longer was room for more farmers, unless plots of land were subdivided. Would-be farmers were forced to take lower-paying service jobs, or to become farmers’ helpers. In this changing world, debt levels rose, and food prices spiked.

    To try to solve the many issues that arose, there was a need for more elite workers–what we today would call managers and high-level government officials. In some cases, a decision would be made to expand the army, in order to try to invade other countries to obtain more land to solve the problem of inadequate resources for a growing population. All of these changes led to a higher needed tax level and more high-level managers.

    What tended to bring the system down was the growing wage inequality and the resulting low wages for ordinary workers. Governments needed ever-higher taxes to pay for their expanding services, but they had difficulty collecting sufficient tax revenue. If they raised taxes to an adequate level, workers found themselves without sufficient money for food. In their weakened state, workers became subject to epidemics. Governments with inadequate tax revenue tended to collapse.

    Sometimes, rather than collapse, wars were fought. If the wars were successful, the resource shortage that ultimately led to low wages of workers could be addressed. If not, the end of the group might come through military defeat.

    Today’s Fundamental Problem: The World Economy Can No Longer Grow Quickly

    Because of our depleted resources and because of the world’s growing population, the only the way the world economy can now grow is in a strange way that assigns more and more output to various parts of “overhead” (Figure 2), leaving less for workers and for unemployed individuals who want to be workers.

    Automation looks like it would be a solution since it can produce a large amount of goods, cheaply. It doesn’t really work, however, because it doesn’t provide enough employees who can purchase the output of the manufacturing system, so that demand and supply can stay in balance. In theory, companies that automate their operations could be taxed at a very high rate, so that governments could pay would-be workers, but this doesn’t work either. Companies have a choice regarding which country they operate in. If a tax is added, companies can simply move to a lower-tax rate jurisdiction, where no tax is required for automation.

    The world is, in effect, reaching the end of the Stagflation period on Figure 3, and approaching the Crisis period on Figure 3. The catch is that the Crisis period is likely to be shorter and steeper than illustrated on Figure 3, because we live in a much more interconnected world, with more dependence on debt and world trade than in the past. Once the interconnected world economic system starts to fail, we are likely to see a rapid drop in the total amount of goods and services produced, worldwide. This will produce an even worse distribution problem–how does everyone get enough?

    The low oil, natural gas, and coal prices we are now seeing may very well be the catalyst that brings the economy to the “Crisis Period” or collapse. Unless there is a rapid increase in prices, companies will cut back on fossil fuel production, as soon as 2016. With less fossil fuel production, the total quantity of goods and services (in other words, GDP) will drop. Most economists do not understand that there is a physics reason for this problem. The quantity of energy consumed needs to keep rising, or world GDP will decline. Technology gains and energy efficiency improvements provide some uplift to GDP growth, but this generally averages less than 1% per year.

    Figure 4. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil's Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

    Figure 4. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil’s Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

    Are There Political Strategies to Solve Today’s Wage Inequality Problem?

    Unfortunately, the answer is probably, “No.” While some strategies look like they might have promise, they risk the possibility of pushing the economy further toward financial collapse, or toward war, or toward a major reduction in international trade. Any of these outcomes could eventually bring down the system. There also doesn’t seem to be much time left.

    Our basic problem is that the world economy is growing so slowly that the ordinary workers at the bottom of Figure 2 find themselves with less than an adequate quantity of goods and services. This problem seems to be getting worse rather than better, over time, making the problem a political issue.

    These are a few strategies that have been mentioned for fixing the problem:

    1. Provide a basic income to all citizens. The intent of this strategy is to try to capture a larger share of the world’s goods and services by printing money (or borrowing money), This money would hopefully allow citizens to purchase a larger share of the goods and services available on the world market. If the pool of goods and services is pretty much fixed in total, more goods and services purchased by one country would mean fewer goods and services purchased by other citizens of other countries. I would expect that this strategy would not really work, because of changing currency relativities: the level of the currency of the country issuing the checks would tend to fall relative to the currencies of other countries. The basic problem is that it is possible to print currency, but not goods and services. There is also a possibility that printing checks for everyone will encourage less work on the part of citizens. If citizens do less work, the country as a whole will produce less. Such a change would leave the country worse off than before.
    2. Lower interest rates, even negative interest rates. With lower interest rates, the interest portion of the Interest and Dividend sector shown on Figure 2 can theoretically mostly disappear, leaving more money for wages on Figure 2 and thus tending to “fix” the wage problem this way. Low interest rates also tend to reduce dividends, because companies will choose to buy back part of their stock and issue very low interest rate debt instead. If interest rates become negative, the sector can completely disappear. The ultra-low interest rates will have negative ramifications elsewhere. Banks are likely to have a hard time earning an adequate income. Pension funds will find it impossible to pay people the pensions they have been promised, creating a different problem.
    3. Get jobs back from foreign countries through the use of tariffs. Some jobs might be easier to get back from foreign countries than others. For example, programming, call center operations, and computer tech support are all “service type” jobs that can be done from anywhere, and thus could be transferred back easily. In situations where new factories need to be built, and materials sourced from around the world, the transfer would be more difficult. Businesses will tend to automate operations, rather than hire locally. The countries that we try to get the business from may retaliate by refusing to sell needed devices (for example, computers) and needed raw materials (such as rare earth minerals). Or a collapse may occur in a country we try to get jobs back from, so fewer goods and services are produced worldwide.
    4. Keep out immigrants. The theory is, “If there aren’t enough jobs to go around, why give them to immigrants?” In a world with sagging GDP, job growth will be slow or may not occur at all. There may be a particular point in keeping out well-educated immigrants, if there aren’t enough jobs for college-educated people who already live in a country. Of course, Europe has been doing the opposite–taking in more immigrants, in the hope that they will provide young workers for countries that are rapidly aging. (Another approach to finding more workers would be to raise the retirement age–but such an approach is not politically popular.)
    5. Medicare for all. Medicare is the US healthcare plan for those over 65 or having a disability. It pays a substantial share of healthcare costs. The concern I have with “Medicare for all” is that because of the way the economy now functions, the total amount of goods and services that we can choose to purchase, for all kinds of goods and services in total, is almost a fixed sum. (Some people might say we are dealing with a zero-sum game.) If we make a choice to spend more on medical treatment, we are simultaneously making a choice that citizens will be less able to afford other things that might be worthwhile, such as apartments and transportation. The US healthcare system is already the most expensive in the world, as a percentage of GDP. We need to fix the overall system, not simply add more people to a system that is incredibly expensive.
    6. Free college education for all. As the situation stands today, 45% of recent college graduates are in jobs that do not require a college degree. This suggests that we are already producing far more college graduates than there are jobs for college graduates. If we provide “free college education for all,” this offer needs to be made in the context of entrance exams for a limited number of spaces available (reduced from current enrollment). Otherwise, we sink a huge share of our resources into our education system, to no great benefit for either the students or the overall system. We are back to the zero-sum game problem. If we spend a large share of our resources on college educations that don’t really lead to jobs that pay well, more people of all ages will find themselves unable to afford apartments and cars because of the higher tax levels required to fund the program.
    7. Renewables to replace fossil fuels. Despite the popularity of the idea, I don’t think that adding renewables provides any significant benefit, given the scenario we are facing. Renewables are made using fossil fuels, and they tend to have pollution problems of their own. They don’t extend the life of the electric grid, if we are facing collapse. At most, they might be helpful for a few people living off grid, if the electrical grid is no longer operating. If the economic system is on the edge of collapse already, fossil fuel use will drop quickly, with or without the use of renewables.

    Conclusion

    It would be really nice to “roll back” the world economy to a date back before population rose to its current high level, resources became as depleted as they are, and pollution became as big a problem as it is. Unfortunately, we can’t really do this.

    We are now faced with the question of whether we can do anything to mitigate what may be a near-term crisis. At this point, it may be too late to make any changes at all, before the downward slide into collapse begins. The current low prices of fossil fuels make the current situation particularly worrisome, because the low prices could lead to lower fossil fuel production, and hence reduce world GDP because of the connection between energy consumption and GDP growth. Low oil prices could also push the world economy downward, due to increasing defaults on energy sector loans and adverse impacts on economies of oil exporters.

    In my view, a major reason why fossil fuel prices are now low is because of the low wages of “ordinary workers.” If these wages were higher, workers around the globe could be buying more houses and cars, and indirectly raising demand for fossil fuels. Thus, low fossil fuel prices may be a sign that collapse is near.

    One policy that might be helpful at this late date is increased focus on contraception. In fact, an argument could be made for more permissive abortion policies. Our problem is too little resources per capita–keeping the population count in the denominator as low as possible would be helpful.

    On a temporary basis, it is also possible that new programs that lead to rising debt–whether or not these programs buy anything worthwhile–may be helpful in keeping the world economy from collapsing. This occurs because the economy is funded by a combination of wages and by growing debt. A shortfall in wages can be hidden by more debt, at least for a short time. Of course, this is not a long-term solution. It simply leads to a larger amount of debt that cannot be repaid when collapse does occur.

  • Rail Traffic Volumes Tumble As Coal Stockpiles Soar At Record Rate

    For the first two months of 2016, it seemed as if a modest, if stable, rebound was finally taking place among one of the hardest hit transportation sectors of 2015, rails. Alas, like virtually everything else, this too has proven to be nothing more than a dead cat coming back to life and getting run over by a train.

    As RBC writes in a recent notes, rail traffic volume declines have again intensified. “On a Y/Y basis, traffic slowed by -14% Y/Y for week 11 as all rails posted stiff volume declines and on a segment basis only Motor Vehicles carloads were higher (+7% Y/Y). Since week 7 when volumes grew by +4% Y/Y, the sharpest traffic decline has come in Intermodal carloads (from growth of +17% Y/Y for week 7 to a -12% Y/Y decline last week). Coal headwinds have also intensified in recent weeks and the segment remains the major laggard so far this quarter (-30% Y/Y QTD).”

    Visually:

     

    And while we have touched on some of the primary catalysts for the ongoing decline in railroad traffic, chief among which the drop off in global trade and the plunge in oil transportation, a third – just as important factor – has been the situation involving US coal power plants, where as the EIA writes, “coal stockpiles at electric generating facilities totaled 197 million tons at the end of 2015, the highest level since June 2012 and the highest year-end inventories in at least 25 years.”

     

    The full details from EIA’s Today in Energy, by Tim Shear:

    As coal stockpiles at power plants rise, shippers are reducing coal railcar loadings

     Source: U.S. Energy Information Administration, Electric Power Monthly and Association of American Railroads

    Coal stockpiles at electric generating facilities totaled 197 million tons at the end of 2015, the highest level since June 2012 and the highest year-end inventories in at least 25 years. More than 40 million tons of coal were added to stockpiles at electric generating facilities from September through December, the largest build during that timespan in at least 15 years. In addition to relatively low overall electricity generation, largely attributable to the warmest winter on record, coal-fired electricity has recently been losing market share to electricity produced using natural gas and renewable resources.

    Source: U.S. Energy Information Administration, Electric Power Monthly

    Coal stockpiles typically follow a seasonal pattern in which stocks build during the lower electricity demand periods of the spring and fall and then get drawn down during periods of higher electricity demand in the summer and winter. In 2015, the stockpile build from August to December was 40 million tons, far higher than the 11 million ton average stockpile build for these months over 2001-14. Coal stockpiles typically decrease in December, averaging a roughly 3 million ton decline for the month over 2001-14. However, stockpiles this December increased by more than 8 million tons.

    As stockpiles grew toward the end of 2015, shipments of coal by rail fell. Weekly coal railcar loadings averaged nearly 94,000 carloads per week from September through December 2015, 22% below average loadings for that time of year over the previous five years. Railcar loadings were even lower in the first months of 2016. Through February, weekly coal railcar loadings averaged slightly more than 75,000 carloads, 35% below the previous five-year average.

    Source: U.S. Energy Information Administration, Electric Power Monthly

    * * *

    What is most surprising is that the near record high coal stockpile levels at the end of 2015 come despite a reduction in coal-fired generation capacity. From 2010 to 2015, total U.S. coal generating capacity declined 10%, falling by nearly 33 gigawatts (GW) to 285 GW. One way of measuring coal stockpiles while accounting for the overall change in generating capacity is to calculate days of burn. This calculation considers the current stockpile level at each generator and its estimated consumption (burn) rates in coming months, based on the average consumption rates for those months over the past three years. This measure approximates how many days the generator could run at historical levels before depleting its existing stockpile.

    This means that just as oil inventories hit all time highs at the end of 2015 and into 2016, the same was taking place at US power plant coal stockpiles; worse, since much electricity production has been shifted to other, cleaner forms of electric generation, the excess coal capacity in the market is so vast, that it will take pervasive, acute bankruptcies to reset some semblance of equilibrium. It also means that the Peabody bankruptcy will be only the start, and that tens of thousands more hard-working Americans will soon lose their jobs.

  • "It's Worse Than 2008": Toronto's "Condo King" Weighs In On The Death Of Alberta's Housing Market

    Last week, National Bank’s Peter Routledge did some “back of the envelope” calculations and determined that Chinese buyers might well have accounted for one-third of all real estate purchased in Vancouver during 2015. Here’s how he came to that rather startling conclusion:

    “The NAR estimates that buyers from China invested US$28.6 billion in U.S.-domiciled residential real estate properties over the 12 months ending March 31, 2015. The results of a multiple choice survey the Financial Times solicited from 77 high net worth and affluent individuals from China (admittedly not a statistically significant sample size) [show that] of those who had purchased residential real estate outside China, 33.5% had done so in the United States, 11.7% in Vancouver, and 8.3% in Toronto. From this survey data, one could hypothesize that for every three high net worth investors from China who purchase a U.S. residence, one purchases a residence in Vancouver. One can then apply these ratios to the NAR’s estimate of US$28.6 billion in U.S. residential real estate investment made by buyers from China. From this, we hypothesize that, in 2015, homebuyers from China invested ~US$9.9 billion / Cdn$12.7 billion in Vancouver residential real estate; this amounts to 33% of total purchase volume.

    If that’s even close to accurate, it would confirm what we and others have been saying for quite a while: namely that capital flight from China is driving the explosion of housing prices in red hot markets like London, Hong Kong, and yes, Vancouver.

    Persistent CAD weakness made Canadian homes look particularly attractive to Chinese buyers who had traded in their RMB for USD. The same dynamic – combined with the allure of a burgeoning tech industry – also drove outsized gains in Toronto, Waterloo, and other markets across the country.

    But Alberta wasn’t so lucky. Situated at the heart of Canada’s dying oil patch, the province was the only territory where real GDP contracted in 2015. While manufacturing sales across Canada rose 2.3% in January, Y/Y sales plunged 13.2% in Alberta, the sixth decline in seven months and a sure sign that the oil slump has spilled over into the rest of the economy. Provincial manufacturing sales dropped 16% last year.

    The dire outlook for the provincial economy has weighed on the housing market in places like Calgary. Have a look, for instance, at the following chart which we’re fond of presenting.

    As you can see, one of those three markets is not like the others.

    Underscoring just how bad things truly are in Alberta, Toronto’s “condo king” Brad Lamb is putting the brakes on two condo projects planned for Alberta. “The 36-storey Jasper House and 45- storey North will be delayed at least a year,” The Calgary Herald reports. Here’s more:

    “The situation in Alberta is worse than 2008,” said Brad Lamb, known as Toronto’s condo king and for his humorous billboard ads depicting his face on a sheep’s body. “This is a unique event that is annihilating anywhere in the world that produces oil.” Executives at Fortress Real Developments Inc., which partnered with Lamb on the projects, declined to comment.

     

    Lamb is pulling back as condo sales in Calgary and Edmonton posted the steepest decline in 2015 since the financial crisis. Sales of condos fell 38 percent in Calgary, Alberta’s biggest city, and declined 56 percent in Edmonton, according to Altus Group Ltd.

     


     

    Prices for Calgary apartments have been among the hardest hit in the housing market, sliding 8.7 percent to $279,697 in January, while the average Edmonton condo declined 10 percent to $227,052 over the same period, according to the real estate boards for those cities.

    Yes, “it’s worse than 2008,” and any locale where the economy depends at least partly on crude has been “annihilated.”

    Lamb insists that the two postponed projects will eventually be completed. Construction on Jasper House, for instance, will begin in 2017. In the meantime, if you should happen to own a Toronto condo and want to take advantage of the soaring prices made possible by the billions upon billions fleeing China…

    …don’t hesitate to give Brad a call…

  • Trump Explains His "Women Problems": "I Never Knew I Was Going To Run For President"

    To let CNN tell it, Donald Trump has women problems.

    And we don’t mean in the sense that he has trouble finding an attractive dinner date:

    Following a patently absurd spat with Ted Cruz that began when a supposedly unaffiliated anti-Trump group ran an ad featuring a GQ spread of Melania Trump and promptly ended when Trump publicly “schlonged” Cruz by re-tweeting a head-to-head beauty comparison between Melania and Heidi Cruz, some in the media are looking to rekindle the fire Megyn Kelly started last year when, at the first GOP debate, the Fox anchor asked the Republican frontrunner if he thought it was befitting of a presidential candidate to call women “disgusting animals.”

    “Trump’s negatives among female voters are climbing,” Kellyanne Conway, a Republican pollster who runs the pro-Cruz super-PAC “Keep the Promise” says.

    Conway is referring to a CNN poll from last week that shows 73% of women hold an unfavorable view of the billionaire. “The attrition is most striking among married and suburban female Republicans,” she remarked, adding that “They [women] can tolerate a snide remark or witty snark here or there, but draw the line at personal insults in place of policy prescriptions.”

    Yes, “they draw the line at personal insults.” “Insults” like these (note the finale at 0:41):

    That’s an ad bought and paid for by Our Principles PAC, a group run by staffers from Jeb Bush’s miserable failure of a campaign.

    While Trump has thus far shaken off suggestions that comments he’s made in the past are alarmingly misogynistic, he seems to be making an attempt to mend some fences ahead of the Wisconsin primary. “After a week that found Trump launching attacks on Texas Senator Ted Cruz’s wife, Heidi Cruz, and tossing barbs at Fox News anchor Megyn Kelly, the billionaire front-runner on Monday attempted to play down his degrading comments about women, saying they were made in jest,” Bloomberg writes.

    “I never knew I was going to be running for office. And you joke, and you kid and say things, but you’re not a politician so you never think anybody cares,” Trump told Wisconsin’s FOX 11 in a phone interview.

    Needless to say, Trump’s detractors don’t think “I never thought I would be running for President” is a good excuse for disparaging women.

    “[You have problems with] conservative women who are repelled by your attitude and your treatment of females,” Wisconsin-based conservative radio host Charlie Sykes told the frontrunner yesterday. “[I’ve] hired tremendous numbers of women,” Trump responded. “I have been better to women than any of these candidates, frankly.” Here’s what Trump had to say on Twitter:

    Be that as it may, it’s not just CNN whose polls show that Trump may have trouble with women voters – especially if he ends up squaring off against Hillary Clinton in the national election. A recent NBC/WSJ poll shows some 70% of women give Trump a negative rating while a Reuters poll conducted March 1-15 showed half of American women view the billionaire in a “very unfavorable” light (up 10 points from last autumn). In case that’s in any way unclear, NBC made a giant red graphic with a long line of womens’ restroom symbols on the bottom to illustrate the point:

    “Some GOP strategists fear Trump would alienate women voters in historic numbers as the nominee, particularly if he faces Democratic front-runner Hillary Clinton, who hopes to become the first female president and hasn’t been shy to call out sexism in her primary battle against Bernie Sanders,” Bloomberg continues.

    “In 2012 Mitt Romney won white women by 14 points according to exit polls – 56% to 42% for President Barack Obama,” NBC goes on to say, reinforcing the supposed threat to the GOP’s chances in the national election. “But in the latest NBC/WSJ poll white women go to Hillary Clinton in a hypothetical general election matchup by 10 points, 48% to 38% [which would be] an enormous 24-point swing in the white women vote between 2012 and 2016.”

    Of course if all of this is completely accurate, one wonders how it is that Trump holds such a commanding lead over the rest of the GOP field. Were there no female Republican voters in Florida? Or in Arizona? Or in New Hampshire?

    In any event, Trump was apparently surprised to learn that anyone still cares about this. “I thought this was actually a dead issue until I just spoke to you,” he told Sykes.

    And it probably was. But the establishment has to do something (anything) to derail this freight train, lest Trump should get to 1,237 before July and dash any hope Republicans had of denying him the nomination. And if you thought Megyn Kelly had “blood coming out of her eyes” at the debate in September, just wait until you see the establishment if Trump becomes the nominee.

    *   *   *

    Bonus: Apparently not all women have an unfavorable view of the billionaire

  • Caption Contest: Obama Game Face Edition

    “So there we were, me and John on one side of the table, Putin and Lavrov on the other. Putin says ‘We’re not leaving Syria,’ so I look him right in the eyes and then I make this face!”

    “Michelle was there. Show ’em how I did it Michelle.”

  • Is Trump Right About NATO?

    Submitted by Patrick Buchanan via Buchanan.org,

    I am “not isolationist, but I am ‘America First,'” Donald Trump told The New York times last weekend. “I like the expression.”

    Of NATO, where the U.S. underwrites three-fourths of the cost of defending Europe, Trump calls this arrangement “unfair, economically, to us,” and adds, “We will not be ripped off anymore.”

    Beltway media may be transfixed with Twitter wars over wives and alleged infidelities. But the ideas Trump aired should ignite a national debate over U.S. overseas commitments — especially NATO.

    For the Donald’s ideas are not lacking for authoritative support.

    The first NATO supreme commander, Gen. Eisenhower, said in February 1951 of the alliance: “If in 10 years, all American troops stationed in Europe for national defense purposes have not been returned to the United States, then this whole project will have failed.”

    As JFK biographer Richard Reeves relates, President Eisenhower, a decade later, admonished the president-elect on NATO.

    “Eisenhower told his successor it was time to start bringing the troops home from Europe. ‘America is carrying far more than her share of free world defense,’ he said. It was time for other nations of NATO to take on more of the costs of their own defense.”

    No Cold War president followed Ike’s counsel.

    But when the Cold War ended with the collapse of the Soviet Empire, the dissolution of the Warsaw Pact, and the breakup of the Soviet Union into 15 nations, a new debate erupted.

    The conservative coalition that had united in the Cold War fractured. Some of us argued that when the Russian troops went home from Europe, the American troops should come home from Europe.

    Time for a populous prosperous Europe to start defending itself.

    Instead, Bill Clinton and George W. Bush began handing out NATO memberships, i.e., war guarantees, to all ex-Warsaw Pact nations and even Baltic republics that had been part of the Soviet Union.

    In a historically provocative act, the U.S. moved its “red line” for war with Russia from the Elbe River in Germany to the Estonian-Russian border, a few miles from St. Petersburg.

    We declared to the world that should Russia seek to restore its hegemony over any part of its old empire in Europe, she would be at war with the United States.

    No Cold War president ever considered issuing a war guarantee of this magnitude, putting our homeland at risk of nuclear war, to defend Latvia and Estonia.

    Recall. Ike did not intervene to save the Hungarian freedom fighters in 1956. Lyndon Johnson did not lift a hand to save the Czechs, when Warsaw Pact armies crushed “Prague Spring” in 1968. Reagan refused to intervene when Gen. Wojciech Jaruzelski, on Moscow’s orders, smashed Solidarity in 1981.

    These presidents put America first. All would have rejoiced in the liberation of Eastern Europe. But none would have committed us to war with a nuclear-armed nation like Russia to guarantee it.

    Yet, here was George W. Bush declaring that any Russian move against Latvia or Estonia meant war with the United States. John McCain wanted to extend U.S. war guarantees to Georgia and Ukraine.

    This was madness born of hubris. And among those who warned against moving NATO onto Russia’s front porch was America’s greatest geostrategist, the author of containment, George Kennan:

    “Expanding NATO would be the most fateful error of American policy in the post-Cold War era. Such a decision may be expected to impel Russian foreign policy in directions decidedly not to our liking.”

    Kennan was proven right. By refusing to treat Russia as we treated other nations that repudiated Leninism, we created the Russia we feared, a rearming nation bristling with resentment.

    The Russian people, having extended a hand in friendship and seen it slapped away, cheered the ouster of the accommodating Boris Yeltsin and the arrival of an autocratic strong man who would make Russia respected again. We ourselves prepared the path for Vladimir Putin.

    While Trump is focusing on how America is bearing too much of the cost of defending Europe, it is the risks we are taking that are paramount, risks no Cold War president ever dared to take.

    Why should America fight Russia over who rules in the Baltic States or Romania and Bulgaria? When did the sovereignty of these nations become interests so vital we would risk a military clash with Moscow that could escalate into nuclear war? Why are we still committed to fight for scores of nations on five continents?

    Trump is challenging the mindset of a foreign policy elite whose thinking is frozen in a world that disappeared around 1991.

    He is suggesting a new foreign policy where the United States is committed to war only when are attacked or U.S. vital interests are imperiled. And when we agree to defend other nations, they will bear a full share of the cost of their own defense. The era of the free rider is over.

    Trump’s phrase, “America First!” has a nice ring to it.

  • Crushed By The Record Oil Squeeze, This Is How Energy Bears Are Shorting Crude Now

    The “short energy” trade worked great for a while and then, as we first warned in late January, just as everyone jumped onboard leading to record WTI (and oil and gas equity) shorts, it very suddenly stopped working in early February when oil proceeded to soar by 50% in the month ahead, leading to the biggest short squeeze on record and crushing all those who had recently gotten on the short bandwagon (as well as most other shorts).

    The result of this mega-squeeze has been a significant revulsion to shorting oil directly or indirectly, either by way of the underlying commodity or energy stocks, many of which have soared in tandem.

    And yet the shorts remain, and continue to press their bets on the troubled energy sector. However, instead of directly shorting crude and various first-derivative oil and gas companies, short sellers – burned by the recent squeeze – have changed their strategy and shifted their sights to secondary exposure, namely those regional banks that do business with the industry. These are the same banks which, as we laid out previously, have the highest exposure to the very troubled energy sector, as laid out either by S&P:

     

    … Or Raymond James:

     

    It is these regional banks that Bloomberg finds are the object of shorts’ latest affection, as bearish bets have shot up 35% on average this year among the 10 most-shorted stocks in the KBW Regional Banking Index, and nowhere more so than at Cullen/Frost Bankers Inc. and Prosperity Bancshares Inc. in Texas, which have seen short interest surge about 60 percent.

    The reason why shorts’ attention has been redirected to energy banks is well-known to our readers as we have been covering the banks’ exposure to energy since January: “as oil prices plunged, concern over energy companies’ ability to pay back loans drove investors to unload or bet against financial stocks judged to have the most at stake in the sector. So far, the rebound that pushed oil to around $40 a barrel has done little to dilute that speculation. Stubbornly low interest rates are also squeezing profits in a group that trades at a premium of almost 40 percent to their larger brethren.”

    “It’s generally a very tough environment,” said Stephen Moss, a New York-based analyst at Evercore ISI. “Beyond oil and the yield curve, we have seen signs of credit softening overall. So going forward, it feels like you are going to have incrementally higher credit costs, which obviously will pressure earnings.”

    The details are also mostly familiar, but here is a quick recap from Bloomberg:

    Energy loans account for 15 percent of Cullen/Frost’s portfolio, while they make up 4 percent of Prosperity’s, according to Moss. Of the 10 most shorted regional banks, the majority do business in states like Texas, Oklahoma and Arkansas, centers of the drilling industry. Banks that have exposure higher than 4 percent to energy in their loan portfolios have slumped 22 percent since late 2014, Morgan Stanley’s Ken Zerbe wrote in a report earlier this month.

     

    Bigger banks have also increasingly lured bears this year. Short interest makes up 6.2 percent of Zions Bancorporation’s shares outstanding and 4.5 percent percent of Comerica Inc. Seven percent of Zions’ loan portfolio is exposed to energy companies, and 6 percent of Comerica’s, according to Zerbe.

    Being a smaller, regional bank instead of a TBTF, money-center bank means just that: “regional banks are more sensitive to the trajectory of interest rates, as a bigger proportion of their revenue stems from deposits and lending. The Federal Reserve scaled back its forecast for tighter policy on March 16, citing weaker global growth. That translates to lower-for-longer short-term rates, which crimp what local banks can charge on loans.”

    But more so than the flat yield curve, the immediate catalyst are questions about the banks’ solvency if and when client O&G companies file bankruptcy, straddling the lenders with billions in bad debt.

    Evercore ISI’s Moss said even if the Fed speeds up interest rates increases, a stronger dollar would hurt manufacturers, which in turns affects lenders. “You’ve seen hints from banks signaling that things are getting tough on that front,” he said. Alternatively, if the Fed remains dovish, it means yields on the long end will remain painfully low and make it next to impossible for energy companies to generate profits, leading to a lose-lose outcome, which is precisely what the shorts are betting on.

    Not everyone is as concerned, however. While shorts are boosting bearish bets, other investors are taking the opposite view and loading up on shares. Gary Bradshaw, a Dallas-based fund manager for Hodges Capital Management said his firm recently increased its position in Cullen/Frost.

    “I am looking at low price-to-book, good earnings and what I think will be a higher energy price,” said Bradshaw. “I don’t think interest rates are going to go up dramatically, and that will be the headwind for banks. But at the same time, some of the regional players will benefit more from higher energy prices.”

    Still, with little updated information on bank exposure ahead of the spring borrowing base redetermination season, many would rather not risk it: “There is some uncertainty on how significant these oil credits are going to mean to the credit costs for these banks going forward,” said Daniel Werner, an analyst at Chicago-based Morningstar Inc. “Investors are right to be cautious with names in the Texas and Oklahoma area. That’s a fair assessment by investors until we figure out what’s going on with oil.”

    What is going on is nothing good, and we expect fundamental impairments, charges and reserve increases to continue for the conceivable future. However, the right trade here is not to pile on in what is becoming the next bandwagon trade, but to think one step ahead, the same step which we said is inevitable in the oil trade in late January – the imminent, and massive, short covering squeeze, which has the added benefit that forced buyers are completely price indiscriminate when the market is ripping in their face, and will pay any price beyond the moment of max pain just to get out of a trades which, at least in theory, have unlimited downside.

    As such we sit back and look forward to the inevitable regional bank “rip your face off” short squeeze, one which is inevitable especially since as Yellen showed today, the Fed will do anything and everything to reflate asset prices, consequences and most certainly credibility be damned.

  • "When Hawks Die" – Yellen-nado Sends Bonds, Stocks, & Bullion Soaring

    Bwuahahahaha….

     

    Another day in the "markets… Silver & Gold the big winners post-Yellen – oops!

     

    As we have said before – there is one simple rule…

     

    The "Market" Explained…

     

    The machines ran the stops…

     

    On the day it was Small Caps that won yuuge – as investors panic-bought the worst of the worst…The Dow surged 220 points off the pre-Yellen lows…

     

    Nasdaq and Russell remain red Year-to-Date but S&P and Dow once again rejoined Trannies in the green…

     

    Stocks decoupled from FX Carry and Oil…

     

    VIX was instantly slammed on Yellen's speech and pushed back to a 13 handle….

     

    Bonds were also bid as yields utterly collapsed across the entire complex…sending yields to one-month lows…

     

    This was the 2nd biggest drop in 2y yields since The Fed folded in September…

     

    The USDollar was monkey-hammered as Yellen unleashed her dovish-ness…

     

    EURUSD spiked to 1.13 crushing the hopes and dreams of Draghi's devaluation…

     

    and commodity currencies surged (weak USD) decoupling from Oil…

     

    It appears the rush for crude is over as despite USD weakness, WTI tumbled 3% as Gold surged 2%…

     

    So to sum it all up…

     

    So it appears Janet saw this and panicced… so when do stocks catch down again?

     

    Charts: Bloomberg

    Bonus Chart: Yellen's Dilemma (h/t Alex via @SoberLook)

  • Crude Rises After Gasoline Draw, Crude Build

    Following last week’s major surge in crude inventories, API reported a 2.6mm build (against expectations of a 3.1mm build) – 7th week in a row – which briefly jumped crude prices higher. A 319k draw at Cushing combined with draws in Gasoline (6th week in a row) and Distillates left oil pushing back to late-day highs.

     

    API Details:

    • Crude +2.5mm (+3.1mm exp.)
    • Cushing -319k (confirming Genscape
    • Gasoline -1.94m
    • Distillates -95k

    For now, it seems the market is being driven by gasoline so tomorrow’s DOE report on implied demand will be critical

     

    The reaction in crude – after a volatile day..

     

    Charts: Bloomberg

  • Top Silicon Valley VC Laments: Startups Being Funded Are "Mostly Crap & Largely Worthless"

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    Wall Street is counting its winnings from seven years of easy money.

     

    The results represent a clear victory for Wall Street over Main Street, according to the team of Michael Hartnett, BofA’s chief investment strategist.

     

    “Zero rates and asset purchases of central banks have, thus far, proved much more favorable to Wall Street, capitalists, shadow banks, ‘unicorns,’ and so on than it has for Main Street, workers, savers, banks and the jobs market,” the BofA team wrote.

     

    – From the post: Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street

    Recently, Vanity Fair sat down with well known venture capitalist Chamath Palihapitiya to get his take on the state of affairs in unicorn land.

    Here’s some of what he had to say:

    Palihapitiya’s firm, Social Capital, has backed numerous tech companies with valuations in the billions, such as Slack, Box, and SurveyMonkey. But that doesn’t mean that he is bullish on unicorn culture. Here, Palihapitiya speaks about Mark Zuckerberg’s secret sauce, which start-ups are going to make it, and the saga between Apple and the F.B.I., among other topics.

     

    Funding is slowing down, both in seed rounds and mega-rounds. There have been fewer tech I.P.O.s recently, more companies are raising down rounds. Are we in a downturn?

     

    I think we’re in a phase where we’re realizing that the people who have been allocating capital thus far have done a horrendous job. Most people’s inherent reaction is to make sure they never lose their job, and so they become risk-averse. I think what we’ve had is a handful of investors who have extreme vision who make great investments in things that are amazing businesses: Facebook, Google, Uber.

     

    And then everybody else reacts to that success by trying to do the thing that most approximates the thing that’s working. As a result, most of those businesses are fundamentally not good, they’re poorly run, and they never should have been invested in in the first place. But the capital came in because the person who had control of the capital was able to justify it intellectually to themselves versus something else that could have become the next Facebook or Google.

     

    The reality is, great companies can go public in any market. When we talk about the I.P.O. slowdowns what we’re really saying is that there really just aren’t that many good companies being built. We need to divorce ourselves from venture capital as an occupation and focus on using capital as a way to take really big bets on things that just seem totally audacious. Right now we haven’t done enough of that, and the result is that most of the things we’ve funded are mostly crap and largely worthless.

     

    What advice are you giving Social Capital’s portfolio companies in the event of a tech bubble burst or correction?

     

    We’re trying to coach our C.E.O.s that the window dressing is both expensive from a cash perspective and tremendously expensive from a culture perspective. It distracts the team from building what they need to build. Don’t waste money on things that get away from your mission, which confuse employees about why they’re actually there. Meaning, the quality of the office and the quality of the food are all part and parcel of a lack of discipline, which speaks to the fact that the mission isn’t compelling enough. Because I can tell you what it was like at early Facebook: the food was terrible; we’d ship in lunch and probably two to three times a week the lunch had maggots in it. But we were there because we believed, and it didn’t matter.

     

    A number of V.C.s have been calling on mature, late-stage companies to go public. There’s even been somewhat of a quiet rally in the public tech stocks recently. Is now the time for big, late-stage companies to go public, or does it make sense for companies to stay private longer?

     

    Any company that is making its decision based on external timing is probably not in control of their own destiny and should probably not go public. Facebook could have gone public whenever it wanted. We decided the right time was 2012. It could have easily been 2010 or 2014. When you hear the call for these companies to go public and there’s pushback and they don’t, what’s really happening is the realization that the structural strength of their business is not yet in place. So they’re worried about how the public market will react once they have to transparently demonstrate what their business will look like. The great companies can always go public whenever they want; every other company is trying for some window of time where there’s essentially some combination of intellectual laziness and greed in the public markets that will allow them to exploit a window.

    Not that any of this is particularly surprising, but it’s noteworthy nonetheless. It’s also why…

    The New “Middle Class” – Making $250,000 a Year in Palo Alto Qualifies for Housing Subsidies

    For related articles, see:

    Bank of America Admits – Central Bank Policy Enriched Wall Street While “Steamrolling” Main Street

    The Military Industrial Complex Unicorn – Former NSA Chief Raises $32.5 Million for Startup Company

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

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Mar 29

Assad and ISIS

This is a short post.

The armed forces of President Assad of Syria have successfully removed ISIS presence from the City stronghold of Palmyra. Where is the fanfare in the Western media?

ISIS are meant to be the enemy of democracy and the West, and Syrian forces have just had a decisive victory against these barbarians, who only recently destroyed ancient relics in Palmyra to International outcry, and lets not forget the beheadings and attacks in Paris and Brussels. And yet this defeat of ISIS forces barely registers a mention.

Perhaps its because it was Bashar Al Assad, the “butcher of Damascus” that defeated ISIS and drove them from their stronghold and weakened their presence in Syria.

How different would the reporting have been if it was US forces, or NATO forces, UK or EU forces that had liberated Palmyra? Headlines as far as the eye could see no doubt.

No doubt this will be portrayed as Assad’s forces, aided and abetted by Putin lets not forget, retaking Palmyra. Only the West could possibly liberate the City.

We make no judgments here about Assad or Putin, or anyone else involved.

What we do ask, is why are the West not celebrating this important defeat of ISIS forces? Is this not also a victory for democracy? If Aleppo is taken back by Assad’s forces in the next few weeks and ISIS driven out, will that be celebrated by the West and its media?

Just asking!

Mar 29

Today’s News 29th March 2016

  • Top German Journalist Admits Mainstream Media Is Completely Fake: "We All Lie For The CIA"

    With the increasing propaganda wars, we thought a reminder of just how naive many Westerners are when it comes to their news-feed. As Arjun Walia, of GlobalResearch.ca, notes,  Dr. Ulfakatte went on public television stating that he was forced to publish the works of intelligence agents under his own name, also adding that noncompliance with these orders would result in him losing his job.

    He recently made an appearance on RT news to share these facts:

    I’ve been a journalist for about 25 years, and I was educated to lie, to betray, and not to tell the truth to the public.

     

    But seeing right now within the last months how the German and American media tries to bring war to the people in Europe, to bring war to Russia — this is a point of no return and I’m going to stand up and say it is not right what I have done in the past, to manipulate people, to make propaganda against Russia, and it is not right what my colleagues do and have done in the past because they are bribed to betray the people, not only in Germany, all over Europe.

    It’s important to keep in mind that Dr. Ulfakatte is not the only person making these claims; multiple reporters have done the same and this kind of truthfulness is something the world needs more of.

    One (out of many) great examples of a whistleblowing reporter is investigative journalist and former CBC News reporter Sharyl Attkisson.

    She delivered a hard-hitting TEDx talk showing how fake grassroots movements funded by political, corporate, or other special interests very effectively manipulate and distort media messages.

    Another great example is Amber Lyon, a three-time Emmy award winning journalist at CC, who said that they are routinely paid by the US government and foreign governments to selectively report and even distort information on certain events. She has also indicated that the government has editorial control over content.

    Ever since Operation Mockingbird, a CIA-based initiative to control mainstream media, more and more people are expressing their concern that what we see in the media is nothing short of brainwashing.

    This is also evident by blatant lies that continue to spam the TV screen, especially when it comes to topics such as health, food, war (‘terrorism‘), poverty, and more.

    Things have not changed, in fact, when in comes to mainstream media distorting information and telling lies. They have gotten much worse in recent years, in fact, so it is highly encouraging that more people are starting to see through these lies, even without the help of whistleblowers like Dr. Ulfakatte.

    One great example is the supposed ‘war on terror,’ or ‘false flag terrorism.’ There are evenWikileaks documents alluding to the fact that the United States government planned to “retaliate and cause pain” to countries refusing GMOs.

    Mainstream media’s continual support of GMOs rages on, despite the fact that a number of countries are now banning these products.

    The list of lies goes on and on. It’s time to turn off your T.V. and do your own research if you are curious about what is happening on our planet. It’s time to wake up.

  • One Third Of UK Children Spend Less Time Outdoors Than US Prison Inmates

    Over the course of his campaign, Bernie Sanders has made it clear that criminal justice reform is something he cares quite a lot about.

    “I consider reforming our criminal justice system one of the most important things that a president of the United States can do,” the Vermont senator told a Chicago crowd in December. Sanders has called the incarceration rate in America “an international embarrassment,” and earlier this month, he said the following during a debate with Hillary Clinton:

    “Where we are right now, is having more than 2.2 million people in jail — more than any other country on Earth. This is a campaign promise: At the end of my first term, we will not have more people in jail than any other country.”

    Given the high rate of incarceration in the US, it’s important that Americans don’t take their freedom for granted because, well, because the government won’t hesitate to throw you in jail. Once there, UN guidelines only require that you get to breathe fresh air for one hour a day – the standard minimum guidelines call for “at least one hour of suitable exercise in open air daily.”

    You can believe that inmates cherish that hour and you can imagine how shocked the residents of Indiana’s Wabash maximum security prison were to find out from researchers that one third of all children aged 5 to 12 in the UK play outdoors for less than 30 minutes each day, while a fifth of parents surveyed said their children don’t go outside at all.

    “Outdoor play isn’t happening,” the “Dirt Is Good” initiative found in a survey of 12,000 parents. “Almost a third of children play outside for 30 minutes or less a day and one in five don’t plan outside at all on an average day.” Watch below as inmates react to the study.  

    So what are kids in the UK doing instead? Why, staring at screens of course. “Children spend twice as much time on screens inside as they do playing outside,” the same study found. 

    But it’s not all bad news. Children in the UK are far more likely to be able to make up for lost time outdoors later in life than are kids in the US. The incarceration rate in the UK is around five times lower than it is in America.

  • These Energy Companies Are Most At Risk From The "Spring Redetermination"

    In late September, during the peak of fall borrowing base redetermination , many oil and gas companies got their first glimpse of just how bad their liquidity would get when as a result of collapsing commodity prices, the value of their collateral crashed when PV-10s plunged by up to 80% Y/Y as of December 2015…

     

    … and resulted in plunging access to secured liquidity as borrowings bases were eviscerated as much as 38% (for those unfamiliar with the basics of the semiannual redetermination process, the WSJ has a handy and brief 101).

     

    Incidentally, it would have been far worse if the Dallas Fed and OCC had not stepped in and told lender banks to take it as easy on the debtors as possible, and in some cases, even suspend market-based calculations for price decks. The reason for this kid glove treatment was that many banks were unprepared to reserve and write down the value of their energy loans down to fair values as of the fall. 

    Now, six months later, neither the OCC nor the (Dallas) Fed will be quite as generous and demand that banks act as a benevolent cartel. In fact, from what we have heard, it will be quite the opposite which explains the urgent scramble by many banks to force their debtor clients to issue equity and use the proceeds to repay secured loans.

    As such, the imminent spring redetermination may prove to be just the catalyst to push the recently latent energy crisis to the next level.

    So which companies are most at risk of a suddenly air pocket in liquidity? For the answer we go to a recent Bloomberg Intelligence slide deck prepared precisely for the purpose of showcasing the companies with maxed out credit lines. These are as follows:

     

    However, while these companies certainly have pulled the short stick, ironically they may not be the first to go: after all, at least they had the foresight of using up their entire available revolvers (and in the odd case of PostRock, more than 100% of it) – it doesn’t matter if now the banks decide to collapse their borrowing base – the funds have already been wired and good luck getting a refund.

    No, the companies most at risk may actually be those with that currently have some of the most highly utilized borrowing bases, ranging anywhere from 62% for Contango to 94% for Vanguard. It is these companies that will suddenly find themselves with zero incremental sources of liquidity as the banks proceed to whack anywhere from 30 to 50% of their borrowing base, leaving them scrambling to preserve liquidity and ultimately leading to bankruptcy court, in no small part under the pressure of secured and soon to be DIP lenders (and in most cases, the post reorg equity) who will demand the least amount of Enterprise Value be wiped out in the months before bankruptcy. Here are the names.

     

    We would be most worried about the near-term viability of the companies shown above: in our humble opinion these are the companies most at risk from the upcoming spring redetermination period.

    As for the companies shown below, we would not be quite as worried about them, although we are confident that in a few weeks time these “largest borrowing bases” will be substantially smaller.

     

    Finally, courtesy of Haynes and Boone, here is a less impartial perspective thanks to a poll of banks, PE firms, and oil service companies who were asked to share their thoughts on the upcoming spring redetermination. Among the key findings:

    • Overall respondents expect 79% of the borrowers to see a decrease in their borrowing base in spring 2016
    • Overall respondents, on average, expect to see borrowing bases to decrease by 38% compared to what they were in fall 2015
    • As to the most likely path to be taken by lenders and borrowers who face a borrowing base deficiency this spring: 36% of respondents said the would negotiate an amendment or extension with the lender; 31% said they would sell non-core assets; 15% said they would seek capital from a hedge fund or private equity fund; 4% said sell the company; 13% said restructure or declare bankruptcy

    Haynes and Boone slideshow:

     

  • Lessons From Brussels – America Should Get Out Of The Middle East

    Submitted by Justin Raimondo via AntiWar.com,

    The vicious attack on the Brussels airport and metro underscores the futility of focusing on the Syrian “Caliphate” as the epicenter of terrorism: as I’ve been saying in this space since 2001, the snake has no head. Both al-Qaeda and now ISIS are protean entities with a vast geographical spread, and what the Brussels attack – and, before it, the Paris attack – show is that they have successfully colonized Europe.

    If the “Islamic State” proclaimed by ISIS was defeated and eliminated tomorrow, the terrorist and criminal networks that pulled off the Brussels attacks would still exist.

    The population of Brussels is nearly 25 percent immigrants from Muslim countries, primarily Morocco and Algeria. And as it turns out the two brothers who were the core of the ISIS cell were habitués of the now notorious Molenbeek neighborhood, which consists primarily of the descendants of immigrants who settled there decades ago. Poor, and beset by petty crime, it is a pool in which terrorist recruiters fish with much success. The Syrian civil war has become a cause that attracts young toughs with no prospects, who are looking for some sense of meaning – and a way to express their alienation from the larger society in which they live. Molenbeek was also the base for those who planned and carried out the Paris attacks – it is, in effect, a general headquarters for ISIS to carry out its European operations. Salah Abdeslam, the chief planner of the Paris attacks, fled there and found sanctuary for four months before being caught.

    In short, the problem of terrorism in Europe is an internal phenomenon, not something that comes from the outside. The Europeans imported it – and, as Germany’s welcoming of hundreds of thousands of refugees from the war-torn Middle East dramatizes, they are continuing to import it. Now they are living with the consequences.

    In response, various right-wing populist parties have emerged in Europe that focus on stopping immigration from Muslim countries: in France, Britain, and Germany the rise of the anti-immigration movement has liberal elites in a panic. And yet these movements are for the most part exercises in futility, because that horse is already out of the barn. France, for example, is not going to deport the millions of North African Muslims who have lived in the country for a generation and more: they are French citizens. The same goes for Britain, and all the former empires of Europe whose colonial adventures brought in large numbers of the colonized. Now they are learning – too late – that colonialism is a two-way street.

    What Brussels also showed is that the universal surveillance championed by the War Party as a necessary corollary of the “war on terrorism” would not have stopped the attacks: the ISIS cell consisted of two brothers, which not only ensured against infiltration but also made it next to impossible for any but the most intrusive surveillance to have had any effect. Indeed, the key to stopping the attacks was intelligence – which the Belgian authorities ignored. It turns out that Brahim el-Bakraoui had been deported from Turkey and the Belgians had been warned he was dangerous. They ignored the warning.

    The Israeli newspaper Ha’aretz claims that the Belgian authorities had “advance and precise intelligence warnings” about the attack on the airport and the subway but failed to take sufficient action to prevent them. This highlights another lesson of the Brussels attacks: the European authorities are utterly incompetent and unprepared for the challenge they face.

    Beyond that, however, is a larger problem: the ISIS phenomenon is largely a creation of the Western powers and its allies in the Gulf. The Saudis, the Qataris, and the Kuwaitis have long been funding Wahabist extremism, and they are the real progenitors of the ideology that inspired the creation of al-Qaeda and ISIS. Furthermore, regime change in Syria has long been on the American-European agenda, with funding for ‘moderate” Islamist head-choppers flowing from the US Treasury directly into the pockets of extremist gangs in the region. The same enabling action took place in Libya, where – led by Hillary Clinton – the Obama administration sided with “pro-democracy” rebels who turned out to be terrorists.

    With the Syrian civil war as their training ground, the ISIS recruits of Molenbeek and other similar ghettos underwent the transformation from petty criminals to battle-hardened jihadists. And now they are swarming all over Europe, with reportedly thousands of them traveling back to Belgium, France, Britain, and elsewhere to wreak havoc in the name of their newfound cause.

    For us here in America, the lessons of the European tragedy are there to be learned. There is only one solution to the problem of terrorism and it doesn’t involve going abroad in search of monsters to destroy. The point is to make sure those monsters never reach our shores.

    Furthermore, we must withdraw from the Middle East – a possibility that doesn’t bear the economic consequences it once did, given the creation of new technologies that make domestic oil production far easier.

    We are spending billions defending and sustaining the Saudi monarchy and the Gulf states – some of the most repressive regimes in the world. And for what? The interventionists declare that America’s role as a “global leader” represents the defense of our values. But does a regime that beheads “infidels” represent American values? Indeed, there is no operative difference between the internal rule of the ISIS “caliphate” and the Saudi Kingdom. Yet we are obsessed with destroying the former and cuddling up to the latter.

    It’s too late for the Europeans, who are now forced to sleep in the bed they so assiduously made. It isn’t too late for America: we can learn the lesson of Brussels if only we have the will to do so.

  • With Hillary Clinton's Email Lies Unravelling, 147 FBI Agents Are On Her Heels

    Earlier this month, conservative legal advocacy group Judicial Watch released a series of documents obtained via an FOIA request which appear to prove that Hillary Clinton knew her BlackBerry wasn’t secure when she and her staff moved into Mahogany Row (the nickname given to the set of offices reserved for senior officials in the Department of State).

    E-mail exchanges between Senior Coordinator for Security Infrastructure Donald Reid and the NSA show Clinton was intent on obtaining a secure BlackBerry that she could use in restricted areas.

    Although Clinton would of course be given a desktop computer on which she could safely conduct state business, Reid said the Secretary had become “addicted” to her BlackBerry during her ill-fated 2008 Presidential campaign. “The issue here is one of personal comfort,” an e-mail from Reid reads. “S [Secretary Clinton] does not use a personal computer so our view of someone wedded to their email (why doesn’t she use her desktop when in SCIF?) doesn’t fit this scenario … during the campaign she was urged to keep in contact with thousands via a BB … once she got the hang of it she was hooked … now everyday [sic], she feels hamstrung because she has to lock her BB up.”

    When the NSA wasn’t receptive, long-time Clinton aid and BlackRock crony Cheryl Mills tried her hand at convincing security officials to find a work around for Clinton’s BlackBerry but she too was rebuffed. “The department’s designated NSA liaison, whose name was redacted from the documents, expressed concerns about security vulnerabilities inherent with using BlackBerry devices for secure communications or in secure areas,” AP recounts, adding that “Clinton began sending work-related emails through private accounts soon after, in March 2009.”

    Or so the story goes. In fact, however, Clinton may have begun using the private server housed in her basement before March. And while there’s some ambiguity, that would seem to contradict statements she made under oath.

    “Conservative legal watchdogs have discovered new emails from Hillary Clinton’s private email server dating back to the first days of her tenure as secretary of State,” The Hill reports, referencing newly released messages turned up by Judicial Watch. “The previously undisclosed February 2009 emails between Clinton from her then-chief of staff, Cheryl Mills, raise new questions about the scope of emails from Clinton’s early days in office that were not handed over to the State Department for recordkeeping and may have been lost entirely.” Here, for instance, is a message dated February 13 that appears to reference the meeting Mills had with the NSA:

    Just to clarify, this is a problem because Clinton’s campaign has contended that she did not use the personal account prior to March and the publicly released e-mails begin on March 18. 

    Again, there’s some ambiguity here. “[Clinton] has previously acknowledged that she emailed with department officials before March 18, 2009, the date of the first email in the collection that former Secretary Clinton provided to the Department in December 2014,” a State Department official said last week. “Former Secretary Clinton has also indicated that she does not have access to work-related emails beyond those she turned over to the Department.”

    So essentially, the argument is that although there were indeed work related e-mails sent prior to March 18, Clinton could not access them to turn them over – or something. The story keeps changing. And indeed that’s the whole problem. At this point it’s abundantly clear that Clinton would have been far better off telling the truth from the very beginning and the fact that incremental information continues to surface certainly seems to suggest that the former First Lady fully intends to admit only what someone else can prove. That doesn’t exactly inspire much trust.

    “So now we know that, contrary to her statement under oath suggesting otherwise, Hillary Clinton did not turn over all her government emails,” Tom Fitton, the head of Judicial Watch said in a statement. “We also know why Hillary Clinton falsely suggests she didn’t use clintonemail.com account prior to March, 18, 2009 — because she didn’t want Americans to know about her February 13, 2009, email that shows that she knew her Blackberry and email use was not secure.”

    While we would note that there’s a bit of confirmation bias going on there (i.e. Fitton said the messages he uncovered earlier this month were proof that Clinton knew her BlackBerry wasn’t secure and now he says the new e-mails are proof that that proof was indeed proof), Fitton is probably right. Clinton most likely would rather not have been forced to admit that she and Cheryl Mills essentially tried to browbeat the NSA into figuring out how to accommodate the BlackBerrys because the very fact that they had the conversation in the first place suggests Clinton and Mills knew the devices weren’t secure.

    But more importantly, it seems exceedingly unlikely that Clinton couldn’t have turned over the messages from February had she wanted to. That is, how is it that she had access to mail on her private sever from March 18 but not from the beginning of February? Did she permanently delete the messages? And if so, why? 

    Well the FBI intends to find out, because as a new Washington Post piece (which you’re encouraged to read in its entirety) details, the Bureau now has 147 agents on the case. “One hundred forty-seven FBI agents have been deployed to run down leads” WaPo writes, adding that “the FBI has accelerated the investigation because officials want to avoid the possibility of announcing any action too close to the election.”

    While we can always hold out some hope that Clinton will one day be held accountable and that someone, somewhere will dispel with the notion that America’s political aristocracy is above the law, we can’t help but suspect that we’ll never see Hillary Clinton in black and white stripes – unless it’s a pantsuit. 

  • Saudis To "Modernize" Economy As Interbank Rates Surge & Money Supply Collapses At Record Pace

    For the first time since January 2009, 12-month Saudi interbank rates have breached 2.00% – double the 1% lows of August.

     

    This 'stress' is also evident in the record pace of collapse of Saudi money-supply.

     

     While Riyal forwards have rallied back from extreme bets on devaluation, they remain concerning for Saudi officials who to undertake some deep and fundamental changes to their economy, reforms that no amount of browbeating from organizations like the IMF could induce.

    As OilPrice.com's Nick Cunningham details, a new report from The Atlantic Council finds that the extensive decline in oil revenues is focusing minds in Riyadh. The fiscal pressure is forcing “the kingdom’s leadership to modernize the economy,” the report concludes.

    Saudi Arabia ran a fiscal deficit of about $98 billion in 2015, a figure that will decline only slightly to $87 billion this year. That deficit total is also probably closer to $120 billion in reality though, given that the costs from the war in Yemen were not included.

    The fiscal squeeze is forcing some changes. First, the Saudi government is looking at new taxes, including a 5 percent value added tax (VAT). That may seem like a run-of-the-mill austerity measure, but for Saudi Arabia it is a novel proposal: it will be the first tax imposed in the country.

    More to the point, the VAT is illustrative of where Saudi Arabia is heading. The Atlantic Council argues that the kingdom is starting to reform its economy in fundamentally positive ways. Low oil prices are forcing it to rely more upon taxes and less on oil revenues. That would start to make Saudi Arabia less of a “rentier state,” a country that has no need to build much of an economy because resource extraction is so lucrative. Rentier states often suffer from greater corruption and a deeper lack of responsiveness to the needs of the public, since abundant oil revenues mean that the government does not need revenue from its populace.

    Another major shift in Saudi Arabia could be the partial privatization of Saudi Aramco. Prince Mohammed bin Salman made news in early January when he told The Economist that the government was mulling over such a step. There has been a lot of speculation about why an IPO would be staged. Transparency appears to be a top concern. While Aramco routinely publishes operational data, detailing production figures, shipments, and downstream activity, the company reveals very little about its finances. “The most likely explanation for Saudi Aramco’s lack of financial transparency is that it wants to hide how much money is siphoned off to the royal family,” The Atlantic Council report suggests.

    By privatizing some Aramco assets (likely downstream) and cleaning up and publishing data from the company’s books, the Saudi government apparently is showing some recognition that its relationship with the public must change. “Naturally, the royal family is unlikely to find itself cut off from any of the oil benefits to which it is accustomed. However, what is likely to change is that the family will no longer see itself as able to access funds without being held responsible by the Saudi public.”

    Obviously, the downturn in oil prices is not exactly something that the Saudi government is happy about. Although it has about $616 billion in cash reserves, enough to finance its large fiscal deficits for years, Saudi Arabia is burning through those reserves at a rapid clip. In 2014, Saudi Arabia had $746 billion in reserves at its highest point.

    Also, the government’s perennial top concern is social stability. Having to introduce new austerity measures, reduce subsidies, raise some taxes, and generally acknowledge that the country’s luxurious days could be coming to an end, the fall in oil prices presents some new risks. As The Atlantic Council notes in its report, any instability in a country that accounts for 10 percent of the world’s oil production would be felt across the globe.

    Still, the reforms underway are long overdue, and in that sense, there is a silver lining in the crude price crash. In recent years, Saudi Arabia has succeeded in starting to build a more diversified industrial economy, with new facilities producing chemicals, fertilizers, aluminum, cement, and other industrial products. Up until now, however, economic diversification has not gone as far as it could. Part of the reason is that Saudi Arabia, as a “rentier state,” does not tax manufacturing, and thus, has had little incentive to promote its growth. For that matter, it has had little incentive to promote the growth of any non-oil sector of its economy.

    Now, the reforms underway – new taxes, subsidy cuts, and the partial privatization of Saudi Aramco – are making Saudi Arabia “increasingly resemble most modern economic states.”

    However, it is still early days and the reforms are far from assured. “Admittedly, complete change will not come overnight, but it is nonetheless being prodded on by the decline in income,” the report concludes.

  • The US Election 'Shame' Of Thrones

    It appears George R.R. Martin’s best-selling book series has a lot of similarities to the ‘ice’ and ‘fire’ of the current election campaign. Two powerful families (the establishment vs Bernie and Trump) of liars and honest men (and women) playing a deadly game for control of the ‘kingdom’…

     

    h/t @g_mastropavlos

  • Ron Paul: A European PATRIOT Act Will Not Keep People Safe

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

    It was not long after last week’s horrifying bombings in Brussels that the so-called security experts were out warning that Europeans must give up more of their liberty so government can keep them secure from terrorism. I guess people are not supposed to notice that every terrorist attack represents a major government failure and that rewarding failure with more of the same policies only invites more failure.

    I am sure a frightened population will find government promises of perfect security attractive and may be willing to allow more surveillance of their personal lives. They should pause a little beforehand and consider what their governments have done so far to keep them “safe.”

    The government of France, for example, has been particularly aggressive in its Middle East policy. Then-French President Sarkozy was among the most determined proponents of “regime change” in Libya. That operation has left the country in chaos, with much of the territory controlled by an ISIS and al-Qaeda that were not there before the “liberation.” As we learned last week from Hillary Clinton’s emails, Sarkozy and British Prime Minister David Cameron were much more concerned with getting their hands on Libya’s oil after the overthrow of Gaddafi. The creation of a hotbed of terrorism that could easily make its way to Europe was not important. They wanted to secure enormously profitable deals for well-connected French and English energy companies.

    Likewise, European governments have been very active in the five-year, US-led effort to overthrow the Assad government in Syria. This foolish move has boosted both ISIS and al-Qaeda in Syria to the point where they nearly over-ran the country late last year. It has also led millions to flee their war-torn country for a Europe that has opened its doors with the promise of generous benefits to anyone who can make it there. Is it any surprise that so many hundreds of thousands took them up on the offer? Is it any surprise that in this incredible flood of people there may be more than a few who are interested in more than just free housing and a welfare check?

    Europeans should be demanding to know why their governments provoke people in the Middle East with aggressive foreign policies, and then open the door to millions of them. Do their leaders just lack basic common sense?

    Usually the so-called security experts who advise more government surveillance after a terrorist attack have a conflict of interest. They often benefit when the security state is given a bigger budget. Insecurity is the bread-and-butter of the security “experts.” But why is it that after a terrorist attack, governments are rewarded with bigger budgets and more power over people? Shouldn’t failure be punished instead of rewarded?

    As in the United States, the security crisis in Europe is directly tied to bad policy. Until bad policy is changed, no amount of surveillance, racial profiling, and police harassment can make the population safer. Europeans already seem to understand this, and as we have seen in recent German elections they are abandoning the parties that promise that the same old bad policies will this time produce different results. Hopefully Americans will also stand up and demand a change in our foreign policy before bad policy leads to more terrorist violence on our shores.

  • Japanese Retail Sales Plunge Most Since 2010

    Just one more cut in rates more negative and just a little more ETF buying and bond purchases and we are sure the Japanese will start spending as wages rise…

     

    4th monthly decline in a row and absent the tsunami and tax-hike reaction, this is the worst drop since Dec 2010…

     

    At what point do you just admit failure?

  • Full Metal Retard Part Deux: CIA-Backed Rebels Now At War With Pentagon-Armed Fighters In Syria's Aleppo

    It would be difficult to find a program that better exemplifies the word “failure” than the Pentagon’s “train and equip” effort in Syria.

    Last May, US Central Command issued a hilariously absurd press release outlining what was quite obviously going to be a disastrous effort to arm rebel fighters. “The US military and partner forces have begun training the initial class of appropriately vetted Syrian opposition recruits this week to support the effort to degrade and ultimately defeat ISIL in Syria,” the PR read.

    The idea was to field a contingent of more than 5,000 fearsome warriors by the end of the year.

    (File photo: Dec. 17, 2012 Syrian rebels attend a training session in Maaret Ikhwan near Idlib, Syria)

    Long story short, the effort was a fiasco – a complete debacle – a hilarious screwup. First, Colonel Nadim al-Hassan and an unknown number of other fighters from “Division 30” were kidnapped in the Aleppo countryside in July. “A senior U.S. defense official confirmed the snatched fighters had gone through the initial vetting process to receive training in Turkey,” The Daily Beast wrote at the time. “But then, for reasons that remain unclear, they traveled to Syria before they were ready to do battle with ISIS.” Subsequently, al-Nusra simply arrested them at a checkpoint near Zahart al-Malkia.

    “We warn soldiers of (Division 30) against proceeding in the American project,” the al-Qaeda affiliate said in a statement distributed online. “We, and the Sunni people in Syria, will not allow their sacrifices to be offered on a golden platter to the American side.

    As humiliating as that most certainly was, it got far, far worse. In late September, rumors circulated that Division 30 commander Anas Ibrahim Obaid had defected to al-Nusra after he disappeared in Aleppo.

    Apparently, Obaid entered Syria from Turkey the day before with some 70 new graduates of the US program and a dozen or so four-wheel vehicles equipped with machine guns and ammunition. Although there are competing accounts as to what exactly happened next, Division 30 ultimately handed over all of the ammunition and the pickup trucks to al-Nusra in exchange for “safe passage.”

    “They handed over a very large amount of ammunition and medium weaponry and a number of pick-ups,” one Abu Fahd al-Tunisi, an al-Nusra member, said on Twitter. “A strong slap for America… the new group from Division 30 that entered yesterday hands over all of its weapons to Jabhat al-Nusra after being granted safe passage,” he added.

    Yes, “a strong slap for America” that came just days after “a strong slap” for taxpayers who on September 16 learned that only “four or five” graduates of the $500 million program were still fighting in Syria.

    The program was understandably mothballed a few weeks later, but that doesn’t mean US-trained forces didn’t continue to rack up embarrassing battlefield losses to al-Nusra. In fact, it was exactly two weeks ago that al-Nusra took over Maarat Numan from Division 13 (one of the first rebel groups to receive US-made TOWs), confiscating anti-tank missiles, armored vehicles, a tank, and other arms in the process. “We congratulate [al-Nusra chief Mohammad] al-Jolani on this conquest!” Division 13’s leadership exclaimed, sarcastically on Twitter.  

    Throw in the fact that the FSA – not to mention all the other “moderate” rebels fighting in and around Aleppo – just got finished having their proverbial asses handed to them by Russia and Hezbollah and you’d think things couldn’t get much sillier for the Pentagon.

    But you’d be wrong. 

    As The LA Times reports, Pentagon-armed Kurdish units (so these are different fighters from those involved in “train and equip”) are now engaging in firefights with CIA-armed forces in what is surely the most ridiculous example of US strategy gone horriby (and hilariously) awry to date. 

    “Syrian militias armed by different parts of the U.S. war machine have begun to fight each other on the plains between the besieged city of Aleppo and the Turkish border, highlighting how little control U.S. intelligence officers and military planners have over the groups they have financed and trained in the bitter five-year-old civil war,” the Times writes. “The fighting has intensified over the last two months, as CIA-armed units and Pentagon-armed ones have repeatedly shot at each other while maneuvering through contested territory on the northern outskirts of Aleppo, U.S. officials and rebel leaders have confirmed.” Here’s more: 

    In mid-February, a CIA-armed militia called Fursan al Haq, or Knights of Righteousness, was run out of the town of Marea, about 20 miles north of Aleppo, by Pentagon-backed Syrian Democratic Forces moving in from Kurdish-controlled areas to the east.

     

    “Any faction that attacks us, regardless from where it gets its support, we will fight it,” Maj. Fares Bayoush, a leader of Fursan al Haq, said in an interview.

     

    Rebel fighters described similar clashes in the town of Azaz, a key transit point for fighters and supplies between Aleppo and the Turkish border, and on March 3 in the Aleppo neighborhood of Sheikh Maqsud.

     

    The attacks by one U.S.-backed group against another come amid continued heavy fighting in Syria and illustrate the difficulty facing U.S. efforts to coordinate among dozens of armed groups that are trying to overthrow the government of President Bashar Assad, fight the Islamic State militant group and battle one another all at the same time.

     

    At first, the two different sets of fighters were primarily operating in widely separated areas of Syria — the Pentagon-backed Syrian Democratic Forces in the northeastern part of the country and the CIA-backed groups farther west. But over the last several months, Russian airstrikes against anti-Assad fighters in northwestern Syria have weakened them. That created an opening which allowed the Kurdish-led groups to expand their zone of control to the outskirts of Aleppo, bringing them into more frequent conflict with the CIA-backed outfits.

    The reference to “Kurdish-led” groups is a nod to the Syrian Democratic Forces (SDF), a make-believe alliance between the YPG and “Syrian Arabs.” As we noted last autumn in our classic post “Full Metal Retard: US Launches ‘Performance-Based’ Ammo Paradrop Program For Make-Believe ‘Syrian Arabs’“, there is no such thing as the SDF. The US was looking for a way to arm the YPG without enraging Erdogan, and so Washington tried to say that the Kurds had in fact joined forces with moderate Arabs in an ad hoc anti-Assad coalition. The Pentagon then promptly dropped 50 tons of ammo into the middle of the desert on pallets for the Kurds to retrieve (Erdogan saw right through the ruse, but that’s another story). “The group is dominated by Kurdish outfits known as People’s Protection Units or YPG,” the Times goes on to note. “A few Arab units have joined the force in order to prevent it from looking like an invading Kurdish army, and it has received air-drops of weapons and supplies and assistance from U.S. Special Forces.”

    Of course none of this should surprise anyone. The Kurds are looking to bridge the territory they control east of the Euphrates along the Syrian-Turkish border with that which they control in Aleppo and that means moving into the Azaz corridor (i.e. the grey area between the purple areas on the map below).

    The Kurd’s recent move to declare federalism will only make the push to unite their territory in northern Syria more urgent. 

    What makes this especially absurd is that Erdogan is firing on the YPG in and around Azaz. And by “YPG” we mean the Pentagon-backed “SDF.” So summing up, you have the Pentagon-backed Kurds fighting CIA-backed Islamists in an area where US-ally Erdogan is firing on the same Pentagon-backed Kurds.

    And believe it or not, that’s not the punchline. The punchline is that Obama is considering restarting the train and equip program which would mean that in addition to the Pentagon-backed Kurds fighting in close proximity to and sometimes against CIA-backed rebels, you’d have a separate group of Pentagon-backed fighters operating in the very same area and everyone would be dodging artillery fire from the Turkish army. 

    Perhaps an unnamed US official who spoke to the LA Times summed it up best: “This is complicated.”

    *  *  *

  • Is Trump Wrong About A Border Wall? One Stunning Chart Has The Answer

    Submitted by Jacob Bojesson via DailyCaller.com,

    Several European countries have erected fences to keep migrants out, and, according to the numbers, every case appears to have a large impact.

    Hungary was a popular pathway for refugees on their way to Germany during the fall. When the daily illegal border crossings were at 7,000 per day, Prime Minister Viktor Orban decided to erect a fence along the border to Serbia and Croatia.

    The result speaks for itself:

     
    Illegal border crossings in Hungary in October, 2015. (Hungarian Police/The Daily Caller News Foundation)
     
    When the fence went up Oct. 17, the influx went down to 870 from 6,353 only a day earlier. Illegal border crossing were steadily below 40 per day throughout the rest of the month. The number picked up slightly in February, after migrants destroyed part of the fence, but it remains in the low hundreds.
     
    Another successful example is Macedonia — the first step on the Balkan route, which separates Greece from the rest of the EU. Macedonia had more than 60,000 migrants enter the country in January. The migrant influx was cut significantly, leaving tens of thousands stranded in Greece. The desperation among refugees led to clashes with Macedonian military in late February.
     

    Germany’s rising anti-immigration party, Alternative fur Deutschland (AfD), proposed a fence along its border in March.

    AfD leader Joerg Meuthen mentioned several examples where fences work, particularly in Spain, where it forces North African migrants to take a long detour to get to Europe.

    “They have to go around the Mediterranean” to find a way in, Meuthen said at a rally, according to news agency AFP. “Yes, fences have an impact.”

    *  *  *

    Of course, as we previously noted that it wasn't just the fence that kept them out of Hungary… it was the tear gas, water cannons, and baton beatings AT the fence.

  • 2016 US Presidential Election Voter's Guide

    in this day-and-age of infinitesimally short attention spans, we thought the following flowchart would provide today’s Millennial voter a quick-and-dirty solution for making their decision come November…

     

     

    Source: The Burning Platform h/t Joe

  • US Drops Case Against Apple After FBI Successfully Hacks Terrorist's iPhone

    Dear Tim Cook, the DoJ and FBI will no longer require your assistance in unlocking the iPhone of Syed Farook who, along with his wife Tashfeen Malik, murdered more than a dozen people at an employee holiday party in San Bernardino last December. 

    • U.S. DROPS APPLE CASE AFTER SUCCESSFULLY ACCESSING IPHONE DATA

    As we outlined last week, Israel’s Cellebrite, a provider of mobile forensic software, was set to assist the Feds in their attempt to unlock the iPhone. “The government has now successfully accessed the data stored on Farook’s iPhone and therefore no longer requires the assistance from Apple,” the Justice Department said in a filing (embedded below). Here’s the mainstream media line from The New York Times:

    Yet law enforcement’s ability to unlock an iPhone through an alternative method raises new uncertainties, including questions about the strength of Apple’s security on its devices. The development also creates potential for new conflicts between the government and Apple. Lawyers for Apple have previously said that the company would want to know the method used to crack open the device. The government may make that method classified.

     

    “From a legal standpoint, what happened in the San Bernardino case doesn’t mean the fight is over,” said Esha Bhandari, a staff attorney at the American Civil Liberties Union. She noted that the government generally goes through a process whereby it decides whether to disclose information about certain vulnerabilities so that manufacturers can patch them.

     

    “I would hope they would give that information to Apple so that it can patch any weaknesses,” she said, “but if the government classifies the tool, that suggests it may not.”

    Right. Or this could all be nonsense. That is, Apple may have just made America an unwitting participant in an iPublicity stunt, as it were. As we suggested just five days ago, “the entire Apple ‘stand’ for privacy and consumer rights might be one big theatrical spectacle as both parties involved clearly were aware the iPhone can be penetrated with the right tools.” Here’s AP: 

    The FBI says it successfully used a mysterious technique without Apple’s help to break into an iPhone linked to the gunman in a California mass shooting.

     

    The surprise development effectively ends a pitched court battle between Apple and the Obama administration.

     

    The government told a federal court Monday without any details that it accessed data on gunman Syed Farook’s iPhone and no longer requires Apple’s assistance. Farook and his wife died in a gun battle with police after killing 14 people in San Bernardino, California, in December.

    Apple did not immediately comment on the development.

     

    A U.S. magistrate last month ordered Apple to provide the FBI with software to help it hack into Farook’s work-issued iPhone. The order touched off a debate pitting digital privacy rights against national security concerns.

    So just like that, it’s all over. No hard feelings. And all of this on the heels of what is almost sure to go down as one of the biggest product launch flops in company history. The timing of it all certainly leaves us with more questions than answers.

    306201341 DOJ Requests SB iPhone Order Vacated

  • Deutsche Bank: "We Expect The S&P To Be Between 1925 To 2100 Until The Election"

    Deutsche Bank may have gotten the corporate bond QE from the ECB that it so desired (even if it means another drop in negative rates) even if that did not help its stock rebound anywhere near to pre-crash levels, and its economist department may be gripped by a bout of raging schizhophrenia as erstwile permabull Joa LaVorgna is now one of the market’s bigger bears contrasted with super optimistic DB strategist Torsten Slok (who is seemingly unaware of what his year end bonus was) but that doesn’t prevent the bank from having a very outlook of where the market will be come the November general election, namely “range bound between 1925 to 2100.”

    Here is the latest outlook from DB’s strategist David Bianco

    We expect the S&P 500 to be range bound between 1925 to 2100 until after the US general election. We do not expect the S&P to fall back into correction territory as a double-dip correction already happened and it would likely take clear signs of an impending US recession or a new global shock to cause renewed investor panic.

     

    While April into May is usually a strong period for S&P 500 performance, we think upside is capped given that 1Q S&P EPS will be down y/y and likely sequentially, Fed speak is likely to be more hawkish especially upon further market gains, Brexit vote risk, and the usual summer softness especially given Presidential campaign headline and geopolitical risks.

     

    We are more comfortable that the dollar will not surge nea -term given the Fed lowered its 2016-2017 rate forecasts and the ECB and others acknowledge the limited benefits of negative interest rates and currency devaluation. However, we do not expect the dollar to fall as nothing like the Plaza Accord of 1985 has occurred. Moreover, we doubt a strong rebound in commodity prices.

     

    If the S&P 500 doesn’t reach a new low, then Feb 11 2016 marks the trough of this market correction. During this double dip correction, S&P was sold off -14.2% from May 21 2015 to Feb 11 2016 (183 trading days). It has been 28 trading days since the market trough, this compares to 119 average trading days between 5%+ S&P dips since 1960. This is supportive, but summer and fall are often weaker than usual in election years.


    * * *

    What is unsaid is that if DB’s forecast is just a little too optimistic, and if stocks indeed proceed to tumble, guess which European bank will be scrambling to get a bailout by a very unhappy German taxpayer…

  • Next Came Death: What The Moment Before A Bombing Looks Like

    Belgium. Iraq. Pakistan.

    Each of those countries was rocked by at least one horrific suicide blast last week. In Belgium, it was a crowded airport and metro. In Iraq, a soccer field. In Pakistan, a park popular with women and children.

    The combined death toll from those attacks alone: more than 130.

    Terrorism, by its very nature, is meant to instill fear. That means terrorists must be unpredictable, and to a certain extent indiscriminate in who and what they target. But today’s terror is in some ways fundamentally different in character than that which the world has witnessed in the past. Al-Qaeda, for instance, did not target the World Trade Center because they hated tall buildings and if their sole purpose was to kill 4,000 people, they could have figured out a far simpler way to do it.

    In Bin Laden’s eyes, the towers were an ostentatious symbol of capitalism – a monument to everything the “infidels” stood for, cherished, and sought to force upon the Muslim world. For him, more important than the number of people killed were the indelible images that will forever remain seared in America’s collective consciousness. Although civilized society likes to pretend that the victims will remain in the public’s thoughts and prayers for all eternity, Bin Laden knew that wasn’t true. Rather, he wanted to make sure that the phrase which is so often repeated after a tragedy – i.e. “we will never forget” – actually meant something when it came to his legacy. That necessitated the destruction of symbols, not people. Sure, you can’t make an omelette without breaking a few eggs so “some” (maybe even several thousand) people would have to die, but the final number didn’t matter. It could have been 30, 300, 3,000, or 30,000. The point was to send a message. Does that make it any less horrific or in any way excuse it? Obviously not, but that isn’t the point.

    Many of the attacks we see today cannot be justified by an appeal to the kind of perverse, psychopathic logic that Bin Laden and his ilk so often employed. Bombing women and children at a crowded park in Lahore, killing fans at a soccer match, and targeting civilians standing in line at an airport Starbucks are senseless acts of violence – meaningless even in the minds of the murderous. Consider for instance that before his death, Bin Laden himself derided the brutal, indiscriminate violence employed by Abu Musab al-Zarqawi, the leader of al-Qaeda in Iraq which was the precursor to ISIS.

    None of this is to say that one terrorist is “better” than another, or that the world should long for the days when terrorism “made sense.” Rather, it’s simply to say that now more than ever, tragedy can strike anytime, anywhere. The term “targets” is now meaningless. The question isn’t “who or what should we hit?”, it is “who or what can we hit?”

    With that as the backdrop, consider the following collection of visuals from artist Simon Menner who, after combing through hours of footage from suicide bombs, car bombs and attacks, captured the following images of the very last frame before tragedy struck.

    From The Washington Post:

    “It is very absurd, but apparently the war needs a PR department to function,” artist Simon Menner said. Many new battlefields and weapons of war — drones, surveillance, snipers, cyberterrorism — are invisible and rely even more on media to affirm their existence and threat.

     

    Menner’s ongoing project, “Last Frame Before Blast,” dwells in invisible warfare. In combing through hours of found footage from suicide bombs, car bombs and attacks around the world, what he found most striking was the moment before a blast. A Russian street scene–the white car is about to blow up. A government office in Sri Lanka–a woman reaches into her sari to detonate her explosive vest.

     

    A photograph takes a split second in time, and stretches it into eternity. For those caught in Tuesday’s horrific attacks in Belgium, many would probably like nothing more than to return to that last moment of normalcy before the bombs shredded the Brussels airport.

     

    Menner’s frames captures a bit of this wistfulness. But they are also heavily pregnant with anxiety about where the blast will come from, and the knowledge that everything is about to change. “Once you perceive the threat it is almost indistinguishable from the real threat,” Menner said via email.

  • U.S. Lifted The Crude Oil Export Ban, And Exports Went… Down

    Submitted by Charles Kennedy via OilPrice.com,

    Just over three months after the authorities lifted the four-decade ban on crude oil exports, the U.S. has actually exported less this year than it did over the same period the year before, when the ban was still in place.

    According to Clipper Data market intelligence cited by the Financial Times, we’ve seen a 5 percent decline in U.S. crude oil export volumes since the beginning of this year. The data suggests that on average we are exporting (waterborne) 325,000 barrels per day now, compared to 342,000 barrels per day during the first months of 2015.

    And there’s no official data yet—not since the beginning of this year, when the U.S. Energy Information Administration (EIA) noted that during the week ending 22 January, the U.S. had exported just shy of 400,000 barrels of oil, which again was 25 percent less than what was exported for the same week in 2014.

    An oil tanker that reached a French port in January was the first post-ban delivery of U.S. crude oil, but things haven’t really picked up pace since then.

    January’s cargoes, totaling about 11.3 million barrels, marked a 7 percent decline from U.S. crude exports in December, according to data by the U.S. Census Bureau. Shipments during January went to Curacao and France, in addition to Canada, the primary destination. The total number of tankers that have set sail with U.S. crude oil will not be known until comprehensive data on February’s shipments is released by the U.S. Census Bureau.

    The immediate beneficiaries of the ban suspension are gas and oil companies such as Chevron and Exxon Mobil—among the most tireless lobbyers against the ban—and oil trading giants such as Vitol Group BV and Trafigura Ltd Pet.

    Europe and Asia are flooded with oil from Russia and the Middle East, though the first two shipments to leave the U.S. post-export ban went to Europe: one to Germany and the other to France, to be used in a refinery in Switzerland. Dutch media outlets reported in January that a tanker from Houston had reached Rotterdam port, but this remains just a drop in the global export bucket.

    In Asia, even China’s state-run Sinopec—the world’s second-largest refiner—has imported a consignment of U.S. oil, according to a Reuters source. Japan's Cosmo Oil was the first Asian buyer of U.S. oil, purchasing some 300,000 barrels of U.S. crude in mid-January, which will be delivered to its refineries in mid-April.

    The very first South American country that will import U.S. crude oil is Venezuela. In early February, Venezuela’s state-run oil company PDVSA imported a 550,000-barrel cargo of West Texas Intermediate (WTI) through its U.S.-based Citgo Petroleum affiliate. Venezuela started importing foreign crudes in 2014 amid a fall in its own production – buying mostly Angolan and Nigerian light grades.

    WTI is also expected to be exported to Israel, where Swiss commodities house Trafigura will ship some 700,000 barrels. Atlantic Trading & Marketing, the U.S. trading unit of French Total SA, has been planning an export cargo of U.S. crude from Cushing.

    Also, earlier this month, Exxon became the first U.S. oil company to export U.S. crude, sending a tanker from Texas to a refinery it owns in Italy.

    However, storage is now at the highest level in at least a decade. U.S., crude storage levels hit 487 million barrels in early November, closing in on the 80-year high of 518 million barrels in the last week of February. According to the EIA, about 60 percent of the U.S. working storage capacity is filled.

    Globally, the picture isn’t much better, with the International Energy Agency (IEA) saying that 1 billion barrels were added to storage in 2015 alone. OPEC has reported that crude oil stockpiles in OECD countries currently exceed the running five-year average by 210 million barrels.

  • It's Official: The Oil Surge Was Driven By The Biggest Short-Squeeze Ever

    Two months ago, just before crude dropped to 13 year lows, we warned oil traders that there is “a constant short squeeze threat” because “oil shorts are at all-time highs“, adding that “we have seen extreme short positioning building up in the oil futures market. The quantity of short positions opened is at an all-time high for Brent, and still high for WTI futures.”

    We also warned that “a positive surprise could happen quite sharply, as short positions are likely to be squeezed by a profit-taking move. On WTI, the in-the-money short positions are really dominating at the front end of the curve while out-of-the-money long positions are dominating at the long end of the curve: the front end of oil curve could thus be more exposed to some profit-taking.”

    It was, and just a few days later, the algos took this warning to heart and, courtesy of the most recurring headline (that of a “farcical” oil production freeze) as a recurring catalyst, unleashed an historic short squeeze. Actually make that a record short squeeze.

    Wait, that’s impossible: surely it was more than just shorts covering and oil rose because actual longs were piling in, one could say.

    One would be wrong, and it is now official: as crude soared 50% since Feb. 11, Bloomberg writes, the number of bets on increased prices has barely budged. “Instead, the upward pressure on prices appears to have come from traders cashing out of bearish wagers at an unprecedented pace. The liquidation of short positions during the last seven weeks covered by data from the U.S. Commodity Futures Trading Commission was the largest on record.“

    “The rally has come from shorts getting scared out of their positions, and you’re not seeing a lot of money coming in on the long side,” said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. “It really calls into question the fortitude and staying power of the rally.”

    The details: “short positions on West Texas Intermediate crude, or bets that prices will fall, have dropped by 131,617 contracts since Feb. 2, the biggest liquidation in CFTC data going back a decade. To close out a bearish position, traders buy back futures and options, putting upward pressure on prices. In the same period, bullish wagers fell by 971. In the past 10 years, there have been only two other seven-week short-covering streaks, CFTC data show. The first started in September 2009 and the second in December 2012. Both were much smaller than the recent one and were accompanied by oil rallies.”

     

    It gets better: as we showed previously, the irony is that as oil futures shorts were squeezed out, ETF longs actually declined instead of growing as absolutely nobody – except those who have to buy-in – believes this quote-unquote rally.

     

    Bloomberg notes that the rebound faltered a day after WTI prices touched a four-month high of $41.45 a barrel on March 22, tumbling 4 percent in New York after government data showed U.S. crude supplies surged the prior week to the highest level since 1930.

    Perhaps there are no more shorts left to squeeze, in which case watch out to the downside: “When energy markets get loaded to one side of the boat like that, you can have vicious reversals,” said Kilduff. And vice versa.

  • Dallas Fed Respondent Sums It Up: "Anyone Saying We're Not In Recession Is Peddling Fiction"

    Headlines will crow of the seasonally-adjusted 'beat' of expectations for the Dallas Fed survey (-13.6 vs -25.8 exp) but this is the 15th month in contraction (below 0) – something only seen in recession. Scratching below the surface we see employees, workweek, and capex all in contraction and forward expectations for new orders and employment tumbled. Perhaps that reality is what drove one respondent to rage, "anyone who says the economy is not in recession is peddling fiction."

     

     

     

    The Respondents…

    The instability of the domestic oil and gas exploration and production activity continues to wreak havoc on demand for our products. 

     

    Uncertainty is the main issue regarding oil pricing and refining cash flows.

     

    The positive March versus February comparison (as well as the six-months-ahead view) is due entirely to an extremely poor February. Volume remains well below monthly volume in the fourth quarter. Headcount was reduced in February, allowing remaining staff to return to a 40-hour workweek.

     

    We are expanding due to longer-term strategy. While we are spread among a plethora of general manufacturing nationwide, we are experiencing a major falloff of inquiries and orders in Texas directly related to the restricted price of oil.

     

    As a long-lead-time capital equipment manufacturer, we are working off backlog. Anyone who says the economy is not in recession is peddling fiction.

     

    It appears the oil and gas business won't be back for 12–18 months. We are actively pursuing other industries, with varying degrees of success depending on the industry. We may very well survive.
    We are looking into new markets as the deepwater drilling is pretty slow.

     

    We are generally just bumping along in a weak macro environment.

     

    Again, the dollar is too high affecting several of our customers, therefore creating a significant impact on our business. The uncertainty in business is huge, and everyone is holding cash including ourselves. We are not making investments on growth or capital expenditures at this time. Oil prices are also creating a major problem in the oil and gas industry, with consolidations and layoffs happening very frequently.

     

    We expect the weakening in the energy sector to ripple through to our primary end users in Texas. So far activity statewide has maintained some strength, but we are cautious that it will start to have a broader impact later in the year and into 2017. The degree to which the Texas economy holds up to the trouble in energy will be a testament to the alleged diversification in the state. We are preparing for the worst and hoping for better.

     

    Our export business continues to be our biggest challenge. The strong dollar will be an obstacle to growth for the foreseeable future. We are simply growing less competitive to our European challengers.

     

    One of our customers has changed its terms, which has caused us to lose coolers at the front of the store. The coolers are really the only place in the store where our gross margin exceeds our cost of service. Couple this giant hit with a general 1–3 percent long-term decline in soft drink sales, and the next year looks bleak.

     

    We have been told that companies are cutting their advertising budgets that affect printing. We are getting more phone calls from press and bindery operators looking for work. I am hoping this slowdown is short lived and that the economy improves in the next few months.

     

    Our turnover in the past year has been triple of the previous nine years: competitors poaching employees, retirements, people we put a ton of training into for two or three years moving out of state for family reasons, and other reasons. We're trying to build staff for new customers coming on board but can’t seem to hold our gains. It is very frustrating. I'm more optimistic about the year than I was in January.

     

    We have picked up in March but only because February was so dismal. We were super slow with many 3.5 to four-day workweeks in the plant. Activity is trying to pick up, and it appears we will be busier in the coming months than we have been.

    But apart from that, everything is awesome.

  • 2015 Ends With a Stratospheric P/E Multiple Of 23x

    The Q4 earnings season is over and the numbers are in the bag. The GAAP numbers that is, not the non-GAAP garbage that lately everyone from Warren Buffett, to Factset, even to the SEC (and of course this site since 2013) has been bashing.

    We wonder if they will continue bashing the GAAP numbers once they learn what they are, because as the charts below show, the earnings carnage on a real, unadjusted is simply unprecedented. Case in point: Q4 GAAP EPS just dropped even more from our previous estimate, and using IBES data, it is now down from 21 to 19.7, the lowest quarterly print since Q1 2010 when GAAP earnings were just 19.4 (and when the S&P was roughly half where it is now).

     

    What about on an LTM and full year basis? As the chart below shows, the growing trailing 12 month divergence in the past few quarters between GAAP and non-GAAP has grown to proportions not seen since the financial crisis. What one can say with absolute certainty is that unless oil rebounds, and does so fast, all those “one-time, non-recurring” pro forma addbacks which have kept the non-GAAP EPS of the S&P500 flat while GAAP has plunged, will very soon be revised sharply lower.

     

    Which brings us to the full year snapshot: what if Buffett, and Factset, and the SEC (and of course this website) are right and GAAP is the proper way of looking at earnings? Then we have a big problem, because instead of the 118.0 in 2015 non-GAAP S&P earnings, which translate into a P/E multiple of 17.3x as of today’s 2037 market close, the real, GAAP EPS of just 88.9 for the full year 2015 means the P/E multiple is now a gargantuan 22.9x!

    It also means that GAAP earnings for the broader market are at a level last seen in 2010 when, as noted earlier, the S&P 500 was trading at about half where it closed today.

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Mar 28

Today’s News 28th March 2016

  • Does The United States Still Exist?

    Authored by Paul Craig Roberts,

    An address delivered to the Libertarian Party of Florida on March 23, 2016 in Destin, Florida

    To answer the question that is the title, we have to know of what the US consists. Is it an ethnic group, a collection of buildings and resources, a land mass with boundaries, or is it the Constitution. Clearly what differentiates the US from other countries is the US Constitution. The Constitution defines us as a people. Without the Constitution we would be a different country. Therefore, to lose the Constitution is to lose the country.

    Does the Constitution still exist? Let us examine the document and come to a conclusion.

    The Constitution consists of a description of a republic with three independent branches, legislative, executive, and judicial, each with its own powers, and the Bill of Rights incorporated as constitutional amendments. The Bill of Rights describes the civil liberties of citizens that cannot be violated by the government.

    Article I of the Constitution describes legislative powers. Article II describes executive powers, and Article III describes the power of the judiciary. For example, Article I, Section 1 gives all legislative powers to Congress. Article I, Section 8 gives Congress the power to declare war.

    The Bill of Rights protects citizens from the government by making law a shield of the people rather than a weapon in the hands of the government.

    The First Amendment protects the freedom of speech, the press, and assembly or public protest.

    The Second Amendment gives the people the right “to keep and bear arms.”

    The Third Amendment has to do with quartering of soldiers on civilians, a large complaint against King George III, but not a practice of present-day armies.?

    The Fourth Amendment grants “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures” and prevents the issue of warrants except “upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.” The Fourth Amendment prevents police and prosecutors from going on “fishing expeditions” in an effort to find some offense with which to charge a targeted individual.

    The Fifth Amendment prohibits double jeopardy, self-incrimination, the taking of life, liberty, or property without due process and the prohibition of seizing property without just compensation.

    The Sixth Amendment guarantees speedy and public trial, requires that a defendent be informed of the charge against him and to be confronted with the witnesses, to present witnesses in his favor, and to have the assistance of an attorney.

    The Seventh Amendment gives the right of trial by jury to civil suits.

    The Eighth Amendment prevents excessive bail and cruel and unusual punishments.

    The Ninth Amendment says that the enumeration of certain rights in the Constitution does not deny or disparage others retained by the people. In other words, people have rights in addition to the those listed in the proscriptions against the government’s use of abusive power.

    The Tenth Amendment reserves the rights not delegated to the federal government to the states.

    The Tenth Amendment is a dead letter amendment. The Third Amendment protects against an abandoned abusive practice of government. The Seventh Amendment is still relevant as it allows damages in civil suits to be determined by a jury, once a protection against unfairness and today not always the case.

    The other seven amendments comprise the major protections of civil liberty. I will examine them in turn, but first let’s look at Section 1 and Section 8 of Article I. These two articles describe the major powers of Congress, and both articles have been breached. The Constitution’s grant of “all legislative powers” to Congress has been overturned by executive orders and signing statements. The president can use executive orders to legislate, and he can use signing statements to render sections of laws passed by Congress and signed by the president into non-enforced status. Legislative authority has also been lost by delegating to executive branch officials the power to write the regulations that implement the laws that are passed. The right that Section 8 gives to Congress to declare war has been usurped by the executive branch. Thus, major powers given to Congress have been lost to the executive branch.

    The First Amendment has been compromised by executive branch claims of “national security” and by extensive classification. Whistleblowers are relentlessly prosecuted despite federal laws protecting them. The right of assembly and public protest are overturned by arrests, tear gas, clubs, rubber bullets, water cannons, and jail terms. Free speech is also limited by political correctness and taboo topics. Dissent shows signs of gradually becoming criminalized.

    The Fourth Amendment is a dead letter amendment. In its place we have warrantless searches, SWAT team home invasions, strip and cavity searches, warrantless seizures of computers and cell phones, and the loss of all privacy to warrantless universal spying.

    The Fifth Amendment is a dead letter amendment. The criminal justice system relies on self-incrimination as plea bargains are self-incrimination produced by psychological torture, and plea bargains are the basis of conviction in 97% of all felony cases. Moreover, physical torture is a feature of the “war on terror” despite its illegality under both US statute and international law and is also experienced by inmates in the US prison system.

    The Fifth Amendment’s protection against deprivation of life, liberty, and property without due process of law has been lost to indefinite detention, executive assassination, and property takings without compensation. The Racketer Influenced Corrupt Organizations Act (RICO) passed in 1970. The act permits asset freezes, which are takings. The Comprehensive Forfeiture Act passed in 1984 and permits police to confiscate property on “probable cause,” which often means merely the presence of cash.

    The Sixth Amendment is a dead letter amendment. Prosecutors routinely withhold exculpatory evidence, and judges at prosecutors’ requests have limited attorneys’ ability to defend clients.The “war on terror” has introduced secret evidence and secret witnesses, making it impossible for a defendant and his attorney to defend against the evidence.

    The Eighth Amendment’s prohibition of excessive bail and torture are routinely violated. It is another dead letter amendment.

    It is paradoxical that every civil liberty in the Bill of Rights has been lost to a police state except for the Second Amendment, the gun rights of citizens. An armed citizenry is inconsistent with a police state, which the US now is.

    Other aspects of our legal protections have been overturned, such as the long standing rule that crime requires intent. William Blackstone wrote: “An unwarrantable act without a vicious will is no crime at all.” But today we have crimes without intent. You can commit a crime and not even know it. See for example, Harvey Silverglate, Three Felonies A Day: How the Feds Target the Innocent.

    Attorney-client privilege has been lost. The indictment, prosecution, and imprisonment of defense attorney Lynne Stewart is a good example. The DOJ prevailed on her to defend a blind Muslim regarded by the DOJ as a “terrorist.” She was informed that “special administrative measures” had been applied to her client. She received a letter from the federal prosecutor informing her that she and her client would not be permitted attorney-client privilege, and that she was required to permit the government to listen to her conversations with her client. She was told that she could not carry any communications from her client to the outside world. She regarded all this as illegal nonsense and proceeded to defend her client in accordance with attorney-client privilege. Lynne Stewart was convicted of violating a letter written by a prosecutor as if the prosecutor’s letter were a law passed by Congress and present in the US code. Based on a prosecutor’s letter, Lynne Stewart was sentenced to prison. No law exists that upholds her imprisonment.

    Our civil liberties are often said to be “natural rights” to which we are entitled. However, in historical fact civil liberty is a human achievement that required centuries of struggle. The long struggle for accountable law that culminated in the Glorious Revolution in England in the late 17th century can be traced back to Alfred the Great’s codification of English common law in the 9th century and to the Magna Carta in the early 13th century. Instead of issuing kingly edicts, Alfred based law on the traditional customs and behavior of the people. The Glorious Revolution established the supremacy of the people over the law and held the king and government accountable to law. The United States and other former British colonies inherited this accomplishment, an accomplishment that makes law a shield of the people and not a weapon in the hands of the state.

    Today law as a shield of the people has been lost. The loss was gradual over time and culminated in the George W. Bush and Obama regime assaults on habeas corpus and due process. Lawrence Stratton and I explain how the law was lost in our book, The Tyranny of Good Intentions. Beginning with Jeremy Bentham in the late 18th century, liberals saw the protective shield of law as a constraint on the government’s ability to do good. Bentham redefined liberty as the freedom of government from restraint, not the freedom of people from government. Bentham’s influence grew over time until in our own day, to use the words of Sir Thomas More in A man for All Seasons, the law was cut down so as to better chase after devils.

    • We cut down the law so that we could better chase after the Mafia.
    • We cut down the law so that we could better chase after drug users.
    • We cut down the law so that we could better chase after child abusers.
    • We cut down the law so that we could better chase after “terrorists.”
    • We cut down the law so that we could better chase after whistleblowers.
    • We cut down the law so that we could better cover up the government’s crimes.

    Today the law is cut down. Any one of us can be arrested on bogus charges and be helpless to do anything about it.

    There is very little concern in legal circles about this. The American Civil Liberties Union (ACLU) does attempt to defend civil liberty. However, just as often the ACLU is not defending the civil liberties in the Bill of Rights that protect us from the abuse of government power, but newly invented “civil rights” that are not in the Constitution, such as “abortion rights,” the right to homosexual marriage, and rights to preferential treatment for preferred minorities.

    An attack on abortion rights, for example, produces a far greater outcry and resistance than the successful attack on habeas corpus and due process. President Obama was able to declare his power to execute citizens by executive branch decision alone without due process and conviction in court, and it produced barely audible protest.

    Historically, a government that can, without due process, throw a citizen into a dungeon or summarily execute him is considered to be a tyranny, not a democracy. By any historical definition, the United States today is a tyranny.

  • Something Just Snapped In The VIX ETF Complex

    As TVIX, the double-levered long VIX ETF unleashed in Nov 2010, decays to record low prices…

     

    An unusual (and almost unprecedented) event has occurred. Just as we saw in Gold ETFs, and Oil ETFs, TVIX Shares Outstanding have exploded by a stunning 225% in the last 4 weeks… [the last 3 times TVIX has undeergone such an epic surge in demand marked a major turning point and led a violent surge in VIX]

     

    with the largest inflows (bearish bets) on record in the last week…

     

    The entire VIX complex is perturbed as the huge bearish TVIX flows contrast with the complacency of the steepest term structure since Nov 2014 (post Bullard-Bounce)…

     

    And net speculative positioning at its shortest VIX (most bullish) in 2016…

     

    We saw this kind of manic ETF creation recently in Blackrock's Gold ETF, which forced them to halt creation – for lack of supply…

     

     

    In the case of the current scramble for TVIX units, forced buying of VIX futures (which explains the steepness of the futures curve) suggests VIX buying pressure is building…

    As Barron's adds, volatility is back, but too few investors even know it.

    Most are too focused on the CBOE Volatility Index's extraordinary collapse in recent weeks to 15 from about 28. When the VIX is low, as it is now, it tends to be interpreted as a green light to buy stocks. . .or a sign of investor complacency.

     

    Not enough people realize that the VIX is just a 30-day snapshot of expected returns for the Standard & Poor's 500 index. A more meaningful, if esoteric, indicator is the VIX futures curve, which offers a long-term view of the stock market's perceived risk.

     

    The curve has lately been flat, indicating little risk to owning stocks between now and more distant months. But the futures curve is now "upward sloping," as if sophisticated investors have suddenly regained visibility into what was an opaque stock market.

     

    Nothing bores people more than nerdy derivatives measures, including VIX futures curves. But you should add this volatility gauge to your arsenal of indicators if you trade options or want to be a smarter stock investor.

    Once again it appears the ETF tail is wagging the underlying market 'dog' as hedging with the 'cheapest' instrument – no matter how bad the basis – is the new normal. Remember, options markets are already medium term complacent and longer-term terrified.

     

    As detailed previously, the VXV has been around only since 2007. Over that time, the VIX/VXV ratio has dropped to 78% on 4 prior distinct occasions:

    • March 12-20, 2012 – The S&P 500 chopped sideways for a few weeks before falling some 9% over the next 2 months
    • August 13-22, 2012 – The S&P 500 chopped sideways for a few weeks before rallying by as much as some 4% over the next few weeks. 2 months later, the index had lost that entire gain, and another 4%.
    • December 5, 2014 – The S&P 500 immediately dropped 5% over the next 2 weeks before chopping sideways for several months.
    • March 20, 2015 – The S&P 500 dropped 2.5% over the next week before moving sideways for several months.

    Now there is no guarantee that stocks are about to hit an air pocket. However, given the (albeit limited) precedents, the track record in the short to intermediate-term following such readings has not been a positive one. In fact, following the prior 15 days with VIX/VXV readings below 79%, the S&P 500 was lower 3 months later 14 of the days by a median of -3.7%. The only positive return was the 1 point gain following the March 2015 occurrence.

    All in all, this may not be a Defcon 5 level red flag for the market. However, for a rally that has seen scant evidence of exuberance, this is at least one of the first indications of complacency.

  • Condaleeza Rice To Struggling Ukrainians: "Be Thankful You're Not In Liberia"

    Via OrientalReview.org,

    Earlier this month while delivering a public lecture in Kiev, “The Challenges of an Ever-Changing World,” former US Secretary of State Condoleezza Rice made an inspiring remark for anyone who might have been thinking that life in Ukraine was bad:

    “You should go to Liberia where the standard of living is much lower, and then you will be thankful.”

    Ironically, Forbes Ukraine reacted to this with a slightly perplexed analysis that nonetheless led to a conclusion of flawless logic: “Although Liberia has one of the weakest economies in the world, it lags only slightly behind Ukraine with respect to a number of macroeconomic parameters,” and the magazine supported its argument with some anemic statistics (failing however to mention that Liberia’s 85% unemployment rate is far worse than Ukraine’s, even today).

    The rapid deterioration of the Ukrainian economy over the past two post-Maidan years is no longer a taboo topic in the international press (the prominent US academic and former diplomat Nicolai Petro’s recent article in the Guardian made that crystal clear). But to make a long story short, the full picture looks even more depressing:

    People are scrambling to get out of Ukraine. A Kiev-based headhunting agency claims that according to their polls, 70% of the population does not see any future in Ukraine. Ten out of eleven (!!!) Ukrainians are ready to leave the country if offered a job abroad. Forty percent of Kiev’s white-collar workers do not see a secure future for themselves nowadays. Another opinion poll shows that compared to the pre-Maidan period, public pessimism is on the rise. Only 19% of the respondents expected 2016 to bring positive changes for Ukraine (down from 42% in 2013).

    These sentiments are quite understandable if we look at average incomes in Ukraine. According to official data from the finance ministry (as of March 2, 2016), the average salary in Ukraine is only 4,362 hryvnas per month (approximately 145 Euros). The minimum monthly wage is currently set at 1,378 hryvnas (46 Euros). Therefore, the vast majority of working people in Ukraine have to get by on a salary of 2,000-3,000 hryvnas (70-100 Euros) each month. And the number of employed is declining every day. In September 2015, Ukrainian Minister of Social Politics Valery Yaroshenko acknowledged that the unemployment rate had reached its highest point in the history of Ukraine as an independent country, with 23% of young Ukrainians unable to find work (in the parts of the Donetsk region that are controlled by Kiev the jobless rate does approach that of Liberia – 50%!).

     

    Northern Liberia

    Flag of Northern Liberia

    Low wages and high unemployment are not the only challenges an ordinary Ukrainian has to cope with. To meet the requirements of the IMF, the Ukrainian government must increase the rates it charges for housing and public utility services at least twice per year. As a result, in January 2016 the average bill per household jumped to 1,250 hryvnas – an 80% increase from 695 hryvnas a year ago. Thus, theoretically (and often factually) a family supported by only one working member and living in a modest apartment might need to survive on the beggarly 128 hryvnas – barely more than 4 Euros (!) – that is left each month after housing and utility costs have been paid! Indeed, taking into account some difference in its latitude (and climate) today’s Ukraine might rightly be called a Northern Liberia!

    Meanwhile the index of commodities prices in Ukraine rose 40.3% in 2015. And since this crisis coincided with a 15% cut in the pensions of retirees who work a side job (this “cost-saving measure” was announced by PM Yatsenyuk in January 2015), clearly the majority of elderly Ukrainians are now facing a disaster. So far they have managed to survive thanks to their personal savings, but that resource is drying up: according to the National Bank, in 2015 Ukrainians sold 2,233 billion USD and bought only 0.684 billion USD. Local experts estimate that Ukrainian citizens will exhaust their personal savings by the end of 2016.

    So it’s no wonder that Ukrainians are leaving their country en masse for Europe, mostly headed to Poland (around 400,000 crossed that border last year), in a desperate attempt to find any paid job. There they are cheated, abused, and cynically exploited, but they prefer to stomach such treatment rather than trying to eke out a miserable existence at home:

    Ukraine’s rapid deindustrialization is picking up speed. The abrupt severing of the traditional ties between Russian and Ukrainian businesses, due to suicidal Kiev-imposed regulations, resulted in a 10.7% decline in GDP in 2014 and another 13.4% drop in 2015. Foreign trade, both imports and exports, decreased by one-third. The naive expectations of the incumbent government in Kiev – that Ukrainian products could obtain access to European markets – have been torn to shreds (Nicolai Petro offers one anecdotal fact: Kiev’s biggest European export, under the agricultural quotas established by the EU-Ukraine Association Agreement, is honey).

    This situation of social and economic degeneration, along with the ready availability of weapons smuggled out of what is known as the “ATO Zone,” has led to an unprecedented tsunami of criminal activity in Ukraine. In the two years since Maidan, the number of recorded criminal offenses has doubled there. In reality, marauding crowds, armed robberies, and street killings are becoming an everyday event and many incidents go unreported. According to the latest findings from the Hague Institute of Innovating Justice, 44% of Ukrainians do not trust their national judicial system or law-enforcement agencies. A number of nationalist gangs (volunteer battalions) seem to operate out of reach of the law and ignore any attempts by the public authorities to rein them in. The most recent scandals (amber-smuggling in the Rovno region, the blockade of Crimea, and the barriers set up to bar Russian transit trucks) are just the tip of the iceberg of the criminal activities of radical groups in Ukraine that have received media attention. Most criminal incidents do not make the headlines. For example there are around 100 cases currently languishing within the legal system against members of the Aidar battalion who have committed criminal offenses, including charges of serious war crimes in the Donbass, all of which are gathering dust in Ukrainian courts.

    Dutch football fans who used to visit Euro-2012 in Ukraine and now thoughtlessly sharing #TakIsJa hashtag, should understand that the country they saw 4 years ago does not exist anymore.

    There is effectively no state in Ukraine. The authorities are busy ingratiating themselves with every available power figure — the US Embassy, local oligarchs, Right Sector, and various Mafia groups — seeing in those the only keys to the government’s own legitimacy and ability to hold on to power. But one point that they apparently do not understand is that any government lacking public support on the ground and dependent on exterior agents is more vulnerable than they could ever imagine. Did the Liberian dictator Samuel Doe, who took power as a result of a US-backed coup d’etat in 1980, ever dream that in ten years he would be forced to eat his own ear and then be publicly executed by a rival tribe? The leaders of “Northern Liberia” may have their own political tracks, but not the final destiny…

    *“The love of liberty brought us here” is the national motto of Liberia.

  • Marc Faber Warns "Gold Will Be The Most Desirable Currency" As 'Terror' Spreads

    “Overall, I’d be rather cautious about investments in equities…”  the editor and publisher of the Gloom, Boom & Doom report told CNBC’s “Fast Money” traders this week.

    However, “over the last 12 to 24 months, many sectors have had huge declines,…And I see here, there are some opportunities.”

    “…US markets are over-valued.”

    Faber also added that “I still think the mining sector has embarked on a new bull market.”

    “[The U.S. dollar] is not a desirable currency,” Faber explains, “I think the most desirable currency will be gold, silver, platinum and palladium.”

    “I don’t understand why the world is so enthusiastic about the US Dollar…in the long-run the US dollar will be a weak currency.”

    Full interview below:

  • Mysterious Tombstone For Donald Trump Appears In Central Park

    As part of Trump’s blistering, unconventional and very unexpected rise to the top of the Republican presidential nominee ranks, he has seen his share of threats – some serious, most in jest – to both his person, and in some cases his life. Apocryphally, some commentators have predicted that a Trump presidency would be such a shock to the status quo that if successful in winning the presidency, he would never make to inauguration day alive.

    Today, such concerns were once again inflamed when a mysterious tombstone on behalf of Donald J. Trump (the date of death is blank: 1946 – …) was erected in Central Park.

     

    As Gothamist first reported, “someone erected a very classy Trump tombstone in the middle of Central Park this weekend, and were kind enough to leave his expiration date open to the fates.”

    Gothamist adds that “tipster Annie Reiss came upon the beautiful tribute to the presumptive GOP presidential candidate this morning near Sheep’s Meadow. “There were people taking pictures which is why I stopped,” she told us. “It was definitely provocative, strange for Easter morning.”

    The tombstone has the inscription, “Made America Hate Again.”

    As Mashable adds, plenty of people shared photos of the tombstone on social media, but no one seems to know what it means, other than “being a prank of questionable taste.”

    By evening, the tombstone had been removed by park officials. 

    According to Trump’s latest Tweets, he is either unaware, or doesn’t seem too worried about this implicit threat or poorly made joke; instead he is focusing his energy on the previously noted lawsuit which the real estate billionaire threatens to file against Ted Cruz for “stealing” delegates…

     

    … as well as the ongoing “wife-gate” involving Heidi Cruz and Melania Trump:

    Once again, we can only imagine the shocked media reaction if a tombstone mysteriously emerged in one of the world’s busiest venues for any of the other presidential candidates.

  • The End of America's Two-Party System May Be Upon Us

    Submitted by Chris Perrin via TheAntiMedia.org,

    There’s a reason most parliamentary and presidential democracies have more than two political parties, and both Trump and Sanders are examples of why. Both nominee-hopefuls have increasingly come to represent polar opposites of the singular problem that the American two-party political system is suffering from: Stagnation.

    With only two parties, what this presidential race is showing is that there has been a tendency for those parties to become static and unbending in their policy, stance, and platform. Historically, one or both of the parties must then break, either because the progressive edges within the party force it apart, or voters start to see the party as inflexible and obsolete.

    It has happened before in the U.S., and it looks like it is happening again. The recent increase of voters registering as independent, as well as the parallel growth in independent candidates, is a good example of the level of dissatisfaction people and politicians now have with the GOP and Democratic Party. It is also an indication that American democracy is changing. Again.

    The inclusion of Sanders in the Democratic Party, Trump in the Republican, and the cataclysmic portrayal of them both in the media, has only confused the issue. This is particularly noticeable as Trump is often blamed for the imminent demise of the GOP as a relevant institution. With both candidates running for the nomination of their respective parties, the GOP and the Democratic Party appear internally fractured, split on major issues and confused as to their directions. This can only be the case in a two-party system.

    As a country with a long history of a two-party system, these internal party divisions can feel like a breakdown of sorts. In a multi-party system, however, the issue would not be so destabilizing. Although a multi-party democracy does have the down side of sometimes appearing to have too many parties and politicians to choose from, space exists within the system to have the centre-left (Democratic Party) and centre-right (GOP) represented, while far-left and -right candidates don’t tear the centrist parties apart from within.

    Whatever the new face of democracy in America, and whatever the future implications of the 2016 election, what is clear is that Americans are no longer content to be represented by parties too close together at the center of the political spectrum. At the very least, the fact that Trump and Sanders have gained so much traction throughout their respective nomination bids is a clear indication that the U.S. will not become a single-party state any time soon. That is at least something to be happy about.

  • The World Has 6 Options To Avoid Japan's Fate, And According To HSBC, They Are All Very Depressing

    Last week, when looking back at consensus economist forecasts for Japanese growth as of 1995, we compared what the pundits thought would happen, and what actually did happen: the result was what may have been the worst forecast of all time, leading to a 25% error rate in just five years later. It also unleashed the start of Japan’s three lost decades.

    But while laughably wrong economist forecasts are nothing new, a more troubling observation emerges when comparing the evolution of Japan’s 10Y yields start in the 1990s…

     

    …with those in the rest of the western world, which are slowly converging with Japan and the Y-axis.

    Looking at Japan’s miserable fate ever since the bursting of the 1980 asset bubble, HSBC’s Stephen Major recently said that “finding an explanation for Japan’s ongoing economic weakness is a bit of a ‘chicken and egg’ problem. Was the high level of debt associated with the bubble the key constraint on subsequent economic expansion? Or was the unexpectedly-weak economic expansion a key reason why debt was so indigestible? In truth, the causality ran in both directions, suggesting that Japan – at least in nominal terms – found itself caught in a ‘doom loop’, a world in which policy stimulus did little to help Japan return to the dynamism seen in earlier decades.“

    King then extrapolates the case study of Japan’s “deflationary stagnation” to the “slow puncture” he observes in the rest of the developed world, and provides several ways of previewing of what may lie in store for the world if using Japan as the canary in the coalmine.

    As he says, the world economy’s slow puncture reflects five factors:

    • Ineffective monetary policy, most likely at the zero rate bound.
    • An absence of economic strength in other parts of the world, reducing the efficacy of exchange rate devaluation.
    • High levels of debt in both the private and public sectors implying (i) ongoing private sector deleveraging; (ii) limited room for fiscal action; and (iii) low fiscal multipliers as a result of Ricardian behaviour.
    • Low rates of nominal expansion and flat yield curves, both of which place downward pressure on bank profitability, thereby limiting the ability and willingness of banks to extend credit, particularly to more risky borrowers.
    • Persistent downward pressure on bank share prices, thanks in part to overly-optimistic revenue projections that, in turn, leave costs too high. Put another way, weak nominal growth is likely to leave the industry excessively large.

    In Japan’s case, escape from stagnation has proved difficult. Admittedly, the Japanese authorities were slow to recognise the nature of the problem in the early-1990s, cutting interest rates only slowly, offering little in the way of fiscal stimulus and dragging their feet on bank restructuring.

    In the late-1990s, however, the Japanese banking system was restructured, removing some of its initial ‘doom loop’ problems. Two decades later, the Bank of Japan, under Haruhiko Kuroda, has done exactly what many thought would eventually deliver results: massive balance sheet expansion, a clearly-articulated ambition to raise the inflation rate and a substantial currency devaluation. Yet, despite all this, the path for nominal GDP has barely changed. Perhaps those policies would have worked in a world where Japan was the only country facing deflationary stagnation. As deflationary stagnation has spread, however, the efficacy of these policies appears to have declined.

    This leads us to King’s rhetorical question du jout: “Given this disappointment, what options are available for the rest of the industrialised world?”

    This is his extended answer:

    Ultimately, policy has to deal with one of two variables. Either debt has to come down or income has to rise. Otherwise deleveraging is likely to persist and the air will continue to escape from the global economy. Low interest rates should, in theory, help on both counts. By reducing debt service costs, they should make it easier to reduce the outstanding stock of debt and, by making saving less attractive, they should encourage people to spend more. Yet if nominal economic activity still remains weak at the zero rate bound – as, indeed, it  has in recent years – other options may need to be pursued.

    Both quantitative easing and negative nominal interest rates can provide more support. Both, however, have their limitations.

    Quantitative easing may have lifted asset prices and stopped a 1930s-style meltdown but households and companies have mostly been unwilling to spend freely. Meanwhile, the main beneficiaries financially are those already asset rich who, typically, have a low marginal propensity to consume.

    If, for political, social and reputational reasons, banks find it difficult to impose negative interest rates on their depositors, negative interest rates in effect become a tax on banks.

    As a result, the banks’ willingness to take on more deposits will be lowered, limiting their role as financial intermediaries. Other things equal, if banks turn depositors away, the money will end up under the mattress (in which case, the velocity of circulation of money will decline, limiting the impact of negative rates on nominal GDP)

    So what else can be done?

    The fiscal option

    Central to Larry Summers’ argument in favour of ‘secular stagnation’ is the idea that weak demand will, in time, damage supply potential. It’s an old argument, based on the idea that under-utilised resources eventually decay thanks to ‘hysteresis’. Far better, therefore, to  deliver a boost to demand that will prevent resources from standing idly by. Higher demand will prevent supply from atrophying. Put simply, demand safeguards its own supply.

    It’s an attractive idea, partly because it offers a narrative of hope. Yet it has its weaknesses. Fiscal stimulus in Japan led to accusations of ‘bridges to nowhere’: in other words, infrastructure projects that had poor private and social returns and, on occasion, led to accusations of ‘pork barrel’ politics. Before the onset of the global financial crisis, Spain invested very heavily in infrastructure, yet the returns have been paltry at best given the shortfall in nominal GDP in recent years. Government debt levels across the developed world are already very high, suggesting that any attempt to increase government borrowing could be associated with Ricardian equivalence problems.

    Its biggest weakness, however, is that the policy prescription was tried before yet ultimately only brought instability in its wake.

    In 2000, the tech bubble burst. For a while, it looked as though the US was heading towards another Great Depression. Certainly, the fall in stock prices was on a similar scale to 1929. The recession that followed, however, was remarkably mild and recovery was soon underway, helped along by aggressive interest rate cuts and huge tax cuts – precisely the combination that supposedly brings secular stagnation to an end. For a while, the policies seemed to work. In hindsight, however, they merely masked early aspects of deflationary stagnation: the housing boom may have led to an acceleration in growth but the pace of economic expansion was weaker than in the 1980s and 1990s. And it all came to a sorry end in 2008. Asset price gains that cannot be validated through a sustained period of economic growth tend, ultimately, to be asset price bubbles.

    Put another way, if secular stagnation reflects weak growth, the problem began in the US in the early years of the 21st Century, before the global financial crisis. Yet proponents of secular stagnation argue that it began only with the onset of the financial crisis. The story looks good, but the dates don’t fit.

    The helicopter option

    The helicopter option is simple, easily implemented and, for some, offers the closest thing to a free lunch. It can easily be explained – if that’s the right word – using the identity found on the first page of a standard monetary textbook, namely MV?PT, where M is the stock of money, V is its velocity of circulation, P is the price level and T is the volume of transactions. In modern-day parlance, PT might best be labelled nominal GDP.

    Money doesn’t literally drop from helicopters but the effects are roughly the same. The government sells newly-issued debt to the central bank which, in return, provides newly-created money to the government. This newly-created money is either given away in the form of tax cuts or spent on, for example, infrastructure projects. The newly-created money boosts M while the tax cuts or spending increases more or less guarantee an increase in V. Put the two together and nominal GDP simply has to accelerate. Assuming – consistent with secular stagnation – that there is a sizeable output gap, there’s a good chance that the increase in nominal GDP will be reflected more through an increase in output than an increase in inflation.

    If this sounds too good to be true, that’s because it is. Output gaps are notoriously difficult to estimate in real time. The permanent output losses associated with the financial crisis are now considered to be far bigger than had been assumed in its immediate aftermath, suggesting that helicopter money could come with sizeable inflationary risks. Those would be amplified via the foreign exchanges, which  would doubtless deliver a ‘crash-landing’ for any currency subject to the helicopter treatment.

    In truth, helicopter money is likely to work only if it leads to higher inflation. Its success crucially depends on policymakers committing to being ‘irresponsible’. In the mid-1930s, countries managed to raise both inflation and inflationary expectations even in the depths of depression thanks to their departures from the Gold Standard, freeing them to loosen both monetary and fiscal policy in unprecedented fashion. Higher inflation, in turn, reduced the real value of nominal debts. Deleveraging faded, credit risks shrank, banks’ bad debts became less problematic, lending increased and, before long, recovery was on the way.

    Repeating the process today would not be easy. Abandoning – or raising – inflation targets would be no easy task: ageing populations typically are repulsed by inflation, largely because of its effects on fixed nominal incomes. Fear of higher inflation could also lead to panic buying, triggering an uncontrollable rise in V and, hence, a severe inflationary overshoot: it’s no coincidence that helicopter money and hyperinflation are mentioned in the same breath. And, ultimately, higher inflation would only work by penalising savers to benefit borrowers.

    Put another way, the pursuit of higher inflation through helicopter money is not much more than a re-distributional fiscal policy dressed up in monetary clothes. It is effectively a tax on wealth – mostly on forms of wealth that come with little in the way of inflation protection. It is therefore more likely to hit small savers and pensioners than property tycoons and those with large equity portfolios (both real estate and equities tend to outperform liquid assets during periods of relatively high inflation). In other words, helicopter money is a stealthy form of organised default, taking money away from creditors in the hope that debtors – faced with now-lower real debts – will spend more freely. Given the maturity of its slow puncture problems, Japan might be more willing than others to fly its monetary helicopters but, given the politics of its demographic situation, it would surely be a reluctant pilot.

    The default option

    In truth, this is not so different from the helicopter option. It is more relevant, however, for those countries which lack helicopter pilots. Specifically, default is an option for those national governments in the Eurozone that lack a printing press and are unable to prevent government debt from rising ever higher.

    To be fair, quantitative easing has, to a degree, reduced pressure on individual sovereigns. The risk hasn’t completely gone, however. At the time of writing, Greek and Portuguese 10 year bond yields were 9.6% and 3.0% respectively, compared with German yields at a remarkably low 0.17%. And the default option may become more pressing in coming years if, as seems likely, government debt levels continue to rise.

    Like inflation, default passes the problem from debtor to creditor. In doing so, it raises a whole series of new financial threats, most obviously the danger of a renewed erosion of trust within the financial system. As a result, it would further limit the power of monetary policy. Savers would seek to hide their money under the proverbial mattress and, as a result, velocity might fall further.

    Another option might be simply to cancel government debt held on central banks’ balance sheets rather than selling it back to the market. That sounds like a free lunch but it would presumably lead to expectations of higher inflation associated with a reduction in fiscal discipline over the long term: in that sense, the policy would be remarkably similar to helicopter money, particularly in terms of its exchange rate implications.

    The ‘liquidate’ option

    One of the undoubted triumphs of the post-financial crisis world has been the extent to which unemployment has declined in the US, the UK and Germany. Admittedly, not everyone has shared their good fortune: the increase in Greek unemployment in recent years, for example, is nothing short of scandalous: the lessons of the 1930s were clearly not learnt. Nevertheless, for some of the largest economies in the industrialised world, the employment consequences stemming from the financial crisis have been considerably better than was originally feared.

    However, given the slow pace of economic expansion in recent years, good news on unemployment implies bad news for productivity. Perhaps deflationary stagnation partly reflects an absence of supply.

    The standard dismissive response to this argument is to note that weaker supply, other things equal, implies a smaller output gap and, hence, higher inflation. And yet, in recent years, inflation has drifted lower. So the explanation for persistently weak growth cannot lie with supply.

    At this point, it’s worth coming back to Japan. If supply is weaker than expected, claims on future economic activity need to be reduced. One way to do this is indeed via inflation. The other is via declines in nominal asset values. The 1970s economic slowdown – in response to multiple oil shocks – was associated with inflation. Japan’s lost decades were associated with falling asset prices, deflation and weak nominal GDP growth. Weaker supply potential can thus be associated with both inflation and deflation: it all depends on how claims on future economic activity are reduced.

    In an era of rapid technological gains, why has productivity growth been so weak? Of the competing explanations – from mis-measurement through to an innovation shortfall – one is directly related to the amount of stimulus on offer since the financial crisis. Quantitative easing worked domestically through its effect on the value of real estate and financial assets, most obviously corporate bonds and equities. Higher values for financial assets meant that companies which, in other circumstances, would have been under pressure to reduce their costs could carry on with business as usual. Put another way, they could happily employ people who might otherwise have lost their jobs. Capital markets were thus no longer able easily to perform their central function, namely the efficient allocation of capital. Too much capital stayed in bloated and inefficient companies leaving too little to support the growth of smaller, more dynamic, enterprises. It was, perhaps, a western version of the Japanese ‘zombie company’ problem.

    At the beginning of the Great Depression, Andrew Mellon, the US Treasury Secretary, famously urged Herbert Hoover to ‘liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.’ To say the least, it probably wasn’t the best strategy. Nevertheless, Mellon still had a point. Zombie companies preserve inefficiencies and dampen enterprise. Their preservation limits the ‘creative destruction’ that Joseph Schumpeter famously described in his ‘Capitalism, Socialism and Democracy’.

    Acting on zombie companies may be one way of ending deflationary stagnation but, if badly managed, the situation could become even worse. Imagine, for example, that all companies within a particular industry suddenly recognised that the pace of nominal economic expansion would not be sufficient to support their current cost base. Imagine, as a result, that there was a prolonged wave of restructuring, associated with mass layoffs. The result would be an even lower level of nominal output, triggering a further wave of restructuring – unless, that is, the restructuring led to significant productivity spillovers.

    It might, therefore, be better to act on both supply and demand, forcing a greater degree of restructuring while, at the same time, offering a fiscal cushion, perhaps through a range of public works programmes. Put another way, neither supply-side reform nor demand-side stimulus will work unless they operate in conjunction with each other.

    The trade option

    One of the striking features of the post-financial crisis world has been the slowdown and then shrinkage in world trade. This is highly unusual. Although the pace of economic recovery has been soft, it is typically the case that world trade expands more quickly than world GDP in the recovery phase.

    Possible reasons for the weakness in world trade include (i) the attenuation of global supply chains either to reduce their fragility (following, most obviously, the Fukushima nuclear disaster in Japan) or in response to new technologies (3D printing may have led to renewed onshoring) (ii) an increase in ‘hidden’ protectionism associated with the aggressive imposition of ‘standards’ (iii) a reduction in trade finance in the post-financial crisis era; and (iv) an increase in uncertainty associated with the impact of currency wars.

    Openness matters. We have surely learnt over the last few decades that economies that trade with one another are more likely to enjoy increases in living standards. We have also found, disappointingly, that global trade deals have become more or less impossible: the Doha trade round is dead in the water and there is nothing waiting in the wings to replace it.

    Still, there is hope. The Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership and the Regional Comprehensive Economic Partnership could lead to more integrated regional economies and, perhaps, greater cooperation between those regions. Over the long term, openness matters more than any variety of monetary or fiscal stimulus. The world needs to be protected from  protectionism. Sadly, it’s not obvious that it will be.

    The ‘wall’ option

    Should all else fail, the political narrative will shift. Indeed, it already is. If economies cannot easily be kick-started, nationalism is in danger of spreading. Whether it’s building a wall to prevent Mexicans from entering the US or passively watching as the Schengen  arrangements in Europe slowly crumble, trouble is brewing. Global markets are under threat precisely because policymakers have been unable to deliver the outcomes they had previously promised. Protectionism in all its many forms is never far away: under current conditions, it threatens to make an unwelcome return.

    * * *

    Which brings us to Stephen King’s rather pessimistic conclusions:

    The economic slow puncture was once associated with Japan alone. Persistent undershoots in nominal economic activity since the onset of the global financial crisis suggest that the problem has spread. As more and more countries succumb, so the ability to escape declines – as, indeed, Japan itself has discovered in the light of disappointments associated with Abenomics.  

    Devaluations simply pass deflationary pressures from one part of the world to another. What was once seen as monetary stimulus is now more typically described as the latest salvo in a protracted currency war. Central banks have seemingly lost the ability to bring inflation back to target.

    The good news is that much of the rest of the world does not share Japan’s cross-shareholding problem, reducing the threat from a ‘doom-loop’ intrinsically linked to the banking system. Still, continuous nominal GDP undershoots still create problems for bank profitability, leading to relative share price under-performance and, eventually, to downward pressure on equity markets as a whole, particularly where QE drugs are no longer freely available.

    The escape options are a mixture of the ineffectual, the limited, the risky, the foolhardy or the excessively slow. As Japan’s recent experiments have demonstrated, upping the monetary dosage alone is not enough to cure the affliction. Indeed, to the extent that monetary stimulus only encourages a further wave of risk-taking within financial markets – often outside of the mainstream banking system – it may only perpetuate unstable deflationary stagnation. A more sustained recovery is possible but to believe that central banks, on their own, can deliver such an outcome is surely a triumph of false hope over bitter reality.

  • Mexicans Burn Donald Trump Effigies To Celebrate Easter

    While The Donald may proclaim that "Hispanics love me," it appears some – that is to say hundreds – are not yuuge fans.

     

    As Reuters reports, Mexicans celebrating an Easter ritual late on Saturday burnt effigies of U.S. Republican presidential hopeful Donald Trump, as hundreds of cheering residents yelled "death" and various insults as they watched the explosion of the grinning papier-mâché mock-up of the real estate tycoon…

     

    Media reported that Trump effigies burned across Mexico, from Puebla to Mexico's industrial hub Monterrey.

    The burning is part of a widespread Mexican Holy Week tradition where neighborhoods burn effigies to represent Judas Iscariot, who betrayed Jesus Christ according to the Bible. The effigies are often modeled on unpopular political figures.

     

     

    "Since he started his campaign and began talking about immigrants, Mexico, and Mexicans, I said 'I've got to get this guy,'" said Felipe Linares, the artisan who crafted Trump and whose family has been making Judases for more than 50 years.

     

     

    Trump, the front-runner to win the Republican nomination for the Nov. 8 election, has drawn fire in Mexico with his campaign vow to build a wall along the southern U.S. border to keep out illegal immigrants and drugs, and to make Mexico pay for it.

     

    Mexican President Enrique Pena Nieto has said his country will not pay for the wall and likened Trump's "strident tone" to the ascent of dictators like Adolf Hitler and Benito Mussolini.

  • Trump Slams Cruz For "Stealing Delegates," Says American Politics "Is A Broken System"

    In the escalating war between "Lyin'" Ted Cruz and "Snivelling Coward" Donald Trump, reports that Cruz could end up with more delegates than Trump from Louisiana – despite The Donald's victory – have incensed the New York businessman. As Politico reports, Trump raged that Ted Cruz is trying to "steal" delegates, "because that's the way Ted works."

    GOP presidential front-runner Donald Trump on Sunday said Sen. Ted Cruz is trying to "steal" delegates the New York businessman needs to become the presidential nominee of the Republican Party, which he called "a disgrace." As DailyCaller details,

    Appearing on ABC’s “This Week” on Sunday, guest host Jonathan Karl asked Trump if Cruz was “trying to steal” the nomination from Trump because he might be leaving Louisiana with “as many as 10 more delegates… on the key committees that will write the rules for the Republican convention.”

     

    “Well, it tells you what a crooked system we have and what a rotten political system we have. And frankly, I’m so — I’m millions of votes more than — I have millions of votes more than ‘Lying Ted.’ I have millions — millions of votes more.”

     

    “I have so many millions of votes more,” Trump argued. “I’ve brought people into this party by the millions. You understand that. They voted by the millions more. It’s one of the biggest stories in all of politics.”

     

    “And what do I have,” Trump rhetorically asked. “I have a guy going around trying to steal people’s delegates. This is supposed to be America, a free America. This is supposed to be a system of votes where you go out, you have elections, free elections.”

    Continuing his rant, Trump claimed,

    “I won Louisiana and now I hear he’s trying to steal delegates. You know, welcome to, uh, the Republican Party.”

    “What’s going on in the Republican Party is a disgrace,” Trump claimed. “I have so many more votes and so many more delegates. And, frankly, whoever at the end, whoever has the most votes and the most delegates should be the nominee.”

    Full ABC Interview below (Fwd to 13:00 for "stealing" rant)…

    "He's trying to steal things because that's the way Ted works," Trump said. "The system is a broken system. The Republican tabulation system is a broken system. It's not fair."

  • "It's An Attack On Higher Education": Connecticut Seeks To Tax Yale Endowment As Plug To Surging Deficit

    One week ago, we observed an unexpected spike in the yield spread of Connecticut bonds over AAA-rate munis:

     

    There were two specific catalysts for the spike in yield:

    • First was last week’s disappointing bond auction, as a result of which CT bond risk has spiked to 65bps over the benchmark,  a record spread demanded by investors to take CT repayment risk. In the process CT, one of the states historically most preferred by the wealthy hedge fund community, became the 4th riskiest US state after NJ, IL, and PA. As Bloomberg noted at the time, the state’s $550 million general-obligation sale on March 17, which included debt due in 2026, priced to yield 2.52 percent, compared with an expected 2.37 percent based on Bloomberg’s Connecticut index.  
    • The second, and more troublesome, reason was that the state’s office of policy and management said two weeks ago that the budget deficit for the current fiscal year is $131 million, an increase of $111 million from the prior month’s estimate. Moody’s Investors Service dropped its outlook on the state to negative earlier in March. Worse, the state is facing a $266 million shortfall for fiscal 2016, according to the state Office of Fiscal Analysis.

    One week later, we find that the state with the ballooning budget deficit has taken proactive measures to fill said gap, even if the proposed measures are not particularly enticing for one of the highest profile tenants of the state: Yale University.

    According to Bloomberg, a proposed Connecticut bill would seek a share of Yale’s endowment gains as a source of state tax revenue. According to the introduced legislature, schools with funds of $10 billion or more, which is clearly aimed at Yale as that is the only university to fit the criteria. Yale’s record $25.6 billion fund is the second largest in U.S. higher education, behind Harvard University’s $37.6 billion.

    It’s not just the state which is seeking to collect a share of these generous returns: the richest college endowments, many at their highest values ever, also have drawn scrutiny from federal lawmakers. Last month, the U.S. Senate Finance and House Ways and Means committees sent a joint inquiry to the richest 56 private schools about endowments, seeking to understand the impact of their tax-exempt status on the price tag of higher education, among other issues.

    But back to CT, where legislators believe that taxing the endowment’s earnings could help close the state’s budget gap. “Supporters of the bill want Yale to spend more money to expand access to higher education and “create innovative, high-paying jobs,” Martin Looney, a Democrat who presides over the Senate and whose district includes Yale’s campus in New Haven, said in written testimony submitted for a committee hearing on March 22.”

    “It is our hope that these rich schools can use their wealth to create job opportunities, rather than simply to get richer,” Looney said, adding that Yale “possesses the resources to have an even greater impact on our economy.”

    To be sure, Yale and the Greater New Haven Chamber of Commerce urged legislators to reject the bill. Yale currently makes a voluntary payment to New Haven of more than $8.2 million annually, according to the school.

    Yale was particularly distressed, and Richard Jacob, the school’s associate vice president for federal and state relations, said in written testimony that the bill and a second one that would tax college property are a “specific attack on higher education.”

    Yale does have a point:

    “The proposed taxes on Yale would diminish the university’s ability to carry out its charitable mission and to enable and support growth in New Haven,” Jacob wrote. “Yale’s generous financial aid policies, which enable Yale College students to avoid any loans, and which waive any parent contribution for low-income students, exist because of the endowment.”

    Unfortunately, in a time when only the 1% are swimming, while the rest are sinking, any profitable entity becomes a target.

    Bloomberg adds that Yale’s endowment allocated $1.1 billion to the operating budget for the year ended June 30, according to the school’s annual report. The fund earned a return of 11.5% in the period, among the top performers of endowments. It returned an annualized 10 percent over the last decade.

    The school’s annual budget is $3.2 billion, including $2 billion in wages and benefits, and almost a third of Yale’s 13,000 employees live in New Haven, according to the school.

    The budget will promptly change if first the State, followed shortly by the Federal government, decide that it is only fair that well-endowed colleges such as Yale can double down as piggybanks for cash-strapped and money-losing entities, of which there are many within the government apparatus.

  • Has The Biggest Of All Bubbles Popped: Central Bank Omnipotence?

    Authored by Mark St.Cyr,

    Since the initial turmoil began with the onset of what is now referred to as “The great financial crisis,” one strategy has proven more profitable than any other. That strategy? BTFD (buy the f___n’ dip.)

    Regardless of what proprietary advice (short of insider trading,) nothing, as well as, nobody has had a track record worthy of comparison. All one has needed to do is, whenever a selloff occurred (as rare as they had been,) when “the dip” presented itself, the only thing to do was to “buy, buy, buy!”

    Forget 2/20 management. Forget stock picking. Forget listening to experts, economists, fund managers, et al. You would beat them all over the last 6+ years if you just BTFD, then bought some more. It had been that easy. However, if it was that easy – why didn’t everyone “just do it?” Easy…

    A great many (and I put myself squarely in this camp) still believed that the fundamental laws governing free markets and stocks were still at play. No one, and I do mean that as in nobody with a modicum of business acumen thought, let alone believed the extent, as well as, the vast amounts of money printed ex nihilo by the Fed. would go on not only for as long, but also, in the amounts to which it has.

    Now, today, some $4,000,000,000,000.00+ (i.e., over 4 TRILLION) later what has all this balance sheet accrual bought? Probably the bubble of all bubbles. The irony? That “bubble” is in the only true asset the Fed. had left. e.g., Confidence in their omnipotence. And it’s beginning to look more like it’s already popped with every passing FOMC meeting. And just as the name “bubble” implies – all it needed was the tiniest of pins to bring it crashing down. And it now appears a 25 basis point rate hike was just tiny enough.

    Since the ending of QE in late 2014 one thing about the “markets” has been crystallizing more and more for everyone to see. Even if they try to turn their heads, it can no longer be avoided: without central bank (and now that includes all CB’s) continuous intervention – there is no market. It all falls apart like the house-of-cards that it is.

    Again, without central bankers in one form or fashion continuously interjecting their willingness, as well as, openness as to do “whatever it takes” the markets will at first vacillate in place until they relent and plummet in unison causing conciliatory panicked responses from one central banker after another.

    However, the responses to these actions or statements as of late have been in a way I believe these monetary bodies not only never considered, but rather, never thought possible.

    Not only have they been creating doubt (as in saying one thing then doing the opposite) in their credibility, rather – their dictates are now having the complete opposite responses of their desired market reaction. i.e., Deliver a weaker currency inspired directive?  That currency actually spikes upward and running ever higher!

    This phenom first presented itself with the grandest of foolish monetary policies brought forth by central banking Keynesian devotees: Negative interest rates. e.g, NIRP.

    First it was the European Central Bank (ECB.) Then the Bank of Japan (BoJ.) Sure there have been others, but these are by far the “big players.” The result? Exactly the opposite of what had been anticipated.

    “Big bazooka” commentary from Mr. Draghi at the ECB along with “Banzai” styled implementation as witnessed via Mr. Kuroda at the BoJ saying one thing, than doing the exact opposite only a week later, has pushed not only confusion further into the financial markets, but also, sent global currency trades on a roller-coaster ride worthy of having its own theme park.

    Both the €uro as well as the ¥en strengthened. And not by little amounts either. The resulting spikes were so sudden, and with such ferocity, the resulting margin calls for those caught within its death grip suddenly found themselves sharing the same experience as those on the fictional planet Alderaan, “as if millions of voices suddenly cried out in terror – then were silenced.”

    You know who was more caught off guard with this move than those with positions on? The central banks themselves. All one needed for proof was the subsequent jawboning from one official after another to state emphatically: “Don’t worry, we got this!” (we think) As they tried desperately to reassure their “markets.”

    Again, for proof: all one needs is to remember Mario Draghi’s now infamous mea culpa when replying to whether or not his newest remarks were in reaction to the market’s response, e.g., “No not really. But not—well, of course. (Laughter.) And, It’s been pretty much the same only in different languages from one central banker after the next these past few months.

    Yet, the one central bank that has been near impervious to this “credibility” or “omnipotent” issue has been the Federal Reserve. That is to say – until now.

    Since the beginning of what is now considered “the zenith of unabashed central bank interventionism” few were willing to speculate, let alone admit, that without the Federal Reserve continuously pumping money in one form or another, while simultaneously keeping interest rates at the zero bound – the markets had no fundamental reason whatsoever to be at these current levels. Period. It was, and still is, a bubble created and encouraged by the central bank. Again – period. End of discussion.

    And nowhere has this phenom become more visible and undeniable as made manifest over the last 14+ months with “market” volatility and price movement. Currently, the only direction the “markets” have shown a propensity to go in both momentum, as well as, fury during this period has been – down.

    Currently up seems to only happen in response after some jawboning or implied immediate implementation. Where the theme is more mea culpa in nature. Rather, than fortitude or conviction of policy.

    In other words: the moment we get up to levels I coined “fortitude central” (i.e., 2050ish SPX) where the policy members begin to show backbone and imply: “Yep, we’re going to start withdrawing accommodation.”  The markets begin to reverse in unison. And as soon as it appears the level of 1800ish SPX is about to be breached? A reversal, or better said “capitulation of error” begins to show up (in unison) as one Fed. official after another begins touting backpedaling statements in one form after another. The real issue here?

    The “markets” and it’s real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency. Exacerbating the issue of credibility as well as omnipotence for the Fed. Or, stated differently – the “market” now not only can push the Fed’s hand – It now knows at what level it needs to exert the desired response at will.

    This phenom has now become so glaringly obvious even Fed. friendly publications such as Barron’s™ can’t avert from the obvious any longer as shown by their latest article titled, When The Fed’s Bullard Speaks, the Market Listens. All I’ll say is this: If the main stream financial press has finally figured it out – that’s usually your first sign that what ever bubble there was – has either already popped. Or, about too.

    But not too worry, after all, I didn’t even mention China and their forthcoming central bank omnipotent policies. Remember, they know how to control and manipulate a market and currency better than anyone. Just ask them. And if you don’t like what they state today? Don’t worry – they’ll change it again any day or minute from now. Again.

    But why be of concern? After all, it was the Fed. itself that just reiterated “international developments” is their first cause. So don’t worry. I’m sure they got this. Until 1800ish SPX that is. Then we’ll see just how much confidence to BTFD truly remains.

  • "Forgotten Sandlot" Or "The Next Dubai"? This Tiny African Nation Is Now A Geopolitical Hot Spot

    When last we checked in on Djibouti, the tiny east African nation of 900,000 people that shares a border with lawless Somalia to the south, and is separated from war-torn Yemen by just 13 miles of water across the Bab el-Mandeb Strait, China had just announced that the country would play host to Beijing’s first overseas military outpost.

    Nearly 5,000 miles from the Chinese capital, Djibouti is situated in a highly strategic, if exceedingly dangerous part of the world.

    The Bab el-Mandeb Strait is one of the planet’s most important oil chokepoints and thus there are any number of nations that have an interest in keeping it open and secure. Additionally, Djibouti’s location on the horn of Africa makes it an attractive base from which to conduct anti-terror operations in both Africa and the Mid-East.

    While some observers view China’s establishment of a military base in the country as a reflection of Xi’s efforts to i) project Beijing’s growing military prowess, and ii) serve notice that in the wake of the PLA’s unexpected visit to the besieged Yemeni port of Aden last year, China isn’t afraid to get involved in the region’s affairs, it’s worth noting that the Chinese are no strangers to Djibouti. China has been investing in the country’s infrastructure for years, most notably in the form of a $4 billion railroad connecting the country to the Ethiopian capital of Addis Ababa.

    And that’s not all.

    “China is financing a railroad, as well as an expansion of port terminals, fuel and water pipelines, a natural gas liquefaction plant, highway upgrades, two proposed airports, and several government buildings,” Bloomberg writes, adding that “the new military installation will be a sort of insurance policy, a security station to protect its investments and extend its economic reach.”

    China is pitching its involvement in the country’s development as an extension of Xi’s ambitious “One Belt, One Road” initiative, which is essentially an expansive initiative that i) gives China an excuse to take a stake in any country that’s willing to accept FDI, and ii) creates a kind of pressure valve for Beijing’s excess industrial capacity.

    “China is explaining it as part of the ‘one road, one belt’ strategy, to help link Ethiopia to the sea,” one Western diplomat who has been briefed by Chinese officials on the Djibouti base, told Reuters this week. “China does not want to be seen as a threat.”

    And frankly, they probably aren’t. Or at least not any more of a threat than all of the other countries that have military outposts in Djibouti. Countries like the US, which unsurprisingly has the largest military presence of any nation and which uses its bases there as a launching pad for drone missions. “Djibouti is also the U.S. military’s regional hub for drones, and it sends thousands of Predators and Reapers across the region each year,” Bloomberg notes, before recounting a hilarious string of drone and spy plane mishaps that eventually led Washington to move the unmanned killing machines away from the country’s airport. Here are a few additional excerpts from Bloomberg’s latest on the country:

    [In the late seventies] Djibouti, a country about the size of New Jersey, had one paved road and less than a square mile of arable land. The Associated Press deemed it perfectly devoid of resources, “except for sand, salt, and 20,000 camels.” The New York Times guessed the new nation might get swallowed up by one of its neighbors—Ethiopia or Somalia, maybe—because it was “so impoverished that it cannot stand on its own.”

     

    Years passed, and those neighbors were too preoccupied with wars, famine, and civil anarchy to pay much attention to it. Such upheavals, and almost everything else, skirted Djibouti. Then the new century rolled around and, seemingly overnight, the country’s sleepiness became a valuable commodity.

     

    After Sept. 11, the U.S. military rushed to establish its first base dedicated to counterterrorism, and Djibouti was about the only country in the neighborhood that wasn’t on fire. Sitting beside the narrow Bab el-Mandeb strait—a gateway to the Suez Canal at the mouth of the Red Sea, and one of the most trafficked shipping lanes in the world—it provided easy access to hot spots in both Africa and the Middle East. A few years later, when Somali pirates started threatening the global shipping industry, the militaries of Germany, Italy, and Spain joined France, which has maintained a base since colonial times, by moving troops to Djibouti. Japan arrived in 2011, opening its first military base on foreign soil since World War II.

     

     

    U.S. soldiers can’t go anywhere without being reminded of the People’s Republic. On the drive to the clinic, I’d noticed lengths of black tubing lying by the side of the road. “That’s a new water pipeline to Ethiopia,” the driver said, “built by the Chinese.” Nobody knows how the new Chinese base will change things, mostly because its scale isn’t yet known, but traces of anticipatory tension are palpable. Several diplomatic officials and members of U.S. Congress have publicly fretted over China’s growing influence in Djibouti, speculating that it might signal an era of increased Chinese military engagement around the world. Kelly, the U.S. ambassador, told me that “snooping,” electronic or otherwise, will be an obvious concern around Camp Lemonnier.

     

    The Americans still have the largest foreign military presence in the country, but China’s intensifying interest in Djibouti is shifting the balance of influence.

     

    With a lineup of natural resources—along with a port on one of the most geopolitically significant straits in the world—[some] believe that in the next 20 years or so, Djibouti will become the next Dubai, a magnet for capital and free trade. To hear them talk, making billions by selling the world’s militaries on the country’s lack of incident was just the first step.

     

    “And why not?” asks Foreign Minister Mahamoud Ali Youssouf. “We have some assets that Dubai never had.”

     

    (Djibouti City)

     

    First, there’s that shipping lane. It’s busier than Dubai’s. Second, there are all those landlocked African countries stacked up behind it; they’re desperate for a portal to the wider world. Third, there’s the infrastructure. Not traditional infrastructure, which, China notwithstanding, is still in short supply, but rather digital infrastructure. Seven submarine fiber-optic cables, the kind that carry the vast majority of the world’s digital information, come ashore in Djibouti, making it the most important hub of connectivity in East Africa. “Forget gigabytes,” says Finance Minister Ilyas Moussa Dawaleh. “We offer terabytes.”

     

    The scouring Khamsin winds, which blow through the country from June to August, are being harnessed to power a 60-megawatt wind farm, and the pitiless sun, which beats down with near-kinetic force, will power solar energy developments and more than quadruple the country’s total domestic energy output. Within a decade, the government hopes to be the first country in Africa to be powered solely by renewable energy.

    One country that isn’t likely to be particularly enamored with China’s new military outpost is India. “If I were Indian I would be very worried about what China is up to in Djibouti,” a Western official told Reuters. “Djibouti enables China to base its long-range naval air assets there and these are capable of maintaining surveillance over the Arabian Sea as well as India’s island territories off the Western coast,” Indian army brigadier Mandip Singh says.

    Underscoring the point we made above (i.e. that the new base is an extension of the PLA’s move to dock in Aden last year when the Iran-backed Houthis set upon the city creating a humanitarian crisis) a diplomatic source in China says Beijing got the idea for the outpost when the Chinese ship that showed up across the Strait in Yemen ran out of supplies. “It’s a supply facility pure and simple,” the source remarked.

    Whatever the case, it will be interesting to watch Djibouti’s development in the years ahead. With al-Shabaab operating out of Somalia and Islamic State (not to mention al-Qaeda) maintaining a notable presence just across the Bab al-Mandeb as well as to the north and northeast in Africa, there are certainly a number of security concerns. Additionally, the contention that solar and wind power will help transform the country into “the next Dubai,” assumes alternative energy can create the same kind of prosperity the Emirates enjoy thanks to their vast stores of crude. That may be wishful thinking. If nothing else, it does appear that this “forgotten sandlot” (as Bloomberg calls Djibouti) will play a key geopolitical role going forward as a kind of regional hub where world powers jostle for influence – and that alone makes it worth paying attention to.

  • Bad – But Better Than What's Coming

    Submitted by John Rubino via DollarCollapse.com,

    Talk about diminished expectations. Friday morning’s estimate of 1.4% Q4 GDP growth is being hailed as a pleasant surprise. Which is odd, considering that for most of the past century a number this low would have been seen as weak enough to require emergency action.

    And that’s just the headline number. Dig a little deeper and the picture — at least when viewed through a non-Keynesian lens — is of a system in crisis. Consider:

    Corporate profits are, as today’s Bloomberg puts it, sliding.

    Corp profits March 16

    Meanwhile (also from Bloomberg),

    A firm labor market and low inflation encourage households to keep shopping. Today’s fourth-quarter growth figure reflected more spending on services, particularly on recreation and transportation. “It’s really U.S. consumers who are powering the global economy forward at this point,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh.

    But if companies are earning less money, how likely is it that they’ll step up hiring going forward? Not very. And since today fewer Americans have full time jobs than in 2007 (making the current stellar 4.9% unemployment rate look like a cruel joke) a new round of mass layoffs will make the job market even more dire for anyone hoping to support a family with full-time work.

    “If profits remain depressed, the prospects for capex and hiring will come under greater pressure,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, wrote in a research note.

    What are the chances of profits remaining depressed? Pretty good, considering that two of the big growth drivers of the past few years have been student debt and car loans. The former is, as everyone by now knows, at levels that consign a whole generation of kids to life in their parents’ basements — not a recipe for robust consumption.

    Car loans, meanwhile, are starting to look like subprime mortgages circa 2006:

    Unpaid subprime car loans hit 20-year high

    (CNN Money) – Americans with lower credit scores are falling behind on auto payments at an alarming pace.

    The rate of seriously delinquent subprime car loans soared above 5% in February, according to Fitch Ratings. That’s worse than during the Great Recession and the highest level since 1996.

     

    It’s a surprising development given the relative health of the overall economy. Fitch blames it on a dramatic rise in loans with lax borrowing standards that have helped fuel the recent boom in auto sales. More Americans bought new cars last year than ever before and the amount of auto loans soared beyond $1 trillion.

     

    Fitch points out that the subprime end of the market is where there’s increased competition to peddle loans. The ratings firm flagged an increase in loans to “borrowers with no FICO scores,” lower downpayments, and extended term lending.

    Toss in contracting global trade, turmoil in Europe and Latin America, and a grinding multi-month decline in US manufacturing output and the year ahead doesn’t look any better. Here’s the Atlanta Fed’s GDPNow measure of current growth, which shows a huge drop in just the past month:

    GDPNow March 16

    What does all this mean?

    Very simply, if you borrow too much money life gets harder and the things that used to work stop working. For a country, lower interest rates no longer induce businesses and individuals to borrow and spend, and government deficits no longer translate directly into more full-time private sector jobs. Growth slows, voters get mad, politics gets crazy, and generally bad times ensue.

    The only question is why this is a surprise to the people whose choices brought us to the edge of the abyss.

  • Five Years After Fukushima, 16 U.S. Cleanup Ships Are Still Contaminated With Radiation

    The Fukushima disaster was over five years ago, and may have been largely forgotten by the general public and the media (perhaps because the Japanese olympics are just four years from now), but its effects still linger. Perhaps nowhere more so than for those who took pare in the Fukushima clean up effort: as Starts and Stripes reports, sixteen U.S. ships that participated in relief efforts after Japan’s nuclear disaster five years ago remain contaminated with low levels of radiation from the crippled Fukushima Dai-ichi nuclear power plant.

    In all, 25 ships took part in Operation Tomadachi, the name given for the U.S. humanitarian aid operations after the magnitude-9.0 earthquake and subsequent tsunami on March 11, 2011. In the years since the crisis, the ships have undergone cleanup efforts, the Navy said, and 13 Navy and three Military Sealift Command vessels still have some signs of contamination, mostly to ventilation systems, main engines and generators.

    That’s the bad news.

    The good news is that the “normally accessible” areas have been largely cleaned. “The low levels of radioactivity that remain are in normally inaccessible areas that are controlled in accordance with stringent procedures,” the Navy said in an email to Stars and Stripes. “Work in these areas occurs mainly during major maintenance availabilities and requires workers to follow strict safety procedures.”

    All normally accessible spaces and equipment aboard the ships have been surveyed and decontaminated, Vice Adm. William Hilarides, commander of Naval Sea Systems Command, wrote to Stars and Stripes.

    “The radioactive contamination found on the ships involved in Operation Tomodachi is at such low levels that it does not pose a health concern to the crews, their families, or maintenance personnel,” Hilarides said.

    One may be allowed to be skeptical: after all Tepco and the Japanese government lied for years about the “safety” of the Fukushima aftermath, and only 5 years later was the severity of the situation finally revealed.

    The largest U.S. ship to take part in the relief operation was the USS Ronald Reagan aircraft carrier, which normally carries a crew of more than 5,000 sailors. In 2014, three years after the disaster, the Reagan’s ventilation system was contaminated with 0.01 millirems of radiation per hour, according to the Navy. Nuclear Regulatory Commission guidelines advise no more than 2 millirems of radiation in one hour in any unrestricted area, and 100 millirems total in a calendar year from external and internal sources in unrestricted and controlled areas, so full-time exposure on the Reagan would be below that.

    In the days after the tsunami hit the Fukushima complex, the plant suffered multiple explosions and reactors began to melt down. Officials from the NRC told Congress that extremely high levels of radiation were being emitted from the impaired plant. Japanese nuclear experts said winds forced a radioactive plume out to sea, and efforts to keep fuel rods cool using sea water caused tons of radiated water to be dumped into the ocean.

    The Reagan was dispatched to take part in relief efforts, arriving the next day. Navy officials say the Nimitz-class nuclear-powered supercarrier stayed at least 100 nautical miles away from the damaged plant, but many sailors have disputed the Navy’s accounting, saying they were so close that they could see the plant.

    The Navy has acknowledged that the Reagan passed through a plume of radiation. Navy images showed sailors with their faces covered, scrubbing the deck of the Reagan with soap and water as a precautionary measure afterward. The Reagan and sailors stayed off the coast of Japan for several weeks to aid their Japanese allies.

    The multibillion-dollar ship, projected to last at least 50 years after its launch in 2001, then was taken offline for more than a year for “deep maintenance and modernization” at the Puget Sound Naval Shipyard and Intermediate Maintenance Facility in Bremerton, Wash., according to Navy officials.

    “Procedures were in place to survey, control and remove any low-level residual contamination,” the Navy said. “Personnel working on potentially contaminated systems were monitored with sensitive dosimeters, and no abnormal radiation exposures were identified.” Upgrades and cleaning also took place at the ship’s next stop in San Diego.

    Sailors who performed the work said it entailed entering spaces deep within the ship, testing for high levels of radiation, and if it was found, sanding, priming and painting the areas. They say there were given little to no protective gear, a claim that the Navy denies.

    Of the 1,360 individuals aboard the Reagan who were monitored by the Navy following the incident, more than 96 percent were found not to have detectable internal contamination, the Navy said. The highest measured dose was less than 10 percent of the average annual exposure to someone living in the United States.

    Experts differ on the effects of radiation in general and, specifically, for those involved in Operation Tomodachi.

    Eight Reagan sailors, claiming a host of medical conditions they say are related to radiation exposure, filed suit in 2012 against the nuclear plant’s operator, the Tokyo Electric Power Co. The suit asserts that TEPCO lied, coaxing the Navy closer to the plant even though it knew the situation was dire. General Electric, EBASCO, Toshiba Corp. and Hitachi were later added as defendants for allegations of faulty parts for the reactors.

    A spokesman for TEPCO declined to comment for this story because of the sailors’ lawsuit, which was slated to go forward pending appeals in the U.S. 9th Circuit Court of Appeals.

    The illnesses listed in the lawsuit include genetic immune system diseases, headaches, difficulty concentrating, thyroid problems, bloody noses, rectal and gynecological bleeding, weakness in sides of the body accompanied by the shrinking of muscle mass, memory loss, leukemia, testicular cancer, problems with vision, high-pitch ringing in the ears and anxiety.

    The list of sailors who have joined the lawsuit, which is making its way through the courts, has grown to 370.

    In early 2014, Congress ordered Assistant Secretary of Defense for Health Affairs Dr. Jonathan Woodson to investigate the claims.

    After a peer-reviewed study into the levels of exposure, Woodson reported back to Congress, defending the military’s response and safeguards. Any illnesses that sailors have developed since the operation are not a result of the relief campaign, he said.

    “There is no objective evidence that the sailors … experienced radiation exposures that would result in an increase in the expected number of radiogenic diseases over time,” Woodson wrote. “The estimated radiation doses for all individuals in the Operation Tomodachi registry, including sailors on the USS Ronald Reagan, were very small and well below levels associated with adverse medical conditions.”

    Furthermore, Woodson said, more sailors would have been sick if the levels were high enough to cause the illnesses cited. There were upward of 5,000 sailors aboard the Reagan at the time of the operation. He also said symptoms developed too early to be associated with the operation.

    Perhaps the assumption here is that the US government would not lie.

    But Shinzo Kimura — a professor at Dokkyo Medical University in Japan who has studied radiation exposure from Hiroshima and Nagasaki to Chernobyl and, now, Fukushima — said it wasn’t too early for sailors to show symptoms of exposure-related conditions. Doctors have seen conditions in children living near the plant that surfaced earlier than would normally be expected.

    Kimura, hired by the Nihonmatsu city government for his expertise in the field, was the first scientist on the ground taking readings in the wake of the Fukushima disaster. He said each person and the way their body is affected by radiation is different.

    While unable to definitively say if the sailors were sickened by the radiation, Kimura reasoned that the levels aboard the Reagan were high enough to cause illnesses. Otherwise, he said, why go through the bother of repeated cleanings to lower radiation levels?

    “It is impossible to speculate or calculate how much the doses were before the two decontamination works,” he said. “The U.S. military is very good at risk-management. Considering that, it is assumed that decontaminations were conducted twice because the levels were not favorable.”

  • Why America May Not Be Considered A "First World Country" Much Longer

    Submitted by Chris Perrin via TheAntiMedia.org,

    Before George Manuel published The Fourth World: An Indian Reality, the idea that any real differences existed among population groups in fully developed countries was still taboo. At the time, Indigenous rights were still something of a political non-issue, a blemish on a relatively clean looking statistical sheet that First World countries paid lip service to all too infrequently. Since then, an increasing amount of scholarship seeks to understand the differences between Fourth World populations living inside First World countries.

    The Fourth World, basically, are populations living within a state who have little or no representation by that state. These populations, from the standpoint of the First World, are generally impoverished and would not fit the criteria for a “First World” country. They are, essentially and literally, the oppressed. It is what we see as the Third World when we are looking at Africa and South America, hidden within the First World just outside our doors. Unfortunately, the Fourth World is growing.

    As Anthony J. Hall points out in his book The American Empire and the Fourth World, Indigenous populations are not the only peoples who are finding themselves marginalized within the North American Fourth World (p. 283). The ongoing Flint Water Crisis is just the most recent example of the state-sponsored expansion of the Fourth World, particularly as it looks so similar to something that might happen in the Third World.

    For African-Americans and Hispanic Americans, the Fourth World is an old reality with a new name. Since the economic collapse of 2008, Black and Hispanic populations have been increasingly marginalized, and the way the government once spoke about Indigenous populations must now be applied to other racial and ethnic groups. Where Indigenous peoples are confined to racially segregated Reservations, Black Americans are finding themselves increasingly limited to urban ghettos where First World opportunities are equally non-existent. Moreover, as Flint and the #BlackLivesMatter movement indicate, African-Americans and Hispanics are less and less represented by the state, clearly placing them within the boundaries of the Fourth World — boundaries that are quickly moving beyond the typical racial norm.

    The Occupy Movement represented a clear indication that the working poor, or precariat, is no longer feeling represented by the First World state. With this massive inclusion of a working-class, poor, ethnically diverse group, to the already and obviously marginalized, the population of Fourth World America at the very least rivals the population of First World America. And while the American government continues to nominally supply aid to the Third World, the Fourth World inside the U.S. is slowly being forgotten.

    While the First World criticises various governments in traditionally Third World continents as being unfair and corrupt — calling them out for their ongoing human rights abuses — the abuses being perpetrated on the Fourth World are constantly ignored, no matter how similar the two start to appear. Meanwhile, as the Governor of Michigan, Rick Snyder, defines the Flint issue as “a failure of government at all levels,” those governments still claim to represent the citizens of Flint and their best interests.

    If this is the representation a growing majority of people are subject to in America, then the way the First and Fourth World are understood needs to be reevaluated. More importantly, where the United States fits within the list must be reconsidered. Only when we begin to see our own situation from a new perspective can we learn how to fix it, or find a solution.

  • New Legislation Permits Authorities to Freeze Accounts and Use Them For Bail-ins

    The world will soon be facing a tsunami of defaults on bad debts. This will include municipal or local government defaults, governments “defaulting” on promises they’ve made to the people (Social Security, Medicaid), a default on the social contract between society and politicians such as the one in Cyprus (a default on the notions of private property and Democracy), stealth defaults on debts in the form of inflation and finally, of course, outright sovereign defaults.

     

    The sovereign defaults will come last; all other options will be tried first.

     

    The reason for this is that sovereign bonds (think of US Treasuries, German Bunds or Japanese Government bonds) are the senior most collateral posted by banks for the hundreds of trillions of Dollars worth of derivatives bets they’ve made with each other.

     

    The minute an actual sovereign default occurs in Europe, Asia or the US, then the large global banks will all be vaporized. End of story.  As is now clear, the Central banks do not care about ordinary citizens. They only care about propping up the big banks.

     

    This is why Cyprus decided to default on the social contract with its people and steal their funds rather than simply instigating a formal default. And it’s why in general we’re going to see Governments implementing more and more theft in the form of “taxes” (Cyprus called its theft a tax) in the future.

     

    Make no mistake, the words “wealth tax” mean freezing of assets and then taking some of your savings. Anyone with more than $100,000 in a bank account should be prepared for this.

     

    This will be sold to the public as either an attempt to tax those with a lot of money because it’s only fair that they put in more to bailout the nation OR as a form of financial terrorism e.g. “either you take a 7% cut on your deposits and the bank stays afloat or the bank crashes and you lose everything.”

     

    This will be spreading throughout the world, GUARANTEED.

     

    Spain, Canada (which allegedly has the safest banks in the world), New Zealand and now even Germany are implementing confiscation schemes for depositors in the event of a banking crisis.

     

    It can happen in the UK and the US as well. I am not writing that to simply scare people. The FDIC, working with the Bank of England published a paper proposing precisely these methods to deal with Systemically Important Financial Entities (SIFIs). The paper was published in December 2012. Below are some excerpts worth your attention:

     

    This paper focuses on the application of “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context…

     

    These strategies have been designed to enable large and complex cross- border firms to be resolved without threatening financial stability and without putting public funds at risk…

    Under the strategies currently being developed by the U.S. and the U.K., the resolution authority could intervene at the top of the group. Culpable senior management of the parent and operating businesses would be removed, and losses would be apportioned to shareholders and unsecured creditors. In all likelihood, shareholders would lose all value and unsecured creditors should thus expect that their claims would be written down to reflect any losses that shareholders did not cover. Under both the U.S. and U.K. approaches, legal safeguards ensure that creditors recover no less than they would under insolvency.

     

    An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution. Throughout, subsidiaries (domestic and foreign) carrying out critical activities would be kept open and operating, thereby limiting contagion effects. Such a resolution strategy would ensure market discipline and maintain financial stability without cost to taxpayers.

     

    Title II of the Dodd-Frank Act provides the FDIC with new powers to resolve SIFIs [systemically important financial institutions] by establishing the orderly liquidation authority (OLA). Under the OLA, the FDIC may be appointed receiver for any U.S. financial company that meets specified criteria, including being in default or in danger of default, and whose resolution under the U.S. Bankruptcy Code (or other relevant insolvency process) would likely create systemic instability.

     

    [In the US] Title II requires that the losses of any financial company placed into receivership will not be borne by taxpayers, but by common and preferred stockholders, debt holders, and other unsecured creditors, and that management responsible for the condition of the financial company will be replaced…

     

    [In the UK] The introduction of a statutory bail-in resolution tool (the power to write down or convert into equity the liabilities of a failing firm) under the RRD is critical to implementing a whole group resolution of U.K… But insofar as a bail-in provides for continuity in operations and preserves value losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation. Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

     

    http://www.fdic.gov/about/srac/2012/gsifi.pdf

     

    So… if a large bank fails in the US, the FDIC steps in and takes over, replacing management, and works to shrink the bank by writing-down liabilities and converting debt into equity.

     

    In other words… any liability at the bank is in danger of being written-down should the bank fail. And guess what? Deposits are considered liabilities according to US Banking Law and depositors are creditors.

     

    So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the company. And once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.

     

    So if the bank then fails (meaning its shares fall)… so does your deposit.

     

    Let’s run through this.

     

    Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…

     

    1)   The FDIC takes over the bank.

    2)   The bank’s managers are forced out.

    3)   The bank’s debts and liabilities are converted into equity or the bank’s stock. And yes, your deposits are considered a “liability” for the bank.

    4)   Whatever happens to the bank’s stock, affects your wealth. If the bank’s stock falls at this point because everyone has figured out the bank is in major trouble… your wealth falls to.

     

    Let’s say you have $1,000,000 in deposits at financial institutions ABC. When ABC fails, your deposits are converted into $1,000,000 worth of ABC’s stock (let’s say you get 1,000,000 shares valued at $1 each for $1,000,000).

     

    Now let’s say ABC’s shares fall in value from $1.00 to $0.50.

     

    You just lost $500,000 of your wealth.

     

    This is precisely what has happened in Spain during the 2012 banking crisis over there.

    And it is perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.

     

    This is the template for what’s going to be implemented globally in the coming months.  When push comes to shove, it will be taxpayers, NOT Central Banks who are on the hook for the next round of bailouts.

     

    Indeed, we've uncovered a secret document outlining how the Feds plan to take hold of savings during the next round of the crisis to stop individuals from getting their money out.

     

    We detail this paper and outline three investment strategies you can implement right now to protect your capital from this sinister plan in our Special Report

    Survive the Fed's War on Cash.

     

    We are making 1,000 copies available for FREE the general public.

     

    To pick up yours, swing by….

    http://www.phoenixcapitalmarketing.com/cash.html

     

    Best Regards

    Phoenix Capital Research

     

    Our FREE e-letter: http://gainspainscapital.com/

    Follow us on Twitter: http://twitter.com/GainsPainsCapit

     

     

     

     

     

     

     

     

  • Inflation Is Not Risen – It's The Cheapest Easter "Since Lehman"

    As christians remember the fall and rise of Jesus, there is another – perhaps more important to many – rising-and-falling thing to celebrate: Egg prices are the cheapest for Easter since at least 2008…

     

    While pork prices are soaring in China; in America, egg prices are tumbling…

     

    Just in time for Easter…(cheapest Easter for eggs since at least 2008)

     

    As Bloomberg notes,

    Wholesale prices at stores in the U.S. Midwest have averaged $1 a dozen since mid-February, or more than 60 percent below the all-time highs seen in mid-2015, when a record bird-flu outbreak led to the death of millions of hens.

     

    The egg industry “continues to rebuild,” and output is forecast to rebound by about 4 percent in 2016, the U.S. Department of Agriculture said March 9.

    Happy Easter everyone.

  • Al Jazeera Presenter Corners Saudi Ambassador – "Why Support Democracy In Syria But Not Saudi Arabia?"

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    This past week, Al Jazeera presenter Mehdi Hasan sat down with Saudi Arabia’s ambassador to the UN. He asked him a very pointed question regarding why he supports democracy in Syria but not in Saudi Arabia.

    It’s a great question, and let’s just say the answer was not at all convincing.

    Too much media these days merely serves as public relations for the status quo. What Mr. Hasan does in this interview is exactly what journalists are supposed to be doing, but very rarely do in these United States:

     

     

    Speak truth to power. 

    Well done Mr. Hasan. The entire interview can be watched below…

  • Australian Dollar versus United States Dollar Currency Cross Analysis 3 27 2016 (Video)

    By EconMatters

    We look at the AUD/USD Currency Cross in this video. Will the AUD get back to parity with the USD? The AUD is off the 2016 lows, will it strengthen or weaken from here for the remainder of the year? This is the big question for currency traders after the rally off the January lows in the AUD.

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

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Mar 27

Today’s News 27th March 2016

  • Paul Craig Roberts On The Real Likelihood Of Nuclear War

    Via SputnikNews' John Harrison,

    Dr. Paul Craig Roberts, who served as an Assistant Secretary of the Treasury for Economic Policy in the Reagan administration, shares his view that there is a real likelihood of a nuclear war breaking out. Below are the main points covered in this radio programme.

    (click image for link to full interview)

    "Firstly there is the Wolfowitz doctrine, which basically makes it clear that the United States should prevent the rise of any state that could present sufficient power to threaten American unilateral action. Russia has risen and has displayed such power….This is the reason for the constant demonisation of Russia’s leader. We have the number one candidate for the democratic Nomination Hillary Clinton, who now compares the President of Russia with Hitler….So what has happened is that every American president during my lifetime, especially Nixon and Reagan worked to create trust between the two major nuclear powers. But beginning with Clinton, the trust that had been achieved was progressively destroyed."

    "When you destroy trust between nuclear powers you recreate the possibility of nuclear war, either by intent, or miscalculation. So this is a reckless and irresponsible act on the part of Washington….The information war that is going on now is to prepare the American population and NATO countries allies for military conflict with Russia. This is part of the preparation of that. We now have high level people in the US government and military who go to Congress and say that Russia is an existential threat. This is rubbish!…You have to remember that before the wars started in Afghanistan, Iraq, Syria, it was the constant demonisation of the leaders of the governments, against Gaddafi, Hussein. When you see these kinds of demonisation it fits a pattern."

    "A hot war can come from a new cold war. Another factor is the American military industrial complex, with a turnover of a trillion dollars annually. Their entire revenues come from serving the war capability of US government. They have a huge interest in having a major enemy. They tried to make terrorists that enemy, but that is not serious enough, so this complex has great interest in recreating the Russian threat. From the neo conservative standpoint, they actually regard any country with an independent foreign policy to be a threat to the United States. So that part of the equation means that they can move the cold war into a hot war, it only takes a small amount of miscalculation. I don’t see how the Russian government can believe one word coming out of Washington."

    "Some neocons say: what’s the good of nuclear weapons if you can’t use them? They have a theory that the US has sufficient superiority to win a strike against Russia. If the US cannot win against a few thousand Taliban, it will not be able to win  a possible conventional war against the Red Army, it will go nuclear rather lose…. A nuclear war cannot be won."

    "The neoconservatives now have no competition, there is nobody out there apart from Washington wishing to take over the world… As long as the American vassal states that compromise the NATO accept it, they magnify the chance of a new massive war… Republican candidates are competing with each other to see who can treat Russia the most aggressively."

  • Visualizing Why Manufacturing Jobs Aren't Coming Back

    The market for industrial robot installations has been on a skyward trend since 2009, and it is not expected to slow down any time soon. According to the World Robotics 2015 report, the market for industrial robots was approximated at $32 billion in 2014, and in the coming years it is expected to continue to grow at a compound annual growth rate (CAGR) of at least 15%.

    As VisualCapitalist's Jeff Desjardin notes, that means between 2015 and 2018, it’s anticipated that 1.3 million industrial robots will be installed worldwide. This will bring the stock of operational robots up to just over 2.3 million, mostly working in the automotive and electronics sectors.

    For how long can the global robot population continue to grow?

     

    Courtesy of: Visual Capitalist

     

    ROBOT DENSITY

    Perhaps the most interesting way to peek into the future of industrial robot installations is to look at potential sales in China.

    Currently, the world’s most populous nation has a density of robots that is about half of the world average, equal to just 36 robots for every 10,000 manufacturing workers in China.

    However, this is changing fast. It’s been the largest market for robots since 2013, and in 2014 the country bought 57,100 robots – the highest quantity ever recorded in a year. By 2018, one in every three robots in operation around the world will be in China.

    What will happen if China’s density approaches that of other robot industrial centers?

    Highly automated countries such as Germany, Japan, and South Korea all have robot densities that are multiples higher. South Korea, for example, has 478 industrial robots for every 10,000 workers – a ratio that is 13x higher than China’s.

    With this kind of potential for growth, it’s clear that this is only the start of the robot story.

  • The World's Most Famous Economic Hitman Confesses – They're Coming For Your Democracy

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    Allen Dulles, the CIA director under presidents Eisenhower and Kennedy, the younger brother of Secretary of State John Foster Dulles, and the architect of a secretive national security apparatus that functioned as essentially an autonomous branch of government. Talbot offers a portrait of a black-and-white Cold War-era world full of spy games and nuclear brinkmanship, in which everyone is either a good guy or a bad guy. Dulles—who deceived American elected leaders and overthrew foreign ones, who backed ex-Nazis and thwarted left-leaning democrats—falls firmly in the latter camp.

     

    But what I was really trying to do was a biography on the American power elite from World War II up to the 60s. That was the key period when the national security state was constructed in this country, and where it begins to overshadow American democracy. It’s almost like Game of Thrones to me, where you have the dynastic struggles between these power groups within the American system for control of the country and the world…

     

    Absolutely. The surveillance state that Snowden and others have exposed is very much a legacy of the Dulles past. I think Dulles would have been delighted by how technology and other developments have allowed the American security state to go much further than he went. He had to build a team of cutthroats and assassins on the ground to go around eliminating the people he wanted to eliminate, who he felt were in the way of American interests. He called them communists. We call them terrorists today. And of course the most controversial part of my book, I’m sure, will be the end, where I say there was blowback from that. Because that killing machine in some way was brought back home.

     

    – From the post: How America’s Modern Shadow Government Can Be Traced Back to One Very Evil Man – Allen Dulles

    Most readers will be familiar with John Perkins and his best-selling novel Confessions of an Economic Hitman. What you may not know, is he’s currently making the rounds warning us that all the corporatist mercenary tactics employed against third-world nations to financially benefit U.S. conglomerates are now being turned inward on American communities.

    He discussed some of this in a recent interview with Yes. Here are a few excerpts:

    Twelve years ago, John Perkins published his book, Confessions of an Economic Hit Man, and it rapidly rose up The New York Times’ best-seller list. In it, Perkins describes his career convincing heads of state to adopt economic policies that impoverished their countries and undermined democratic institutions. These policies helped to enrich tiny, local elite groups while padding the pockets of U.S.-based transnational corporations.

    If economic pressure and threats didn’t work, Perkins says, the jackals were called to either overthrow or assassinate the noncompliant heads of state. That is, indeed, what happened to Allende, with the backing of the CIA.

     

    Perkins has just reissued his book with major updates. The basic premise of the book remains the same, but the update shows how the economic hit man approach has evolved in the last 12 years. Among other things, U.S. cities are now on the target list. The combination of debt, enforced austerity, underinvestment, privatization, and the undermining of democratically elected governments is now happening here.

     

    Sarah van Gelder: What’s changed in our world since you wrote the first Confessions of an Economic Hit Man?

     

    John Perkins: Things have just gotten so much worse in the last 12 years since the first Confessions was written. Economic hit men and jackals have expanded tremendously, including the United States and Europe.

     

    Back in my day we were pretty much limited to what we called the third world, or economically developing countries, but now it’s everywhere.

     

    van Gelder: So how has this switched from us being the beneficiaries of this hit-man economy, perhaps in the past, to us now being more of the victims of it?

     

    Perkins: It’s been interesting because, in the past, the economic hit man economy was being propagated in order to make America wealthier and presumably to make people here better off, but as this whole process has expanded in the U.S. and Europe, what we’ve seen is a tremendous growth in the very wealthy at the expense of everybody else.

     

    On a global basis we now know that 62 individuals have as many assets as half the world’s population.

     

    van Gelder: Is this the same kind of dynamic about debt that leads to emergency managers who then turn over the reins of the economy to private enterprises? The same thing that you are seeing in third-world countries?

     

    Perkins: Yes, when I was an economic hit man, one of the things that we did, we raised these huge loans for these countries, but the money never actually went to the countries, it went to our own corporations to build infrastructure in those countries. And when the countries could not pay off their debt, we insisted that they privatize their water systems, their sewage systems, their electric systems.

     

    van Gelder: I want to ask you about the Trans-Pacific Partnership, and other trade deals. Is there any way that we can beat these things back so they don’t continue supercharging the corporate sphere at the expense of local democracies?

     

    Perkins: They’re devastating; they give sovereignty to corporations over governments. It’s ridiculous.

     

    I was just in Central America and what we talk about in the U.S. as being an immigration problem is really a trade agreement problem.

     

    They’re not allowed to impose tariffs under the trade agreements—NAFTA and CAFTA—but the U.S. is allowed to subsidize its farmers. Those governments can’t afford to subsidize their farmers. So our farmers can undercut theirs, and that’s destroyed the economies, and a number of other things, and that’s why we’ve got immigration problems.

     

    van Gelder: Can you talk about the violence that people are fleeing in Central America, and how that links back to the role the U.S. has had there?

     

    Perkins: Three or four years ago the CIA orchestrated a coup against the democratically elected president of Honduras, President Zelaya, because he stood up to Dole and Chiquita and some other big, global, basically U.S.-based corporations.

     

    He wanted to raise the minimum wage to a reasonable level, and he wanted some land reform that would make sure that his own people were able to make money off their own land, rather than having big international corporations do it.

     

    The big corporations couldn’t stand for this. He wasn’t assassinated but he was overthrown in a coup and sent to another country, and replaced by a terribly brutal dictator, and today Honduras is one of the most violent, homicidal countries in the hemisphere.

     

    It’s frightening what we’ve done. And when that happens to a president, it sends a message to every other president throughout the hemisphere, and in fact throughout the world: Don’t mess with us. Don’t mess with the big corporations. Either cooperate and get rich in the process, and have all your friends and family get rich in the process, or go get overthrown or assassinated. It’s a very strong message.

    That is how a once proud nation gets transformed into a rancid, oligarch-controlled Banana Republic.

    Screen Shot 2015-09-11 at 10.03.46 AM

  • Hugh Hendry: "If China Devalues By 20% The World Is Over, Everything Hits A Wall"

    Once upon a time Hugh Hendry was one of the world’s most prominent financial skeptics, arguing with anyone who would listen that the status quo is doomed and that central planning will never work.

    Most famously, back in 2010 during a BBC round table discussion with Jeffrey Sachs and Gillian Tett when discussing Europe’s crashing experiment with the single currency, he said that we should “purge this system of its rottenness. Let’s take on a recession. It’s going to be tough, people are gonna lose their jobs. They are going to lose their jobs anyway. We can spread this over 20 years, or we can get rid of it over 3 years” before concluding “I recommend you panic.”

    Ultimately everyone did panic, which led to the single biggest episode of global QE and negative rates ever seen, resulting in ever louder speculation even among the most “serious” people that central bankers are now powerless.

    But perhaps most notably, Hendry was one of the biggest China bears, certain that the country’s massive overcapacity, insolvency and bad debt problems will result in disaster (back then China only had about 200% debt/GDP, it has since risen to over 350%). His Chinese skepticism led to his fund generating a 40% profit by late 2011.

    And then after a poor two year performance spell, Hendry had a historic burnout and threw in the towel on bearishness, infamously saying he can no longer “look at himself in the mirror“:

    “I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell’. The S&P 500 is up 30% over the past year: I wish I had thought this last year… Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending.”

    He proceeded to buy momentum stocks and 3D printer companies.

    Fast forward to the present, when countless hedge funds – key among them Kyle Bass’ Hayman Capital and Mark Hart’s Corriente – have become China megabears, expecting the country’s financial collapse and trading it by shorting the Yuan expecting a massive Yuan devaluation.

    It is here that Hugh Hendry has once again proven contrarian, even if it means agreeing with the dominant textbook meme of the day, namely that China can contain its economic hard landing, and in his most recent interview with RealVision’s Raoul Pal, he cautions against a Chinese devaluation saying that “tomorrow we wake up, I mean, I would jump out the hotel window if this was the scenario, but we wake up and China has devalued 20%. The world is over. The world is over.”

    What makes this interview doubly ironic is not just that Hendry is wildly contradicting everything he himself believed in a few short years ago, but disagrees with his interview host himself – recall that one month ago, we showed an excerpt from a Raoul Pal interview in which he previewed “the Big Reset” and laid out how the Kondratieff Winter would unwind, one in which China would play a prominent part.

    Whether Hendry is right or wrong remains to be seen: for now he has the powerful People’s Bank of China at his back which has been especially active recently especially after the PBOC stated recently it intends to crush all hedge funds who have shorted the Yuan even if it means slamming Chinese trade and the economy once again (as a reminder, one of the biggest reasons why China needs a weaker Yuan is not just the stronger dollar to which it is pegged but because its exports have been crashing against all of its trading partners making the need for a weak currency paramount).

    For now, as we showed just ten days ago, those short the Yuan have swung to wildly profitable to losing money as both the USD has slid and the Yuan has spiked, although both of these trades appear to be reversing now.

    Needless to say, Hendry disagrees with the China contrarians and believes that the way to fix the Chinese economy is through a stronger currency, even if there is no logical way how that could possibly work when China’s debt load is 350% of GDP while its NPLs are over 10% and rising.

    So, borrowing form a favorite Keynesian trope, one where when the countrfactual to his prevailling – if incorrect – view of the world finally emerges, Hendry is convinced that a 20% devaluation would lead to global devastation; the same way if Paulson did not get Congress to sign off on his three page term sheet that would lead to the “apocalypse.” Only unlike Paulson who only hinted at a Mad Max world, for Hendry the alternative to him being right is a very explicit doomsday scenario, as he explains in the following excerpt from his RealVision interview:

    Tomorrow we wake up and China has devalued 20%, the world is over. The world is over. Euro breaks up. The world is over. The euro breaks up. Everything hits a wall. There’s no euro in that scenario. The US economy, I mean everything hits a wall! Everything hits a wall!

     

    The dollar strength that you imagined is devastation because you just eliminated dollars. They’re a scarce commodity. You’ve wiped them out. And China is a pariah state.

     

    It’s a ‘Mad Max’ movie, right. OK, China gets to be the king in ‘Mad Max’ world. How appealing is that? There is no world after the tomorrow where China devalues by 20%. There is no world. Yeah, it’s looney tunes to believe that, people say, ‘oh wow, they needed to catch a break.’

     

    Their share of world trade has never been higher. They’re facing no pressure, immense terms of trade improvement, and you would destroy world trade. World trade is down 25%. You would probably have passport restrictions, the world is over.

    And while it is clear on which side of the Yuan Hugh is currently positioned (Hendry’s Eclectica is down 2.1% through March 18 and -5.9% YTD) either directly or synthetically, we can’t wait to see who is right in the end: China and its central bank (as well as Hugh Hendry) or reason and common sense (as well as some of the smartest hedge funds in the world).

    The RealVisionTV interview excerpt is below:

    To view the full interview, subscribe to Real Vision Television, which offers Zero Hedge readers a 7-day free trial.

  • From Marxist To Markets: Why Robber Barons Are "Safer Foes" Than Meddling Bureaucrats

    Authored by Chris Campbell, via LFB.org,

    “Of all tyrannies,” C.S. Lewis once wrote, “a tyranny sincerely exercised for the good of its victims may be the most oppressive.

     

    “It would be better to live under robber barons than under omnipotent moral busybodies.

     

    “The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.”

    There’s a sculpture on display in front of the Federal Trade Commission building in D.C.

    It was erected when Roosevelt was in office, depicting a man holding back a wild horse. It is called “Man Controlling Trade.”

    It, of course, implies that we need institutional protection from the overwhelmingly wild force of grocery lists and car salesmen.

    Man Controlling Trade Sculpture

    But, we know what you’re thinking. This metaphor is full of plotholes.

    For one: “Since trade is not really a wild horse,” Sheldon Richman points out in Reason, “but rather a peaceful and mutually beneficial activity between people, the Roosevelt administration’s propaganda purpose is clear.

    “A more honest title would be ‘Government Controlling People.’ But that would have sounded a little authoritarian even in New Deal America, hence the wild horse metaphor.”

    The idea that government is necessary to “tame the beast” is not an unpopular one. But, Richmond goes on, “What’s looked over — intentionally or not — is that the alternative to a government-regulated economy is not an unregulated one.

    “The term ‘free market’ does not mean free of regulation. It means free of government interference, that is, legal plunder and other official aggressive force.”

    Rather than having a centralized decision-maker, individuals can (and should) voluntarily participate and create regulatory environments on their own. These voluntary decisions are what make up and regulate the market — not arbitrary and outdated restrictions and barriers.

    And, though a free market will have its bad players, they will be in the minority. The incentive to cheat and defraud, without a centralized power structure, will be lower and far less disastrous. And, better yet, the threat of violence won’t be baked into the cake.

    Rather, rules will be created by consent and not by agenda-driven third-parties with goons with guns and big cages.

    “Bureaucrats,” Richmond writes, “who necessarily have limited knowledge and perverse incentives, regulate by threat of physical force. In contrast, market forces operate peacefully through millions of cooperating participants, each with intimate knowledge of her own personal circumstances and looking out for her own well-being.”

    People, naturally, tend to value order and peace to chaos. And free markets, in the pursuit of self-interest, provide a way for humans to interact, create order and foment peace. But, Richmond goes on, those who forget that “liberty is the mother not the daughter of order, will be tempted to favor state-imposed order. How ironic since the state is the greatest creator of disorder of all.”

    Today, to drive this point home, we turn to Mr. Thomas Sowell.

    Sowell’s here to rap about his transformation from Marxism to the Markets. And show us why a robber baron is a much safer foe than a meddling bureaucrat… or worse, someone who sincerely believes they’re helping.

    Read on…

    From Marxist to the Market

    (by Thomas Sowell, via Capitalism Magazine)

    How and why had I changed from a young leftist to someone with my present views, which are essentially in favor of free markets and traditional values?

    In a sense, it was not so much a change in underlying philosophy, as in my vision of how human beings operate.

    Back in the days when I was a Marxist, my primary concern was that ordinary people deserved better, and that elites were walking all over them.

    That is still my primary concern, but the passing decades have taught me that political elites and cultural elites are doing far more damage than the market elites could ever get away with doing.

    For one thing, the elites of the marketplace have to compete against one another.

    If General Motors doesn’t make the kind of car you want, you can always turn to Ford, Chrysler, Honda, Toyota, and others. But if the Environmental Protection Agency goes off the deep end, there is no alternative agency doing the same thing that you can turn to.

    Even when a particular corporation seems to have a monopoly of its product, as the Aluminum Company of America once did, it must compete with substitute products.

    If Alcoa had jacked up the price of aluminum to exploit its monopoly position, many things that were made of aluminum would have begun to be made of steel, plastic and numerous other materials.

    The net result of market forces was that, half a century after it became a monopoly, Alcoa was charging less for aluminum than it did at the beginning. That was not because the people who ran the company were nice. It was because market competition left them no viable alternative.

    How you look at the free market depends on how you look at human beings. If everyone were sweetness and light, socialism would be the way to go.

    Within the traditional family, for example, resources are often lavished on children, who don’t earn a dime of their own. It is domestic socialism, and even the most hard-bitten capitalists practice it.

    Maybe some day we will discover creatures in some other galaxy who can operate a whole society that way. But the history of human beings shows that a nation with millions of people cannot operate like one big family.

    The rhetoric of socialism may be inspiring, but its actual record is dismal.

    Countries which for centuries exported food have suddenly found themselves forced to import food to stave off starvation, after agriculture was socialized. This has happened all over the world, among people of every race.

    Anyone who saw the contrast between East Berlin and West Berlin, back in the days when half the city was controlled by the Communists, can have no doubts as to which system produces more economic benefits for ordinary people.

    Even though the people in both parts of the city were of the same race, culture and history, those living under the Communists were painfully poorer, in addition to having less freedom.

    Much the same story could be told in Africa, where Ghana relied on
    socialistic programs and the Ivory Coast relied more on the marketplace, after both countries became independent back in the 1960s. Ghana started off with all the advantages.

    Its per capita income was double that of the Ivory Coast. But, after a couple of decades under different economic systems, the bottom 20% of people in the Ivory Coast had higher incomes than 60% of the people in Ghana.

    Economic inefficiency is by no means the worst aspect of socialistic government. Trying to reduce economic inequality by increasing political inequality, which is essentially what Marxism is all about, has cost the lives of millions of innocent people under Stalin, Mao, Pol Pot, and others.

    Politicians cannot be trusted with a monopoly of power over other people’s lives. Thousands of years of history have demonstrated this again and again.

    While my desires for a better life for ordinary people have not changed from the days of my youthful Marxism, experience has taught the bitter lesson that the way to get there is the opposite of what I once thought.

  • Belgian Media Explains What To Do During A Nuclear Disaster

    Electrabel is disgusted with the media. Why? Because in the aftermath of the Brussels attacks, the electric utility thinks journalists have made too much of the alleged threat to the country’s nuclear infrastructure.

    Hours after four attackers detonated explosives-laden belts and luggage in the Brussels airport and metro, reports began to surface that the Tihange and Doel nuclear power plants were being evacuated.

    That would have been alarming enough on its own, but last month it emerged that when Belgian authorities raided a home in Auvelais last November in connection with the Paris attacks, investigators recovered hours of surveillance footage apparently recorded by terrorists at the home of a top nuclear official. There’s now some speculation that the Bakraoui brothers (two of the four Brussels bombers) were involved in covertly monitoring the official’s home.

    Obviously, that suggests that the cell was (and probably still is) interested in either sabotaging a nuclear facility and/or obtaining radioactive material for the purposes of developing a dirty bomb. That’s not an attempt to sow panic, it’s simply the conclusion one comes to when told that terrorists were in possession of video tapes depicting the day-to-day routine of nuclear officials and their families.

    Electrabel would later say the Tihange had actually not been “evacuated” per se. Rather, non essential personnel were told they could go home.

    On Saturday, the utility became even more exasperated when Derniere Heure reported that a Tihange security guard had been shot in Charleroi and his access badge stolen. That report, Electrabel insists, is “false.”

    Translation: “Electrabel calls the greatest caution with regard to articles that have appeared Saturday morning.”

    “Electrabel deplores that its sites are being used regularly this week to illustrate articles without any link to the company or its 5,000 workers,” a statement reads. Hopefully the company doesn’t expect this “deplorable” state of affairs to improve any time soon because if you know anything about the history of Tihange and Doel (see here and here for more), you know why Belgians are worried.

    “It’s like talcum powder,” Matthew Bunn, a specialist in nuclear security at Harvard’s John F. Kennedy School of Government, told The New York Times, regarding byproducts of isotopes like Cesium-137. “If you made a dirty bomb out of it, it’s going to provoke fear, you would have to evacuate and you have to spend a lot of money cleaning it up; the economic destruction cost could be very high.”

    Yes, “it’s going to provoke fear,” much like running a story about how to survive a nuclear terrorist attack when the public is already at wit’s end. But better safe than sorry we suppose and on that note, we present the following rather amusing piece from Belgian media which outlines how best to survive a nuclear disaster. Among the things you should do: grab the money and the iodine tablets. Among the things you should not do: help other people – until you’re sure you’re safe that is.

    From HLN.be (translated)

    It is clear from this morning that there is no link between the murdered guard and nuclear terror investigation. But the message has a lot of people have put thinking. What should you do if terrorists indeed endorse a nuclear power plant?

    The government and the managers of nuclear sites work hard to keep safe nuclear plants and if there is an emergency, the operator will be as fast as possible to bring the situation under control at a technical level. The government will also make every effort to protect the population and the environment. But also as an individual you can protect yourself. The most important nuclear risk in our country are Doel and Tihange. The Study Centre for Nuclear Energy in Mol-Dessel and the National Institute for Radio Elements in Fleurus are risk zones. 

    To avoid exposure to radioactive material and to prevent exposure and contamination, hiding your best at a nuclear incident. Get to a central area of a building, close windows and doors and turn off ventilation. If possible, collect the most necessary (identity card, money …). Also make sure first that you are safe. If possible, you can help other people, but bring your own safety is not compromised. 


    If you’ve got to safety, it is important not unnecessarily to call the emergency services, so not inhibited urgent care. Also make sure there is enough food and drink, warm clothes, blankets, flashlight … make sure that you can at any time following the reports about the disaster.

    In a nuclear accident could release radioactive iodine. It can enter the body through the respiratory tract or contaminated food. The thyroid iodine stores until she is satisfied with it and allows that way for irradiation from within. Through this ongoing radiation increases the risk of cancer and other diseases significantly. By saturating the thyroid with non-radioactive iodine in the tablets, you can prevent your body absorbs radioactive iodine. Iodine tablets do not offer protection against other radioactive substances are absorbed by the body. Against these substances can protect your best to take shelter in time. Take the tablets only when the government recommends it. The tablets provide protection for 24 hours. 

  • I DiD NoT HaVe SeX WiTH THaT…

    I DID NOT HAVE SEX...

  • Another Volcker Moment? Guessing The Future Without Say's Law

    Submitted by Alasdair Macleod via GoldMoney.com,

    Some reflections to read over the Easter holidays

    With Japanese and Eurozone interest rates becoming increasingly negative, and the Fed backing off from at least some of the planned increases in the Fed funds rate this year, economists are reassessing the interest rate outlook.

    Economists lack consensus, with some expecting yet more easing, based on the apparent collapse in cross-border trade last year. The fact that the Bank of Japan and the European Central Bank see fit to pursue increasingly aggressive monetary reflation is taken as evidence of underlying difficulties faced in these key economies. And lingering doubts about the sustainability of China’s credit bubble point to a high risk of a credit-induced slump in the world’s growth engine.

    Other economists, citing official US data and relying on the Fed’s statements, point out that unemployment levels have more than satisfied the Fed’s target, and that core inflation has picked up to the point where the Fed would be fully justified to increase interest rates over the course of this year, or risk overheating in 2017.

    These two opposite camps conflict in their forecasts, but where they fundamentally differ is in expectations of future economic growth. Far from displaying the highest levels of macroeconomic discipline, their diversity of opinion should alert us that their forecasts may lack sound theoretical foundation. The purpose of reasoned theory is to reduce uncertainty, not promote it. And the explanation for most of the failures behind modern macroeconomic thinking is the substitution of market-based economics by economic planning.

    The fact that today’s macroeconomics dismisses the laws of the markets, commonly referred to by economists as Say’s law, explains all. Subsequent errors confirm. The many errors are a vast subject, but they boil down to that one fateful step, and that is denying the universal truth of Say’s law.

    Say’s law is about the division of labour. People earn money and make profits from deploying their individual skills in the production of goods and services for the benefit of others. Despite the best attempts of Marxism and Keynesianism along with all the other isms, attempts to override this reality have always failed. The failure is not adequately reflected in government statistics, which have evolved to the point where they actually conceal it. So when an economist talks of economic growth being above or below trend, he is talking about a measure that has no place in sound economic reasoning, and that is gross domestic product.

    GDP

    Gross domestic product in its current form is a relatively recent invention, dating from the 1930s. It was a gift to state-sponsored economists, needing a statistical justification for perfecting their theories of management of the economy. At last, here was a means of measuring the effects of economic policy, and therefore to adjust its future implementation based on evidence. The inconvenience of having to pander to markets had been dealt its final blow. Or so it was thought.

    GDP comes in various guises, but for our purposes, we can define it as the total monetary value of recorded and eligible transactions between two points in time. It tells you nothing more. It does not tell you anything about the reasons for those transactions. It tells you nothing about the future. Economists, politicians and laymen who talk of economic growth miss this point entirely. What GDP does tell you, and only tells you, is how much money has been spent on new products included in the statistics. And, assuming there is no change in the allocation of total spending between qualifying and non-qualifying items, the limitation is simply the total earnings and profits of individuals and businesses applied to the purchase of those products. This is not to be confused with economic progress, which is an entirely different thing.

    So ingrained is the belief that growth in GDP is a desirable objective, that it is akin to heresy to point out its utter meaninglessness. Assume for a moment that the GDP statistic captures all economic activity in a community, conventionally a nation state. Let us also assume that the quantity of money and credit is fixed, neither expanding nor contracting. And let us also assume that the trade balance is always zero. Therefore, all money earned, or made through profits, is spent or saved. Savings are deferred consumption, and through financial intermediaries, invested by businesses in capital goods and working capital. Logically therefore, the following must all be true:

    • All consumption is funded by income, whether it comes from salaries, entrepreneurial profits, income and profits on savings, or government benefits and subsidies.
    • All government spending must be financed by taxes or domestic savings. In other words, if the government increases its spending it must be at the expense of the non-government sectors. Therefore, an increase in government spending does not increase GDP.
    • Imports are paid for by exports.
    • Prices are free to reflect changes in demand for money, and changes in demand between different goods and services.

    It is now be obvious that GDP cannot change from one period to the next. An economy under these conditions is free to evolve, respond to consumer and investment demands, to progress, all with zero “growth”. Therefore, growth in GDP can only be an increase in the quantity of money deployed, and it cannot be anything else.

    This was broadly the situation when gold was money. Broadly, because there was also the cyclical effect of bank credit, which was formalised by the UK’s Bank Charter Act of 1844. At least it evened out over the cycle, and despite the ups and downs of bank credit, the British, European and American economies progressed, as consumers were offered and acquired improved goods throughout the industrial revolution, at least until the disruption of the First World War. This empirical example, which is fully explained by sound economic theory, confirms that the substantial leaps in economic progress at that time could not be quantified by GDP.

    This is not to say that disruption in the rate of economic progress does not cause changes in GDP in a fiat currency environment. But the relationship between changes in GDP and true progress is not predictable and is wholly unsuited as an economic indicator.

    Having established that GDP is simply a measure of the quantity of money spent on goods and services specified in the statistic, and nothing more, the basic goal of modern economists in a world of unlimited fiat currency is exposed as meaningless. This mistake is a source of considerable error, not only among policy-makers, but commentators as well.

    The Fed has accepted this by default, because it does not target GDP. Instead, it operates a dual mandate of price inflation and unemployment, as proxy indications for advance warning of when monetary stimulus should be moderated. And here again, the use of these statistics is no substitute for a proper understanding of price formation and the forces that drive employment. So we shall look at these in turn.

    Inflation

    This term is abused to the point where it is commonly assumed to mean a rise in prices. Rising prices may or may not be a symptom of inflation, which was originally defined by economists as a monetary phenomenon. To point out this confusion is important, because an expansion in the quantity of money and credit in fiat currencies is only one of three main factors that affect the overall price level:

    1. When the quantity of money and credit is increased and that increase is applied to the components of GDP or the consumer price index, it represents the application of new money, which in time devalues the previously existing money employed for the purposes of these statistics. It generates extra demand, which fades and reverses as the purchasing power of the currency falls to accommodate the increased quantity of money introduced. Further increases in the quantity of money are required to negate the tendency for demand to return to the previous level after the effect of the initial increase in the quantity of money wears off.
    2. When money and credit is withdrawn from activities not included in the GDP or CPI statistics, and then applied to goods and services which are included, the effect is to create a temporary increase in recorded demand as in the first case above. This time, the effect of expansion and subsequent contraction of demand can be detected in GDP and CPI statistics, while the effect of the withdrawal of money applied to non-GDP items is ignored.
    3. By far the most important factor driving prices is changes in the overall preference individuals have for holding a reserve of money. It is this factor which can either enhance a fiat money’s purchasing power, or lead to its total collapse, and is independent from changes in the quantity of money and credit in circulation. Changes in preference override the first two cases in a fiat money economy, and should be regarded as the most risk to currency stability.

    In all three cases, the change in prices comes from the money side of transactions and not that of goods. This is the exact opposite of the common belief that money is an unchanging constant behind all transactions, having a valid objective-exchange value, and that inflation is rising prices of goods. We have collectively taken the past attributes of gold as money, and applied them without modification to modern fiat currencies. It is illogical to regard the declining purchasing power of a fiat currency as only a long-term effect.

    The Fed’s open market committee is targeting an inflation rate of 2%, by which the members mean that they will attempt to achieve an outcome, through monetary policy, whereby prices expressed in dollars will rise by that amount. The correct description of their objective is they seek to reduce the dollar’s purchasing power in a controlled fashion. In pursuing this objective, they rely on the quantity theory of money, which was devised when gold was money, and is applied without modification for current fiat monies. In other words, ignoring inter-temporal factors, they assume there is sufficient correlation between changes in the quantity of money and credit, and the overall price level for the purposes of monetary policy. The relationship was broadly true in the days when gold was money, because its common role as money extended beyond national boundaries. Any tendency for changes in preference for or against it, varying its purchasing power in any one location, were therefore restricted by arbitrage.

    This cannot be true of a fiat currency, whose value as money is contained by national boundaries. In this case, changes in the relative preference expressed by consumers between money and goods are potentially the most important variable affecting the purchasing power of money, as described above.

    Attempts to manage the decline in a currency’s purchasing power are sure to fail, if only because it is not consumer preferences that are being targeted. If central bankers have missed this point, so have all the economists and commentators employed by the investment banks and by the media.

    Central bankers and economists fail to appreciate how changes in the general price level arise from the money side. The use of a statistic, such as the consumer price index, for inflation targeting is deceiving, misleading policy makers into believing that they can override Say’s law.

    Unemployment

    So far, we have addressed fallacies behind the concept of GDP, the real objective of monetary policy, and also inflation statistics, which are one of the two proxies for GDP targeting the Fed uses. That leaves unemployment. Unemployment is an unnatural condition, because in accordance with the indisputable theory of the division of labour, people work to acquire from others their needs and wants. This is why without government intervention the unemployment problem tends to resolve itself.

    In the US, even a cursory analysis of the composition of unemployment statistics and the application of seasonal adjustments show them to be wholly unfit for purpose. But to complain about the veracity of unemployment statistics is to miss the more important point, that it is the contribution of the labour force to economic progress that really matters. When intelligent, skilled individuals are working as waiters and barmen, we can say the economy is in transition, because an increase in employment of this nature is probably temporary. When it has a sense of permanency about it and people are not retraining for newly-demanded skills, the economy is not evolving as it should, and progress is being blocked.

    Unemployment, being an unnatural condition, is fundamentally a problem created by the state. The state sets employment legislation, favouring the employee, with the consequence that employers are deterred from taking on staff they would otherwise freely employ. Many states tax employment, raising the cost of it above its use-value. France’s experience is a good example, where high employment taxes and restrictive regulation has resulted in permanently high unemployment rates. Central banks seek to counter these disadvantages by reducing the purchasing power of the currency, in an effort to encourage employers to employ, which has become the basic justification for monetary intervention. It amounts to beating everyone with a stick, then offering a monetary carrot while continuing to weald the stick.

    If the state stopped interfering with the labour market, unemployment would not be anything other than a short-term problem. Even if the state only desisted from further intervention, unemployment would tend to fall, because of the need and desire for people to work. It is natural for the unemployment rate to drift lower over time, so the fact that unemployment statistics, imperfect though they are, have reached the Fed’s target after eight years of zero interest rates, should not be a surprise.

    Conclusion

    The likelihood that some economists will be right about the future course of interest rates should not be taken as evidence of their grasp of economic theory. However, we can conclude that the recent fall in the dollar’s purchasing power, expressed in energy and commodity prices, has reduced the likelihood of negative interest rates. If the dollar’s purchasing power falls much further, the market will expect higher interest rates, so this then becomes the likely outcome.

    The question will then arise as to whether or not the Fed will dare to raise interest rates sufficiently to stabilise the dollar's purchasing power. If the Fed delays, it could find itself facing a difficult choice. The level of interest rates required to stabilise the dollar’s purchasing power would not be consistent with maintaining the record levels of debt in both government and private sectors. Thirty-six years on it could be another Volker moment. It would surely be a mistake to think that Fed officials are unaware of this danger, and would recommend early action to avoid this outcome.

    Alternatively, if the dollar’s purchasing power begins to rise over the rest of this year, the Fed can defer interest rate rises, and perhaps introduce negative rates. It would be the most desired outcome for the Fed, being a continuation of indefinite economic suppression with a lower likelihood of financial crisis.

    It is changes in the dollar’s purchasing power that really matter, and forecasting interest rates based on GDP, consumer prices, or employment levels not only relies on bad, incomplete and misleading statistics, it has no basis in sound economic theory. It’s the course of markets, encapsulated in Say’s law, that should guide economists and commentators alike.

  • Nassim Taleb: "I Prefer Sanders To Trump But Absolutely No Hillary"

    It seems for Nassim "Black Swan" Taleb, less is more. After perfectly summarizing the circus that is the American Presidential election camapaign in 17 words last week, he appears to have gone one step further with a two-word summation: "No SHillary."

    Last week's epic Facebook rant…

    "The *establishment* composed of journos, BS-Vending talking heads with well-formulated verbs, bureaucrato-cronies, lobbyists-in training, New Yorker-reading semi-intellectuals, image-conscious empty suits, Washington rent-seekers and other "well thinking" members of the vocal elites are not getting the point about what is happening and the sterility of their arguments."

    To which he appended the following 17 perfectly succinct words:

    "People are not voting for Trump (or Sanders). People are just voting, finally, to destroy the establishment."

    And today, taking to Twitter, he offered some sane support to Donald Trump:

    But followed that up with:

    "I far prefer Bernie Sanders to Trump but absolutely no Hillary."

    To which he appended, so succinctly:

    "No SHillary"

    Which seems to sum it all up perfectly.

  • Europe Is Paying A Heavy Price For Complacency As Existential Crisis Deepens

    Via GEFIRA,

    Europe faces an existential crisis. Current European leadership and European leading elites have manoeuvred Europe into a situation that will spin out of control and result in a vicious circle of violence. History teaches that ethnic minorities can bring about unrest in the long run. The imams in Europe, very often in the payroll of Saudi Arabia or another Gulf country, take care that their fellow Muslims retain their religious integrity and keep themselves away from the infidels. Meanwhile European authorities struggle with a violent group criminals who converted to radical Islam and became even more dangerous. The Dutch jihadist reintegration approach helped, criminal and jihadist El Bakraoui to evade the Belgian justice system, before he blew himself up in Brussels. To understand what happening on the old continent, let us bring up the tree main topics, and then elaborate on them.

    1. The US, NATO, Brussels, Turkey and Saudi Arabia are in alliance to use terrorism in the proxy war against Syria, Russia and China. This policy has come home to roost. It is not Russia, as Hillary Clinton once said, but Turkey and Europe regret their policy in Syria1).
    2. Leaders from the Gulf countries support European Muslim communities with finance; in many cases Europe-based imams do not even speak any of the European languages. Surprising as it is, European leaders encourage Saudi Arabia, Qatar or Kuwait to meddle with European internal affairs by letting them to have a say in religious matters. Turkey’s government refers to the Turks that immigrate to Europe as the Turkish diaspora. Recep Erdogan, Turkey’s president, promotes Turkish nationalism among Turkish Muslims in Germany.
    3. Authorities fear the revenge of the populous against Muslim minorities. European ruling elites are terrified at the onslaught on minorities by uncontrolled mobs. There have been numerous attacks on mosques and refugee homes.

    1.  The Syrian proxy war comes to the street of the European capitals.

    In 2012,two years before the tragic events in Ukraine unfolded, a document of the Department of Defence obtained by “Judicial Watch” describes the situation in Syria as a proxy war with Russia, China and Iran on one side, and Western countries, the Gulf States and Turkey on the other2). Not only did the “Friends of the Syrian” alliance provide the Jihadists with arms, but NATO also supplied the Patriots air defence system to protect the supply routes into Syria. Christians in Europe already warned from the very beginning for the consequences of the war in Syria for the Christians there. A conservative Christian European newspaper wrote in 2013: “The decision of Qatar, Saudi Arabia, the United Arab Emirates, the United States and some European countries to provide the Syrian opposition with more weapons will also have significant implications for Christians in Syria.” 3)

    The European governments were ambivalent in their attitude and approach to Europeans that traveled to Syria in support of the different jihadist groups.
    Peter van Uhm, Commander of the Royal Netherlands Army until 2008, said in 2011: “I have nothing else than respect for the Dutch who go to fight in Syria”4) The primary concern voiced by Frans Timmerman, Vice-President of The European Commission, was that these young fighters could die in Syria.5) From the very beginning, National Security agencies in Europe were aware of the enormous risk these Jihadists posed to society. Not only did the “respected” European Jihadists spread terror among the poor Syrian and Iraqi population, but they were also a threat to Europeans if they returned to their country of origin.

    The Brussels suicide attacks are a direct consequence of this lenient European approach to the Jihadists. In 2013, a major Dutch newspaper wrote: “Jihad fighters who have come back from the Syrian Civil War are still not prosecuted in the Netherlands.” “According to various sources in the Dutch Muslim communities, Jihadists from Belgium also chose the ‘Netherlands-route, because of the milder approach of the Dutch authorities to such fighters.”6)  While this is not yet clear for the international mainstream media, Ibrahim El Bakraoui, the jihadist that blew himself in Brussels, wanted to be deported by the Turkish authorities to the Netherlands instead of Belgium, to avoid prosecution in Belgium. The Dutch authorities helped El Bakraoui to evade the Belgian justice system.

    Between 2012 and 2016 European Jihadists paraded in the social media in graphic images, holding cut-off heads while Dutch authorities try to socialize these very same terrorists. According to the Dutch National Television: “The Dutch Jihadists who have returned from Syria so far are not immediately arrested and prosecuted, but get help and support to reintegrate and rebuild their livelihoods. With this approach the authorities hope to prevent the cities to which the fighters have come from being further radicalized.” “The Dutch authorities have taken a range of administrative steps like assistance, helping the Jihad combatants in finding a job and education, and providing them with community activities for the youth. The idea is not to let the returnees alienate themselves from society; it is believed that repressive measures might further radicalize them.“7) While the major of Amsterdam keeps on talking with returned jihadist, the city witnessed its first beheading. This month a young Moroccan boy was beheaded and his head was put on display at a busy street in Amsterdam. 8)

    This approach can only be understood if we assume that European governments warrant the behavior of their citizens in Syria and Iraq. The Dutch authorities are fully aware that the Jihadists from the Netherlands not only fought against the Assad army, they also knew that Dutch terrorist blew themselves up at a market in Baghdad somewhere in 2013. European authorities turn a blind eye to their fellow citizens who committed war crimes in Syria and Iraq. 

    2. Europeans allow foreign governments to meddle in its affairs

    Europe is not only confronted with a violent and cruel enemy that shows little respect for life, but it has also created an environment on the continent where Muslim extremism could blend into Muslim communities. A big part of the European Muslim community supports the Jihad in Syria. It is remarkable that Salah Abdeslam, one of Europe’s most wanted terrorists, could live in Brussels without anybody informing the authorities about him. While European authorities try to integrate minorities into the European society,  governments in Muslim countries try to undo this effort.

    Countries like Turkey, Saudi-Arabia and Qatar blatantly interfere in European domestic affairs. By financing mosques, Muslim foundations and providing the European Muslim community with imams, these countries try to exert their political and religious influence deep into the European heartland. Their political and religious message undermines the integration of the European Muslim community into the European society.

    According to the UK-based website Independent, the Belgium King personally was involved in the policy that leads to current situation in Brussel : “Keen to secure oil contracts, Belgium’s King Baudouin made an offer to Saudi King Faisal, who had visited Brussels in 1967: Belgium would set up a mosque in the capital, and hire Gulf-trained clerics. The 1967 deal gave the Saudis a 99-year, rent-free lease. The pavilion was refashioned by the Saudis, opening in 1978 as the Great Mosque of Brussels, as well as the seat of the Islamic and Cultural Centre of Belgium (ICC).” 9)

    Moderate Moroccans were handed over to the Saudi Salafists by the European elites. Since 1967, not much has changed. During the opening of a mosque in 2014 in the Dutch port city of Rotterdam, its mayor criticized the mosque for appointing an imam from Qatar instead of one from the Netherlands. Also, the German media reported the involvement of Saudi Arabia in a similar situation: “The Berlin Al-Nur organization is considered as an offshoot of the Lebanese part of the Muslim Brotherhood, which campaigns for an Islamic character of the states in the Middle East.”

    The Al-Nur mosque is influenced by Salafists and is a venue for people of different nationalities with different political and ideological environment. Close relations exist to Saudi Arabia. A Saudi sponsor enabled the purchase of the mosque building and supported the community financially.” Turkey’s government tries to prevent the Turkish population from integrating into the European community. Turkish nationalism is not limited to “Blut und Boden” (blood and soil) but it also includes religion. Erdogan likes to address the Turkish people abroad as the “Turkish diaspora”. While the Europeans are told to become “multi-cultural European,” immigrants get the opposite instruction from the rulers

    Also the Turkey’s government tries to prevent the Turkish population from integrating into the European society. Turkish nationalism is not limited to “Blut und Boden” (blood and soil) but it also includes religion. Erdogan likes to address the Turkish people abroad as the “Turkish diaspora”. While the Europeans are told to become “multi-cultural European”, immigrants get the opposite instruction from Turkey and the Arabic rulers. The Europeans decry France and German nationalism while at the same time extreme Turkish nationalism in Europe is encouraged by Erdogan, the de facto ruler of Turkey.10)

    3. European residents will take matters into their own hands.

    The slaughtering of Theo van Gogh by a radical Muslim in 2004, the eradication of the Charlie Hebdo publishers, are a message to Europe intelligentsia: “do not interfere with our religion.” Especially the murder of Theo van Gogh resembles the Salman Rushdie case. Theo van Gogh was killed for his artistic criticism of the role of woman in Islam. European left oriented intelligentsia are still grappling with the fact that precisely they became the targets while they are most sympathetic towards marginalised Arabic groups. In Europe, no publisher is willing to publish a genuine Islam critic without the consultation of an Islam expert. The publishing of a seemingly innocent book can turn out to become a deadly endeavour. We think it is a matter of time before the next generation of young academics and artist is willing to confront Islam as they have done with Christianity.

    The danger for European states are not only the terror attacks but also the consequences of these attacks. After every terror attack, the number of incidents against mosques increases. The European ruling elite is terrified of their own people. They are extremely sensitive to everything that can incite violence against the Muslim minorities. Two days before the Brussels attacks, Geert Wilders stood trial for chanting “We want fewer Moroccans”. But even Geert Wilders’s party (PVV), is afraid of the populace at large. The party has strong connections with the Israel lobby; it demands of its followers a 100% loyalty to Israel11). The Jewish community is at risk to become itself the victim of angry European mobs. The party does not accept members to such an extent that an attempt by one of its leaders to create a youth movement resulted in him being expelled12).

    Groups, like HoGeSa (Hooligans gegen Salafisten, Hooligans against Salafists) are ready to take the “burden” of revenge for the attacks on their shoulders, seeing that the German state structures are not able anymore to ensure the security of their nation. This can result in a carnage of Muslims in German cities, especially if one of the victims of a terror attack would be a far-right group member.

    HoGeSa was losing its popularity among radicals because of internal disputes, but it could be quickly revived amid terror attacks13). This group has already proven that it does not renounce violence, during the Cologne rally in October 2014 and during the Essen demonstration last September, they show up with baseball bats.14). In Germany violent threats are now mainly limited to refugee camps, but this can change overnight. If Germans lose their faith in the ruling establishment (as it is happening slowly with a growing popularity of the AfD party), groups like HoGeSa, or Hoolizei, might gain traction. The harbinger of the threat of violent uprising against Muslims haunts Germany. In Connewitz, near Leipzig, an Arab restaurant was demolished. According to Mail online “The mayor of a German city has spoken of ‘terror on the streets’ of his city after far-right thugs ran riot in scenes reminiscent of the anti-Semitic Kristallnacht attacks in 1938. Burkhard Jung, mayor of Leipzig, has condemned the ‘naked violence that took place’ after doner kebab fast food restaurants- were destroyed, cars were set- ablaze- and shop windows- were smashed- by around 250 hooligans of LEGIDA the local branch of PEGIDA, an anti-migrant, anti-EU organization.”These hooligan groups are not widely supported: the highest attendance of the HoGeSa demonstration was recorded in Cologne in 2014, when about 4000 people took to the streets. The Pegida movement (Patriotic Europeans Against the Islamisation of the West), though not radical, is able to attract even more than 20 thousand people.

    The 2011 proxy war against Russia, China and Syria backfires. The first people have been killed in the streets of Brussels and Paris. Amsterdam and Berlin will follow suit while in Leipzig we saw the first signs of a pogrom. We feel Mogherini, a member of the European ruling elite, and fully responsible for the mess, has all reason to break down in tears.

  • Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves

    Much like BoJ governor Haruhiko Kuroda, Paul Krugman thinks that the key for Japan when it comes to overcoming decades of deflation is a positive outlook.

    “Japan needs to reach a point where everyone believes that it has pulled out of deflation. And then if that can be believed, then it may be able to stay out of trouble thereafter,” he told an audience in Tokyo last September.

    That rather ridiculous pronouncement is reminiscent of something Kuroda said last summer: “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.”

    In other words, Krugman and Kuroda believe that Japan can wish its way out of deflation. Krugman’s comments in Tokyo came around 10 months after he visited Japan in 2014. On that trip, he’s said to have helped convince PM Shinzo Abe to delay a planned sales tax hike. “That nailed Abe’s decision — Krugman was Krugman, he was so powerful,” Japanese economist Etsuro Honda said, recounting a meeting between the economist and the premier.

    Well, 16 months has passed since that fateful visit and virtually nothing has changed in Japan. In fact, the Japanese have since taken a further plunge down the Keynesian rabbit hole by taking interest rates negative and not only is inflation still languishing at essentially zero, stocks are some 20% off their highs and this month the yen actually hit its highest levels since Kuroda announced the second round of QE two Octobers ago.

    With the entire enterprise now falling apart, and with JGBs yo-yoing around like penny stocks as traders try to game BoJ POMO, Krugman was back in Tokyo this week to attend a panel discussion on the global economy with Abe and senior Japanese policy makers. There, the good professor called for Abe to scrap the sales tax hike and introduce more fiscal stimulus. NIRP, he said, is probably “a good idea.”

    Excerpts from Krugman’s speech can be found below.

    We are now in the world of pervasive economic weakness. In many ways, we are all Japan now. This complicates policy for everyone including Japan.

     

    We are seeing the difficulty in achieving goals through even very bold and unconventional monetary policy. Kuroda-san here, we will clearly need to speak about that. Monetary policy needs help from fiscal and possibly other policies but certainly on the fiscal side, and certainly does not need to be struggling against fiscal policy moving in the opposite direction. That is not just a Japanese issue but very much a global issue at this point.

     

    Despite everything, despite everything that Mr. Kuroda is doing, the rise in the yen, which is a very unfortunate development from Japan’s point of view, is driven by the weakness of other major economies.

     

    Monetary policy has been, in most places, the only game in town. It’s their line because fiscal policy has been politically paralyzed. Here, less so, but still in fact, of the three arrows by far the largest, so far has been monetary. Mr. Kuroda has done most of the lifting here. We are seeing the limits of monetary policy. We are seeing that it becomes difficult when you try the unconventional methods, we can argue this but it seems to be having diminishing effect. Negative interest rates, it is remarkable that that turns out to be possible. I do think it was the right move to make but it is very hard to push it further. The effects are proving to be limited. If we look elsewhere, if we look in Europe, despite another very able essential banker, the ECB seems to be losing traction. Here, as you know better than I, inflation expectation seems to be fading. Wage growth is not what it should be. We are seeing that the policy that has been the principle lever for trying to deal with this global weakness is not as effective as we had hoped and not as effective perhaps as it seems to be recently.

     

    Everything we have seen for the past seven years suggests that fiscal policy remains effective, especially effective in these circumstances. It has been very difficult to apply it, a few years of bad debt, political conflict, the Europe is divided among counties, the United States is divided between parties, but fiscal policy is effective and the global environment right now is one where economies really, really need fiscal support. The idea that one should be prioritizing long-run budget issue over fiscal support now seems to me to be extremely misguided. Obviously I am talking about the consumption tax here. Two points are following on all of that. You notice that I did not say anything about structural reform. That is not because I am against it but because structural reform seems largely beside the point on this crucial issue of boosting demand. Some kind of structural reform might spur private investment, which is good but that is rarely what is emphasized. Some other kinds of reform, the Abenomics, by expanding the future labor force helps to offset the demographic headwinds that the economies face. So all of that is good but I do worry that sometimes the talk of structural reform becomes an excuse not to deal with the primary immediate issue of sufficient demand, of fighting deflation or low-flation, inadequate inflation, which has got to rely on monetary policy. But as I said, that has limits and on fiscal policy which needs to be more focused on that immediate need than it has been.

    Ok, so there’s a whole lot of words to make one overarching point: the exceptional measures central bankers have undertaken in pursuit of boosting inflation and recovering demand lost to the global financial crisis aren’t working.

    As usual, Krugman doesn’t understand why anyone is worried about long-term sustainability when there’s so much room to be completely irresponsible in the myopic pursuit of short-lived surges in aggregate demand and inflation. Fiscal stimulus – i.e. helicopter money, i.e. pay people to dig holes and then pay other people to fill them up again – is what’s needed, Krugman figures. 

    When it came time for the Q&A, Abe gingerly told Krugman that Japan is getting slightly concerned about its debt burden, which, when measured in yen, has so many zeros that it barely fits on a 32” monitor. “About two years ago, I had a pleasure meeting with you, Professor Krugman. At that time, Japan was able to be going out of the deflation then we have set for ourselves the 2% inflation goal,” Abe began. “We were talking during that time that a rocket has to go out of the atmospheric region, which means that an escape velocity has to be earned in order to lift the Japanese economy out of deflation and we were looking for a good speed to do that.,” he continued. And then we got this: “We worry about the accumulated debt. That is a source of another concern. What to do about it?”

    Yes, “what to do about it,” Professor Krugman? Predictably, Krugman’s answer was “spend more”:

    The case for spending now is quite strong despite the debt. It is true for multiple reasons. Fiscal stimulus is very important as an aid to monetary policy in breaking out of deflation. the concerns about the debt, I don’t want to wave away entirely but one thing we have learned from Japan but also from other advanced countries is that stable advanced nations that borrow in their own currencies have a very long road for them to have a fiscal crisis. People have been betting against JGBs since about 2000. All of them have suffered financial disaster. The robustness of the market is very strong. It is even hard to tell a story. If someone says Japan would be like Greece, tell me how that happens. You have your own currency. The worst that could happen would be that the yen would depreciate which would be a good thing from your point of view. I do not think that is a thing to be worried about.

    Whatever you say Professor. But sooner or later this madness has to end. Japan has been kicking the can for decades and demographic shifts would seem to suggest that the tax base will shrink while dependency on the state will rise. Meanwhile, the economy is stuck in what certainly appears to be a perpetual, never-ending recession while the country’s gargantuan debt pile presages a spectacular implosion sometime in the not so distant future.

    When Japan descends into failed state status two years from now, we wonder if Krugman will still be the revered figure he is today among Japanese policy makers. We also wonder whether, once everyone “ceases to believe they can fly,” it will be Kuroda or Abe who gets the blame for turning one of the world’s most “advanced” economies into a banana republic.

  • I Love The Smell Of Napalm In The Market

    Authored by Sean Corrigan, originally posted at TrueSinews.com,

    That usually perceptive and always interesting observer of the financial Zeitgeist, Bloomberg’s estimable Mark Gilbert, recently penned an article entitled: “Milton Friedman’s ‘Helicopter Money’ Is Looking Less Crazy.” In response, I mailed him the comments which follow (with light editing) here.

    After running through the standard complaints of the serial interventionists about how ineffective monetary policy has become (read: how we ordinary people keep frustrating their Olympian schemes), Mark concluded his piece:-

    ‘Zero or negative interest rates are failing to stir consumer prices, while the Fed’s attempt to normalize monetary policy looks likely to backfire embarrassingly. Because the money-machine isn’t doing what the rule book suggests it should, the engines of economic growth continue to splutter and misfire. So the argument that might in the end have the most appeal for Friedman is the one that, intellectually at least, appears to be the weakest: If everything else is failing, why not try helicopter money? ‘

    Why not, indeed? Well, here is a by no means exhaustive list of several reasons for not crossing yet another bridge too far in the mindless pursuit of a specific annual rate of change in a smoothed, filtered, hedonised, sampling of a wholly arbitrary collection of consumer goods and services, to the exclusion of all other goals, the repudiation of the lessons of past experience, and the complete abnegation of common sense.

    Firstly, given that every professional in financial markets would be horrified to suffer a mandatory dilution of their equity holdings, how do you imagine they and everyone else would react if they got similarly diluted in this manner in terms of that much more important element of their property, their money?

    Also, assuming that it were to be done and that when  done it did indeed give rise to an isolated if intense round of buying and consequent price readjustment—as its quack, would-be perpetrators so fervently hope—do you really imagine it would also magically dissolve all the locked-in impediments to the natural adjustment between supply and demand from which we suffer and which are what actually prevent people from making a better living for themselves, or from founding and running more flourishing businesses right now?

    How, too, could you guarantee that the damage done to the inevitable losers from such as crass act of redistribution would not be so extensive—and possibly so non-linear and self-aggravating—as not just to mitigate, but perhaps to entirely negate, the winnings of their luckier fellows?

    Looking at the sorry record of all the ongoing attempts at pushing the rate of change of the CPI index back to the mystical 2% p.a. level, can you also assure us that this phantasmagorical target will indeed be hit this time and that you will not just fuel another wasteful round of property buying, financial market speculation, crude manipulation of corporate balance sheets, public sector profligacy, or currency upheaval?

    Next, once you had undertaken such a far-reaching and—dare I say—Jacobin act of disruption, how could you ensure that trust in money would henceforth be regained so that it could resume its vital function both as medium of exchange and as unit of account? This is a key proviso because, without either, you must be aware that there can be no real hope of encouraging any sustainable economic growth after the initial inflationary impulse subsides.

    In light of all the above and given that the helicopter flight would be a nakedly political undertaking—and hence a thoroughly capricious act of will to power—how would you re-establish the sort of confidence in the continuity of law, of practice, and in the institutional framework that is also sine qua non for putting capital, whether corporate or individual, at risk over the longer horizons required for genuine material progress to be made?

    Respectfully, you can’t. So your helicopters are going to be launched by Admiral Simplificateur-Terrible from the decks of USS Pandora and will return after their mission to land at Fort Regime Uncertainty, accomplishing little which is positive and much which is actively deleterious in the meanwhile.

    ‘Less crazy’? Less crazy-seeming than heretofore, given the craziness already under way, perhaps. But less crazy, per se? No!

  • This Is What's Happening To People Who Live Near The Worst Gas Leak In US History

    Submitted by Carey Wedler via TheAntiMedia.org,

    On February 18, SoCalGas and the national media declared the “worst methane gas leak in U.S. history” permanently sealed, but just over a month later, hundreds of Porter Ranch residents who evacuated — and are now returning home — are suffering the same symptoms they suffered when the gas leak was active. They are experiencing nausea, dizziness, fatigue, headaches, nosebleeds, and many, including children, are also experiencing a new ailment: irritated skin rashes across their bodies.

    Neither SoCalGas, which owns the Aliso Canyon facility, the Los Angeles County Department of Public Health, nor any other government agency has provided a concrete explanation for these continued symptoms. In fact, one of Los Angeles County’s top medical officials recently told local physicians to refrain from performing tests to determine what is causing the symptoms. Late last week, preliminary lab tests from an independent UCLA study found evidence of benzene, a carcinogen, in at least two Porter Ranch homes. Benzene was reported to have been released in the 100 metric tons of methane that spewed into the Los Angeles basin for four months — a fact SoCalGas previously attempted to downplay and withhold.

    Reemergence of Symptoms

    On March 4, Los Angeles City Councilmember Mitchell Englander issued a press release reporting the Department of Public Health had received at least 150 complaints of reemerging symptoms, including nosebleeds, dizziness headaches, nausea, and skin rashes. Now, the Health Department says it has received 300 complaints since residents began moving home after SoCalGas told them it was safe to do so.

    Many residents have said the rashes, which can be extensive, are new and did not occur during the initial, months-long gas leak from October to February. During that time, thousands of families were evacuated and the Department of Public Health received 700 health complaints. Others reported experiencing skin irritation before they relocated, though it appears to be more widespread now.

    Residents who left Porter Ranch for temporary housing accommodations and recently moved home told Anti-Media about their symptoms (many still have not moved home, fearful it is still unsafe). Helen Ritenour, a Porter Ranch resident who left the area in December, said that within two days of returning to their home, she and her family began feeling sick.

    “The main symptoms are headaches, difficulty breathing, watery eyes, coughing and general fatigue. It feels like I’m in a thick fog of sorts that’s oppressive,” she said. She and her husband were not eager to return home, still concerned about toxins in the area and the health of their newborn baby. But amid long delays receiving reimbursements from SoCalGas — and unable to charge more expenses on their credit card — they moved back to Porter Ranch. Ritenour told Anti-Media that like many other families, she and her husband have had to pay out-of-pocket for relocation services — and have experienced long delays receiving reimbursement checks.

    Gabriel Khanlian, a resident who serves as the Chief Technology Officer for Save Porter Ranch, a group formed in 2014 to fight the massive, aging, and leaking facility before the blowout even happened, also said he and his family have suffered symptoms since moving home.

    “My daughter Tatiana keeps getting large rashes, red welts and bumps all over her body. Her skin is dry and her behavior has changed significantly and she is very cranky. She has a loss of appetite and is sleeping a lot more,” he said. “My sons, Jayden and Mason, have been getting bloody noses, headaches, upset stomachs, burning eyes, runny nose, dry skin.”

    gas leak

    He described other troubles they’ve had, noting his sons are experiencing “anxiety, fear, frustration, anger, and stress from not having the ability to play. Their personalities have changed majorly.”

    He said his wife, who experienced symptoms during the initial methane gas leak, is now experiencing them more severely than before.

    Kyoko Habino, a Porter Ranch resident and co-founder of Save Porter Ranch, said:

    “When I go home to pick up stuff or do a few things, within a few minutes, I start having a dull headache and coughing and having palpitations. Nosebleeds follow later on often. My partner has had headaches, fatigue, and a burning sensation in his chest at the same time I have. Our cat has had a nosebleed and vomited. When I am away from home, the headache goes away instantly. The cough and nosebleed stay for a while, and are gone after.”

    Walter Arwood, a Porter Ranch resident, experienced nausea, among other symptoms:

    “I am rolling over sick right now. My stomach has been so upset, I have gotten all the headaches back, my husband has had three nose bleeds in two days, and now a visiting relative was out of breath just walking up the stairs at my home. How is it safe?”

     

    Arwood was evacuated during the methane gas leak and recently returned home. “Since we have moved back the symptoms have immediately returned,” he said. “Itchy skin is the only new thing.  We have all of our air purifiers on and the scrubber running and still it is happening.”

    Residents in surrounding areas, including Chatsworth and Granada Hills, have also reported a reemergence of symptoms.

    Sandy Crawford, a resident of Granada Hills, told CBS News in February — after the methane gas leak was sealed — that within a few hours of returning home, her youngest son had trouble breathing and suffered a nosebleed. Crawford moved her sons back to their hotel, and after trying again to move home and experiencing the same results, she returned to the hotel for a second time. She told Anti-Media they recently tried sleeping at home for a few nights and did not feel symptoms, but she remains afraid they could return. As a result, she is staying at the hotel.

    “Avoid performing any toxicological tests”

    Though these symptoms are pronounced, neither SoCalGas nor the Department of Public Health has offered a definitive explanation of what is causing them. In fact, Dr. Cyrus Rangan, Director of the Bureau of Toxicology and Environmental Assessment at the Los Angeles County Department of Public Health, recently issued a “Health Update” to “primary care, urgent care, internal medicine, and emergency medicine providers” in the area cautioning them against conducting tests on patients with symptoms.

    The advisory, dated Tuesday, March 8, requested that healthcare professionals “look for alternate etiologies other than air contamination,” and “avoid performing any toxicological tests,” claiming “these are not recommended and are unlikely to provide useful data for clinical evaluation of patients.”

    Rangan said in the notice that if no “alternative etiology” is found, doctors should consult with him. While it is an indisputable act of due diligence to recommend doctors check for other potential causes of symptoms, it is unclear why a top public health official would discourage doctors from performing tests to better understand illnesses among their patients.

    “It’s not to steer the community away from thinking it’s not an environmental issue,” Rangan insisted to the Los Angeles Daily News, adding that, as the local paper summarized, “even when the gas was leaking he did not recommend that doctors perform toxicological tests because there is no test that can determine if a person was exposed to natural gas.”

    However, residents are concerned not just with methane, but with other contaminants found in it, from mercaptans to benzene to other toxic emissions (mercaptans are odorants added to natural gas to make it detectable, and are believed to have caused symptoms when the gas leak was active). Many found Rangan’s explanation to be insufficient and an attempt to ask doctors to “look the other way.”

    Further, his request that doctors refrain from conducting tests appears to contradict his own supplementary declaration provided for a hearing held last Friday to extend relocation benefits to residents, many of whom feel they were rushed out of temporary housing, evidently, before it was safe to return home.

    In that statement, Rangan referred to the continued illnesses as “perplexing,” proceeding to offer potential explanations not previously disclosed to Anti-Media when he spoke with us:

    “It could be that there are persistent levels of contaminants still present in the community, or there could be other exposures in areas of the community that were missed in the external environmental monitoring, or perhaps gases may have saturated the soil at the Aliso Canyon facility or other substrates and are being released now that the source has been sealed.”

    In spite of Rangan’s multiple hypotheses, however, he has offered no definitive explanation, nor does it appear the Department of Public Health has seriously looked for one (meaning it could be helpful for physicians to run tests on their patients). Asked to investigate a persistent oily residue coating the outside of residents’ homes and the playground of at least one park, representatives sent from Public Health reported they found “no evidence of any oily residue and no health concern for residents or visitors.”

    When residents complained to Councilman Englander, representatives from his office confirmed the playsets were coated in oil and SoCalGas agreed clean the park. Three other parks were also shut down amid concerns about the residue, which Rangan insists is safe, aside from causing skin irritation. Mandi Bane, a lab assistant in Rangan’s office, told Anti-Media they have no intentions to test the soil in the community.

    Because of incidents like this — such as Dr. Rangan downplaying concerns about long-term side effects from mercaptans, though there is little research to support his assurances — some residents increasingly doubt Public Health’s commitment to helping the community. Many have complained they reported symptoms and received little more than packaged statements in response. Some received no response.

    Rangan’s office did conduct door-to-door surveys of residents two weeks ago to gather information on what could be causing the symptoms, an effort reported to be joined by state officials. Bane told Anti-Media they recorded over 200 reports and it would take time to process them before they could comment.

    Rangan’s office also requested outside assistance to conduct indoor air sampling, after it was  “determined that such a protocol is beyond the expertise of the Department of Public Health.”

    Rangan first solicited the help of the EPA to conduct indoor air testing for contaminants, but it was expected to take until May to develop a protocol. Last week, however, Dr. Michael Jerrett, a professor and chairman of UCLA’s Fielding School of Public Health, shared preliminary test results from a small sample of homes with Public Health. The independent study raised concerns about the presence of benzene, a known carcinogen, as well as hexane, in two homes. As a result of these findings, UCLA has partnered with Public Health and Dr. Jerrett and his team will begin sampling 120 homes in the coming days to conduct further analysis. According to a press release from the Department of Public Health posted Saturday:

    “As a continuation of Professor Jerrett’s independent study, an indoor dust swab sampling was completed in seven homes. Benzene and hexane were found in two of the homes. Benzene and hexane, at certain levels, have known toxic effects on humans, but it is unknown whether the levels found are high enough to be of health concern. Professor Jerrett is sharing these findings with the community and will continue to conduct independent scientific analyses.”

     

    As the Daily News explained, Jerrett’s results showed “higher and more variable concentrations of particulate matter in the outdoor air at locations close to the leak site compared to those farther away, according to the Health Department. Particulate matter is described as tiny pieces of solids or liquids in the air, such as dust, dirt, soot, or drops which can irritate the skin, eyes, nose, throat, respiratory, and cardiovascular systems.”

    SoCalGas, however, has failed to provide a conclusive explanation for residents’ illnesses. At a protest on Friday, March 4, which culminated outside the company’s Community Resource Center located in Porter Ranch’s main shopping center, SoCalGas spokeswoman Lisa Alexander spoke to Anti-Media about the reemergence of symptoms. She left the onus of responsibility on the Department of Public Health.

    “You know, we recognize that people are saying that they have symptoms, and we hear that, we see the news stories, we’ve been in touch with Department of Public Health to inquire about that,” she said, adding that Public Health expected symptoms to decrease as the blowout’s emissions dissipated — and with them, the mercaptans.

    gas leak

    “Is there one house that has been tested that shows a harmful level at this time?”

    SoCalGas, at the request of County Supervisor Michael Antonovich, agreed to conduct indoor air testing on a ‘random’ sample of 70 homes in Porter Ranch last week. Residents’ increasing distrust of the utility was further intensified when some residents reported they had received calls from the gas company to perform indoor testing on their homes, but were asked if they had legal counsel. If they said yes, multiple residents reported, they were told they were not eligible for the ‘random’ testing.

    Nevertheless, SoCalGas shared these test results at a relocation hearing last Friday to assert air quality had returned to normal. SoCalGas’ attorney James Dragna also reportedly cited the Department of Public Health as an authority on the matter.

    Matt Pakucko, president of Save Porter Ranch, spoke to local CBS radio station KNX shortly after the hearing:

    “This is such propaganda by SoCalGas,” he said. “They used their indoor testing that they just performed over the last week as their main facts on the ground. But they have said themselves weeks ago, months ago, that the mercaptan and the methane — the only things they test for — would be long gone. So they went and tested what they knew would be long gone… I can’t believe the judge bought it.”

    Judge Emilie H. Elias reportedly asked, “Is there one house that has been tested that shows a harmful level at this time?” However, Dr. Jerrett’s results, which showed two homes with potentially hazardous levels of benzene, were not presented.

    Jerrett’s preliminary findings were shared with the county just before the hearing, and county attorney Deborah Fox expressed a desire to submit them to the court for an appeal this week.

    Though the media reported the judge’s ruling as a tepid victory for residents, who will receive one more week of paid relocation services, county attorney Deborah Fox had originally sought two months. She then sought a 30-day injunction, ultimately settling for a single week extension.

    Pakucko said of the ruling:

    “Any sane person would say [the testing should be complete before a decision is made] … there are people reporting health issues, the cause of which has not yet been discovered.”

    Save Porter Ranch and much of the community are campaigning to have the entire, 3,600-acre Aliso Canyon facility shut down.

    SoCalGas had previously been ordered to extend relocation services as residents began reporting symptoms again after the gas leak, a decision the company fought. Residents have also complained they have not yet been reimbursed for the months they were relocated, citing long waits, convoluted customer service, and financial strain caused by SoCalGas’ reimbursement process.

    On Tuesday, County Supervisor Michael Antonovich announced the court had suspended its Friday ruling, presumably in light of the county’s submission of Jerrett’s results. Los Angeles Times reporter Abby Sewell tweeted an update that residents now have until March 29 — an extra four days — pending further legal proceedings.

    As the legal battle continues, the difficulties of obtaining comprehensive, reliable air tests remain complicated by the fact that humans can smell mercaptans at lower levels than equipment can detect them. Pakucko told Anti-Media residents have consistently been reporting the smell of mercaptans, though SoCalGas spokeswoman Melissa Bailey assured Anti-Media via email there were no current leaks.

    Neither SoCalGas nor the regulatory South Coast Air Quality Management District (SCQAMD) offered an explanation to Anti-Media regarding elevations in methane emissions since the gas leak was sealed. They are not consistently high, but nevertheless contradict assurances from the gas company that air quality has returned to “normal.” For example, from March 17 to March 22, methane levels in the community exceeded 3 ppm (parts per million); SCAQMD, itself, says “Results greater than 3 ppm suggest some additional sources of methane.” A March 13 sampling of air at the site of the repaired well, SS-25, found methane levels at 46 ppm; according to SCAQMD, “results greater than 10 ppm suggest a considerable additional amount of methane is present.” Though SCAQMD cautions the levels of methane have been dropping since the methane gas leak was sealed in February, 46 ppm is still 43 ppm above ‘normal.’

    Further, a recently published government survey, initiated after the Aliso Canyon blowout, found 229 leaks in natural gas storage fields across California. Though the leaks were deemed minor, 66 were found at Aliso Canyon.

    As Porter Ranch residents continue to deal with the fallout from the months-long environmental disaster, communities around the country face similar battles. From the increasing number of communities plagued with unsafe levels of lead (among other chemicals) in their water and soil, to the radioactive leaks in New York, Florida, and elsewhere across the country, Americans face an increasingly apparent, non-partisan struggle against aging, dangerous infrastructure — and the apathetic, often negligent authorities and corporate hegemons responsible for maintaining it.

    In Porter Ranch, SoCalGas and public officials have, at least, begun to acknowledge something is still amiss in the community. As Pakucko told Anti-Media:

    “They’ve stopped saying everything’s fine. I’ve got two words for ‘everything’s fine’: Flint, Michigan.”

  • Anonymous Threatens To Expose Ted Cruz Prostitution Scandal

    There were many shots fired yesterday as the “wife feud” between Donald (and Melania) Trump and Ted (and Heidi) Cruz hit new lows, dragging none other than the National Enquirer tabloid into it and escalating the #CruzSexScandal into one of the most talked about topics on social media.

    To be sure, Trump washed his hands of the affair saying “I have nothing to do with the National Enquirer and unlike Lyin’ Ted Cruz I do not surround myself with political hacks and henchman and then pretend total innocence. Ted Cruz’s problem with the National Enquirer is his and his alone, and while they were right about O.J. Simpson, John Edwards, and many others, I certainly hope they are not right about Lyin’ Ted Cruz.”

    Cruz was adamant, repeating that the Enquirer article linking him to five women is “garbage, complete and utter lies” and that “it’s tabloid smear, and it is a smear that has come from Donald Trump and his henchmen,” a perturbed Cruz told reporters at a press conference in Wisconsin.

    On this one occasion, however, Trump may be telling the truth because the source of the original Cruz rumor is none other than Donald Trump’s old nemesis, the same hacker collective which recently released his social security and phone number, Anonymous.

    As the following YouTube clip released on March 15, the Anonymous hacker group warned Ted Cruz last week to leave the race “or else.”

     

    As part of its #OpCruz assault, the hacker collective threatened to release information on Cruz engaging with prostitutes if he did not leave the race. Some of the highlights from the clip:

    Mr. Cruz, we are now demanding that you exit this race within 24 hours, or Anonymous will release all of the information we have found. 

     

    It’s time that we tell America what’s hiding behind the curtain.

     

    Have you heard of the expression “candy wrappers”? Do you recall visiting prostitutes?

     

    Mr. Cruz, we are now demanding you exit this race immediately or Anonymous will release all of the information that we have found. Your so-called underground acts that you think were done in the dark, will be brought out for all the public to see. It will be sent to every media outlet to publicize your disgusting behavior.

     

    We assure you it will go viral on every social media platforms in a matter of minutes. Mr. Cruz your disgusting campaign ends now; your campaign to gain power with ulterior motives that include your wife will also be exposed.

     

    There is nothing from your past that won’t haunt you.”

    In other words, the Anonymous #OpCruz started long before Trump and the Enquirer got involved, and in fact was already active when the Cruz SuperPAC released the first naked photo of Melania Trump early last week.

    Judging by a twitter account linked to anonymous, it may well have been an Anonymous leak to the Enquirer that started it all, in which case all of Cruz’ accusations aimed at Trump (such as even this most bizarre one) are slanderous, although there is no way to know for sure.

     

    The question now is whether Anonymous will carry through with its threat, and release the factual backing of its accusations either directly or via media outlets, just as it did in its feud with Trump, or will it quietly back down.

     

    The latest tweets from the Anonymous-linked twitter account suggest that something big may be indeed imminent:

  • Bombshell: King Of Jordan Blames Turkey For Terror In Europe, Says Israel "Looks Other Way" On Al-Qaeda

    When Vladimir Putin told the world that ISIS gets a significant portion of its funding by selling oil to Turkey, he had just finished meeting with Jordan’s King Abdullah.

    The King is no stranger to confronting the jihadists. Last year, Abdullah threatened to fly combat missions against Islamic State himself following the release of a horrific video that depicted a Jordanian pilot being burned alive in a cage.

    Here is the picture the King sent to the militants:

    In January, Jordan agreed to share intelligence with Russia in the fight against ISIS and when the French began flying sorties against the extremists following the Paris attacks, their staging ground was an undisclosed Jordanian location.

    In short, Jordan has at times appeared to be more genuine in its commitment to fighting extremism than say, the Saudis, whose determination to spread Wahhabism adds fuel to the ideological fire that drives the groups the kingdom claims to be fighting. “The global war — what I call the Third World War by other means — is one that is a generational one,” Abdullah told CNN in January. “Not only inside Islam, as we as Muslims gain the supremacy against the crazies, the outlaws, of our religion, but also reaching out to other religions that Islam is not what they have seen being perpetuated by 0.1% of our religion.”

    On Friday, we learn that Abdullah met with US lawmakers in secret during the week of January 11 and disclosed that British SAS forces as well as Jordanian soldiers had been on the ground fighting ISIS in Libya since at least the beginning of the year. “Jordanian slang is similar to Libyan slang,” Abdullah said, explaining how his men have been able to assist the British in cleaning up the mess NATO made in Libya which, you’re reminded, became a lawless wasteland in the wake of the uprising that toppled Muammar Gaddafi in 2011.

    But the revelation that British SpecOps were fighting in Libya wasn’t the most interesting thing to emerge from the meeting which purportedly included John McCain, Bob Corker, the chairman of the Senate foreign relations committee, and House Speaker Paul Ryan. Indeed, according to notes seen by The Guardian, Abdullah also implicated Erdogan in perpetuating Sunni extremism as well as purposefully sending terrorists to Europe. The King also suggested that Israel is allowing al-Nusra to operate on its borders because Netanyahu views the al-Qaeda affiliate as a counterweight to Hezbollah.

    Below, find the bullet points from The Guardian presented with no further comment because frankly, nothing further need be said here.

    The memo indicates that Abdullah also told US lawmakers:

    • The Turkish president, Recep Tayyip Erdogan, “believes in a radical Islamic solution to the problems in the region” and the “fact that terrorists are going to Europe is part of Turkish policy, and Turkey keeps getting a slap on the hand, but they get off the hook”.
    • Intelligence agencies want to keep terrorist websites “open so they can use them to track extremists” and Google had told the Jordanian monarch “they have 500 people working on this”.
    • Israel “looks the other way” at the al-Qaida affiliate Jabhat al-Nusra on its border with Syria because “they regard them as an opposition to Hezbollah”.

  • You Are (Still) Here

    Buybacks blacked out, option expiration ramp over, and real investors fleeing… what happens next?

    Dip, Jawbone, Rip… Repeat…

     

    And close-up…


     

    But this time it’s different, 150 days of almost perfect correlation and co-movement means nothing – right?

  • Trump Aide "Spills The Beans" On Heidi Cruz As Media Goes Crazy Over #CruzSexScandal

    The “wife” feud, which initially many though was merely a sideshow between Donal Trump and Ted Cruz, has taken a quick turn for the ugly and is escalating dramatically with every passing day, and now that even the National Enquirer has entered the fray, has rapidly devolved to nothing less than the surreal twilight zone.

    For those who need a primer of what is rapidly becoming the biggest “issue” in the presidential race, here is a reminder, courtesy of our post from last night “Tough Guy Ted Warns “Sniveling Coward” Trump: “Leave My Wife Alone“:

    • Phase 1: Cruz Reps “Cross The Line”, when a “SuperPAC” run by a Cruz supporter launched a Trump ad campaign showcasing a naked posing Melania Trump
    • Phase 2: Trumps Warns Cruz: “Lyin’ Ted Cruz just used a picture of Melania from a G.Q. shoot in his ad. Be careful, Lyin’ Ted, or I will spill the beans on your wife!”
    • Phase 3: Cruz firez back, warning Trump: Don’t Do The Same Thing To Me That [My Reps] Just Did To You (Or Else!).
    • Phase 4: Trump Goes There, retweeting an image “comparing” Heidi Cruz and Melania Trump
    • Phase 5: Cruz Goes Full Rambo, says  ‘Donald, you’re a sniveling coward and leave Heidi alone.’

    Or, as we summed up, “a Cruz fan uses naked images of Trump’s wife to disparage him to saintly ‘Utah-ans’; Trump pissed; Cruz warns Trump not to reciprocate; Trump shows ugly picture of Cruz’s wife; Cruz unleashes inner Hulk as Trump dares to do what Cruz reps did to him.”

    That was just the last few days.

    And then the tabloids jumped on board.

    Overnight, Trump-linked National Enquirer, alleged that the Texas senator is “hiding five different mistresses.” According to its source, identified as a “Washington insider,” “private detectives are digging into at least five affairs Ted Cruz supposedly had,” and “the leaked details are an attempt to destroy what’s left of his White House campaign.” The supposed affairs are detailed in the Enquirer’s most recent print issue.

    Though unconfirmed, the rumor sparked chatter across social media Friday with the hashtag #CruzSexScandal, with reactions, as expected, ranging from one end of the spectrum to the other. 

    Considering the source, we doubt there is much veracity to the alleged “Cruz sex scandal”, although the tabloid has had its share of “broken” news stores in the past.

    As was to be expected, Cruz immediately denounced the article as “garbage, complete and utter lies” and accused his opponent Donald Trump of being the source of the story as Reuters reports.

    “It’s tabloid smear, and it is a smear that has come from Donald Trump and his henchmen,” a clearly perturbed Cruz told reporters at a press conference in Wisconsin, as the battle for the Republican presidential nomination reached new levels of personal rancor.

    Trump issued a statement saying he was not responsible for the article.

    “I have nothing to do with the National Enquirer and unlike Lyin’ Ted Cruz I do not surround myself with political hacks and henchman and then pretend total innocence,” Trump said in the statement. “Ted Cruz’s problem with the National Enquirer is his and his alone, and while they were right about O.J. Simpson, John Edwards, and many others, I certainly hope they are not right about Lyin’ Ted Cruz.”

    In other words, just as Cruz had “nothing” to do with the first naked photo of Melania that started off this latest scandal, so Trump had “nothing” to do with the Enquirer article.

    Alas, the damage for Cruz may already have been done: the article exploded on Twitter overnight on Thursday. By Friday morning #CruzSexScandal was a worldwide trending topic on Twitter.

    And while Trump has distanced himself from the Enquirer article, very much the same way Cruz distanced himself from the original attack ad, an aide to Donald Trump on Friday did fulfil the businessman’s threat to “spill the beans” on Republican presidential rival Ted Cruz’s wife, Heidi.

    As The Hill first reported, Trump spokeswoman Katrina Pierson rattled off a list of attacks three days after Trump first made the threat. 

    “Spilling the beans is quite simple when it comes to Heidi Cruz,” Pierson said in an interview with MSNBC’s Steve Kornacki. 

    “She is a Bush operative; she worked for the architect of NAFTA, which has killed millions of jobs in this country; she was a member on the Council on Foreign Relations who — in Sen. Cruz’s own words, called a nest of snakes that seeks to undermine national sovereignty; and she’s been working for Goldman Sachs, the same global bank that Ted Cruz left off of his financial disclosure,” Pierson said. 

    “Her entire career has been spent working against everything Ted Cruz says that he stands for,” she added. 

    Cruz spokeswoman Alice Stewart responded to the remarks in a statement to The Hill, saying, “There’s no low the Trump campaign won’t go.”

    Earlier in the MSNBC interview, Pierson said “this isn’t about Heidi Cruz, this is about Melania Trump. Melania Trump was the one that was attacked.”

    Incidentally, she is right, even though that means that this most hypnotic scandal in the republican presidential primary race – and perhaps any US presidential race yet – is nowhere close to over as neither candidate can possibly concede defeat on a topic that is “near and dear” to the heart as one’s wife.

  • Thunder CLOuds Arrive: 6 CLOs Hit Triggers, Fail Tests

    Over the past several months, we’ve kept a close eye on post-crisis CLOs or, CLO 2.0s, as they’re affectionately known. In the interest of not recounting the story in its entirety here (i.e. for the sake of brevity), here’s a list of posts those interested should review:

    Issuance fell off a cliff in the wake of the crisis, but eventually rebounded, and by 2014, issuance was running at a $124 billion per year clip (comparable to auto loan-backed ABS annual supply, for reference). Supply slipped to around $95 billion last year and then, well, then it all fell apart.

    The percentage of CLO assets carrying a negative ratings outlook jumped five-fold in just three months to 12.6% according to Moody’s and as Morgan Stanley has been keen to document, the market is literally crumbling.

    As of the end of February, the median US CLO 2.0 equity NAV stood at -1.99 with the number of CLO 2.0 deals’ equity tranches currently having NAV below zero soaring by 30% from 348 to 453.

    Over the same period, the underlying asset deterioration continued, we went on to note. By February 29, the median CCC assets in US CLO had reached 4.30% from 3.90% in January. Needless to say, this trend will only continue as the debt-laden US O&G space continues to spiral into oblivion. “Among the 180 loan issuers with price drops larger than 5 points in February, we see 32 issuers in Oil & Gas,” Morgan Stanley warns, before adding that “851 CLO transactions have exposure to these 180 issuers, with a median exposure of 7.07% in the CLO 2.0 space across 654 deals.”

    To determine how it will all play out, we can take a look at history. Let’s go to Morgan Stanley one more time:

    From late 2007, CLO equity investors suffered from a sharp decline in loan prices followed by a rapid increase of asset downgrades. The number of US CLOs failing junior OC triggers climbed and led to an increasing number of deals missing payments to equity tranches. The proportion of deals cutting off payments to equity tranches peaked in 2Q 2009, right after the bottoming of loan prices and the peak of loan downgrades in 1Q 2009.

    Got it. So the credits in the collateral pool suddenly all sour at once, the triggers are hit, and the subordinated tranches are a really bad place to be. Take a look at the red line here:

    That’s missed payments to the equity tranches when the market blew up in the wake of the crisis (i.e. that’s CLO 1.0s). The question is how long before that dynamic plays out in 2.0s. As we noted late last month, Moody’s and S&P have delivered their first downgrades of post-crisis CLOs. Here’s a look at the tranches affected by Moody’s decision: 

    Now, we learn that Silver Spring and Silvermore, along with four other CLO 2.0s are failing their interest diversion tests. That is, they’ve hit their triggers and payments to the equity tranches are in jeopardy pending how things look next month. Here’s Deutsche Bank: 

    Looking at interest diversion tests, there hasn’t been any diversion of cash interest payments to the equity tranche of post-crisis CLOs so far, but it will come down to the status of these tests for the payment dates in April. Right now there are six CLOs failing their interest diversion tests. One of those, Jamestown IV, is just barely failing the test. Three other deals have coverage right above their respective interest diversion triggers, see Figure 20.

     


     

    Apart from these deals most other CLOs still have a good buffer before tripping interest diversion tests. Out of the 589 post-crisis broadly syndicated CLOs that have interest diversion tests and are still in their reinvestment period we find twenty deals (including the three mentioned in Figure 20) that have a buffer of one point or less before tripping the test. Other deals have a larger buffer. Figure 21 shows how well the 589 deals are covered, in terms of passing the interest diversion test. We show the data normalized by the initial collateral balance. The graph shows each deals collateral test par value relative to the initial collateral balance plotted against their interest diversion trigger, normalized the same way. Finally, the red line shows where the trigger lies, so the distance from the red line to the blue dot representing each line represents the interest diversion test buffer.

     

    Despite Deutsche’s attempt to strike an upbeat tone, what the above means is that the market is beginning to crack and if you get anything out of Morgan Stanley’s recent series of updates, it should be that it won’t be long before there’s (much) more trouble in OC trigger land. 

    Meanwhile, issuance was actually up this month, but we wouldn’t get too excited about the prospects for the leveraged loan market – supply was still some five times lower than last March.

    So keep the faith we suppose and remember: Citi can’t imagine how CLO mezz could possibly be any more attractive.

    Oh, and don’t forget that next month banks will reevaluate credit lines on RBL for the beleaguered O&G sector. We’ll leave it to readers to determine for themselves what that means for CLO 2.0s, but we will give you a hint. Match up the following table with the “Deal Name” column in Figure 20 shown above.

  • Bitcoin Market Technical Analysis and Commentary – 2 26 2016 (Video)

    By EconMatters

    We delve into the technicals of the Bitcoin Market in this video.

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Mar 26

7 HARSH REALITIES OF LIFE MILLENNIALS NEED TO UNDERSTAND

Millennials.

They may not yet be the present, but they’re certainly the future. These young, uninitiated minds will someday soon become our politicians, doctors, scientists, chefs, television producers, fashion designers, manufacturers, and, one would hope, the new proponents of liberty. But are they ready for it?

Time after time, particularly on college campuses, millennials have proven to be little more than entitled, spoiled, anti-intellectual brats who place far too much emphasis on feelings and nowhere near enough emphasis on critical thinking. To the millennial, words are cause for the creation of safe spaces, alternative ideas must be stifled, and anything they perceive to be a microaggression is enough to send them spiraling into a state of mental distress.

It’s time millennials understood these 7 harsh realities of life so we don’t end up with a generation of gutless adult babies running the show.

1. Your Feelings Are Largely Irrelevant
Seriously, nobody who has already graduated college cares about your feelings. That means that when you complain to your boss because your co-worker mis-gendered you, he’s probably not going to bend over backwards to bandage your wounds. Given feelings are entirely subjective in nature, it’s completely unreasonable to demand everyone tip-toe around you to prevent yours from being hurt. The reality is that people will offend you and hurt your feelings, and they won’t stop to mop up your tears because they shouldn’t have to. Learning to accept criticism, alternative viewpoints, and even outright insults will make you happier in the long run than routinely playing the victim card.

2. You Cannot Be Whatever You Want To Be
This is a comforting lie parents have started telling their children to boost their morale in school. Unfortunately, millennials are now convinced it’s true, especially as society has now decided to push this narrative as well. The reality is if you’re 17 years old and still can’t figure out basic division, you’re not going to be a rocket scientist. If you’re overweight and unattractive, you’re not going to be the quarterback’s prom date. If you lack fine motor skills, you’re not going to be a heart surgeon. It’s okay to accept that you cannot be whatever you want to be. In fact, once you accept this, you’ll be able to focus on the things you can be — the things you really are talented at.

3. Gender Studies Is A Waste Of Money
You heard me. While some millennials taking useless degrees will claim they’re beneficial for teaching or research positions, the reality is that they just put themselves several thousands dollars in debt to learn how to be a professional victim. While you’re struggling to make ends meet after graduation because nobody who pays more than minimum wage is interested in your qualifications and you’re drowning in student loan debt, be sure to check out the next harsh reality before you start complaining.

4. If You Live In America (or UK), You’re Already In The 1%
That’s right. Even though you work at McDonald’s for minimum wage because you got a useless, outrageously expensive college degree, you’re still far better off than the vast majority of the planet. Don’t believe me? Fly to Uganda and check out the living conditions there. Fly to China, Saudi Arabia, North Korea, Iran, Russia, and even European countries like Ukraine and Greece, and you’ll quickly discover just how well-off you really are. While it may be cool these days to dump on capitalism, it’s the only reason you aren’t already worse off.

5. You Don’t Have A Right To It Just Because You Exist
That includes healthcare, guaranteed income, and somewhere to live. Just because you’re here and breathing doesn’t mean society owes you anything. Like the billions of people who lived before you, working hard is a better guarantor of wealth and the ability to comfortably take care of yourself than begging society or the government to do it for you. Demanding healthcare be a right, for example, is equivalent to demanding government force the taxpayer to pay for it. While that may seem like a good idea in theory, it only leads to rationing of care when costs become unsustainable, which negatively impacts not just your health, but everyone else’s, too.

6. You DO Have The Right To Live As You Please — But Not To Demand People Accept It
By contrast, you do have the right to live however you please, so long as it’s within the confines of the law. If you want to cross-dress, smoke marijuana, drink lots of alcohol, have lots of sex, and, yes, even go to school for gender studies, then by all means, go for it. Government should not be allowed to legislate people’s behavior as long as it doesn’t infringe upon someone else’s rights, but that doesn’t mean society isn’t allowed to have an opinion.You don’t have the right to demand people keep their opinions about your lifestyle to themselves, especially if you’re open and public about it. I have as much of a right to comment on the way you live your life as you do to actually live it. Your feelings are not a protected right, but my speech is.

7. The Only Safe Space Is Your Home
No matter where you go in life, someone will be there to offend you. Maybe it’s a joke you overheard on vacation, a spat at the office, or a difference of opinion with someone in line at the grocery store. Inevitably, someone will offend you and your values. If you cannot handle that without losing control of your emotions and reverting back to your “safe space” away from the harmful words of others, then you’re best to just stay put at home. Remember, though: if people in the outside world scare you, people on the internet will downright terrify you. It’s probably best to just accept these harsh realities of life and go out into the world prepared to confront them wherever they may be waiting.