• This Is What Happens To Gold When Citizens Lose Faith In Fiat Currency

  It appears, first slowly and now quickly, the world is realizing that Alan Greenspan was right after all: "Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it."

  As Nick Laird exposes, gold prices are running away in the weakest countries first…

   

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  It can never happen here though, right?

  Source: Sharelynx

   

  

  

  

  

  

• Oil Didn't Wreck Venezuela's Economy… Socialism Did

  Authored by Pascal-Emmanuel Gobry, originally posted at The Week,

  Venezuela's economy is collapsing. The country has topped Bloomberg's "Economic Misery Index," which takes into account several economic measures, for two years. Runaway inflation and high unemployment are plaguing the country.

  The country's government is taking emergency measures, including increasing the price of gas (which is still among the cheapest in the world) and devaluing the currency to tackle runaway inflation.

  If you read much of the commentary, people blame the country's economic woes on the low oil price. It is true that Venezuela's economy is highly sensitive to the oil price, because it is a significant part of the economy. The oil and gas sector accounts for around 25 percent of the country's entire gross domestic product. Venezuela's oil also has high sulfur content, which makes it more expensive to refine, and makes Venezuela's economy more sensitive to oil price drops.

  But while the oil price drop may have been a proximate cause, and an aggravating factor, Venezuela's economic woes predate the current oil price drop by many years, and were going on even while the oil price was high, under President Hugo Chavez. The culprit is clear and obvious: The problem is Venezuela's authoritarian socialism.

  The country has had food shortages for many years, because many foodstuffs are price-controlled. If there's one thing all economists agree on, it's that price controls lead to rationing. And yet, the government insists shortages are due to greedy hoarders. President Nicolás Maduro has recently taken over a supermarket chain, arguing that it was hoarding. The currency crisis also means that food imports are prohibitively expensive, and capital and exchange controls mean there is often no way to produce the money to buy things even when they are available. Venezuela shows us a sight familiar to those who experienced Soviet Communism — long lines to buy food — in an oil-rich country.

  Under Chavez, Venezuela nationalized a swathe of industries, including oil projects, and instituted a 50 percent windfall tax on oil profits, driving away oil companies. Sometimes the government just seized them. The government nationalized agriculture projects and major agricultural companies. It has also nationalized several banks and shut down others. It also took over the cement sector and the country's biggest telecommunications company, as well as utility companies.

  Transparency International ranks Venezuela in the top 20 of the world's most corrupt countries. According to a Gallup poll, 75 percent of Venezuelans believe corruption is rampant at every level of the government. If you were a business owner in a country where the government is seizing companies left and right, you might believe a bribe is the only way to keep your living. Caracas is the murder capital of the world.

  President Maduro recently arrested the mayor of Caracas, a virulent opponent of the regime, on charges of fomenting a coup d'état. TV channels and other media hostile to the regime are frequently harassed, or even shut down. None of these things are due to low oil prices. Instead, they are due to misguided government policies.

  And, for conservatives, it's a useful reminder. Socialism is what produces bread lines in an oil-rich country. In developed countries, economic debates often focus on narrow questions, such as raising the minimum wage, where it's possible for reasonable people to disagree. This leads to an impression that the relative merits of free enterprise and big government policies can be in the eye of the beholder.

  To a certain extent this is true. Or, at any rate, different economic policies affect individual countries differently. Make no mistake: A free enterprise system requires an important role for government. But while unleashed capitalism can have unseemly side effects, no policy produces the kind of sheer economic devastation that authoritarian socialism does. Sadly, Venezuela gives us yet another example.

  

  

  

  

  

• Jeb Bush Drops Out Of US Presidential Race

  With yet another resounding defat under his belt, Jeb Bush has announced his decision to "suspend" his campaign for the Republican Presidentoal nomination.

  • *JEB BUSH DROPS OUT OF U.S. PRESIDENTIAL RACE

  

  As The New York Times reports,

  Jeb Bush suspended his presidential campaign on Saturday, ending a quest for the White House that started with a war chest of $100 million, a famous name and a promise of political civility, but ended with a humbling recognition: in 2016, none of it mattered.

   

  No single candidacy this year fell so monumentally short of its original expectations. It began with an aura of inevitability that masked deep problems, from Mr. Bush himself, a clunky candidate in a field of gifted performers, to the rightward drift of the Republican Party since Mr. Bush’s time as a consensus conservative in Florida.

   

  Mr. Bush’s campaign had rested on a set of assumptions that, one by one, turned out to be flatly incorrect: that the Republican primaries would turn on a record of accomplishment in government; that Mr. Bush’s cerebral and reserved style would be an asset; and that a country wary of dynasties would evaluate this member of the Bush family on his own merits.

   

  “We’ve had enough Bushes” his mother, Barbara Bush, observed, prophetically, before her son had announced his candidacy last summer.

  We wonder if another Tweet to his mom is in order…

  Sorry Mom

  — Jeb Bush (@JebBush) September 17, 2015

   

  

   

  Having finished 6th in Feb. 1 Iowa caucuses, 4th in Feb. 9 N.H. primary; and running in back of pack in early returns in today’s S.C. primary (under 10%), Bush says he’s proud of campaign he’s run…

  “The people of Iowa, New Hampshire and South Carolina have spoken, and I really respect their decision so tonight I am suspending my campaign,” Jeb Bush says in S.C.

   

  “Despite what you might have heard, ideas matter, policy matters,” Bush says

  

  

  

  

  

• Mapping Russia's Syrian Air Campaign: February Strikes At A Glance

  Russia and Iran are on a roll in Syria.

  Just two months ago, it appeared as though Moscow was indeed set to get bogged down in the conflict as the Russian Defense Ministry’s daily airstrike video dump seemed to be at odds with a lack of concrete results on the ground.

  Then, suddenly, Hezbollah had surrounded Aleppo. To be sure, the offensive was telegraphed months in advance (we previewed the assault in October). But the public generally failed to put the pieces together when it came to adding up reports of incremental advances by Assad-allied forces in northwestern Syria. As it turns out, months of hard fought gains proved sustainable and now, the rebels find themselves trapped in Aleppo, where they’ll stage a last stand that’s virtually sure to fail thanks in no small part to Russia’s scorched earth airstrikes and Hezbollah’s expertise in waging asymmetric, urban warfare.

  Moscow has taken criticism from the Western media for continuing to strike rebel positions on the heels of a tenuous agreement to implement a “cessation of hostilities.” From the outset, Russia made it clear that the deal didn’t include “the terrorists” and since everyone fighting Assad is a “terrorist” in Russia’s eyes, the bombing runs have continued unabated.

  Moscow is also coordinating airstrikes with the Kurds and because Putin, unlike Obama, isn’t obliged to pander to Ankara, the YPG have managed to advance quickly west of the Euphrates and are now set to close the Azaz corridor, the last supply line from Turkey to the rebels in Aleppo. Turkey has responded by shelling YPG positions and by demanding the US recognize the group as a “terrorist” element. In short, it’s just a matter of time before the Turks send in the ground troops. Without an intervention by Ankara and Riyadh, the rebellion will fail and the YPG will effectively establish a proto-state on Turkey’s southern border.

  It’s against that backdrop that we bring you the following map which documents Russia’s air campaign as it unfolded in February. There’s also some additional color from ISW, whose assessment is largely accurate if colored by a kind of Russophobic bias.

  

  From ISW:

  Russia also has ratcheted up its military power in Syria since the agreement, with the deployment of the advanced Tu-214R intelligence, surveillance, and reconnaissance (ISR) aircraft to the Bassel al-Assad International Airport on February 15. The Tu-214R will likely work in coordination with the new Russian Su-35S warplanes to conduct quick and accurate precision strikes. Its deployment is another indication that Russia and the regime continue to pursue a military solution to the conflict in Syria.

  Russian-enabled Kurdish advances have applied additional pressure against opposition forces already strained by recent regime advances northwest of Aleppo City. Kurdish forces cleared over 10 kilometers of opposition-held terrain north of the city, seizing the town of Tel Rifaat, the Menagh Airbase, and at least five other villages from the armed opposition from February 6 – 16 with the assistance of Russian airstrikes. Given recent gains, Kurdish forces are positioned to seize the opposition stronghold of Mare’a located along the frontline with ISIS. Kurdish forces are also positioned to seize the town of Azaz located 10 kilometers south of Turkish border. Russian air support for Kurdish forces further escalates tensions with Turkey, which has responded to recent Kurdish gains by shelling recently seized villages adjacent to Azaz.

  

  

  

  

  

• The Absurd Notion Of "Transitory" Is Dead

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  When Janet Yellen testified to Congress last week, she was as usual careful with her words. Alan Greenspan once called it “mumbling with incoherence” but there is very little left to rambling in Yellen’s predicament. Where Greenspan was once the “maestro” and Bernanke the “hero” Yellen is stuck holding the bag, and I think she knows it. In truth, there isn’t the faintest difference between any of them, which is exactly the problem and her source of frustration. The Fed is in grave danger of being unquestionably revealed for the backward, incompetent institution it always was.

  As to the recent stumble, it makes for the most uncomfortable juxtaposition between what the Fed did in December and what the economy and markets have continued to do since mid-year last year. To continue on in that contradiction leaves her no choice but to blame again “overseas.”

  “Financial conditions in the United States have recently become less supportive of growth,” she told the House Financial Services Committee. “These developments, if they prove persistent, could weigh on the outlook for economic activity.”

   

  She meant that convulsions in the stock markets could harm the economy…

   

  Ms. Yellen argued on Wednesday that the rest of the world was to blame. She said the crucial question confronting the Fed was whether the domestic economy is strong enough to keep growing modestly even as the global economy struggles.

  As always, it has to be “overseas” because the BLS says so.

  Ms. Yellen highlighted the “solid improvement” of the United States labor market. The unemployment rate fell to 4.9 percent in January from 5.7 percent a year ago, while the economy added an average of 222,000 jobs a month. Wages also rose more quickly.

  Whether she actually believes the BLS figures or not is another question altogether. If this is still part of the “best jobs market in decades”, where is all the spending? Not only was the Christmas shopping season atrocious, the first estimates for 2016 were even more so. While seasonal adjustments “saved” the retail sales report for January, actual store receipts bury them by agreeing with the unadjusted version.

  Excluding the drug stores, the Thomson Reuters Same Store Sales Index registered a -1.0% comp for January, beating its flat final estimate.

   

  Including the Drug Store sector, SSS drops to a -1.1% comp, missing its final flat estimate. 75% of retailers missed their SSS estimate…The blizzard in January kept shoppers at home instead of the shopping mall that weekend. As a result, holiday clearance has not been selling well. As inventory piles up, retailers missed their SSS estimates and blamed the weather and a weak consumer spending environment.

  In last year’s “unexpected” snows of January, the SSSI gained slightly, while in the Polar Vortex of 2014 the SSSI grew by nearly 4%. From +3.8% to +0.6% to -1.1% all in the frozen confines of three straight bracing January’s leaves out any “residual seasonality” and permits only an all-too-well-defined trajectory. Yellen claims the problem is overseas but, as I write constantly, everyone overseas is pointing right back at US consumers and US “demand.”

  

  It sure looks like a sustained period of contraction (above) and surely “unusual” weakness. Whether or not any economist wants to admit the slightest hint of recession doesn’t really matter, retailers themselves are already filling in that commentary. Walmart missed big, forecasting no sales growth in 2016 instead of 3% to 4% in its past guidance, while Nordstrom set back further the economic narrative with heavy discounting and inventory.

  Analysts considered the best-in-class department store a casualty of the overall sluggish retail environment, particularly as it pertained to discounting across the sector.

   

  Even as the high-end store held the line on storewide promotions, its commitment to matching other stores’ prices contributed to a 1.8 percent dent in its gross margin — a hit that was exacerbated by its need to mark down merchandise to clear inventory.

   

  Paired with a conservative outlook for 2016, Nordstrom’s second-straight quarter of disappointing results reignited investor concern that its exposure to the high-end consumer could translate into softness this year, particularly as the stock market continues to fluctuate.

   

  But perhaps more importantly, its discount Rack stores — which have fueled much of the company’s revenue growth over the past few years — posted their third same-store sales decline for the year.

  High end, low end, the store chain suffered at all ends even though the unemployment rate suggests to orthodox economists the economy is so very close to booming. This disconnect is not even much of one, since the only indication of that kind of possibility, the one that sustains Yellen in public, is increasingly isolated; bringing to mind closer and closer only logical fallacy. Even if it were just retailers, that might be enough of a recession hint, but it is far beyond “just” retailers or the 12% manufacturing economy.

  Corporate America is in the thick of the “worst quarter for profits growth” in the past five years.

   

  In Q4 2015, blended earnings have seen an overall decrease of 3.6 percent and will likely bottom out at 4.2 percent. If earnings continue on their downward trajectory, it will be the first time the S&P 500 has seen three consecutive quarters of year-over-year declines in earnings since Q3 2009.

   

  Prospects are not likely to improve anytime soon, with 381 S&P 500 companies, about 87 percent of the index, having already released earnings updates. The remaining companies (mostly retailers and utility companies) will report updates over February and early March.

  With retailers yet to report, perhaps -4.2% might actually prove quite optimistic. Whatever ultimately the case, three straight quarters of negative earnings is a particularly difficult digression and, as much as economists want to rest all that upon just the dollar, it is, in fact, much, much more serious than earnings. Giving EPS problems the “rising dollar” makes it sound artificial, as if it is just number translations on reported ledgers. What actual businesses are finding, however, is quite real and more so disturbing in just a recession sort of way.

  In 2015, equity investors looking for yield suffered death by 394 cuts.

   

  Last year, the number of dividend reductions far surpassed 2008, according to Bespoke Investment Group, citing data from Standard & Poor’s.

   

  The ratcheting down of payouts to shareholders is a function of weak commodity prices, sluggish growth dampening corporate profits, and a tightening of credit conditions.

  How is that last paragraph immediately above any different from one? The fact that dividends are being dropped on a widespread basis is an open invitation to just that potential. There is a very real cash problem here, front to back, against which the FOMC and economists place the BLS’s various and sundry imputations and statistical models? The amount of corroborative evidence is overwhelming against them, including “overseas” which, again, easily traces back to the sudden and sustained drop in actual consumer activity no matter how low the unemployment drops.

  If it looks like a recession from so many different angles, chances are very good that it is. It is so consistent that even the stock market has finally awoken. The problem, the real problem, is as Nordstrom’s struggles suggest with inventory – it is only beginning. And that point is echoed in “tightening of credit conditions” which haven’t truly tightened in any relatively meaningful way yet. The OECD, for one, is right to be suddenly alarmed, though, as usual, it would have been far more helpful and relevant last year instead of further fostering the absurd notion of “transitory.” Like Bernanke was in his turn, Yellen will be the last to admit it. Sadly for her, she can’t eat the unemployment rate.

  

  

  

  

  

• A Photo Journey Through The Baltimore Ghetto

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

  A Different World

  BALTIMORE – We left the fantasy island of modern finance today. We had to take our pick-up truck in for repairs. The dealers all seem to be in East Baltimore… or east of Baltimore… so we drove out of Mulberry Street to Pulaski Highway and finally over to Merritt Boulevard.

  Just three blocks east of our office, in the Mt. Vernon district, a different world begins. The first indication of it is the old stone prison at the bottom of the hill, first commissioned in 1801. For more than 200 years, Baltimore’s jail has been a disgrace to the city and its correctional efforts. Overcrowded. Filthy. Degenerate.

   

  

  The forbidding Baltimore detention center

  Photo credit: Lloyd Fox / MCT / Landov

  The critical reports go back almost to the day it was built. Back then, as many as half the prisoners were there for failing to pay their debts. (Today, a similar percentage is there for drug crimes. How times have changed! Now, you can stiff your creditors all you want. But watch out. Don’t take drugs. IT’S THE LAW.) But the most recent scandal must top them all…

   

  

  Looking into the Baltimore Jail’s courtyard from above …

  Photo credit: Weyman Swagger / Baltimore Sun

   

  In the 1970s, Baltimore began employing women to police the men in the prison. Then, in 2013, the U.S. Attorney’s Office indicted 44 people, including 27 employees of the prison… and some inmates, too… on charges including racketeering, conspiracy, drugs, and money laundering. But the crème de la crème of the indictment concerned Mr. Tavon White, prisoner and ringleader of the Black Guerrilla Family.

  First, he earned, while a prisoner, as much as $16,000 a month from drugs and contraband. Second, it turns out that, since 2009, he had also fathered five children with four of the female guards – two of whom had his name tattooed on their bodies. Mr. White was convicted and sentenced to another 15 years in the can.

   

  

  Gang leader Tavon White fathered five children with four female guards in the Baltimore City Jail …

  Image via miseeharris.com

   

  Boarded Up

  Once past the prison, we found blocks of public housing – three-story brick buildings with air conditioners sticking out of windows and trash blowing down the alleys. A boarded-up brick house. A boarded-up stucco house. A boarded-up slipform-stone house. The Pillar of Truth Apostolic Church. Ray’s Liquors. Jane’s Liquors. Pam’s Wine and Spirits. Johns Hopkins Hospital. Bail Bonds 24 Hours. More boarded-up houses.

   

  

  Boarded-up row houses in East Baltimore – there are an estimated 16,000 abandoned houses in the city

  Photo credit: Eric Parker

   

  Convenience Mart. Sister Beth’s Palm Reading. Heating Repairs. Mufflers. A Moslem community center. More boarded-up houses. Sally’s Show Bar. Everyday Painting Company (in a house that badly needed painting). Blacks. Hispanics. Burger King. McDonald’s. Kentucky Fried Chicken. Dot’s Sandwiches and Subs. Kae Won Fu Asia Carry Out. Used cars… no credit… bad credit… no problem; $795 Down and You Have a Ride.

  Whiskey River, apparently closed. Discount Shades and Blinds. Sudsville, 24-hour laundry. Pompeiian Olive Oil. Tombstones and monuments. “Pray for Baltimore,” said a billboard. “Vote for Catherine Pugh,” said a large sign. “Where will your next meal come from? Call 211…” More boarded-up row houses, these with porches.

   

  

  Boarded-up shop fronts in Baltimore…

  Photo credit: Edwin J. Torres

   

  We took the road toward Dundalk. More auto dealers. Rundown bars. White men in pick-up trucks. The Poplar Restaurant. Central Masonry Supplies. A liquor store with a purple door. Subs. A huge lot full of white delivery vans. Trucking companies. Strip malls. Auto painting. Bay Concrete. Plumbing Distributor. Chesapeake Pets. Dundalk Liquors.

  Now the brick-and-form stone disappeared. There were individual houses, wood frame with siding or shingles. White. Boxy. Built in the 1940 or 1950s. Thousands of them. The cars in the driveways are recent, but the houses are the same as when they were built. Cheap. Simple. Small.

   

  

  Another Baltimore ghetto view …

  Photo credit: PurpleHaze1100

   

  These suburbs were built when Baltimore’s industries were running hot. The GM assembly plant. Beth Steel’s Sparrow’s Point furnace. Domino Sugar. McCormick Spice. Ordinary working stiffs earned decent wages and lived well.

  But here we are a half a century later… and ordinary working stiffs are in the same houses… earning the same wages (roughly) as they did in the 1970s. Judging from the polls and presidential primary results, they’re not too happy about it.

   

  

  A city official visiting the recently closed squalid detention center

  

  

  

  

• Prominent Democrat Official To Bernie Sanders: "Go F–k Yourself"

  For those who still believe that only the GOP establishment has lost its nerve with its fringe frontrunner of a candidate, here is proof that when it comes to Bernie Sanders’ surprisingly strong performance to date, the Democrat party is just as unhinged that Hillary Clinton’s primary campaign, which was supposed to be smooth sailing, has been anything but.

  As the Hill reports, a former deputy executive director of the Democratic Congressional Campaign Committee (DCCC) on Friday lashed out at presidential hopeful Bernie Sanders in a post on Medium titled “Go fuck yourself, Bernie.”

  

  The post was in response to Sanders implying that rival Hillary Clinton was praising President Obama in order to “win support from the African American community where the President is enormously popular.“

  English, who is black and who was profiled two years ago by Politico, was not happy: “It’s not just Black people that love Obama. The President is ‘enormously popular’ among all Democrats. Welcome to the Party,” former DCCC official Brandon English wrote in his post.

  “Do you have any idea how belittling it is to reduce Obama to the President that the Blacks like?” English noted that both Sanders and Clinton have been attempting to curry favor among black voters.

  Well, if so, it has not been working for Sanders as the following data confirms:

  In 5 majority black precincts, Clinton has an 84 to 4 delegate lead over Sanders.

  — Nate Cohn (@Nate_Cohn) February 20, 2016

  Facts aside, English decided to go to town with his ad hominem attack: “In a world of voting rights abuses and gerrymandered districts where Black voters are constantly disenfranchised, it’s nice to have someone speak directly to our needs for a few months every 4 years,” he said.

  Toward the end of his piece, English did soften his criticism: “So do I actually mean it when I say Go F— Yourself, Bernie? No. Everyone’s allowed to have a bad day,” he wrote. “Everyone makes mistakes when every word is captured on tape. If Bernie wins the nomination, I’ll be knocking on doors for him in Cleveland. “But for today, and for that comment, and for anyone that tries to diminish Obama’s presidency to ‘He’s popular with black people,’ Go Fuck Yourself.”

  His full post below:

  Go Fuck Yourself, Bernie: Obama isn’t just the President of Black people.

  In @BET interview, Sanders accuses Clinton of cozying up to Obama in order to win African-American votes: pic.twitter.com/x9O4dmvnKI

  — Liz Kreutz (@ABCLiz) February 18, 2016

   

  1. It’s not just Black people that love Obama. The President is “enormously popular” among all Democrats. Welcome to the Party.

  2. Do you have any idea how belittling it is to reduce Obama to the President that the Blacks like?

  3. Aren’t you the one that got shouted down by Black Lives Matter protesters at Netroots Nation, canceled all your meetings in a huff, talked to your advisors and then suddenly realized you needed to start parroting Black Lives Matter catchphrases in all of your speeches?

  4. Have both you and Hillary been putting out policies to “win support from the African-American community”? Yeah. And you know what? That’s a GOOD thing. In a world of voting rights abuses and gerrymandered districts where Black voters are constantly disenfranchised, it’s nice to have someone speak directly to our needs for a few months every 4 years.

  5. When politicians suck up to minority groups, its called pandering. When politicians suck up to white people, it’s called campaigning.

  * * *

  So do I actually mean it when I say Go Fuck Yourself, Bernie? No. Everyone’s allowed to have a bad day. Everyone makes mistakes when every word is captured on tape. If Bernie wins the nomination, I’ll be knocking on doors for him in Cleveland.

  But for today, and for that comment, and for anyone that tries to diminish Obama’s presidency to “He’s popular with black people,” Go Fuck Yourself.

  

  

  

  

  

• Caught On Tape: Ukraine Nationalists Trash Offices Of Russian Banks; Police Refuse To Intervene

  Two years after the US State Department, and specifically Victoria Nuland, hand-picked Ukraine’s next government in the aftermath of the Euromaidan riots which led to a coup and the ouster of then president Yanukovich and the appointment of a US puppet government led by the increasingly unpopular Arseniy Yatseniuk, tens of thousands of people in the Ukrainian capital came to various observances of the “Day of the Heavenly Hundred”. a term which refers to those who died during the months of protests in Kiev that culminated with President Viktor Yanukovych fleeing.

  Things promptly devolved, however, when hundreds of people decided to commemorate some of Ukraine’s most violent days with even more violence. The video below shows some of the scuffles which broke out early in the day.

  While a civil war rages in the country’s Eastern Donbass region, demonstrators threw rocks through windows at the offices of Alfa Bank and Sberbank and damaged furniture and equipment inside. Protesters also vandalized the offices of the holding company of Ukraine’s richest man, Rinat Akhmetov. Police did not intervene according to AP.

  The latest bout of anger comes amid a political crisis with the resignation of several reform-oriented politicians earlier this month who alleged continued corruption in the top echelons of the Ukrainian government. A no-confidence vote against the country’s prime minister failed to pass this week as the governing coalition frayed.

  At the forefront of today’s violence were members of Ukraine’s radical nationalist organizations. They vehemently reject any concessions to the east and are angered by authorities’ failure to address Ukraine’s endemic corruption. Akhmetov, whose wealth springs from mining and steel in the east, is a target of their anger.

  “We need to have a third Maidan,” said Nikolai Kokhanovsky, a leader of the Organization of Ukrainian Nationalists, using the common term of the protests of 2014 and those of the 2004 Orange Revolution. New protests would “sweep away this corrupt government and pro-Russian oligarchs who have betrayed our revolution of dignity.”

  “Russia and the oligarchs are guilty for life in Ukraine becoming worse and worse,” said 21-year-old protester Ruslan Tymchuk, who was dressed in camouflage and wielding a bat. 

  Actually Ukraine was doing relatively well until a CIA-led effort to destabilize the country in late 2013 succeeded, and culminated with the violent coup of February 2014. It has been downhill ever since, but for an angry, hungry and cold population, logic is often times futile.

  And so, with the anger quickly rising to the surface, violence broke out against the symbol of what conventional wisdom sees as the reason behind Ukraine’s sad state: Russia and specifically its bank branches.

  As a result, Ukrainian nationalist radicals wrecked the offices of Russian companies Sberbank and Alfa-Bank in Kiev and accused the Russian banks of “financial occupation of Ukraine,” throwing rocks and other foreign objects at the buildings and shattering their windows.

  As noted above, the police refused to intervene while Russian assets were being trashed. They did prevent the mob from setting the Sberbank office doors on fire, but the attackers managed to get inside the Alfa-Bank office. They trashed the furniture and glass partition walls inside the bank, shouting nationalist slogans, including: “Glory to Ukraine! Glory to heroes!”

  Members of the volunteer battalions which participated in Kiev’s military campaign in East Ukraine, activists from the far-right Ukrainian Insurgent Army (UPA), and other radical groups were also among those responsible for the violence RT reports.

  According to LifeNews, Ukrainian security forces have not made a single arrest in connection with the attacks on the Russian banks.

  Later on Saturday, several dozen camouflaged man arrived at Maidan Square (also known as Independence Square) in central Kiev, which was the venue for the 2014 protest. They identified themselves as representatives of the “revolutionary right forces staff” and read out a manifesto in which they demanded the resignation of the government, the reversal of the Minsk peace agreements, and the release of unspecified political prisoners.

  More troubling for the ruling US-puppet regime is that two years after the Maidan riots, Ukraine’s nationalists have now openly turned against the government: the demonstrators also called for an indefinite protest on the Maidan, proclaiming that “we won’t leave until this criminal regime leave,” RIA-Novosti reported, a regime which they themselves helped created two years ago.

  For now the fury of the nationalists is focused on the banks, initially those belonging to Russia. We wonder how soon until similar violence against bankers in a world whose interlinked economies are promptly deteriorating, becomes a daily event.

  Here is a video of today’s attack:

   

  And here is a clip of the office of eastern Ukrainian oligarch, Renat Akhmetov, ransacked on the same day.
  

  

  

  

  

  

• Why According To One Bank, Massive Central Bank Intervention Is Imminent

  Any time the relative performance of global financials to US Treasuries has stumbled as far as it has, as shown in the chart below, it has meant one thing – a major central bank intervention was imminent.

  At least that’s the interpretation of BofA’s Michael Hartnett, who shows that in order to provide the kick for the bounce in this all too important “deflationary leading indicator”, central banks engaged in major unorthodox easing episodes, whether QE1-3, or the ECB’s QE.

  

   

  Why intervene now? Here are the problems according to Hartnett:

  • Problem 1: US economy in “bad Goldilocks”, i.e. US economy not hot/strong enough to lift global GDP & EPS; but not cold/bad enough to induce global coordinated response 
  • Problem 2: global policy-maker rhetoric in recent days shows “coordinated innocence” not stimulus, all blaming global economy for weak domestic economies (“Overseas factors are to blame”…Japan PM Abe; “drag on U.S. economy from greater-than-expected-slowdown in China & other EM economies“…FOMC minutes; “increasing concerns about the prospects for the global economy”…ECB Draghi; “the change in China’s growth rate can be attributed in part to weak performance of the global economy”…PBoC)

  Problem 2 is static, meant for media propaganda and jawboning; it can easily be removed once the global economy takes the next leg lower.  Which incidentally would also resolve the gating factor of Problem 1 – as we have said for months, the Fed and its central bank peers need the political cover to launch more stimulus.

  And in a reflexive world, where the “economy is the market”, this means just one thing – a big leg lower in stocks is the necessary and sufficient condition to once again push stocks higher, as policy failure is internalized, and global risk reprises from square 1.

  This is Bank of America’s summary, warning that unless a major policy intervention is enacted, the market will then sell off to the next support level, below the 1,812 which has proven so stable since August.

  Stabilization of “4C’s” (China, Commodities, Credit, Consumer) allowed SPX 1800 to hold/bounce to 1950-2000; weak policy stimulus in coming weeks could end rally/risk fresh declines to induce growth-boosting policy accord.

  Here is a summary of the near-term events which stocks are betting on do not disappoint: G20 Shanghai (February 26-27); ECB (March 10), BoJ (March 15) & FOMC (March 16).

  And as documented previously, the one main near-term event Hartnett is focusing on is the Shanghai meeting next weekend. Recall:

  We remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations (currently heading sharply south – Chart 1) and credit conditions.

  In other words, Hartnett expects a “Shanghai Accord” to be unveiled next weekend, one where like the Plaza Accord three decades earlier, the Yuan will be massively depreciated, which ironically would halt all piecemeal Yuan devaluation on expectation of future devaluation (as it will have already happened), and reset global monetary policy stability if only for a few more months.

  Said otherwise, if next weekend the G-20 disappoints and unveils nothing, the next big leg down in the selloff will have arrived.

  How likely is such a major intervention? Keep an eye on the recently surging price of Bitcoin for the answer, and also Vancouver real estate, of course.

  

  

  

  

  

• Silver Linings: Keynesian Central Banking Is Heading For A Massive Repudiation

  Submitted by David Stockman via Contra Corner blog,

  For several years now the small coterie of Keynesian academics and apparatchiks who have seized nearly absolute financial power through the Fed’s printing presses have justified the lunacy of unending ZIRP and massive QE on the grounds that there is too little inflation. The bureaucrats at the IMF even invented a lame-brained catch-phrase, calling the purported scourge of money which retains most of its value “lowflation”.

  This whole consumer inflation targeting gambit, of course, is an inherently preposterous notion because there is not a scrap of evidence that 2% consumer inflation is better for rising living standards and societal wealth gains than is 0.2%. And there is much history and economic logic that points in exactly the opposite direction.

  Between 1870 and 1913 in the United States, for example, real national income grew at 3.5% per year——the highest gain for any 43 year period in history. Yet the average inflation rate during that long period of capitalist prosperity was less than 0.0%. That was real “lowflation”, and it was a blessing for the average worker, not a scourge.

  But this week the BLS itself let out a screaming, never mind! The core CPI for the 12 months ended in January rose by 2.21% and that’s actually a tad higher than the 1.98% annual average since the year 2000.

  Please forgive the spurious accuracy of reporting the BLS’ noise-ridden, dubiously constructed CPI to the second decimal point, but it’s meant to underscore a crucial truth.  Namely, there ain’t no inflation deficiency problem and never has been!

  The whole 2% inflation mantra is just a smokescreen to justify the massive daily intrusion in financial markets by a power-obsessed claque of monetary central planners. They just made it up and then rode it to ever increasing dominance over the financial system—-even though as recently as 15 years ago the 2% inflation theory was unknown outside a small circle of neo-Keynesian academic scribblers led by Ben Bernanke.

  In fact, the whole cockamamie theory was explained in an obscure book called “Inflation Targeting” issued in November 1998 by Bernanke and two other academic power grabbers: Frederic Mishkin, who later was appointed to the Fed and became a principle proponent of the Wall Street bailouts in 2008; and Adam Posen, an academic (well)stuffed shirt who peddled the same nonsense at the Bank of England and has been an incessant voice urging the BOJ to print more and still more money.

  You can look it up. The book stands at #2,503,823 on Amazon’s sales ranking!

  Yet inflation targeting is now accepted as gospel by the financial press, and it’s not hard to understand why. Wall Street loves it because it justifies massive liquidity injections, free carry trade money and wealth effects based stock market goosing by the central bank. So the lazy journalists who feed the street with so-called financial news just xerox the mantra and pass it along unexamined, as in this gem out of Dow Jones MarketWatch:

  Although too much inflation is viewed as dangerous for the economy, Fed officials think that a 2% inflation rate is best for the economy to grow……..Inflation has been trending below that target for the past four years. Low inflation is a signal of weak demand in the economy and raises fears of actual decline in prices or deflation, which can damage an economy, especially one with high debt burdens like the United States.

  Let’s see. During the past year US consumption spending for health care rose by 5%, outlays at restaurants and bars were up by 9%, while spending for gasoline and other energy products was down by 22%. This was Mr. Market at work—–millions of households reallocating their spending in response to relative price changes. It had nothing to do with a macroeconomic abstraction called “weak demand”.

  Actually, the medical care component of the CPI rose 3.3% last year, housing and shelter were up by 3.2%, while gasoline prices were down by 7.3%. It all added up to a 2.21% annual change in the overall index by the sheer coincidence of BLS’s arbitrary weightings of the components; it had nothing to do with the pace of total consumption expenditures or any other proxy for “aggregate demand”. And especially it was not due to an excess of a really primitive, nay stupid, metric the Keynesians call the “output gap”.

  So the MarketWatch “senior economics reporter” who filed this piece, one Greg Robb, was writing gibberish and apparently didn’t even know it. Yet without this herd-like transmission of the narrative, the Fed’s ridiculous monthly deliberations about 25 basis points or not on the federal funds rate would be seen for the farce it actually is.

  This chronic pretense of fine-tuning the money market to the second decimal point (i.e. 0.38% versus 0.12%) is purportedly all about delivering what the Fed judges to be just the right amount of “accommodation” to the macroeconomy to achieve its inflation and unemployment targets. Yet even scant attention to the internals of the various consumer inflation indices makes it  obvious that the “lowflation” proposition cited by MarketWatch (“inflation has been trending below that (2%) target for the past four years”) is a modern version of counting angels on the head of a pin.

  That is, it is a pointless exercise in spurious accuracy that has nothing to do with improving the real world; it was only a ritual to justify the existence and power of the catholic priesthood then, and the monetary politburo today.

  The chart below provides the trend in four versions of consumer inflation since the year 2000. The two CPI-based versions embody what is called a fixed weight deflator because in theory the weighting of the various components remain unchanged for long periods of time. In that sense, it is an attempt to measure the changing price of a representative basket of goods and services over time as it would be experienced by an individual consumer or household.

  By contrast, the two personal consumption expenditure (PCE) indices are chain-type deflators, meaning that their component weightings are constantly adjusted based on the changing mix of aggregate consumption spending. Thus, if the proverbial shift from beef to chicken occurs because beef gets too expensive, the PCE deflators reflect more weighting for chicken and less for beef; and if things got really so desperate that everyone was forced to eat only spam and no steak or chicken at all, the PCE would get fully spammed.

  That is, the weight of chicken and steak would fall to zero and spam would take their weightings instead. Needless to say, a household forced to consume 100% spam because the relative price of chicken and steak had soared out of reach would doubtless not be impressed with the news that there hadn’t been much chain-weighted inflation during the reporting period!

  In fact, the PCE indices are an academic device to deflate the actual nominal spending of the aggregate economy to a constant dollar measure over time. To that extent, continuous reweighting makes sense because the economy’s mix of spending does change over time.

  In short, the PCE deflators are for economic measuring and modeling and the CPIs for approximating the change in the cost of living faced by average households. And that’s why the social security and other annual COLAs are based on the CPI.

  So here’s the thing. In today’s massively integrated global economy, cost and price impulses are constantly transmitted through relatively open markets for goods and services and through the capital and money flows which finance real activity. In that open global economy, 25 basis points on the New York money market rate, or even 250 basis points, has precious little to do with the rate of change in two conceptually different and equally crude measures of the U.S. general price level, especially when measured to the second decimal place.

  The price of furniture and basketball shoes has everything to do with how much untapped labor remains in the Chinese rice paddies and virtually nothing to do with the monthly adjustments on the money market dials being fiddled with in the Eccles Building. Likewise, the price of financial services has more to do with the marginal cost of outsourced labor in Bangalore or the transaction cost reduction owing to the shift from plastic cards to smartphones than anything done by the FOMC.

  Once upon of time in your grandfather’s economy of the 1950s, when the US economy dominated the world, there may have been a loose steering gear linkage between the Fed’s policy rate and the US consumer inflation rate. That’s because the policy rate could still cause incremental household and business borrowing and spending in an era before Peak Debt. Under those conditions, spending could temporarily get ahead of production and capacity, thereby enabling the general price level to accelerate owing to “excess demand”.

  Those days are long gone. The US economy’s leakage into the global economy is massive and the private sector is stranded at Peak Debt. The money market rates pegged and administered by the Fed, therefore, have virtually nothing to do with short and medium term rates of change in the consumer price indices.

  Accordingly, there is no reason at all for the Fed to target the inflation rate, let alone to two-decimal point variations around 2.00%. If anything, it should request that Congress repeal its so-called price stability mandate on the grounds that it no longer has any tools capable of making a difference. Once at Peak Debt, the central bank in effect has already printed itself out of a job.

  But short of that honest solution it surely has no justification whatsoever for preferring the PCE to the CPI, and especially for hopping and skipping between a focus on inflation excluding food and energy when it is convenient and the full price index when it is not. Such as now.

  During the year ending in January 2016, the annual inflation rate was 1.15% on the PCE deflator, 1.34% on the CPI, 1.36% on the PCE deflator less food and energy and 2.21% on the CPI less food and energy. Until global commodity inflation started pouring in, the Fed always preferred the ex-food and energy versions, meaning that at the present time we are talking about 40 basis points of variation around a average of 1.80% inflation between the fixed weight and chain-type measures.

  Call it a double sham because the Fed cannot possibly steer the US economy in isolation toward 1.80% inflation; nor does it have any reason to side with the chain-type index as opposed to the CPI. Indeed, I was a member of Congress when Humphrey-Hawkins was enacted, proudly voted no, and am absolutely certain that the practical politicians who supported its mandates were thinking about stable prices from a  household cost of living point of view, not from a GDP reporting and modeling perspective.

  Not only that, but any one with an occasionally functioning brain can see that the full inflation indices at 1.15% and 1.34%, as between the year-over year PCE and CPI, are down in that range only temporarily. That’s due to the one-time plunge in oil and other commodity prices and the pass-through effect on goods and services down the production chain.

  And that great global deflation wave, ironically, is due to the past money printing excess of the Fed and its global convoy of central banks, whose massive fiat credit emissions caused an unsustainable boom in energy and materials demand and capacity investment throughout the global economy. It has absolutely nothing to do with the 1,2 or 4 baby step increases in the federal funds rate this year or the lack thereof during the past 84 months.

  At the end of the day, 2% inflation targeting is an astoundingly transparent ruse being used to justify what amounts to an economic coup d’ etat  by an unelected gang of monetary central planners. During the last 15 years, the annual rate of consumer price change has been 1.70% on the PCE deflator less food and energy; 1.83% on the PCE; 1.98% on the CPI less food and energy; and 2.15% on the CPI.

  In the scheme of things, these minor difference over time are trivial. Likewise, the difference between the 15 year average annual change for any of these inflation indices and the magic 2.00% is also trivial. And most importantly, virtually none of the trend rate of change in any of these consumer price index variations was attributable to the Fed’s micro-management and radical repression of money market interest rates since Greenspan went all in with money printing in December 2000.

  Inflation targeting has been a giant cover story for a monumental power grab. But as we shall see in the next section, the academics who grabbed the power had no idea what they were doing in the financial markets that they have now saturated with financial time bombs.

  When these FEDs (financial explosive devices) erupt in the months and years ahead, the central bankers will face a day of reckoning. And they will surely be found wanting. The immense social damage from the imploding bubbles dead ahead will be squarely on them.

  

  In an open $80 trillion global economy and era of Peak Debt, central bank interest rate pegging and repression and massive QE, too, function almost entirely in the financial markets, not the real economy. Their primary impact is to falsify financial asset prices, risk premiums, yield curves, credit spreads, time discounts and risk/reward ratios throughout the entire trading complex in financial instruments.

  They also stimulate rampant gambling in place of capital allocation owing to the fact that  the kind of massive central bank intrusion in interest rate and bond markets now being practices under ZIRP, NIRP and QEs destroys honest price discovery and the key ingredients of financial market self-discipline and stability. To wit, central bank policy makes downside insurance too cheap and shorting the market too expensive. Two-way markets give way to one-way momentum trading that eventually metastasizes into financial bloat and bubbles, which sooner or later collapse into a heap of loss and waste.

  Needless to say, there is no evidence that our monetary politburo spends its time studying the baleful impacts where its policies actually have efficacy. That is, the degree to which it causes risk spreads to flatten, cheapens the cost of put options, shifts volatility skews, enables the spread of risky structured finance products, represses the cost of repo financing or weakens bond market covenants (e.g. cov lite indentures) to name a tiny few.

  Stated differently, the overwhelming share of Fed policy emissions never leave the canyons of Wall Street. The above impacts and countless more are what these intrusions do all day and night. Yet Simple Janet apparently spends the same studying her labor market dashboards.

  They are irrelevant!  ZIRP and QE never get there. They just deform, distort, degrade and destroy free financial markets, turning them into casinos of crony capitalist corruption.

  And that brings us to the nascent crime of NIRP. Mainly what is going on in the eurozone, Switzerland, Sweden and Japan is crypto-NIRP or the imposition on negative rates on the excess cash reserves of commercial banks who are eligible to deposit at their respective central banks. But that maneuver is only squeezing bank interest margins and causing a run on banking sector stocks.

  Likewise, this crypto-NIRP has driven upwards of $7 trillion of worldwide sovereign debt into negative yields at market prices, and the emphasis is on the latter. Bond yields on German debt up to 10 years are now negative because speculators are front running the ECB and other central banks.

  That is, they are playing for price appreciation. For crying out loud, it is not a case of the world’s bond managers, benighted as many of them are, saying I’ll have some more of that tasty negative yield!

  In short, the central bankers of the world are driving the lemmings on one last run toward the sea. Yet this fantastically dangerous experiment is doing nothing for the real economies of a world staggering under unpayable debt and massive excesses of production capacity, infrastructure assets and working inventories. Instead, it is just feeding the mother of all bond bubbles.

  At length, the central bankers will go for the real thing—-NIRP in the neighborhoods were people actually live and try to save a nest egg. To be sure, a  pipe smoking economist is liable to say that there is no appreciable difference between positive 30 basis points and negative 30 basis points on a CD.

  Yes there is. The negative sign will be the great political inflection point. The negative sign will be the flashing neon lights announcing that the government is confiscating the people’s savings and wealth.

  So when they actually try to go to NIRP in the neighborhoods, the central banks will be signing their political death warrants. That day can come none too soon.

  

  

  

  

  

• "Everyday American" Pleads With Hillary To Release Transcripts "So We Can Trust You Again"

  At the MSNBC-moderated Democratic presidential town hall in Las Vegas, Nevada, Hillary Clinton was asked by an "everyday American" why she will not release video or transcript of her private speeches to Wall Street banks…

   

  He begins by asking…

  "As a realtor here in Nevada I know how important the economy is to our great nation.

   

  As a Democratic candidate who has delivered speeches to the largest U.S. financial institutions in exchange for hundreds of thousands of dollars in speaking fees, why are you hesitant to release transcript or audio/video recordings of those meetings to be transparent with the American people regarding the promises and assurances that you have made to the big banks?" the man asked Clinton.

  To which she responded – in rote manner…

  "I was the candidate who went to Wall Street before the crash. I was the candidate who went to them and said you are wrecking our economy. What you are doing with mortgages is going to bring us down.

   

  I now have the most effective and comprehensive plan to deal with the threats that Wall Street poses, and I go further than Senator Sanders does because I want to go through after all the other bank bad actors.

   

  The bad actors like hedge funds, the bad actors like AIG, the insurance company. Like Countrywide mortgage. I take a backseat to nobody in being very clear about what I will do to make sure Wall Street never crashes main street again. And, that you can count on."

  To which the man pled…

  "Secretary Clinton, I do respect you very much. In fact, only a decade ago I was a very big supporter of yourself and your husband… How can we trust that this isn't just more political rhetoric? Please just release those transcripts so that we know exactly where you stand."

  How indeed…

  

  It seems people are losing faith…

  

  Source: RealClearPolitics.com

  

  

  

  

  

• Ahead Of Boris Johnson's Key Sunday Night Announcement, Here Is What British Politicians Think Of The Referendum

  In the aftermath of another inverse-whirlwind session in Brussels which has set the date of the UK’s EU referendum for June 23, below are comments on the vote from British political and business leaders, courtesy of Reuters:

  DAVID CAMERON, BRITISH PRIME MINISTER

  “I do not love Brussels. I love Britain. I am the first to say that there are still many ways in which Europe needs to improve – and that the task of reforming Europe does not end with today’s agreement.

   

  “That is not the question in this referendum. The question is will we be safer, stronger and better off working together in a reformed Europe or out on our own.

   

  “Let me be clear. Leaving Europe would threaten our economic and our national security.”

  GEORGE OSBORNE, CHANCELLOR

  “We are stronger, and safer and better off in the EU and the alternative is a big leap in the dark with all the risks that that involves.

   

  “We get the best of both worlds, we get access to the single market for our businesses, so that creates jobs, but we don’t have the costs of the euro zone, we have the security of being in the EU but we are not signed up to ever closer union, we end the something for nothing culture when it comes to benefits from migrants – these are big wins.”

  PHILIP HAMMOND, FOREIGN SECRETARY

  “Reforming the EU does not end with this deal. UK must lead on further reform.

   

  “EU reform deal tilts the balance firmly in favour of the UK remaining in. We’re stronger, safer, better off in (the) EU on these terms than out.”

  JEREMY CORBYN, LEADER OF THE OPPOSITION LABOUR PARTY

   “Despite the fanfare, the deal that David Cameron has made in Brussels on Britain’s relationship with the EU is a sideshow.

   

  “His priorities in these negotiations have been to appease his opponents in the Conservative Party. He has done nothing to promote secure jobs, protect our steel industry, or stop the spread of low pay and the undercutting of wages in Britain.

   

  “We will be campaigning to keep Britain in Europe in the coming referendum, regardless of David Cameron’s tinkering, because it brings investment, jobs and protection for British workers and consumers.”

  MICHAEL GOVE, JUSTICE MINISTER

  “It pains me to have to disagree with the Prime Minister on any issue. My instinct is to support him through good times and bad. But I cannot duck the choice which the Prime Minister has given every one of us.

   

  “I believe our country would be freer, fairer and better off outside the EU.

   

  “I don’t want to take anything away from the Prime Minister’s dedicated efforts to get a better deal for Britain. He has negotiated with courage and tenacity. But I think Britain would be stronger outside the EU.”

  ALEX SALMOND, FORMER NATIONALIST LEADER OF SCOTLAND

  “I think the referendum across the UK is on a knife-edge, it will depend entirely on how it’s argued. I don’t rate the deal that Cameron has done in Brussels, I think it’s about marginal issues.

   

  “If we were dragged out against our will by the votes of a much larger English (electorate), then the pressure for another independence referendum in Scotland would be irresistible and I think very rapid.”

  THERESA MAY, HOME SECRETARY

  “The EU is far from perfect, and no one should be in any doubt that this deal must be part of an ongoing process of change and reform – crucial if it is to succeed in a changing world.

   

  “But in my view – for reasons of security, protection against crime and terrorism, trade with Europe, and access to markets around the world – it is in the national interest to remain a member of the European Union.”

  NICOLA STURGEON, LEADER OF THE SCOTTISH NATIONAL PARTY

  “Across the UK the polls suggest this campaign is on a knife-edge and that’s why I think it’s important for the in-campaign to be positive.

   

  “If we get into the situation, where Scotland votes to stay in, the rest of the UK votes to come out, then people in Scotland will have big questions they will want to look at again about whether Scotland should be independent.”

  ARLENE FOSTER, LEADER OF THE DEMOCRATIC UNIONIST PARTY, NORTHERN IRELAND

  “In our view we see nothing in this deal that changes our outlook. Therefore we will on balance recommend a vote to leave the EU.”

  JOHN LONGWORTH, DIRECTOR GENERAL, BRITISH CHAMBERS OF COMMERCE

  “Businesses across Britain will be relieved that the horse-trading between Westminster and Brussels is now concluded, and that the hard work of recent months could potentially deliver some benefits for the UK.

   

  “(But) the deal falls well short of the business expectations we set out nearly a year ago.”

   

  Finally, here is perhaps the biggest Euroskeptic of all:

  NIGEL FARAGE, HEAD OF UK INDEPENDENCE PARTY

  “This is a truly pathetic deal. Let’s leave the EU, control our borders, run our own country and stop handing 55 million pounds every day to Brussels.”

  But perhaps the most important soundbite is the one which has yet to come: that from London mayor Boris Johnson, whose opinion may sway the vote one way or another in four months. The Telegraph reports that “David Cameron is mounting a last-ditch effort to woo Boris Johnson to back his campaign to stay in the European Union, by drawing up plans for a new constitutional settlement that puts the sovereignty of British institutions beyond doubt.”

  The newspaper adds that Downing Street is now nervously awaiting the verdict of the mayor of London, who, the Observer understands, intends to make a statement on Sunday night on which side he will back. If both Gove and Johnson, two of the best communicators in Tory ranks, side with the Out campaign, many MPs believe the prime minister will face an uphill struggle to convince voters that their best interests lay in remaining inside the EU.

  Sources close to Johnson said he remained “genuinely torn” and that he would “chew over” what the prime minister has to say when Cameron appears on the BBC’s Andrew Marr Show on Sunday, before issuing some form of statement this evening. He will then spell out the reasons for his decision in his column for the Daily Telegraph on Monday.

  If Johnson refuses to back Cameron, the Friday afternoon spike in the GBP may be very promptly undone.

  

  

  

  

  

• An Alarm Goes Off Threatening The "Strong U.S. Jobs" Myth: Withheld Income Taxes Are Stalling

  Of all the indicators that the Fed has presented to justify its rate hike mentality and to validate that the US economy remains on a growth path despite clear recessionary signals from both the manufacturing sector and the dramatic tightening in financial conditions in recent months, Yellen’s preferred metric also happens to be the most lagging one: nonfarm payrolls and the unemployment rate, both of which supposedly signal the collapsing slack in the labor market and a jump in wages that has been “just around the corner” for years.

  The problem is that when shifting away from lagging indicators of the labor market, to coincident ones, a starkly different picture emerges. The best example of this is when looking at the growth of federal income and employment tax withholdings, the broadest and most timely read on the health of the job market, which as Jed Graham writes, “has been sinking at an alarming rate.”

  While for most of 2015, tax withholdings rose at a rate of 5% or more from a year ago, on the back of job growth and gains in wages, commissions and other incentive pay, in recent months there has been a substantial dropoff in this key indicator.

  As shown in the chart below, revenue inflows to the Treasury Department steadily slowed through the fall, bringing the annual growth rate down to just below 4% by the start of 2016. That’s when growth seemingly collapsed — to just 1.8% over the past five-plus weeks, from Jan. 11 through Feb. 16.

  

   

  The problem with the jobs report is that it relies on statistically interpolated, and seasonally adjusted data from the Bureau of Labor Statistics, which not only has a significant revisionist history aspect being materially revised after a given period, but is also subject to clear political bias and huge “birth/death” assumptions, which correlate the growth in labor with the net creation of new U.S. businesses despite clear indications over the past several years  that there should be no net additions as a result of collapsing “dynamism” as the Brookings institute itself calculated some time ago and as we chronicled in August of 2014 in “4 Million Fewer Jobs: How The BLS Massively Overestimated US Job Creation“

  

   

  On the other hand, the official Treasury tax-receipt data — which don’t come with a margin of error and aren’t subject to revision — are obviously at odds with the much more upbeat numbers reported by the Labor Department. January’s year-over-year payroll increase of 2.665 million, or 1.9%, along with a 2.5% gain in average hourly earnings should yield something in the neighborhood of 4.5% year-over-year growth in tax withholdings — or more than double the actual growth rate in recent weeks.

  And yet over the past 10 full weeks, starting Dec. 7, tax withholdings have grown just 3.1% from a year ago. While December and January data can be influenced by the size and timing of year-end bonuses, the pronounced weakness has been sustained for long enough to rule that out as the principal cause.

  As Graham notes, “companies that were already facing a tough earnings environment, thanks to a stronger dollar and lackluster economic growth, have seemingly pushed the pause button on hiring amid the financial market tumult that greeted the new year.“

  It is not just the Treasury tax receipt data that is a major concern: as we previously reported, according to Challenger there was a total of 75,114 layoff notices in January, up 42% from January 2015, and the highest January total since 2009 as Wal-Mart, Macy’s and Yahoo joined oil services firms Halliburton and Schlumberger in workforce restructurings. Wal-Mart on Thursday reported declining earnings and weaker-than-expected same-store sales.

  

   

  In fact, it appears that the only place where the strong jobs myth persists is in official government data, and it’s not only in the payrolls report: after rising to 294,000 in the January 16 week, new jobless claims have steadily fallen to 262,000. The four-week average fell 8,000 to 273,250 last week.

  Graham further notes that “the benign data are hard to square with a stalling out of growth in federal income and employment taxes, unless the weaker receipts are more related to slower hiring, fewer hours of work and less incentive pay, than to layoffs.”

  The slower pace of year-over-year gains in tax withholdings has pointed to a significantly slower pace of hiring since September, says TrimTabs Investment Research, which estimates that 820,000 jobs were added from September to January. By contrast, the Labor Department estimates 1.137 million new jobs over that span, or nearly 40% more.

  “The deceleration really started back last autumn,” said TrimTabs CEO David Santschi.

  Which means that it is likely only a matter of time before either the BLS admits the truth, or the official data turn significantly south.

  This also leads to the question whether the Fed have been looking at the wrong jobs data when it decided to raise rates in December for the first time in nearly a decade?

  A partial admission was made in the January FOMC statement when the Fed said that “information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year“

  However, as noted up top, employment is one of the most lagging indicators, while tax withholdings are a coincident one, and traditionally signal job weakness before the official employment data catch up.

  Will this be one of those occasions?

  The answer will depend on whether the Fed wants to admit policy error and halt the rate hike process, perhaps with a view to unleashing more stimulus and even the increasingly more discussed “helicopter money.”

  Or perhaps the Bureau of Labor Statistics will merely take its cue from Australia which months after reporting stellar jobs data, admitted that the 6 and 8-sigma outlier October and November job additions were cooked and the result of “technical issues.”

  Will the failure of the US recovery likewise be chalked up to a “technical problem”? If so, it is very much unclear just what the market’s reaction will be to a government whose data credibility is now the same as China’s, even if it means far more stimulus in the near future.

  

  

  

  

  

• This Crash Will Be Bigger Than 2008 – Here's Why

  Via FinancialSense.com,

  Bert Dohmen, founder of Dohmen Capital Research, is uber-bearish and believes that it is time for investors to panic (before everyone else does) given a potential collapse of the stock market greater than what we saw in 2008.

  Here's what he had to say on Thursday's podcast:

  "Over a year ago we said that we are now in a transition year from a bull market to a bear market and from a growing economy to a recession—and this could be a very deep recession…

   

  …now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, 'Is it too late to panic?' Because…the advice given by so many analysts is 'Don't panic, don't sell, don't panic.' And I say, 'Yes, panic!' And it's not too late to panic. Panicking at the right time can save you a lot of money…

   

  I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at $5 or less. Okay, just put that into your portfolio and see if you should be selling some stocks…

   

  We hear other analysts say, 'Oh, this is nothing like 2008' and I agree with that, but I say that because I think it's going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs…they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that's how it started.

   

  Now, look at what we have currently. We have every major economic zone in the world in financial trouble. You have Japan with a debt-to-GDP ratio of 280%. You have China at 300% debt-to-GDP. China has over $34 trillion of debt and the banking system is flooded with bad loans. The best estimate—and this was two years ago I wrote a book called The Coming China Crisis—and I said the best estimate is that they have $11 trillion of bad loans in the banking system. $11 trillion is the annual GDP of China—this is huge!

   

  You have Europe, you have Latin America in trouble, you have Russia in big trouble, you have Saudi Arabia even thinking about doing an IPO on their big oil company in order to make up for the shortfall of oil revenues. You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one."

  Given your outlook, how long do you think this will take to unfold?

  "Well, from 1929 to the bottom in 1933 it took four years—probably a little bit less—so that's probably the duration but, you know, you can't forecast those things because the central banks learned something the last time around. They learned how to bail things out, they learned how to change the laws and...they've changed a lot of laws in the meantime. For example, if a bank goes under it's no longer the government that goes to bail it out—they just confiscate the depositors money. If you have a savings account at a bank that goes out of business, they will take part of your savings account to bail the bank out because they now have an interpretation that bank deposits—money that you put in a bank—you actually become an unsecured creditor…

   

  That is the current intrepretation in the West—in Europe and in the United States. It's called a 'bail-in'. So this time around there are a lot of gimmicks that they can use. They've exhausted quantitative easing—it just doesn't work…and now the whole world is going to negative interest rates. In Europe already they have over 30% of the government bonds at zero interest rates or below so if you buy a government bond you are paying for the privelege of owning that bond, of lending the government money. The Federal Reserve just put out a note saying that banks should prepare for negative interest rates…

   

  The world has never seen this and there is no one that knows the eventual consequences of this… This is desperation! The central banks have run out of ammunition and tools…all they have now is just talk.”

  Given the risks outlined above and throughout the interview, Bert is quite bullish on US Treasury bonds and thinks we may be seeing a major turn in gold.

  

  

  

  

  

• Live Coverage Of Nevada Caucus, South Carolina Primary: Hillary Declared First Winner

  Update 2: with Nevada now decided, attention shifts to South Carolina where the polls close at 7pm Eastern. Here are some observations of what matters to the local voters per exit polls:

  #SCPrimary exit poll – angry with federal government: pic.twitter.com/xXdV1xxrtk

  — Fox News (@FoxNews) February 20, 2016

  #SCPrimary exit poll – Top Issue – Terrorism: pic.twitter.com/cc7e6Bgumt

  — Fox News (@FoxNews) February 20, 2016

  #SCPrimary exit poll – Top Issue – Best candidate to handle Supreme Court nominations: pic.twitter.com/UUxkbV0678

  — Fox News (@FoxNews) February 20, 2016

   

  Update: moments ago first Fox News, and shortly thereafter NBC, AP and other major US news networks, projected Hillary Clinton would be the winner of the Democratic Nevada Caucus.

  We now await the closing of the SC polls where most likely a similar fate awaits Donald Trump.

  * * *

  Live coverage of the Nevada caucus and South Carolina primary

  Iowa went to Hillary and Ted Cruz. New Hampshire to Bernie and The Donald. Now, all eyes are on Nevada and South Carolina, where the Democrats and Republicans (respectively) will find out today who voters think deserves the keys to The White House.

  In Nevada, Clinton is hoping a push to attack Sanders’ immigration record will carry the Latino vote while the former First Lady has also sought to portray the Vermont senators’ proposals as pipe dreams, especially given the fractious environment on Capitol Hill.

  As CNN notes, Clinton began to organize six months ahead of Sanders and “a loss, or even another close finish with Sanders in Nevada, would further chip away at the aura of invincibility that once surrounded her path to the nomination.” Not helping Clinton’s cause with Latino voters is the fact that Sanders’ father was a Polish immigrant, a fact he’s been keen on highlighting in his campaign’s latest TV spots.”While I understand that there are people who have differences of opinion with me on immigration reform, there is no justification, no reason, to resort to bigotry and xenophobia when we are talking about Mexicans or we are talking about Muslims,” Sanders told a crowd at at the Democratic dinner at the Tropicana Hotel on the Las Vegas Strip. “People can disagree about immigration reform, but in the year 2016, we will not allow the Trumps and others to divide us up and appeal to racism, which has done this country so much harm for so many years,” he added.

  In South Carolina, most polls show Trump holds a commanding lead over the rest of the GOP field and in typically brazen fashion, the frontrunner for the Republican nomination closed out his pitch to voters with a flourish on Friday, suggesting that Muslims should be executed with bullets dipped in pig’s blood and promising to bring back waterboarding which he says is “minimal, minimal, minimal” torture.

  “It’s bizzare,” Marco Rubio said on Saturday of Trump’s pig’s blood story. “That’s not what the United States is all about.”

  But incredulous as Trump’s GOP rivals are at his meteoric rise to the top of the polls, he’s clearly saying quite a few things that resonate with the electorate – at least for now. “A Trump victory in South Carolina on Saturday would send new shockwaves through the Republican establishment and possibly augur another strong showing for the front-runner in Southern states with a similar ideological profile on Super Tuesday, March 1,” CNN remarks. “Despite an aberration in 2012, when the state’s Republican voters went for Newt Gingrich, the South Carolina primary has historically been a barometer of party opinion, going for the eventual nominee in every other presidential primary since 1980.”

  In other words, if South Carolina goes to Trump, the rest of the field may just be “schlonged.” Indeed, a victory in the state would all but prove that Trump is invincible. His lead has held up even after he called George W. Bush a liar last weekend (that’s not generally something you want to be doing in South Carolina) and in a testament to just how strong the Trump juggernaut has become, the billionaire even went head to head with God himself when the Pope criticized his stance on immigration. 

  The bottom line: after Saturday, we will know whether the so-called “protest” candidates are set to bring about a political revolution in America, or whether the entrenched political establishment “empire” is set to “strike back” – as it were. 

  Here’s PredictWise’s latest read on South Carolina via Bloomberg:

  

  Going into Saturday, Sanders and Clinton were running neck and neck but early results show Sanders pulling ahead.

  

  Stay tuned for ongoing coverage and updates throughout the night.

  

  

  

  

  

• For Hillary, It's Deja Boom All Over Again

  Many in the markets have seen the worrying analog of 2008 stocks to the current malaise, but for Hillary Clinton, there is a much more horrific deja vu-ness about the collapse in her 'lead' over Bernie…

  Real Clear Politics compiles a running average of the polls that come in for 2016, just as it did in 2008.

  

   

  As The Washington Post reports,

  About five months before the New Hampshire primary (which was a month earlier in 2008), Clinton's lead was at about 15.

   

  This cycle, that was a big plunge; in 2008, it was pretty much where she'd been. Then the lead in each cycle grew a bit, putting her back up into the 20-point range with about three months out. Then, quick drops, usually after voting happened. In 2008, the giant plunge came right after Iowa.

   

  On Feb. 20, 2008, Clinton was already trailing Barack Obama, as she would permanently. This week, we saw a major poll for the first time putting Bernie Sanders in the lead.

  It's different this time, though… right.

  

  

  

  

  

• Even The Fed Is Flashing A Recession Warning

  After The Cleveland Fed's warning of "significant stress" in the financial markets, we find none other than Dovish-hawk Jim Bullard's St.Louis Fed growing increasingly fearful of the "r" word.

  The last two times, financial stress was this "significant," The Fed unleashed QE1 and Operation Twist…

   

  

   

  And now, as Mises Institute's Mark Thornton notes, this little known chart (below) is the St. Louis Fed's attempt to anticipate a recession in the US economy.

  The latest reading from last November is higher than all but 3 months (in the last 50 years) when a recession did not immediately proceed.

  

  As you can see by the chart, there were false starts in early 1978 and 1979 prior to the recessions of 1980 and 1981/82. As well as a false start in September of 2005.

  We will see if this time is different…

  According to the Fed's website (FRED):

  Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales.

  Given the broadness of the data used to create this indicator, we can't help but wonder – if the "recession risk" was this high in November, why did The Fed hike rates in December?

   

  Source: FRED

  

  

  

  

  

• EIA Oil Report Analysis Feb. 20, 2016 (Video)

  By EconMatters

   

  

   

  Demand Economics are working, but Supply Economics are not working properly right now to reduce overall supply in a meaningful way. OPEC needs to get serious and start cutting production, and not freezing production at record levels of production. Shale Players need to go out of business in a major way the next three months as U.S. Oil production is still too damn high right now given the price dynamics in the market.

   

  

   

   

   

   

   

   

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

  

  

  

  

• Broad Market Index Testing Broken "Must Hold" Level

  Via Dana Lyons Tumblr,

  The broad NYSE Composite stock market index is testing the level we deemed “must hold” – that broke in January.

  Back on January 8, we posted a chart illustrating that the broad NYSE Composite was at a “must hold” level, in our view. Signifying the confluence of 3 major post-2009 bull market Fibonacci Retracement lines, we considered the area around 9600 to be critical for the NYSE to hold. Specifically, these lines lay in the vicinity:

  • The 23.6% Fibonacci Retracement of the 2009-2015 rally
  • The 38.2% Fibonacci Retracement of the 2011-2015 rally, and
  • The 61.8% Fibonacci Retracement of the rally from the early 2013 breakout level to the 2015 high

  And while our analysis identified significant potential support, there were 2 things that suggested to us that, sooner or later, that “must hold” level would fail to hold. First, the NYSE had tested that level already in August and September, holding successfully. That event had likely “softened” up the potential support at the 9600 level.

  Secondly, earlier in the week, on January 6, we witnessed what we considered to be a key day in the market as a number of major indices suffered consequential breakdowns. The levels broken by those indices were similar in nature to the one being tested by the NYSE. Thus, we concluded “we would not be surprised to see the level hold again, temporarily…before eventually failing as other indices are doing.” Well, the NYSE’s attempt to hold lasted a whole 3 days before the 9600 area broke.

  We identified the next major potential downside support level to be around 8575, which was another 10% of risk below there. The NYSE got as low as 8938 – in about 3 days –, a drop of nearly 7%, before bouncing on January 20. In late January, the NYSE rallied back up to test the “must hold” 9600 level, failing in its attempt. After testing the January low again last week, the index is back to test the 9600 level again.

   

  

   

  The reaction of this  broad market index at this level could be key for the stock market as a whole. In our view, the market is likely in the early stages of a cyclical bear market. However, in the intermediate-term, should the NYSE (and similar indices) find success in overcoming their respective “must hold” levels which they broke in early January, it could buy them some time, and upside, in the immediate-term.

  If the NYSE successfully reclaims the 9600 area, we could see another possible 7% of upside in the index over the intermediate-term prior to a potential new leg down. Of course, if the index fails here, that 8575 area remains at risk. This will be a development that we’ll be monitoring closely for tactical investment guidance in the near-term.

  *  *  *

  More from Dana Lyons, JLFMI and My401kPro.

  

  

  

  

  

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• Iraq War: Not A Mistake, But A Holocaustic Crime

  Authored by Ben Tansoborn,

  Either our minds have softened in the United States, or our hearts have hardened way beyond the callous stage.  Or, likely both!

  Just 13 years past his criminal decision to invade Iraq, George W. Bush is campaigning in South Carolina to get his younger brother, Jeb, in the White House.  A fitting payback by an illegitimate and unworthy former president to return Jeb’s intercession as Florida’s governor in America’s mishandling, comical if it hadn’t been for the eventual very tragic consequences, of the 2000 presidential election.  It might be worthwhile to remember that it was the US Supreme Court that basically decided to put George Bush, and not Al Gore, in the White House in a 5-4 decision eloquently, but incorrectly, authored by the just-deceased and widely admired justice, Antonin Scalia.

  Time and time again we, Americans, keep referring to the invasion of Iraq in 2003 as a mistake; almost in unanimity: Democrats and Republicans.  But it was not a mistake, not by a long shot!  It was a calculated, belligerent act by a government clique of elitist war-hawks, Bush-Junior and Dick Cheney at the top of the criminal heap.  Fortunately for these American leaders, and unfortunately for the rest of us, only leaders from nations vanquished are indicted and go to trial.  If the Axis had prevailed in World War II, and we were living in Hitler’s Millennium, there would not have been those Nuremberg Trials (1945-9), or the subsequent enactment of important, critical international law, such as the Universal Declaration of Human Rights (1948), or the Geneva Convention (1949).  No, no gallows for Bush and Cheney… only admiration from fools!

  We, as a nation, need to stop calling Bush’s Iraq-deed a mistake, and stop minimizing the holocaustic repercussions of such idiotic, ill-conceived criminal behavior.  We should visit and revisit the consequences, if for no other reason than to learn or relearn; and keep George Santayana’s dictum alive: Those who cannot remember the past are condemned to repeat it.  And Bush’s decision was no venial sin, not just “a mistake”… and its disruptive consequences have proven to be grave and lasting.

  US’ unnecessary and irrational post World War II meddling in the Middle East, helping the anachronistic Shah of Iran (1967-79) as the zenith of geopolitical stupidity, was only topped by lack of peripheral vision in international politics from a far from lucid George W. Bush… given credit by some (perhaps many) claiming “he kept Americans safe.”  Yes, George (Santayana, not Bush); stupidity reigns supreme and history, unfortunately, recycles in a circle in this United States of America.

  Bush-43’s new mission of the sibling-type, the election of Brother-Jeb, just like the other mission, Iraq, is only likely to become accomplished once again atop an aircraft carrier, but not at the polls; people (a definite majority) have had it with the Bush brand.

  And, that same resolve is beginning to take hold in the Democratic electorate with the Clinton name.  Hillary’s recitals of smartness-by-association with the likes of Obama, Henry Kissinger and Madeleine Albright may not bring her the credentials she is after.  After all, Kissinger’s policies can be directly associated with the death of countless millions of innocent civilians in Cambodia-Vietnam; while Albright’s conscience should weigh heavily with the death of hundreds of thousands of Iraqi children.  

  Just a side note for Donald Trump and his legion of birthers: Wouldn’t it make sense to advocate “purity” in US’ presidential succession, making sure that the top 5 positions in government (maybe more) are filled by natural born citizens?  The position of Secretary of State comes to mind as fourth in line (after the Vice President, the Speaker of the House, and the President pro-tempore of the Senate) which would have disqualified those two foreign born politicians, Henry Kissinger (Germany) and Madeleine Albright (Czech Republic) from becoming president.

  Yes; Hillary Rodham Clinton, former First Lady, Senator and Secretary of State constantly invokes her extensive experience in affairs of state as strongly qualifying her for the White House; yet her vast experience follows for the most part decisions with bad judgment… bad experience which in my book is counterproductive to that required from a prospective good and effective leader.  Two superbly flawed American dynasties or dynasties-wannabe: Bush-es and Clinton-s; yet, most Americans hold admiration for one or the other when both probably deserve to be flushed down the historical toilet.

  

  

  

  

  

• Photographs Of The "Surreal, Uncanny" Emptiness Of China's Ghost Cities

  When one week ago we presented the latest Chinese ghost city being built on the edge of Nanning, immediately thousands of readers flocked to observe its sterile, pointless, yet very curious existence. The reason, perhaps, is that there is something oddly morbid, grotesque and yet fascinating about the clinical emptiness of China’s relentless attempts to artificially boost its GDP by creating “larger than life” Lego sets meant for human existence, yet which remain devoid of virtually any civilization.

  That is what drew Chicago photographer Kai Caemmerer to them.

  Take the Kangbashi District of Ordos, China is a marvel of urban planning, 137-square miles of shining towers, futuristic architecture and pristine parks carved out of the grassland of Inner Mongolia. It is a thoroughly modern city, but for one thing: No one lives there. Kai Caemmerer visited Kangbashi and two other cities for his ongoing series Unborn Cities. According to Wired, the photos capture the eerie sensation of standing on a silent street surrounded by empty skyscrapers and public spaces devoid of life. “These cities felt slightly surreal and almost uncanny,” Caemmerer says, “which I think is a product of both the newness of these places and the relative lack of people within them.”

  It is well-known that China has built hundreds of new cities over the last three decades as it reshapes itself into an urbanized nation with a plan to move 250 million rural inhabitants—more than six times the population of California—into cities by 2026. The newly minted cities help showcase the political accomplishments of local government officials, who reason that real estate and urban development is a safe, high-return investment that can help fuel economic growth.

  The problem is that this attempt at recreating SimCity in the real world never works: most people don’t want to live somewhere that feels dead, and these new cities sometimes lack the jobs and commerce needed to support those who would live there. In Kangbashi, the government used some administrative tricks to address this, relocating bureaucratic buildings and schools, then trying to convince people in surrounding villages to move in. It had minor success. Today, a city designed for at least 500,000 has around 100,000 inhabitants.

  Others are less lucky.

  It was their designation as “modern ghost towns” that initially drew Caemmerer to them. Fascinated, he decided to visit China and see them himself. He spent almost three months exploring three cities during two trips last spring and fall. He was not disappointed.

  As Wired writes, his first stop was the Yujiapu Financial District in the Binhai New Area, just outside Tainjin. Construction on the 1.5-square mile replica of Manhattan—complete with a Rockefeller center and twin towers—started in 2008 and will cost an estimated $30.4 billion. The immensity astonished Caemmerer. “There was a sense of vastness that surprised me,” he says.

  From there he traveled south to Meixi Lake City. The development covers 4.3 square miles, encircles a man-made lake and is designed to one day house more than 180,000 people. The lake is lined with tidy paths and benches, and soft music emanates from speakers at all hours. Caemmerer saw many skyscrapers under construction, their skeletons wrapped in green scrim. Real estate agents scurried about, busily selling apartments in buildings soon to be completed. “I felt like I was walking into the future,” he says.

  He wanted his photographs to reflect that. He’d wander the cities in the dim and eerie light before sunrise and after sunset, taking long exposures with his 4×5 film camera. In the final images, the buildings are so enormous that the edges of the photograph can’t contain them. They rise as strange concrete specters, displaced in time and lacking any sense of history. For now, the fate of most of them remains unknown. “I find that the images make me ponder the future,” Caemmerer says. “which, to me, is interesting because photographs are so commonly read as fragments of moments past.”

  Here are some the photos he took which make up his “Unborn Cities” collection.

  

  Near Yujiapu Financial District, Binhai New Area, Tianjin

  

  A design rendering at a construction zone near Meixi Lake Development, Chengsha

  

  Yujiapu Financial District, Binhai Nre Rea, Tianjin

  

  Near Kangbashi New Area, Ordos, Inner Mongolia

  

  LCD screens on a building glow near Kangbashi New Area, Ordos, Inner Mongolia

  

  A portion of Yujiapu Financial District’s skyline in the hazy light of day. The district is part of Binhai New Area, Tianjin

  

  Construction continues on a pavilion outside of Ordos, Inner-Mongolia

  

  Uncompleted residential buildings in the Meixi Lake Development, near Changsha

  

  An abstract sculpture frames a construction project near Meixi Lake Development, Changsha, Hunan province

  

  Palm trees surround a construction area near Yujiapu Financial District, Binhai New Area, Tianjin

  

   

  Office buildings glow in the early morning darkness of the Yujiapu Financial District, Binhai New Area, Tianjin

  

  A residential high-rise nears completion near Meixi Lake Development, Changsha

  

  Residential buildings in the Meixi Lake Development, near Changsha

  

  Ordos 100 is a construction project curated by Al Weiwei and architectural firm Herzog & de Meuron near Ordos, Inner-Mongolia

  

  Construction near Changsha, Hunan province
  

  

  

  

  

• The US Economy Has Not Recovered And Will Not Recover

  Authored by Paul Craig Roberts,

  The US economy died when middle class jobs were offshored and when the financial system was deregulated.

  Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.

  However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

  The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.

  Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible. Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.

  The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.

  Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.” Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer. Corporate executives helped to boost the stock market by using the companies’ profits and by taking out loans in order to buy back the companies’ stocks, thus further expanding debt.

  Those few benefitting from inflated financial asset prices produced by Quantitative Easing and buy-backs are a much smaller percentage of the population than was affected by the Greenspan consumer credit expansion. A relatively few rich people are an insufficient number to drive the economy.

  The Federal Reserve’s zero interest rate policy was designed to support the balance sheets of the mega-banks and denied Americans interest income on their savings. This policy decreased the incomes of retirees and forced the elderly to reduce their consumption and/or draw down their savings more rapidly, leaving no safety net for heirs.

  Using the smoke and mirrors of under-reported inflation and unemployment, the US government kept alive the appearance of economic recovery. Foreigners fooled by the deception continue to support the US dollar by holding US financial instruments.

  The official inflation measures were “reformed” during the Clinton era in order to dramatically understate inflation. The measures do this in two ways. One way is to discard from the weighted basket of goods that comprises the inflation index those goods whose price rises. In their place, inferior lower-priced goods are substituted.

  For example, if the price of New York strip steak rises, round steak is substituted in its place. The former official inflation index measured the cost of a constant standard of living. The “reformed” index measures the cost of a falling standard of living.

  The other way the “reformed” measure of inflation understates the cost of living is to discard price rises as “quality improvements.” It is true that quality improvements can result in higher prices. However, it is still a price rise for the consumer as the former product is no longer available. Moreover, not all price rises are quality improvements; yet many prices rises that are not can be misinterpreted as “quality improvements.”

  These two “reforms” resulted in no reported inflation and a halt to cost-of-living adjustments for Social Security recipients. The fall in Social Security real incomes also negatively impacted aggregate consumer demand.

  The rigged understatement of inflation deceived people into believing that the US economy was in recovery. The lower the measure of inflation, the higher is real GDP when nominal GDP is deflated by the inflation measure. By understating inflation, the US government has overstated GDP growth.

  What I have written is easily ascertained and proven; yet the financial press does not question the propaganda that sustains the psychology that the US economy is sound. This carefully cultivated psychology keeps the rest of the world invested in dollars, thus sustaining the House of Cards.

  John Maynard Keynes understood that the Great Depression was the product of an insufficiency of consumer demand to take off the shelves the goods produced by industry. The post-WW II macroeconomic policy focused on maintaining the adequacy of aggregate demand in order to avoid high unemployment. The supply-side policy of President Reagan successfully corrected a defect in Keynesian macroeconomic policy and kept the US economy functioning without the “stagflation” from worsening “Philips Curve” trade-offs between inflation and employent. In the 21st century, jobs offshoring has depleted consumer demand’s ability to maintain US full employment.

  The unemployment measure that the presstitute press reports is meaningless as it counts no discouraged workers, and discouraged workers are a huge part of American unemployment. The reported unemployment rate is about 5%, which is the U-3 measure that does not count as unemployed workers who are too discouraged to continue searching for jobs.

  The US government has a second official unemployment measure, U-6, that counts workers discouraged for less than one-year. This official rate of unemployment is 10%.

  When long term (more than one year) discouraged workers are included in the measure of unemployment, as once was done, the US unemployment rate is 23%. (See John Williams, shadowstats.com)

  Fiscal and monetary stimulus can pull the unemployed back to work if jobs for them still exist domestically. But if the jobs have been sent offshore, monetary and fiscal policy cannot work.

  What jobs offshoring does is to give away US GDP to the countries to which US corporations move the jobs. In other words, with the jobs go American careers, consumer purchasing power and the tax base of state, local, and federal governments. There are only a few American winners, and they are the shareholders of the companies that offshored the jobs and the executives of the companies who receive multi-million dollar “performance bonuses” for raising profits by lowering labor costs. And, of course, the economists, who get grants, speaking engagements, and corporate board memberships for shilling for the offshoring policy that worsens the distribution of income and wealth. An economy run for a few only benefits the few, and the few, no matter how large their incomes, cannot consume enough to keep the economy growing.

  In the 21st century US economic policy has destroyed the ability of real aggregate demand in the US to increase. Economists will deny this, because they are shills for globalism and jobs offshoring. They misrepresent jobs offshoring as free trade and, as in their ideology free trade benefits everyone, claim that America is benefitting from jobs offshoring. Yet, they cannot show any evidence whatsoever of these alleged benefits. (See my book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West.)

  As an economist, it is a mystery to me how any economist can think that a population that does not produce the larger part of the goods that it consumes can afford to purchase the goods that it consumes. Where does the income come from to pay for imports when imports are swollen by the products of offshored production?

  We were told that the income would come from better-paid replacement jobs provided by the “New Economy,” but neither the payroll jobs reports nor the US Labor Departments’s projections of future jobs show any sign of this mythical “New Economy.”

  There is no “New Economy.” The “New Economy” is like the neoconservatives promise that the Iraq war would be a six-week “cake walk” paid for by Iraqi oil revenues, not a $3 trillion dollar expense to American taxpayers (according to Joseph Stiglitz and Linda Bilmes) and a war that has lasted the entirety of the 21st century to date, and is getting more dangerous.

  The American “New Economy” is the American Third World economy in which the only jobs created are low productivity, low paid nontradable domestic service jobs incapable of producing export earnings with which to pay for the goods and services produced offshore for US consumption.

  The massive debt arising from Washington’s endless wars for neoconservative hegemony now threaten Social Security and the entirety of the social safety net. The presstitute media are blaming not the policy that has devasted Americans, but, instead, the Americans who have been devasted by the policy.

  Earlier this month I posted readers’ reports on the dismal job situation in Ohio, Southern Illinois, and Texas. In the March issue of Chronicles, Wayne Allensworth describes America’s declining rural towns and once great industrial cities as consequences of “globalizing capitalism.” A thin layer of very rich people rule over those “who have been left behind”—a shrinking middle class and a growing underclass. According to a poll last autumn, 53 percent of Americans say that they feel like a stranger in their own country.

  Most certainly these Americans have no political representation. As Republicans and Democrats work to raise the retirement age in order to reduce Social Security outlays, Princeton University experts report that the mortality rates for the white working class are rising. The US government will not be happy until no one lives long enough to collect Social Security.

  The United States government has abandoned everyone except the rich.

  In the opening sentence of this article, I said that the two murderers of the American economy were jobs offshoring and financial deregulation. Deregulation greatly enhanced the ability of the large banks to financialize the economy. Financialization is the diversion of income streams into debt service. When debt service absorbs a large amount of the available income, the economy experiences debt deflation. The service of debt leaves too little income for purchases of goods and services and prices fall.

  Michael Hudson, who I recently wrote about, is the expert on finanialization. His book, Killing the Host, which I recommended to you, tells the complete story. Briefly, financialization is the process by which creditors capitalize an economy’s economic surplus into interest payments to themselves. Perhaps an example would be a corporation that goes into debt in order to buy back its shares. The corporation achieves a temporary boost in its share prices at the cost of years of interest payments that drain the corporation of profits and deflate its share price.

  Michael Hudson stresses the conversion of the rental value of real estate into mortgage payments. He emphasizes that classical economists wanted to base taxation not on production, but on economic rent. Economic rent is value due to location or to a monopoly position. For example, beachfront property has a higher price because of location. The difference in value between beachfront and nonbeachfront property is economic rent, not a produced value. An unregulated monopoly can charge a price for a service that is higher than the price that would bring that service unto the market.

  The proposal to tax economic rent does not mean taxing you on the rent that you pay your landlord or taxing your landlord on the rent that you pay him such that he ceases to provide the housing. By economic rent Hudson means, for example, the rise in land values due to public infrastructure projects such as roads and subway systems. The rise in the value of land opened by a new road and in housing and commercial space along a new subway line is not due to any action of the property owners. This rise in value could be taxed in order to pay for the project instead of taxing the income of the population in general. Instead, the rise in land values raises appraisals and the amount that creditors are willing to lend on the property. New purchasers and existing owners can borrow more on the property, and the larger mortgages divert the increased land valuation into interest payments to creditors. Lenders end up as the major beneficiaries of public projects that raise real estate prices.

  Similarly, unless the economy is financialized to such an extent that mortgage debt can no longer be serviced, when central banks lower interest rates property values rise, and this rise can be capitalized into a larger mortgage.

  Another example would be property tax reductions and legislation such as California’s Proposition 13 that freeze in whole or part the property tax base. The rise in real estate values that escape taxation are capitalized into larger mortgages. New buyers do not benefit. The beneficiaries are the lenders who capture the rise in real estate prices in interest payments.

  Taxing economic rent would prevent the financial system from capitalizing the rent into debt instruments that pay interest to the financial sector. Considering the amount of rents available to be taxed, taxing rents would free production from income and sales taxation, thus lowering consumer prices and freeing labor and productive capital from taxation.

  With so much of land rent already capitalized into debt instruments shifting the tax burden to economic rent would be challenging. Nevertheless, Hudson’s analysis shows that financialization, not wage suppression, is the main instrument of exploitation and takes place via the financial system’s conversion of income streams into interest payments on debt.

  I remember when mortgage service was restricted to one-quarter of household income. Today mortgage service can eat up half of household income. This extraordinary growth crowds out the production of goods and services as less of household income is available for other purchases.

  Michael Hudson and I bring a total indictment of the neoliberal economics profession, “junk economists” as Hudson calls them.

  

  

  

  

  

• Has The Market Crash Only Just Begun?

  Having successfully called the market's retreat in the fall of 2015, Universa's Mark Spitznagel is not taking a victory lap as he warns Bloomberg TV that "the crash has only just begun."

  Investors are facing the most binary "let's make a deal" market in history in Spitznagel's view: choose Door #1 to bet on Keynesianism, central planners, and monetary interventionism; or Door #2 to bet on free markets and natural price discovery.

  "There is massive cognitive dissonance here," Spitznagel explains as history teaches us that door #2 is the right choice… but it's not possible to do that today as investors have been coerced to choose door #1, but when door #1 is slammed open "we will see that dreaded black swan monster."

  That is what is going on right now:

  "Investors want to go with The Fed when it's working – like David Zervos… the problem is, when do you know that it is not working?"

  "At some point this stops working…"

   

  "the market is going through a resolution process, transitioning from the cognitive dissonance of Door #1 to the harsh reality of Door #2… if everyone were to change doors at the same time, that is a market crash… it can't be done in a non-messy way."

  Must watch reality check behind the smoke and mirrors we call markets… (we note Mark's excellent analogy starting at around 3:10)

  

  

  

  

  

• The Global Oil Glut Is So Great, Tankers Take The Long Route Around Africa To Find A Buyer

  While we have previously observed the massive glut of oil product in the US, which has led to such arcane developments as a “parking lot” of oil tankers outside of Galveston, TX…

  

   

  … or ships loaded to the brim with crude making U-turns in the middle of the Atlantic Ocean, taking advantage of the supercontango while unable to find buyers…

  

   

  … we can now say that things in Europe are just as bad, if not worse. According to the latest “This week in petroleum” blog post by the EIA, European distillate oversupply has results in floating storage and shipping changes, such as tankers taking the long route around Africa (40 days vs 20 days), because they are unable to find a buyer and hoping that demand will spike while ships are at sea. So far demand continues to plunge even as more and more supply comes online.

  From the EIA:

  Europe, like the U.S. East Coast, is experiencing a relatively warm
  winter. In addition to the resulting weak winter heating demand, high
  refinery runs in Europe and increased imports have kept distillate
  inventories in the Amsterdam, Rotterdam, and Antwerp (ARA) area far
  above normal. Higher inventories have pushed distillate futures prices
  in the ARA into a steep contango (meaning prices for delivery dates
  further in the future are higher than for near-month delivery). As a
  result, inventories are being held in floating storage and imported
  cargos are being diverted to longer voyages.

  Increased European refinery runs [have] contributing to
  high distillate inventories in the ARA region. As demand for gasoline in
  the United States and in West Africa increased last summer and fall, higher gasoline crack spreads
  led to increased European refinery runs. The increased refinery runs
  yielded distillate, along with the more profitable gasoline.

  At the same time, new and traditional sources of distillate have
  expanded capacity to supply ultra-low sulfur distillate (ULSD) to
  Europe. In Russia, which is a longtime supplier of distillate to Europe,
  refineries have been upgraded to produce lower-sulfur distillate fuels
  that are widely used in Western Europe, and have increased exports to
  Europe. Elsewhere, several new refineries, including those in Saudi
  Arabia and India, which are geared toward maximizing ULSD output, have
  come online in the past few years, further adding to the supply of
  distillate.

  These factors — reduced heating demand, increased European refining
  runs, and increased imports — have pushed independently held distillate
  inventory levels in the ARA to more than 26 million barrels in recent
  months, more than 7 million barrels higher than the five-year average
  (Figure 2).

  

  The ARA is the delivery point for the Intercontinental Exchange (ICE) gasoil (distillate) futures contract.
  Consistently high distillate inventories in the ARA have pushed prices
  lower and ICE gasoil futures into a steep contango. The futures spread
  between the prompt month ICE gasoil contract and the contract for 12
  months forward was $8.90 per barrel contango in January (Figure 3).

  

  Trade press reports indicate that a lack of storage space and a large contango have pushed distillate supplies into floating storage
  and encouraged import cargoes to take longer shipping routes. When
  contango in the futures contracts become sufficiently large, market
  participants can lock in a profit by purchasing distillate supplies on
  the spot market, chartering a vessel, and selling a longer-dated futures
  contract.  

  Trade press report that several vessels in European waters,
  such as off the coast of Gibraltar in southern Spain and outside of the
  ARA ports, have been booked specifically for distillate floating
  storage.

  Another tactic employed by market participants is to have
  inbound cargoes take longer voyages, which allows more time to find a
  buyer, or onshore storage space, and also provides a return from the
  higher priced later delivery date.

  According to the trade press, many
  cargoes from the Middle East and India have diverted around the Cape of
  Agulhas, at the southernmost point of Africa, on their way to Europe
  rather than passing through the Suez Canal in Egypt. The longer trip
  takes 30-40 days instead of the 15-20 day journey through the Suez Canal
  (Figure 4).

   

  h/t @GreekFire23

  

  

  

  

  

• Stephen Roach: "Central Banking Has Lost Its Way, Is In Crisis"

  Authored by Stephen Roach, originally posted at Project Syndicate,

  In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.

  The adoption of negative interest rates – initially launched in Europe in 2014 and now embraced in Japan – represents a major turning point for central banking. Previously, emphasis had been placed on boosting aggregate demand – primarily by lowering the cost of borrowing, but also by spurring wealth effects from appreciating financial assets. But now, by imposing penalties on excess reserves left on deposit with central banks, negative interest rates drive stimulus through the supply side of the credit equation – in effect, urging banks to make new loans regardless of the demand for such funds.

  This misses the essence of what is ailing a post-crisis world. As Nomura economist Richard Koo has argued about Japan, the focus should be on the demand side of crisis-battered economies, where growth is impaired by a debt-rejection syndrome that invariably takes hold in the aftermath of a “balance sheet recession.”

  Such impairment is global in scope. It’s not just Japan, where the purportedly powerful impetus of Abenomics has failed to dislodge a struggling economy from 24 years of 0.8% inflation-adjusted GDP growth. It’s also the US, where consumer demand – the epicenter of America’s Great Recession – remains stuck in an eight-year quagmire of just 1.5% average real growth. Even worse is the eurozone, where real GDP growth has averaged just 0.1% over the 2008-2015 period.

  All of this speaks to the impotence of central banks to jump-start aggregate demand in balance-sheet-constrained economies that have fallen into 1930s-style “liquidity traps.” As Paul Krugman noted nearly 20 years ago, Japan exemplifies the modern-day incarnation of this dilemma. When its equity and property bubbles burst in the early 1990s, the keiretsu system – “main banks” and their tightly connected nonbank corporates – imploded under the deadweight of excess leverage.

  But the same was true for over-extended, saving-short American consumers – to say nothing of a eurozone that was basically a levered play on overly-inflated growth expectations in its peripheral economies – Portugal, Italy, Ireland, Greece, and Spain. In all of these cases, balance-sheet repair preempted a resurgence of aggregate demand, and monetary stimulus was largely ineffective in sparking classic cyclical rebounds.

  This could be the greatest failure of modern central banking. Yet denial runs deep. Former Federal Reserve Chair Alan Greenspan’s “mission accomplished” speech in early 2004 is an important case in point. Greenspan took credit for using super-easy monetary policy to clean up the mess after the dot-com bubble burst in 2000, while insisting that the Fed should feel vindicated for not leaning against the speculative madness of the late 1990s.

  That left Greenspan’s successor on a very slippery slope. Quickly out of ammunition when the Great Crisis hit in late 2008, former Fed Chair Ben Bernanke embraced the new miracle drug of quantitative easing – a powerful antidote for markets in distress but ultimately an ineffective tool to plug the hole in consumer balance sheets and spark meaningful revival in aggregate demand.

  European Central Bank President Mario Draghi’s famous 2012 promise to do “whatever it takes” to defend the euro took the ECB down the same path – first zero interest rates, then quantitative easing, now negative policy rates. Similarly, Bank of Japan Governor Haruhiko Kuroda insists that so-called QQE (quantitative and qualitative easing) has ended a corrosive deflation – even though he has now opted for negative rates and pushed back the BOJ’s 2% inflation target to mid-2017.

  It remains to be seen whether the Fed will resist the temptation of negative interest rates. But most major central banks are clinging to the false belief that there is no difference between the efficacy of the conventional tactics of monetary policy – driven by adjustments in policy rates above the zero bound – and unconventional tools such as quantitative easing and negative interest rates.

  Therein lies the problem. In the era of conventional monetary policy, transmission channels were largely confined to borrowing costs and their associated impacts on credit-sensitive sectors of real economies, such as homebuilding, motor vehicles, and business capital spending.

  As those sectors rose and fell in response to shifts in benchmark interest rates, repercussions throughout the system (so-called multiplier effects) were often reinforced by real and psychological gains in asset markets (wealth effects). That was then. In the brave new era of unconventional monetary policy, the transmission channel runs mainly through wealth effects from asset markets.

  Two serious complications have arisen from this approach.

  The first is that central banks have ignored the risks of financial instability. Drawing false comfort from low inflation, overly accommodative monetary policies have led to massive bubbles in asset and credit markets, resulting in major distortions in real economies. When the bubbles burst and pushed unbalanced economies into balance-sheet recessions, inflation-targeting central banks were already low on ammunition – taking them quickly into the murky realm of zero policy rates and the liquidity injections of quantitative easing.

   

  Second, politicians, drawing false comfort from frothy asset markets, were less inclined to opt for fiscal stimulus – effectively closing off the only realistic escape route from a liquidity trap. Lacking fiscal stimulus, central bankers keep upping the ante by injecting more liquidity into bubble-prone financial markets – failing to recognize that they are doing nothing more than “pushing on a string” as they did in the 1930s.

  The shift to negative interest rates is all the more problematic. Given persistent sluggish aggregate demand worldwide, a new set of risks is introduced by penalizing banks for not making new loans. This is the functional equivalent of promoting another surge of “zombie lending” – the uneconomic loans made to insolvent Japanese borrowers in the 1990s. Central banking, having lost its way, is in crisis. Can the world economy be far behind?

  

  

  

  

  

• Currency And The Collapse Of The Roman Empire

  At its peak, the Roman Empire held up to 130 million people over a span of 1.5 million square miles.

  Rome had conquered much of the known world. The Empire built 50,000 miles of roads, as well as many aqueducts, amphitheatres, and other works that are still in use today.

  Our alphabet, calendar, languages, literature, and architecture borrow much from the Romans. Even concepts of Roman justice still stand tall, such as being “innocent until proven guilty”.

  So, as Visual Capitalist's Jeff Desjardins' asks, how could such a powerful empire collapse?

   

  

  Courtesy of: The Money Project

   

  The Roman Economy

  Trade was vital to Rome. It was trade that allowed a wide variety of goods to be imported into its borders: beef, grains, glassware, iron, lead, leather, marble, olive oil, perfumes, purple dye, silk, silver, spices, timber, tin and wine.

  Trade generated vast wealth for the citizens of Rome. However, the city of Rome itself had only 1 million people, and costs kept rising as the empire became larger.

  Administrative, logistical, and military costs kept adding up, and the Empire found creative new ways to pay for things.

  Along with other factors, this led to hyperinflation, a fractured economy, localization of trade, heavy taxes, and a financial crisis that crippled Rome.

  Roman Debasement

  The major silver coin used during the first 220 years of the empire was the denarius.

  This coin, between the size of a modern nickel and dime, was worth approximately a day’s wages for a skilled laborer or craftsman. During the first days of the Empire, these coins were of high purity, holding about 4.5 grams of pure silver.

  However, with a finite supply of silver and gold entering the empire, Roman spending was limited by the amount of denarii that could be minted.

  This made financing the pet-projects of emperors challenging. How was the newest war, thermae, palace, or circus to be paid for?

  Roman officials found a way to work around this. By decreasing the purity of their coinage, they were able to make more “silver” coins with the same face value. With more coins in circulation, the government could spend more. And so, the content of silver dropped over the years.

  By the time of Marcus Aurelius, the denarius was only about 75% silver. Caracalla tried a different method of debasement. He introduced the “double denarius”, which was worth 2x the denarius in face value. However, it had only the weight of 1.5 denarii. By the time of Gallienus, the coins had barely 5% silver. Each coin was a bronze core with a thin coating of silver. The shine quickly wore off to reveal the poor quality underneath.

  The Consequences

  The real effects of debasement took time to materialize.

  Adding more coins of poorer quality into circulation did not help increase prosperity – it just transferred wealth away from the people, and it meant that more coins were needed to pay for goods and services.

  At times, there was runaway inflation in the empire. For example, soldiers demanded far higher wages as the quality of coins diminished.

  “Nobody should have any money but I, so that I may bestow it upon the soldiers.” – Caracalla, who raised soldiers pay by 50% near 210 AD.

  By 265 AD, when there was only 0.5% silver left in a denarius, prices skyrocketed 1,000% across the Roman Empire.
  Only barbarian mercenaries were to be paid in gold.

  The Effects

  With soaring logistical and admin costs and no precious metals left to plunder from enemies, the Romans levied more and more taxes against the people to sustain the Empire.

  Hyperinflation, soaring taxes, and worthless money created a trifecta that dissolved much of Rome’s trade.
  The economy was paralyzed.

  By the end of the 3rd century, any trade that was left was mostly local, using inefficient barter methods instead of any meaningful medium of exchange.

  The Collapse

  During the crisis of the 3rd century (235-284 A.D), there may have been more than 50 emperors. Most of these were murdered, assassinated, or killed in battle.

  The empire was in a free-for-all, and it split into three separate states.

  Constant civil wars meant the Empire’s borders were vulnerable. Trade networks were disintegrated and such activities became too dangerous.

  Barbarian invasions came in from every direction. Plague was rampant.

  And so the Western Roman Empire would cease to exist by 476 A.D.

  

  

  

  

  

• The Famous Vancouver Teardown Shack Just Sold For $2.5 Million, $80,000 Over Asking

  Three weeks ago, when observing the ongoing lunacy in the Vancouver housing market, we mentioned the case of Canadian Bill Ring, head of operations for a property management company who, as Bloomberg quotes, said  “I don’t want to invest in stocks because they’re crazy and real estate is a solid, safe investment.”

  Much to our chagrin we mocked Bill’s zest, adding that “if the housing market in Canada were overheating, you wouldn’t be able to get “bargains” like the listing shown below from Vancouver.”

  

  

   

  Little did we know that Bill would have the last laugh less thatn three weeks later.

  As CBC News reported this week, “the latest poster child for Vancouver real estate excess is off the market, having fetched — of course — more than the asking price, proving that when it comes to securing a plot of dirt on the city’s west side, there seems to be no limit to what buyers will spend.”

  Well, not buyers: desperate Chinese cash smugglers who will park money into virtually anything offshore if it means avoiding the upcoming collapse of the Chinese financial system, because if anyone knows what is coming in China, it’s them.

  The (perhaps not so shocking) punchline: the property sold for $2.48 million, $80,000 more than what was considered an outrageous list price just two weeks ago when it was put on the market.

  Located on West 14th near Sasamat in the location-location location-driven Point Grey neighbourhood, the house had a sale price that reflects a new upper range for land value. It’s certain the wrecking ball will soon land on the shabby little house currently sitting on the property, cheekily dubbed a “dream home” by local newspapers.

  Only two blocks away, a brand new four-bedroom, six-bathroom home perched on a slightly smaller lot is currently listed for $4.3 million.

  

   

  Even the local media can barely contain its amusement at the insanity of it all:

   

  And yes, it is insanity as we showed a few weeks ago – if one is looking for an indicator of how fast Chinese capital is fleeing the mainland, just look at the lines below: they tell the full story.

  

  

  

  

  

  

• Gold Is The "Shining Bright Spot" In The Commodity Complex

  Gold is many things to many people. A perennial battleground subject, gold remains arguably one of the most debated asset classes across global financial markets, but as Goldman's precious metals equity analyst notes, from a fundamental perspective, the risk/reward looks more balanced than that of its bulk and base metal peers, especially in terms of the supply/demand dynamics.

  Bulls believe gold is the ultimate store of wealth, and should be compulsory in a welldiversified portfolio given its perceived safe-haven appeal.

   

  In contrast, bears are quick to highlight the lack of industrial use for this non-yielding asset and focus on the fact there is an abundance of above-ground inventory.

   

  Love it or hate it, gold will always be relevant and mentioned in the same sentence as oil when market participants refer to the all-important commodities complex.

  Gold is probably the pick of a bad bunch from a future investment standpoint.

  Macro trumps micro

  Gold is the chameleon of commodities, but ultimately it is primarily used as a financial asset by investors as a store of wealth, a hedge against the threat of inflation, and in some instances, as portfolio insurance. Historically, one of the strongest relationships is the inverse relationship between the gold price and US real interest rates; higher TIPS, lower gold prices, mainly owing to the fact that gold is a non-yielding asset and as such the opportunity cost will increase for investors holding gold as rates increase.

  As can be seen from the chart below, the relationship between US 5-year TIPS and gold has been very strong, returning an R-squared of 0.85. In 2016, our economists expect above-trend US economic growth and a corresponding recovery in US inflation expectations.

  As we gingerly move through 2016, and the market recalibrates its expectations for the imminent Fed rate hiking cycle, the gold price could be an interesting sideshow and alternative store of value for investors, if the currently anticipated timetable is pushed out.

  

  One of the reasons for the drawn out correction in gold prices in 2013 was the partial liquidation of ETFs.

  

  Above, we show that the number of ounces of gold in ETFs has stabilised in the past 12 months, and in fact, has ticked upwards in 2016.

  Saving lustre

  While a US market correction is not our base case, below we identify the major risk-off periods over the past 45 years, and investigate whether gold acted as effective short-term portfolio insurance. We observe that for nine of the last 10 major downturns in US equity markets, gold outperformed the S&P with 1980-82 the only exception (the gold bubble burst in 1980). Moreover, gold generated positive returns in eight of those instances.

  

  Chindia

  In 2014, the world’s two most populous nations accounted for over 50% of total gold demand. Citizens and the governments of these two countries play pivotal roles in the global gold market from both a supply and demand perspective. China is now the largest gold producing nation, more than doubling its output over the past decade to 450t. To put this in perspective, China was listed as #4 in 2005. In India, gold has always been a symbol of wealth, status, and a fundamental part of many rituals. In 2013, the government tried to introduce policies to reduce its current account deficit that included curbing gold imports, but these policies ultimately increased smuggling. While the 80:20 gold import rule was scrapped in November 2014, the 10% import duty on all gold imports is still in place.

  Miner miner 49er

  The fundamental difference between gold and other commodities is that once extracted, it is generally not consumed. It remains in existence in a form (jewelry, art, coins, bars) that is easily recoverable and is periodically returned to the market through recycling. Owing to this, gold’s above-ground stock is always rising. Mine output accounts for about c.75% of total annual supply. A labour-intensive and costly activity with long lead times, mine production is relatively inelastic to prices in the short run. In 1Q15, mine supply increased by 1% yoy to 734t while in 2014, global gold production increased by 5% yoy.

  Mine supply rose significantly during gold’s bull run in 2003-11, when prices rose 450% and new mines ramped up to full capacity following significant investments in new projects. However, with gold prices falling dramatically (by 42% since September, 2011), miners have been forced to delay/suspend new projects as they seek to increase operational efficiencies and cut growth capex. Consequently, reducing operating costs to optimise free cash flow has been a major focus for the gold companies.

  While closures and suspensions have been limited to small and ageing operations, there have been deferrals of major development-stage projects as part of the drive to reduce unnecessary capital expenditure. Most activities are centered on the divestment of non-core operations. Miners have taken steps to enable their survival through the current squeeze of their margins, and it seems that the consequences of these actions will be detrimental to mine supply levels in future years.

  The pain that the broader mining industry experienced in 2015 was endured by the gold sector in 2013/14. After the gold price fell 25% in the first six months of 2013, the gold companies were forced in to action to conserve cash. Dividends were cut, capex was significantly pared back, non-core assets were sold and balance sheets slowly improved. The aggressive action from gold companies resulted in a sector that is able to survive and generate cash at a US$1,000/oz gold price.

  The need to conserve cash in the face of sustained lower commodity prices is a situation we believe that the broader mining complex is slowly coming to terms with. As the chart below indicates, the gold sector has been more decisive in addressing the issues.

  Global miners are all facing their problems (BHP: dividend and Samarco; Glencore: debt; Anglo: debt & restructuring; Chinese producers: high debt) and these are likely to drag on performance in 2016. Buy-rated Barrick Gold (US$12.25) and AngloGold Ashanti (R172) have ‘cleared the decks’ on the cash conservation front and are well positioned to perform in 2016. They are cash flow positive at respective gold prices of US$890/850 per oz. FCF yields are strong and we believe the gold miners provide more stable mining opportunities relative to their large cap non-gold peers.

  
   
  The need to conserve cash in the face of sustained lower commodity prices is a situation we believe that the broader mining complex is slowly coming to terms with. As the chart above indicates, the gold sector has been more decisive in addressing the issues.

  

  

  

  

  

• Freedom Isn't Free

  Submitted by Simon Black via SovereignMan.com,

  Years ago back in my days at the academy and in the military, I used to hear this phrase “freedom isn’t free” over and over again.

  It was almost a sort of motto for a lot of military units– a self-motivating expression that freedom came at a price, and it was our solemn responsibility to pay that price.

  It’s a true statement. Freedom is NOT free.

  History shows that the path to liberty almost invariably involves conflict, whether it was the American Revolution, or Brown vs. the Board of Education.

  And these conflicts often demand a very steep price from those who fight them.

  Today we are in the midst of another great conflict. I’m not talking about hostilities in Syria or even the Global War on Terror.

  This conflict is between the individual and the state.

  Governments around the world have demonstrated that they are willing to trample on individual liberties with no thought to the larger implications.

  They tell us what we can and cannot put in our bodies. They take our children away when they deem us unfit parents in their sole discretion.

  They tell us to be afraid of men in caves… or angry teenagers in the desert… or bad people lurking in the night… and then use that fear as an excuse to dismantle the freedoms that previous generations paid such a steep price to achieve.

  We’ve now found out that the US government has demanded that Apple, in the words of CEO Tim Cook, “build a backdoor to the iPhone.”

  Cook’s letter to customers describes how the government wants to access data on the iPhone of the man who perpetrated the 2015 San Bernadino mass shooting.

  Apple’s iPhone operating system automatically encrypts data and only makes it available to a user who knows the password.

  Since Apple doesn’t know the shooter’s password, they cannot access the data through normal means.

  That’s why the FBI wants them to build a backdoor, and the government has commanded Apple to comply under the authority of a law dating back to 1789.

  As Tim Cook points out,

  “[W]hile the government may argue that its use would be limited to this case, there is no way to guarantee such control.

   

  “The implications of the government’s demands are chilling. If the government can use the All Writs Act to make it easier to unlock your iPhone, it would have the power to reach into anyone’s device to capture their data.

   

  “The government could extend this breach of privacy and demand that Apple build surveillance software to intercept your messages, access your health records or financial data, track your location, or even access your phone’s microphone or camera without your knowledge.”

  The government may very well be acting in the interest of ‘protecting the American people’.

  And US presidents often point out these days that their #1 responsibility is to keep American safe.

  Actually, it’s not.

  Nearly all federal officials, including the President, take an oath to support and defend the Constitution of the United States against ALL enemies, foreign and domestic.

  That is their #1 responsibility– to uphold the principles of freedom that define an entire nation.

  They have routinely broken that oath, trading other people’s freedom for the illusion of greater security.

  It’s easy to sing songs about how free you are… to cheer Lady Gaga’s rendition of the national anthem at the Superbowl when she hits the high note on the word “free”.

  But none of that comes at a price.

  Our price is making a difficult choice between liberty and security– to choose fear or freedom.

  When we feel that our families’ security is threatened, the knee-jerk reaction is often to say “give the government whatever it needs to make us safe!”

  But the harsh reality is that such short-term thinking creates a much more ominous world in the long-term.

  And every tacit acquiescence to intrusive government authority is a brick laid on the road to tyranny.

  

  

  

  

  

• When Cash Is Outlawed… Only Outlaws Will Have Cash

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

  Control, Tax, Confiscate

  Harvard economist Larry Summers is a reliable source of claptrap. And a frequent spokesman for the Deep State.

  To bring new readers up to speed, voters don’t get a say in who runs the country. Instead, a “shadow government” of elites, cronies, lobbyists, bureaucrats, politicians, and zombies – aka the Deep State – is permanently in power.

   

  

  Larry Summers – the man with a plan for everyone. An economist whose economic theorizing is truly abominable crap (more on this in an upcoming post), a reliable, crypto-fascist, bought and paid for evil intellectual in the service of the Deep State. His “policy proposals” all have one thing in common: they are apodictically certain to restrict economic progress and individual liberty.

  Put simply, it doesn’t matter which party is in power; the Deep State rules. Want to know what the Deep State is up to now? Read Larry Summers.

  “It’s time to kill the $100 bill,” he wrote in the Washington Post (another reliable source of claptrap).

  The Deep State wants you to use money it can easily control, tax, and confiscate. And paper currency is getting in its way.

  France has already banned residents from making cash transactions of €1,000 ($1,114) or more. Norway and Sweden’s biggest banks urge the outright abolition of cash. And there are plans at the highest levels of government in Israel, India, and China to remove cash from circulation.

  Deutsche Bank CEO John Cryan predicts that cash “probably won’t exist” 10 years from now. And here is Mr. Summers in the Washington Post:

  “Illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds, as would be the case if the $20 bill was the high denomination note.”

  He proposes “a global agreement to stop issuing notes worth more than say $50 or $100. Such an agreement would be as significant as anything else the G7 or G20 has done in years.”

  What makes Mr. Summers so confident that a ban on Ben Franklins would be a good thing? It turns out that a research paper – presented by Peter Sands, the former CEO of British bank Standard Chartered, and published for the Harvard Kennedy School of Government – says so.

   

  Idiotic Ideas

  “High denomination notes,” said the report, “play little role in the functioning of the legitimate economy, yet a crucial role in the underground economy.”

  Mr. Sands should know about hiding money. While he was CEO, New York’s top financial regulator threatened to strip Standard Chartered of its banking license. It claimed the bank “schemed” with the Iranian government to hide at least 60,000 illegal transactions – involving at least $250 billion.

   

  

  If the Benjamin is killed, it will “deter illicit activities” they say, apparently taking us all for complete idiots. Very organized criminals all over the world could be heard rolling on the floor laughing their heads off at this pronouncement. Here’s another idea: if we lock all the peasants up in a small room without doors and windows, they will no longer have to suffer the indignities and dangers inflicted by bad weather! Never again will they be made wet and uncomfortable by rain, and the threat of skin cancer due to excessive exposure to sunlight (as recently highlighted by Hugh Jackman’s withering nose) will soon be but a distant memory. Isn’t such a comprehensive level of security well worth whatever small trade-offs it involves?

   

  Here at the Diary, we don’t pretend to know how to improve the world. We just know what we like. And we don’t like other people telling us what to do. Last year, we traveled all around the world. We went where we wanted to go. We did more or less what we wanted to do. Rarely did we feel that someone was bossing us around. But back in the USA…

  “Take your belt off. Take your shoes off. Anything in your pockets? Take it out…”

  “Turn on lights. Fasten seat belts. Turn on windshield wipers.”

  This morning, walking through the park, we found this sign:

  Curb Your Pets

  Not just a courtesy to your neighbors

  IT’S THE LAW

   

  

  The unspoken threat behind the “law”, made explicit.

  People who insist you follow their ideas are always the same people whose ideas are idiotic.

  “Always do the opposite of what they tell you do,” said a friend in France whose father was mayor of a small town during World War II.

   

  “There had been ‘an incident.’” he explained. “I think the Resistance had killed a German soldier in the area. It was that time, late in the war, when the Nazis were retaliating against civilians.

   

  “So, they told my father to get everyone in town to assemble in the town square. Instead, my father told everyone to run for the woods. They all did. They were lucky. They survived the war.”

  Electronic Dollars

  And now, Mr. Summers wants us to bring our cash to the town square. Instead of $100 bills, he wants to force us to use electronic notations faithfully recorded in a federally regulated bank. Have you ever seen one of these “electronic dollars,” dear reader?

  We have not. We don’t know what they look like. And we’re deeply suspicious of the whole thing. The European Central Bank and the Bank of Japan – along with central banks in Denmark, Sweden, and Switzerland have already imposed a negative interest rate “tax” on the accounts commercial banks hold with them (known as “reserve accounts”).

   

  

  Negative yielding government bonds in Europe as of December 2015 – a monument to the decline of Western civilization

   

  These central banks are hoping banks will pass on this new tax to their customers. This has already happened in Switzerland…

  As colleague Chris Lowe told Bonner & Partners Family Office members at our recent annual meeting in Rancho Santana in Nicaragua, Alternative Bank Schweiz (ABS) will begin charging a negative interest rate on customers’ deposits this year.

  ABS will levy an annual penalty of 0.125% on deposits of less than 100,000 Swiss francs ($101,173) and an annual penalty of 0.75% on deposits of more than 100,000 Swiss francs. Essentially, ABS is charging its customers to keep their money on deposit.

  If you put $1 million in the bank, at 0.75% negative interest, you come back a year later, and you have $992,500 left. The bank has confiscated the other $7,500. At a negative rate of, say, 3%… you pay $30,000 a year just to keep your money on deposit. It sounds like a scam…

  Governments abolish cash. You have no choice but to leave your savings on deposit. And you’re forced to pay banks for storing your money.

   

  Cash Outlaw

  But wait. Banks are not really storing “your” money at all. A bank deposit is an IOU from your bank. There is no vault cash backing it up… just 1s and 0s on a database somewhere. If the bank decides not to give you “your” money, you’re out of luck.

  It’s as though someone offers to store your cherry pie. Then he goes and eats the pie, promising to give you one just like it when you want it. He then has the cheek to charge you every month for “storing” the pie. And when you want it, he won’t be able to give it to you.

   

  

  The precedent – no-one can say they weren’t warned.

   

  “I don’t have any baking powder. You’ll have to come back tomorrow,” he says. Or, “I’m sorry. But the federal government has declared cherries an endangered species. I’m not allowed to give you your pie back. It was very tasty, though.”

  How much could this electronic pie be worth anyway… if you have to pay someone to eat it for you? Imagine the automobile you have to pay someone to drive away. Or the rental unit you have to pay someone to live in.

  When you have to pay someone to take it off your hands, you can imagine how much your money is really worth. And when your bank – or the Deep State – wants to confiscate your money, who will stop it?

  At least if you have your money in cold, hard cash, they will have to come and physically get it from you. When it is “in the bank” – existing as nothing but electronic account balances – all they have to do is push a button.

   

  

  Once it’s all numbers in a computer, they won’t even have to point their guns at you anymore. Then it will be possible to rub out your money savings by simply pushing a button on a computer keyboard. At that juncture you’d better not be too uppity, citizen.

   

  That’s what happened in Cyprus. The banks were going to the wall. So, they confiscated deposits to help make themselves whole again. Who will stop the same thing from happening in America?

  The judge the Deep State appointed? The police on the Deep State’s payroll? The politicians the Deep State bought and paid for?

  When cash is outlawed… only outlaws will have cash. And we intend to be among them.

  

  

  

  

  

• Here Are The States With The Highest Household Debt Burdens

  Americans are in debt. And massively so.

  In fact, the US is laboring under $1.1 trillion in auto loan debt and $1.3 trillion in student loan obligations. 

  This massive burden may well be holding back the beleaguered consumer in the US, a country which depends on consumer spending for three quarters of economic growth. 

  According to the New York Fed, total indebtedness is now $12.12 trillion and while mortgage debt accounts for the lion’s share of the burden, student debt is on the rise, as are auto loan obligations. 

  “How much does the average household owe?,” Bloomberg asks. “Nationwide, the per-capita debt is about $46,170.”

  

  Most of that is mortgage debt, although in Texas, where the jobs market has been hit especially hard by the sharp decline in crude prices, auto loan debt has spiked of late.

  

  In California, total debt amounts to around $66,000 per capita.

  If you live in one of the states mentioned above and are struggling under a $60,000 debt burden, just remember: you can always refi via a P2P website. Oh… wait…

  

  

  

  

  

• Cable Rallies After EU President Confirms EU-UK Deal Done

  Unless Cameron heard what he wanted to hear, as we detailed earlier, he would not have campaigned for the UK to remain in the bloc ahead of an expected referendum on membership in June…. which would likely have rocked the EU once again. Well after 30 minutes of chaos after the bell tonight, EU President Donald Tusk has tweeted that "Deal. Unanimous support for new settlement." GBPUSD is rallying on the news but now comes the fun part where Cameron persuades an increasingly euroskeptic Britain to stay inside Brussels shell…

  Deal it is… No details yet…

  Deal. Unanimous support for new settlement for #UKinEU

  — Donald Tusk (@eucopresident) February 19, 2016

   

  And cable rallies…

  

   

  This is far from over of course, and as we detailed earlier, here's a bit of color from Bloomberg on what "Brexit" would mean for London's "City": 

  • What is at stake? Financial services account for 180 billion pounds ($258 billion) a year — about 12 percent — of U.K. economic output and contribute 66 billion pounds in taxes. In some areas, like foreign exchange trading (41 percent of the world total) and over-the counter derivatives (49 percent), London is the undisputed global leader. Opponents of a Brexit fear a departure would precipitate years of uncertainty and steady waning of influence and market share.
  • What is passporting and why does it matter? Under the current regime, any firm authorized in the U.K. firm is free to do business in any other European Economic Area state by applying for a "passport" from British regulators. For non-EU banks like JPMorgan Chase & Co., Credit Suisse Group AG or Nomura Holdings Inc., the ability to access the region’s 500 million customers from a base in London has been an important draw. Without it, many firms may seriously consider upping sticks.
  • What would Brexit mean for the banks? Every day more than a trillion dollars worth of euros change hands in London, close to half the global total, according to the Bank for International Settlements. The City’s global dominance of the foreign-exchange market is likely to be tested by any Brexit package that fails to guarantee a continuation of access to the single market. Over-the-counter derivatives are another area for concern. About three-quarters of all trading in such instruments in Europe currently takes place in the British capital. Without access to the single market, much of that is likely to migrate, according to lawyers and bankers who say that U.S. banks are already mulling moving operations.

  

  Right. So this isn't just symbolic. "While no FTSE 100 company said it wanted Britain to leave the EU, only 18 were prepared to state unequivocally that they supported continued membership," FT goes on to note.

  Right. Because in reality, there aren't very many solid arguments for supporting continued memebership and whatever arguments were left have been significantly diminished by the bloc's worsening migrant crisis. Still, Cameron is calling for a "live and let live approach." Here's a look at UK trade vis-a-vis the rest of Europe. 

  

  But numbers aren't likely to sway the British people who are prepared to opt out of the ill-fated union. 

  Cameron says he's "battling for Britain", but in reality he's "battling for the EU." With the future of the union already in question thanks to the festering migrant crisis, Britain may well be better off abandoning this sinking ship. "It's the EU in question, not just one country in the EU," French President Francois Hollande said on Friday.

  Indeed. And the time has now come for Britain to decide whether it's prepared to go down with this ship, or forge a path ahead on its own. In the meantime, expect volatility, PIMCO says. "Irrespective of the twists and turns in the debate over U.K.’s planned referendum on EU membership, uncertainty over the result is likely to weigh on U.K. markets for a good few months yet," Mike Amey, Pimco portfolio manager said in a press release. Right. it is likely to cast a pall on markets "for a good few months yet," as you can tell from the below: 

  

  

  

  

  

  

• Weekend Reading: The Bull Is Back?

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  That didn’t take much. After a three-day rally, the media is back into “bullish” mode suggesting the bottom is likely in and by the end of this year, it’s all going to be just fine.

  Unfortunately, history suggests that after such a long unabated expansion risks are substantially higher than it has been previously. Furthermore, as I have repeated often in these missives, in an economy that is driven primarily based on consumption, and such consumption is already weak, it doesn’t take much to “flip the switch.” 

  Believe it or not, this was a point make by former bull Joseph LaVorgna, Chief Economist for Deutsche Bank, now turned…da..da..dum…“bear.”  (Lord help us, hell hath frozen over.)

  This week’s reading list in a continuation of thoughts on the current state of the financial markets, economy and the Fed. Is the recent correction now over setting the stage for the bull to begin its next charge? Or, is the recent rally just a trap drawing unwitting investors into the next sell off? No one knows for sure, but what you decide next could have potentially serious ramifications.

  ---

  1) Bearish Sentiment A Cocktail For Rallies by Doug Kass via Real Clear Markets

  “As I noted both four weeks ago and again late last week, numerous precedents and positive technical divergences have led to our current sharp rally, including the fact that:

   

  Despite the S&P 500 and Dow Jones Industrial Average recently hitting fresh lows, only about 50% as many New York Stock Exchange-listed companies hit new 52-week lows this month as did so in January.

   

  The percentage of stocks trading above their 50- and 200-day moving averages was higher at the recent low than it was at the market’s January low.

   

  The McClellan Oscillator and Summation Index recently held at higher oversold levels.

   

  Conversely, the market’s recent leaders have gone on the defensive and become laggards. But as I’ve previously pointed out, leadership changes often accompany a weak overall market — so we have to stay alert.”

  But Also Read: The Curious Case Of Surging Transports by Mark Hulbert via MarketWatch

  But Read: Bert Dohmen Is Uber-Bearish by Financial Sense

  2)  Odds Of A Recession At 33% By Next Year by Larry Summers via The Washington Post

  “I would put the odds of a U.S. recession at about 1/3 over the next year and at over ½ over the next 2 years.   There is a substantial chance that widening credit spreads, a strengthening dollar as Europe and Japan plunge more deeply into the world of negative rates, and lower inflation expectations will be tightening financial conditions even as recession looms.  And while there is certainly scope for quantitative easing, for forward guidance and possibly for negative rates, it is very unlikely that the Federal Reserve can take steps that are nearly the functional equivalent of 400 basis point cut in Fed funds that is normally necessary to respond to an incipient recession.”

  But Also Read: The 4-Horseman Of The Economy Are Here by Constantin Gurdgiev via True Economics

  3) Kyle Bass: A Ticking Bomb In China by Julia La Roche via Business Insider

  “China’s banking system has grown from under $3 trillion to over $34.5 trillion in assets over the last 10 years alone. No credit system in history has ever attempted this rate of growth. There is no precedent.

   

  What does this mean for Chinese banks? There is a bad answer and a worse answer. The bad answer is that Chinese bank capital – the equity buffer – is significantly overstated. A TBR requires much less capital to be set aside (only 2.5c as opposed to 11c for an on-balance sheet loan) at the time of origination (anyone thinking Fannie and Freddie?). Adjusting reported bank capital ratios for this effect changes reasonable 8-9% Core Tier 1 capital ratios (CT1) to undercapitalized 5-6% levels.

   

  Now, the worse news. TBRs are one of the biggest ticking time bombs in the Chinese banking system because they have been used to hide loan losses.“

  

  Also Read: The China Delusion by Rob Johnson via Project Syndicate

  4) Central Banks & The Ongoing Dispute

  • Negative Rates Are A Failure by Ambrose Evans-Pritchard via The Telegraph
  • Yes, NIRP Was A Bad Idea by Izabella Kaminska via FT AlphaVille
  • NIRP Doomed To Failure by Frank Hollenbeck via The Mises Institute
  • Central Banks Face Credibility Test by John Plender via FT.com
  • Japan Near Ending Of Stimulus by Jeffrey Snider via Alhambra Partners
  • Central Banks Face New World by Caroline Baum via E21
  • Central Banks Are Clueless by Alanna Petroff via CNN Money
  • Negative Rates, Deficits & Defaults by Reuven Brenner via Asia Times

   

  5) It’s August 2008 All Over Again by Ken Goldberg via The Street

  “The stock market’s path for the next month or two is likely to take its toll on both bulls and bears. This is because of how the market tends to “frack” its way through major peaks and troughs, as some indices peak earlier than others, while others tend to trough earlier than others. If you know which index is leading the others, the solution is simple. Once the leader shows its hand, take the appropriate action in the followers and wait for them to catch up, as the profits should be close behind, right? Maybe. Unless humans are involved. We tend to use coping mechanisms that limit our ability to see what the markets are showing us. That historically results in situations where the herd becomes bullish at major tops and bearish at major bottoms.”

  

  But Also Read: An Unambiguous Buy Signal by Jeff Cox via CNBC

  And Read: Bear Market Rallies by Urban Camel via Financial Sense

  ---

  THE USUAL SUSPECTS

  • Fed Bullard – Unwise To Hike Rates, More QE by Tyler Durden via Zero Hedge
  • 21 Numbers On The Global Economy by Michael Snyder via Economic Collapse
  • Foundation Of Housing Still Missing by Mark Hanson via MHanson.com
  • The Case For Global Tightening by Sober Look
  • Warning With A Capital “W” by John Hussman via Hussman Funds
  • Art & Shipping Send Warning by Jesse Felder via The Felder Report
  • Transports Flagging A Warning via Dana Lyons via Tumblr
  • Flipping Volatility Regimes by Salil Mehta via Statistical Ideas

  ---

  “Investors are condemned by almost mathematical law to lose” – Ben Graham

  

  

  

  

  

• "It Just Occurred To Me" – Trump Proposes Boycott Of Apple, While Tweeting From An iPhone

  Moments after AAPL announced on Wednesday that it would not comply with FBI demands to hack into its phone, Donald Trump was already arguing vehemently that Apple should help investigators crack the phone’s encryption system: “To think that Apple won’t allow us to get into her cell phone,” Trump said on Fox and Friends Wednesday morning. “Who do they think they are? No, we have to open it up.”

  “Apple, this is one case, this is a case that certainly we should be able to get into the phone,” he said. “And we should find out what happened, why it happened, and maybe there’s other people involved and we have to do that.”

  “I agree 100% with the courts,” the mogul added. “In that case, we should open it up. I think security over all — we have to open it up, and we have to use our heads. We have to use common sense.”

  And then, moments ago during a campaign event in Pawleys Island, South Carolina, Trump had an epiphany: “It just occurred to me.” His solution: a boycott of Apple Inc products until the tech giant agrees to U.S. government demands that it unlock the cellphone of the San Bernardino killer.

  “Boycott Apple until they give up the information,” Trump said. “The phone is owned by the government… Tim Cook is looking to do a big number probably to show how liberal he is. Apple should give up.”

  The billionaire’s call to action followed an interview with Bloomberg in which he offered harsh words for Cook.

  “Tim Cook is living in the world of the make believe,” Trump said Friday in a telephone interview. “I would come down so hard on him — you have no idea — his head would be spinning all of the way back to Silicon Valley.”

  “I think Tim Cook is totally out of line and I think the government should come down on Tim Cook very, very hard,” Trump said in the interview Friday. “I think it’s a disgrace what he is doing, we’re talking about lives, potentially thousands of lives, and we should find out who else was involved in the plot where 14 people were killed.”

  It was unclear initially it Trump had a specific cell phone company as an alternatives, or if this was all part of a grand marketing ploy by Tim Cook to get Trump’s opponents to rush out and purchase iPhones in retaliation. We will keep an eye on channels checks over the next few days for the answer.

  But the biggest irony is shown is self-evident in the screengrab of Trump’s latest tweet below.

  

   

  Update: less than an hour later, Trump appears to have realized his error by tweeting from a Google-based platform, the same Google which supports Apple in its fight with the government:

  

  

  

  

  

  

• Best Week Of 2016 For Stocks Amid Biggest Short-Squeeze In A Year

  Come on… stocks are up large… everything must be awesome!!

   

  This was S&P and Dow Transports best week of the year… (Dow Industrials best week in 3 months, Nasdaq and Small Caps best week in 4 months)

  

  Today's moves were capped at the European close…

  

   

  Trannies are up 5 weeks in a row – the same after The Oct 2014 Bullard Bounce…

  

   

  Let's just look across assets this week:

  • US equities Up 2.5% to 3.5%
  • US Treasuries ~Unchanged
  • Oil ~Unchanged
  • Gold ~Unchanged
  • USDJPY -0.5%
  • IG Credit ~Unchanged

  

   

  Homebuilders outperformed (despite weak Starts and Permits data, weak sentiment, weak mortgage applications and weak architecture billings), and Financials and Energy had their best week of the year…

  

   

  But Credit markets did not play along with financial stocks…

  

   

  The Wednesday panic spike in stocks appears to have been some kind of market-neutral liquidation as "Weak Momentum" stocks soared relative to "Strong Momentum" stocks…

  

   

  And shorts were massively squeezed also… this was the biggest short-squeeze week since the first week of Feb 2015

  

   

  And something very odd was going on in The VIX ETF complex…

  

   

  Icahn Enterprises plunged after S&P shifted to negative watch, implying a junk rating looms…

  

   

  Treasury yields see-sawed all week (shortened week), ending with 10Y practically unchanged and the short-end up 2-3bps…

  

   

  USDJPY's tumble was the biggest news this week but EUR weakness helped USD Index rise 0.75% on the week…

  

   

  Modest USD strength on the week left gold and silver lower. Copper and crude outperformed, after crude plunged to unch on the week early on today…

  

   

  The crude futures roll today sparked panic-buying in the March contract into the close which ramped the cash-roll higher…

  

   

  Notably Oil VIX plunged on the week (from over 80 to almost 60)…

  

   

   

  Charts: Bloomberg

  

  

  

  

• $500 Million In ISIS Cash "Reserves" Destroyed By US Airstrikes, Officials Swear

  On Thursday, we revealed something truly shocking: ISIS is no longer handing out free Snickers bars and Gatorade to its fighters.

  Apparently, the cash crunch created by Russia’s unrelenting assault on the group’s illicit oil trafficking operation has left Abu Bakr al-Baghdadi with little choice but to cut salaries by 50% and eliminate some of the perks soldiers have until now enjoyed.

  Like free candy bars.

  And complementary sports beverages.

  

  For those unaware, ISIS brings in around a billion a year in proceeds from various illicit activities including, but certainly not limited to, illegal crude sales, slave trading, and taxes (and yes, we deliberately lumped taxes in with “illicit activities”, an editorial decision we’re sure readers will agree with).

  Those profits are being eroded by the Russian Defense Ministry’s assault on militant oil smuggling routes, and unless Raqqa’s terror-crats can figure out how to extract a commensurate amount of profits from Libya’s oil riches, the caliphate may be set to enter a terminal decline.

  As we also noted on Thursday, Islamic State’s balance sheet demise “isn’t a consequence of one airstrike on a Mosul cash center as AP and other Western media would have you believe.”

  We were referring to the much balleyhooed strike on an ISIS “bank” in Mosul, Iraq’s second largest city that’s been controlled by ISIS for the better part of two years. “We’re talking about an organization that brings in a billion dollars a year here, so destroying a few million in hard currency isn’t going to make a difference,” we remarked.

  Well, don’t look now, but ABC is out with a new piece claiming that “coalition” strikes have destoryed more than a half billion in illegal dollars procured by Islamic State. “The U.S. believes that airstrikes in Iraq and Syria have destroyed more than $500 million in cash that ISIS used to pay its fighters and fund its terror and military operations,” ABC reports. “Ten strikes have been conducted since then with the most high profile being two airstrikes in Mosul, in northern Iraq, targeting facilities that American officials characterized as ISIS banks.” 

  Col. Steve Warren, the U.S. military spokesman in Baghdad now says “hundreds of millions of dollars” have been destroyed by US airstrikes in the past several months. That’s a rather remarkable upgrade to his previous assessment in which he claimed “tens of thousands” had likely been vaporized.

  “Obviously, it’s impossible to burn up every single bill,” Warren says. “So presumably they were able to collect a little bit of it back. But we believe it was a significant series of strikes that have put a real dent in their wallet.”

  We imagine Janet Yellen will say the exact same thing when the FOMC runs out of options and bans cash.

  

  

  

  

  

• Bank of America: "Corporate Balance Sheets Are The Most Unhealthy They Have Ever Been"

  BofA’s HY credit strategist Michael Contopoulos, whose work we have recently presented on several occasions, has been rather dour over the past year on the future of HY debt, as the junk bond market first descended into purgatory, and then right into the 9th circle of hell, courtesy of a collapse in the energy sector unlike anything seen in history…

  

  … a collapse which virtually everyone admits will spread into all other sectors and products: it’s just a matter of time.

  However, rarely if ever have we heard Contopoulos as downright apocalyptic as he is in his latest note, “A Minsky Moment”, which has to be read to be believed, if only for the selected excerpts below:

  With a view that the market will eventually price in a much worse default environment than it is currently, we are left trying to determine when peak spreads will occur and for how long they will last. Unfortunately, when peak spreads are reached is not consistent across time periods, making it difficult to time the optimal entry. For example, in 1989 spreads peaked 178 days before the default rate peaked, in 2002 it was 165 days after, and in 2008 it was 290 days before (Chart 2). Convoluting the picture today is that the Energy default rate has the potential to skew that of the overall market. For example, if high yield E&P companies realize a 50% default rate this year and the rest of Energy experiences a 25% default rate, the Energy component of the market default rate could be nearly 6ppt. If the rest of the market experiences just a 4ppt rate, the market could realize double digit default rates in 2016, despite a relatively benign  non-commodity contribution.

   

  

  * * *

  In our opinion, however, we think the biggest issue in the market is the buildup of corporate leverage without a place for it to go. And what will likely cause peak spreads is not an increase in defaults, but a capitulation moment that creates a rush for the exits. In this way, we think the 1989 and 2008 cycles are more representative of what we could see this go around, as max spreads occur before the highest defaults – whether that is in 2016 or 2017 will depend on the timing of the catalyst.

  * * *

  Although we have argued for some time that what matters to market performance is underlying fundamental growth, we have further argued that should high yield be the canary in the coal mine for earnings and the macro economy, the ensuing crisis is likely to be one defined by the excessive credit creation in the corporate market. Should a market meltdown be accompanied with a lack of inflationary pressure, the credit creation of the last 5 years will likely be met with a period of significant credit destruction.

   

  And in a world where corporate balance sheets are arguably the most unhealthy they have ever been (all-time high leverage in HG and HY) where companies have relied on cheap debt to fund a growth through acquisition strategy, what happens if funding is either unavailable or too expensive to make a growth through acquisition strategy make sense? Same goes for buybacks and special dividends? Then one would have to cut capex. But with little capex to cut, personnel could be cut next (particularly if those people are beginning to cost more). And when coupled with a consumer that is already saving 5.5% of disposable income, should we see layoffs amidst an already low GDP, poor CEO confidence, and banks that are risk averse and perhaps hurting with commodity exposure, things could potentially get messy in such a scenario.

  * * *

  … perhaps the biggest innovation of the post-GFC years, and potentially the most detrimental and levering, was the massive increase in the Fed’s balance sheet on the back of quantitative easing. As the Fed’s financial engineering created a lack of yield globally, opportunities to invest in corporate debt abounded both within the US and globally. Although consumer and bank balance sheets have been repaired, the post-GFC easy monetary world created an unsustainable thirst for corporate debt that earnings growth never supported (Chart 9 and Chart 10).

   

  

   

  Herein lies our concern for markets and where the fear of a Fisherian debt deflation spiral can become worrisome. Although it is unlikely that the corporate market is enough to cause outright deflation, certainly a corporate credit bust can create disinflation or enhance deflation if it already exists. As liquidation leads to falling prices, dollar strength causes the very debt that needs to be paid down all the larger. Liquidation leads to defaults and layoffs, which, in a post-Volcker world, would likely cause banks to pull back on lending even further. The lack of lending coupled with job losses could create a weak consumer, which would further propagate a negative feedback loop to corporate earnings and further liquidation. Although we stress that this is not the scenario our economists envision for the US economy, we think attention needs to be paid to the potential impact credit markets can have on the macro economy, should the debt deflation cycle kick off.

  And in a subsequent post we will lay out the three potential catalysts to the capitulations that BofA believes could unleash the endgame of this particular cycle of central planning. 
  

  

  

  

  

  

• Sam Zell:"We Are Already In Recession"

  "We are either already in a recession or rapidly moving towards one," warns billionaire investors Sam Zell. A stunned Maria Bartiromo is shocked to hear from Zell that world trade has slowed dramatically and currency wars and election uncertainties have contributed to this. Most shocking of all to the Keynesian pump-primers (and oil bulls) is Zell's remarks that "when I look around the world for prospective demand, it's not there… demand is pretty weak." Markets are not pricing in recession and Zell warns, even with recent declines that "this is pretty frothy" thanks to easy money and he is a seller not a buyer.

  Zell warns – "The Fed is out of tools [to save the markets].. and that is going to make this more problematic."

  

  

  

  

  

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• Tech Exec "Outraged" At Having To See "Homeless Riff-Raff", Warns Of Revolution

  In an open letter to San Francisco's mayor Ed Lee, tech entrepreneur Justin Keller said he is "outraged" that wealthy workers have to see people in pain and despair. As The Guardian reports,

  The latest cultural altercation between San Francisco’s tech workers and the city’s impoverished population finds one such 'entitled' citizen declaring the homeless are "riff raff" whose "pain, struggle and despair" shouldn’t have to be endured by "wealthy" people commuting to work.

  Full Open Letter (via JustInk)…

  I am writing today, to voice my concern and outrage over the increasing homeless and drug problem that the city is faced with. I’ve been living in SF for over three years, and without a doubt it is the worst it has ever been. Every day, on my way to, and from work, I see people sprawled across the sidewalk, tent cities, human feces, and the faces of addiction. The city is becoming a shanty town… Worst of all, it is unsafe.

   

  This holiday weekend, I had my parents in town from Santa Barbara and relatives from Denver and Rochester New York. Unfortunately, there was three separate incidents and countless times that we were approached for money and harassed.

   

  The first incident involved a homeless drunken man in the morning coming up to their car and leaning up against it. Another bystander got frustrated with the drunken man, and they got into a heated pushing and shoving altercation.

   

  The second incident occurred as we were leaving Tadich Grill in the financial district. A distraught, and high person was right in front of the restaurant, yelling, screaming, yelling about cocaine, and even, attempted to pull his pants down and show his genitals.

   

  Finally, last night Valentines, I was at Kabuki Theater inside watching a movie. About two hours into the film, a man stumbled in the front door. He proceeded to walk into the theater, down the aisle to the front, wobbled toward the emergency door, opened it, and then took his shirt off and laid down. He then came back into the theater shielding his eyes from the running projector. My girlfriend was terrified and myself and many people ran out of the theater.

   

  What are you going to do to address this problem? The residents of this amazing city no longer feel safe. I know people are frustrated about gentrification happening in the city, but the reality is, we live in a free market society. The wealthy working people have earned their right to live in the city. They went out, got an education, work hard, and earned it. I shouldn’t have to worry about being accosted. I shouldn’t have to see the pain, struggle, and despair of homeless people to and from my way to work every day. I want my parents when they come visit to have a great experience, and enjoy this special place.

   

  I am telling you, there is going to be a revolution. People on both sides are frustrated, and you can sense the anger. The city needs to tackle this problem head on, it can no longer ignore it and let people do whatever they want in the city. I don’t have a magic solution… It is a very difficult and complex situation, but somehow during Super Bowl, almost all of the homeless and riff raff seem to up and vanish. I’m willing to bet that was not a coincidence. Money and political pressure can make change. So it is time to start making progress, or we as citizens will make a change in leadership and elect new officials who can.

   

  Democracy is not the last stop in politics. In-fact, the order of progression according to Socrates via Plato in the Republic goes: timocracy, oligarchy, democracy, and finally tyranny. Socrates argues that a society will decay and pass through each government in succession, eventually becoming a tyranny.

   

  “The greater my city, the greater the individual.”

  Finally, having been throughly abused we suspect, Keller appended the following to his "open letter"…

  "I want to apologize for using the term riff raff. It was insensitive and counterproductive."

  And in an email to the Guardian, Keller added that he was writing an additional blog post about the issue.

  “The thesis of the post was that inaction by the city and officials is not working. We all as citizens of San Francisco need to figure out how we can improve the city and address the homeless and drug addiction problem straight on,” he said.

   

  “I in no way meant to vilify homeless or drug users, my frustration was that we as citizens don’t feel safe. The amount of violent crime is increasing, and it affects everybody. What specific measures is the city taking to proactively help the homeless and drug addicted?

   

  “Instead of crucifying me, we all as citizens should be crucifying the city and elected government officials for ineptness. The status quo is not working.”

  Oh well I'm sure you're forgiven then… Let's ask one of the homeless riff raff themselves…

  “Being homeless is like being the germ of the city. That’s how they treat you,” said Bercé Perry, a homeless resident of San Francisco. Perry was standing outside his tent in an encampment underneath the Highway 101 overpass. The 42-year-old said he had been homeless for about one year, and he has little patience for the distaste some people have for his presence in the city.

   

  “They don’t care about nobody but themselves,” Perry said about the wealthy tech workers who’ve moved into San Francisco. “If you got money, you just want to grab anything you can get.”

  ne wonders just how close to homeless Keller will be when his "Pets.com" collapses?

  

  

  

  

  

• Chinese Money-Market Rates Are Spiking As Post-New-Year Liquidity Hangover Hits

  It would appear the Chinese central bank currency squeeze is back as money-market rates are exploding higher once again. With the outpuring of liquidity heading into the new-year holiday, the post-celebration hangover was always likely unless PBOC just kept pumping but judging by the 500bps spike in overnight Yuan interbank rates to 9.3%, more than a few banks are desperate for some liquidity. We note that the last six times that Chinese banks have suffered liquidity constraints, US equities have tumbled…

  While not at the extremes of mid December or mid-January’s catastrophes, O/N Yuan depo rates are soaring…

  

   

  As it seems PBOC is not quite as liberal with its liquidty post-new-year…

  

   

  and that bodes ill for US equities as the global liquidity problems this signals send ripples through every conduit (and their corresponding risk asset)…

  

   

  Still 9.3% overnight deposit rates are probably nothing, right?

  

  

  

  

  

• The "Hillary Vs Bernie" Pitch: Fix 'Cultural Bigots' Or 'Corrupt Billionaires'

  Authored by Eric Zuesse,

  Whereas Bernie Sanders claims to represent the bottom 99%, Hillary Clinton claims to represent a coalition of groups who are victimized by bigots (racists, sexists, etc.: she aims at women, homosexuals, Blacks, etc.). Whereas Bernie seeks to mobilize the bottom economic 99% against the top 1% who have scooped up almost all of the economic benefits that Americans have gained since 1993, Hillary seeks to mobilize all bigotry-victims against all of the many types of bigots. These pitches are fundamentally different from one-another. In fact, they’re diametrically opposite diagnoses of the biggest ailment threatening the U.S. future: our perilous economy.

  At the close of the Wisconsin Democratic debate on February 11th, Hillary Clinton made an appeal to members of labor unions, and then said:

  "I think that a lot of what we have to overcome to break down the barriers that are holding people back, whether it's poison in the water of the children of Flint, or whether it's the poor miners who are being left out and left behind in coal country, or whether it is any other American today who feels somehow put down and oppressed by racism, by sexism, by discrimination against the LGBT community, against the kind of efforts that need to be made to root out all of these barriers, that's what I want to take on. … Yes, does Wall Street and big financial interests, along with drug companies, insurance companies, big oil, all of it, have too much influence? You're right. But if we were to stop that tomorrow, we would still have the indifference, the negligence that we saw in Flint. We would still have racism holding people back. We would still have sexism preventing women from getting equal pay. We would still have LGBT people who get married on Saturday and get fired on Monday.”

  Bernie Sanders closed instead with:

  “This campaign is not only about electing someone who has the most progressive agenda, it is about bringing tens of millions of people together to demand that we have a government that represents all of us and not just the 1 percent, who today have so much economic and political power.”

  Hillary Clinton is saying that what’s “holding people back” is bigotry.

  Bernie Sanders is saying that what’s holding people back is concentration of too much power in too few people – not meaning a concentration of too much power in a freely and democratically elected government (which Republicans constantly attack as having too much power), but instead meaning a concentration of too much power in the richest 1% who buy  the government, and who use it to make American workers compete against  the workers in Haiti, Honduras, Vietnam, etc., so as to benefit the global stockholders of international corporations by lowering wages, instead of to benefit American workers by increasing wages. He’s attacking a system that benefits global stockholders by lowering wages everywhere to some lowest common denominator, so as to increase profits and stock-values and executive compensation everywhere. Workers don’t receive the benefits of that; the stockholders and executives in international corporations do. That’s the “1%”, though actually it’s even more concentrated in the top 0.1%.

  Hillary Clinton is saying that the main problem in America is America’s bigots — it’s no economic motivation, by billionaires who essentially buy the government, nor by anyone else. This political view, in which there are essentially no economic classes, but only bigots and their victims, is fundamentally different from Sanders’s view. It’s so different that in some other countries they would constitute two different political parties.

  Sanders is saying that the main problem in America is actually America’s corruption — a system that he says has been very successfully gamed by “the billionaire class.”

  That’s what the Democrats’ Presidential choice comes down to.

  This choice is a stark one. Democratic voters are being asked which is the primary issue for government to overcome: countervailing excessive greed by the super-rich, or countervailing all bigotry by anyone? Both greed and bigotry are bad, but which is more the main function of government to countervail? That’s the question.

  Hillary Clinton is saying that what American workers are pitted against is, essentially, bigots, individuals who are bigoted — bigoted against gays, against women, against Blacks, against Hispanics, etc.; they’re not  pitted against the controlling stockholders who are collectively represented by their corporation’s management and who want higher profits from paying lower wages. Hillary Clinton focuses on the cultural divide, the  various types of inter-ethnic conflicts, as being “what we have to overcome to break down the barriers that are holding people back.”

  Bernie Sanders is saying that the big problem American workers are up against isn’t bigots — rich and poor — as much as it’s the unlimited greed of the controlling stockholders who are represented by management (even if they’re not  bigots). His diagnosis is that not only should workers have the collective-bargaining right against the corporation’s owners, just like those corporate owners themselves already possess the collective-bargaining right via managers they hire, but that workers should also be more the focus of government’s concern and sympathy than stockholders are, because there are far more workers than owners, and because a one-person-one-vote democracy is far better than a one-dollar-one-vote ‘democracy’ (the latter of which is otherwise called an “oligarchy” or an “aristocracy”), the latter of which is what Sanders campaigns to put a stop  to.

  Hillary Clinton is saying that there is no common and shared enemy that oppressed employees have:  instead, the main problem is racist bigots in the case of Blacks; it’s homophobic bigots in the case of homosexuals; it’s misogynist bigots in the case of females, etcetera; and, if a Black happens also to be a homophobe, or a homosexual happens to be also an anti-Black racist, then each one of those victim-groups will be fighting against the bigoted members of the other  victim-groups. The chief job of the government, led by the U.S. President, is then somehow to punish all types of bigots equally, regardless of their particular  group, so as to minimize the complaints about bigotry from, and by, all Americans. That’s a balancing of groups against groups — a balancing of ethnicities. This is Clinton’s diagnosis and cure for America’s economic problems.

  Hillary’s diagnosis isn’t economic or systemic, but instead cultural and individual — it’s actually individual against individual, instead of stockholders against employees. And, just as a particular victim of bigotry can also be a bigot (for example, a Black can be homophobic, sexist, or etc.), a particular employee can also be a stockholder; some individuals stand on both sides at once, there too; but those are all individual matters, not  systemic matters, and so they’re not really authentic issues of governmental policy. Hillary Clinton says that they are themain  issues of governmental policy — that people’s problems are mainly individual  problems, against bigots; not  systemic problems, against stealers-of-the-public’s-government — and she says that the government should focus on individuals’ problems, not on systemic problems. That’s her view, which she expresses on almost every occasion, though she doesn’t put it in quite this way — a systematic way.

  Bernie Sanders, in contrast to Hillary Clinton, is saying that the oppressed do  have a common and shared (a systemic) enemy. Here is how he expressed this in a speech to the Democratic National Committee on 28 August 2015:  “We need a political movement which is prepared to take on the billionaire class and create a government which represents all Americans, and not just corporate America and wealthy campaign donors.” He was saying this to individuals — specifically, to the Democratic Party’s chief political agents — most of whose own career success has largely depended upon  that “billionaire class,” but Sanders was up-front to them about it. He even calls this “movement” a “revolution.” He’s not trying to hide his opposition to the staus-quo.

  The Democratic Party’s Presidential contest isn’t really a contest between ‘idealism’ versus ‘pragmatism,’ such as some propagandists claim. To characterize either candidate as ‘the idealist’ versus ‘the pragmatist’ is false. That characterization of this contest is actually deeply deceptive, because it focuses on vague abstractions, whereas the real issue in the Democratic Party primaries now is totally nitty-gritty, and it concerns two alternative diagnoses of what has been going wrong with America’s economy in recent decades.

  In Bernie’s view, American democracy is now in the emergency room; in Hillary’s view, complainers (against anything other than  bigots) are like mere hypochondriacs who simply don’t understand the experts who say that things aren’t so bad, and that therefore no “revolution” is needed.

  Is America’s basic governmental problem bigotry (i.e., certain cultural and ‘values’ problems), as Hillary says;

   

  or is it instead corruption (i.e., certain economic and governmental problems), as Bernie says?

  These are two very different conceptions of what the U.S. Presidency is about.

  And that’s the central choice in the Democratic Presidential primaries. More than anything else, that’s what the choice between Clinton and Sanders comes down to.

  *  *  *

  Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

  

  

  

  

  

• Visualizing The World's Stock Exchanges

  There are 60 major stock exchanges throughout the world, and their range of sizes is quite surprising.

  As Visual Capitalist's Jeff Desjardin notes, at the high end of the spectrum is the mighty NYSE, representing $18.5 trillion in market capitalization, or about 27% of the total market for global equities.

  At the lower end? Stock exchanges on the tiny islands of Malta, Cyprus, and Bermuda all range from just $1 billion to $4 billion in value. Even added together, these three exchanges make up just 0.01% of total market capitalization.

   

  

  Courtesy of: The Money Project

   

  The Trillion Dollar Club

  There are 16 exchanges that are a part of the “$1 Trillion Dollar Club” with more than $1 trillion in market capitalization. This elite group, with familiar names such as the NYSE, Nasdaq, LSE, Deutsche Borse, TMX Group, and Japan Exchange Group, comprise 87% of the world’s total value of equities.

  Added together, the 44 names outside of this aforementioned group combine for just $9 trillion, or 13%, of the world’s total market capitalization.

  Northern Dominance

  From a geographical perspective, it is the Northern Hemisphere that is dominant. North America and Europe both hold 40.6% and 19.5% respectively of the world’s markets, and the vast majority of Asia’s 33.3% lies north of the equator in places like Shenzhen, Hong Kong, Tokyo, and Shanghai.

  Notable exchanges that are south of the equator include the Australian Securities Exchange, the Indonesia Stock Exchange, the Johannesburg Stock Exchange and the Brazilian BM&F Bovespa.

  

  

  

  

  

• A "Baffled" Bank Of Japan Is Shocked By Its "Message Of Despair"

  One look at Japan’s bond yields, which moments ago hit a fresh record low for the 20Y maturity as the curve slowly but surely inverts…

  

  

   

  …. and one would think Haruhiko Kuroda would be delighted.

  

  After all, when he launched NIRP three weeks ago, a world in which negative rates are now a reality, it should have been clear to everyone even children, that yields would collapse as the scramble for any positive yield was unleashed.

  The only problem is that Kuroda did not care about yields – positive or negative: what he wanted was to crush the currency and to send the Nikkei soaring – the only two actual “arrows” of Abenomics. Sadly for the BOJ, this time it failed as precisely the opposite of what was expected happened.

  

   

  But, as the WSJ wrote earlier today in an article explaining why the BOJ is baffled (at least before a call from the BOJ forced it to change the title to the far more politically correct “Bank of Japan Faces a New Opponent on Negative Rates: Main Street“)…

  

   

  … Kuroda’s confusion has nothing to do with the market’s reaction; it has everything to do with the reaction by the public.

  An appropriately very negative reaction.

  Just yesterday, shortly after the BOJ’s shocking announcement, Kuroda found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was “victimizing consumers and sending a message of despair“, the WSJ writes. 

  Even a ruling-party member, Masahiro Ishida, called the policy hard to grasp. “It could have the opposite effect of confusing the market,” he said.

  

  It already has. But the problem is not that the market is confused; it is that the market’s reaction to the BOJ’s NIRP, which as we explained previously was largely due to central banker “peer pressure” during this year’s Davos meeting, has led to a global revulsion against negative rates in general, thus validating the BOJ’s error.

  The criticism has come as a surprise to central-bank officials who thought their efforts to spark lending and faster economic growth would gain more public support. “Those who understand this policy are criticizing us, and those who do not are also criticizing us,” said one official this week.

  Here the WSJ adds something that is patenly wrong: “It is a symptom of a global problem. The more central banks move into unconventional policies, the harder it becomes to get their message across. That is a particular problem when the policies are supposed to work in part by inspiring confidence.”

  Dead wrong: central bank policies are supposed to work by boosting the market; the narrative follows from there. It goes without sayinng that had Japan’s NIRP somehow sent stocks soaring and the Yen crashing, the avalanche of praise would have been constant and Kuroda would be deemed a hero in parliament. Alas for the BOJ – which failed at the simple task of manipulating the market higher in the initial kneejerk reaction – that did not happen, and now Kuroda is suddenly fighting for his professional life.

  And since the BOJ’s market domination had finally cracked, a new narrative emerged: one which demonstrated the BOJ as being a bunch of “clueless losers”, with no understand of what they are doing.

  Although negative interest rates have existed for some time in Europe, the idea was unfamiliar to most Japanese when it burst onto the front pages late last month. Initial accounts focused on what could happen to bank deposit rates. That is a sensitive issue in a society where wages have barely risen since the 1990s and where one in three citizens receives pension income.

   

  “Deposit one million yen and earn annual interest of ¥10,” said the headline of an online article Tuesday by Japan’s biggest daily newspaper, the Yomiuri Shimbun, telling savers with nearly $10,000 in the bank that they could expect less than a dime in interest

  But nothing demonstrates Kuroda’s bafflement quite as much as the outright hostile reception he got during his speech before parliament on Thursday:

  In Parliament on Thursday, opposition lawmaker Shinkun Haku squared off with the Bank of Japan’s Gov. Kuroda on whether commercial banks would effectively introduce negative rates by hitting consumers with fees in excess of the tiny amount of interest paid. “Can you deny that banks will put an additional burden on average depositors?” Mr. Haku said. “If you can’t deny it, don’t. It’s a yes or no.”

   

  Mr. Kuroda said he didn’t want to speculate about fees, but “there’s no chance that deposit interest rates will turn negative.”

  Which is a lie – not only will deposit rates ultimately turn negative, the only questions are when and by how much. 

  He said negative interest rates had helped spur lending in Europe with few harmful effects. “Europe has much larger minus interest than the Bank of Japan, and I haven’t heard of minus interest rates being applied to individual depositors there,” he said.

  Someone please inform the Credit Suisse or Deutsche Bank stock about the “few harmful effects”, or the fact that Europe’s economy is once again slowly relapsing into a recession, only this time with some 1.5 million Syrian refugees to partake in the festivities.

  It didn’t stop there:

  “Mr. Kuroda’s responses merely inspired further attacks from the opposition, which has been looking with little success for an issue with which to dent Prime Minister Shinzo Abe’s popularity…. a Communist Party lawmaker, Akira Koike, said negative interest rates were bad public relations. “You have sent a message to the people that they had better watch out because Japan’s economy is in trouble,” Mr. Koike said.

  Which in itself is a stunning of just how stupid communists, or anyone else for that matter, still are and are utterly incapable of grasping the most simple equality of the post-crisis era, namely that any central banks intervening = the economy is in trouble.

  And of course Japan’s economy is in trouble: it has had 6 recessions in the past 6 years as it rushes toward a demographic singularity in which there is simply no longer a Japanese population. Japan’s economy is in so much trouble, the only question is when does it disintegrate into a Venezuela-style supernova.

  But we can see where the confusion comes from. As the WSJ conveniently notes, central banks “policies are supposed to work in part by inspiring confidence” and instead “lawmakers charged the policy was victimizing consumers and sending a message of despair.“

  No: the message is one of reality, because the can kicking for Japan, having gone on for 40 years, is almost over. The good news about a central bank-free future is that it will hurt – a lot – for a while, and then normal growth can resume, but not before trillions in fake paper wealth are wiped out and quadrillions (in Yen terms) in debt is swept away.

  As for Kuroda, we will fondly remember him forever as Peter Panic. There was also this pearl in the WSJ piece: “opposition lawmaker Motoyuki Odachi accused Mr. Kuroda of sounding like a World War II propaganda broadcast.“

  Dear Motoyuki, all central bankers sound like a World War II propaganda broadcast, one on which the time has long ago come to pull the plug.

  

  

  

  

  

• Fed Skeptics Seek Gold Safe-Haven As Bullion Bears Capitulate

  Gold is having one of its best starts to a year in history as investors start to lose faith in central bankers’ ability to deal with economic challenges. Fed skeptics as well as capitulating bullion bears are being drawn to the precious metals as Bloomberg reports,

  “The safe-haven demand appears to be where people are focused on, and that is on a loss of faith in central banks being able to manage through this period,” said Klein, executive chairman of Australia’s second-biggest producer.

   

  Bullion is “certainly getting more attention from people who have generally been bears over the past few years,” Klein said in a phone interview.

  Even with the weakness of the last few days, Gold is still up 15% YTD – the best in at least a decade…

  

  Prices have gained as investors scaled back expectations for tighter policy from the Fed…

  “There seems to be general skepticism now, both from the Fed’s language and from market participants, as to whether that’s going to be possible,” said Klein, who’s been a gold-industry executive for about 20 years.

   

  “All the financial markets, and all the asset classes, seem to be highly sensitive to central-bank policy.”

  Gold's standout year is also driving some long-term bears to capitulate… (as Bloomberg details)

  For years, ABN AMRO Group NV’s Georgette Boele has been a staunch bear on gold as prices tumbled. Now with gold on the brink of a bull market, she’s changed her tune.

   

  Boele changed her year-end forecast to $1,300 an ounce from $900, according to report released Tuesday.

   

  

   

  ABN Amro is becoming more pessimistic about the global economy, especially in the U.S., emerging markets and countries with exposure to oil. Boele no longer expects the Federal Reserve to raise interest rates this year.

   

  “Having been long-standing bears we have now turned bullish on precious metal prices,” Boele wrote. “Our new scenario sees a longer period of weaker global growth.”

  As Klein concludes, "it does seem like there’s a general review of gold as an investment sector by people who haven’t been interested in it for years." And yet Goldman will still do its best to tell you to sell your gold (to them).

  

  

  

  

  

• Why The Chinese Yuan Will Lose 30% Of Its Value

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  The stark truth is nobody wants yuan any more.

  The U.S. dollar (USD) has gained over 35% against major currencies since 2011.

  

  China's government has pegged its currency, the yuan (renminbi) to the USD for many years. Until mid-2005, the yuan was pegged at about 8.3 to the dollar. After numerous complaints that the yuan was being kept artificially low to boost Chinese exports to the U.S., the Chinese monetary authorities let the yuan appreciate from 8.3 to about 6.8 to the dollar in 2008.

  This peg held steady until mid-2010, at which point the yuan slowly strengthened to 6 in early 2014. From that high point, the yuan has depreciated moderately to around 6.5 to the USD.

  

  Interestingly, this is about the same level the yuan reached in 2011, when the USD struck its multiyear low. Since 2011, the USD has gained (depending on which index or weighting you choose) between 25% and 35%. I think the chart above (trade-weighted USD against major currencies) is more accurate than the conventional DXY index.

  Due to the USD peg, the yuan has appreciated in lockstep with the U.S. dollar against other currencies. On the face of it, the yuan would need to devalue by 35% just to return to its pre-USD-strength level in 2011. This would imply an eventual return to the yuan's old peg around 8.3–or perhaps as high as 8.7.

  Longtime correspondent Mark G. submitted this article China's Subprime Crisis Is Here:

  The dynamic is clear. A splurge of new lending can help to dilute existing bad loans, but only at a cost. This is a game that can't continue forever, particularly if credit is being foisted on to an already over-leveraged and slowing economy. At some point, the music will stop and there will have to be a reckoning. The longer China postpones that, the harder it will be.

  Mark also submitted the following commentary:

  It seems the best way to assess the likely effects and outcomes is to look at what the Chinese government can control, and at what it can't control. And we should observe at the start that the yuan is not a global reserve currency.

   

  1. Beijing can control the amount of yuan in existence. It can therefore easily pay off all these bad internal debts, at least in a strict book keeping sense. And it can also recapitalize its bankrupt banks to any degree necessary, at least in yuan. The process of doing so involves assigning winners and losers. The latter group will comprise anyone earning a subsistence working wage in yuan and anyone whose assets primarily consist of savings in yuan.

   

  2. Undertaking #1 will lead to a large increase in the amount of yuan in existence. Here Beijing will be acutely sensitive to any increase in food prices since this can swiftly lead to mass food riots and the concomitant rapid and bloody end of the regime. Therefore food prices have to be insulated somehow from this huge internal devaluation.

   

  3. Beijing cannot permanently control the yuan-dollar exchange rate or any other FOREX rate involving yuan. It can do so in the short term but only to the limit of its usable foreign exchange reserves. This total is minus the FOREX working capital China needs to pay for imported raw materials and fuels. And also food: China’s Growing Demand for Agricultural Imports (USDA)

   

  It appears that one certain outcome will be a huge depreciation in the value of yuan. Bailout of the bad bank debt is reason #1 to print yuan. The decline of yuan will lead to lower prices and a temporary relief of U.S.-based automation pressure on export market share. This begins to become a Reason #2.

  How this will be received outside China is the immediate question. Probably not too favorably.

  One way to paper over impaired loans is to issue a flood of new credit: this dilutes the problem and enables defaulted loans to be "paid down" with new loans that are doomed to default once the ink is dry: China Created A Record Half A Trillion Dollars Of Debt In January (Zero Hedge)

  Here's the larger context of China's debt/currency implosion. From roughly 1989 to 2014–25 years–the "sure bet" in the global economy was to invest in China by moving production to China.

  This flood of capital into China only gained momentum as the yuan appreciated in value against the USD once Chinese authorities loosened the peg from 8.3 to 6.6 and then all the way down to 6 to the dollar.

  Every dollar transferred to China and converted to yuan gained as much as 25% over the years of yuan appreciation. Those hefty returns on cash sitting in yuan sparked a veritable tsunami of capital into China.

  Now that the tide of capital has reversed, nobody wants yuan: not foreign firms, not FX punters and not the Chinese holding massive quantities of depreciating yuan.

  This is why "housewives" from China are buying homes in Vancouver B.C. for $3 million. That $3 million could fall to $2 million as the yuan devalues to the old peg around 8.3 to the USD.

  Who's left who believes the easy money is to be made in China? Nobody. Anyone seeking high quality overseas production is moving factories to the U.S. for its appreciating dollar and cheap energy, or to Vietnam or other locales with low labor costs and depreciated currencies.

  For years, China bulls insisted China could crush the U.S. simply by selling a chunk of its $4 trillion foreign exchange reserves hoard of U.S. Treasuries. Now that China has dumped over $700 billion of its reserves in a matter of months, this assertion has been revealed as false: the demand for USD is strong enough to absorb all of China's selling and still push the USD higher.

  The stark truth is nobody wants yuan any more. Why buy something that is sure to lose value? the only question is how much value? The basic facts suggest a 30% loss and a return to the old peg of 8.3 is baked in.

  But that doesn't mean the devaluation of the yuan has to stop at 8.3: just as the dollar's recent strength is simply Stage One of a multi-stage liftoff, the yuan's devaluation to 8 to the USD is only the first stage of a multi-year devaluation.

   

  

  

  

  

  

• Bilal Erdogan Accused Of Money Laundering In Italy

  Regular readers are no doubt familiar with Bilal Erdogan.

  Bilal is the son of Turkish dictator President Recep Tayyip Erdogan who is on the verge of kicking off World War III by invading Syria in what is sure to be an ill-fated effort to shore up rebel forces and preserve the Azaz corridor, the last remaining supply line for the opposition which is staging what amounts to a last stand at Aleppo.

  Erdogan’s family was put under the microscope by the Russian defense ministry in the wake of Ankara’s decision to shoot down a Russian Su-24 on the Syrian border in late November. “What a brilliant family business!,” Deputy Minister of Defence Anatoly Antonov remarked, at a press briefing documenting Turkey’s connection to Islamic State’s illicit oil trafficking operation. 

  For those who might have missed the backstory, you’re encouraged to read the following articles in their entirety:

  • The Most Important Question About ISIS That Nobody Is Asking
  • Meet The Man Who Funds ISIS: Bilal Erdogan, The Son Of Turkey’s President
  • How Turkey Exports ISIS Oil To The World: The Scientific Evidence
  • ISIS Oil Trade Full Frontal: “Raqqa’s Rockefellers”, Bilal Erdogan, KRG Crude, And The Israel Connection

  Put simply, there are any number of reasons to believe that AKP and the Erdogan family are complicit in the sale of illicit crude not only from Massoud Barzani and the Iraqi Kurds, but from Islamic State as well. 

  ISIS oil and Erbil’s crude are both technically “undocumented” and considering that “the terrorists” are only producing around 45,000 b/d versus the 630,000 b/d the Iraqi Kurds are churning out, it’s easy for Islamic State’s product to get “lost” or to disappear as a rounding error, as it were. 

  Some say Bilal Erdogan is directly involved in getting ISIS crude to market via the Turkish port of Ceyhan, where tanker rates mysteriously spike around siginificant oil-related events involving Islamic State. 

  

  Bilal owns a Maltese shipping company which is almost certainly involved in the transport of stolen (and yes, regardless of whether the Iraqi Kurds’ claims to statehood are legitimate, they are for the time being anyway, stealing oil form Baghdad) Iraqi oil to global markets. The question is whether the same connections and routes used to transport Barzani’s oil are being used to transport Islamic State’s product. 

  We won’t recount the whole story here as you can read the entire account in the articles linked above, but we were amused to discover that Bilal Erdogan is now being investigated by Italian authorities for money laundering. “Prosecutors in Bologna have opened an investigation into the financial dealings of Bilal Erdogan, 35, who is currently living in the city with his family while he studies for a doctorate at an offshoot of Johns Hopkins University,” The Telegraph reports, adding that “the investigation was opened after Murat Hakan Uzan, a businessman and political opponent of the Erdogan family, made the allegations about money laundering to the Italian authorities.” Here’s more:

  Mr Uzan, who is in exile in France and claims to have been persecuted by the Erdogan regime, claimed that Bilal Erdogan was stockpiling money in Italy because he saw the country as a potential bolt-hole should he face problems at home.

  Mr Uzan, a wealthy businessman, filed a criminal complaint with prosecutors in Bologna, accusing the president’s son of contravening Italy’s financial laws by bringing in huge amounts of money without declaring it to the authorities.

   

  The claims of money laundering are being investigated by Manuela Cavallo, Bologna’s chief public prosecutor. Calls to her office were not answered.

   

  Wiretapped telephone conversations were leaked in which two people alleged to be President Erdogan and his son were heard discussing how to dispose of large sums of cash.

   

  The conversations allegedly took place in December 2013, on the day that sons of three Cabinet ministers were detained as part of a vast corruption investigation.

   

  The Turkish government insisted they were fabricated. Both the president and his son denied any wrongdoing.

   

  Bilal, who is one of President Erdogan’s four children, has commercial interests in shipping and oil tankers.

   

  In December Russia accused him and his family of profiting from the illegal smuggling of oil from territory held by Islamic State in Iraq and Syria.

  Bilal’s attorneys aren’t prepared to comment. “I have nothing to say,” Giovanni Trombini , one of Bilal’s lawyers said. “Trials should be held in court, not in the press.

  True.

  But this is the court of public opinion and we implore readers to render their judgement below. Just beware the wrath of Bilal’s bow…

  

  

  

  

  

  

• Markets Ignore Fundamentals And Chase Headlines Because They Are Dying

  Submitted by Brandon Smith via Alt-Market.com,

  Normalcy bias is a rather horrifying thing. It is so frightening because it is so final; much like death, there is simply no coming back. Rather than a physical death, normalcy bias represents the death of reason and simple observation. It is the death of the mind and cognitive thought instead of the death of the body.

  Ever since the derivatives collapse of 2008 the public has been regaled with wondrous stories of recovery in the mainstream to the point that such fantasies have become the "new normal". These are grand tales of the daring heroics of central bankers who “saved us all” from impending collapse through gutsy monetary policy and no-holds-barred stimulus measures.

  Alternative economists have not been so easy to dazzle. Most of us found that the recovery narrative lacked a certain something; namely hard data that took the wider picture into account. It seemed as though the mainstream media (MSM) as well as the establishment was attempting to cherry-pick certain numbers out of context while demanding we ignore all other factors as “unimportant.”

  We just haven’t been buying into the magic show of the so called “professional economists” and the academics, and now that the real and very unstable fiscal reality of the world is bubbling to the surface, the general public will begin to see why we have been right all these years and the MSM has been utterly wrong.

  Mainstream economists have done absolutely nothing in the way of investigative journalism and have instead joined a chorus cheerleading for the false narrative, singing a siren’s song of misinterpreted statistics and outright lies drawing the masses ever nearer to the deadly shoals of financial crisis.

  Why do they do this? Are they part of some vast conspiracy to mislead the public?

  Not necessarily. While central banks and governments have indeed been proven time and again to collude in efforts to cover up financial dangers, most economists in the media are simply greedy and ignorant. You have to remember, they have a considerable stake in this game.

  Many mainstream economists tend to have sizable investment portfolios and they base their careers partly on the successes they garner in the annual profits they accumulate playing the equities roulette. They also have invested so much of their public image into their pro-market and recovery arguments that there is no going back. That is to say, they have a personal interest in using their positions in the media to engineer positive market psychology (if they are able) so that their portfolios remain profitable. Not to mention, their professional image is at stake if they ever acknowledge that they were wrong for so long about the underlying health of the real economy.

  This atmosphere of deluded self interest also generates a cult-like collectivist attitude. There is a lot of mutual back scratching and mutual ego stroking in the MSM; a kind of inbred conduit of regurgitated arguments and unoriginal talking points, and people in the club rarely step out of line because they not only hurt their own investment future and career, they also hurt everyone in their professional circles.  Meaning, no more cocktail party invitations to the Forbes rumpus room…

  This is not to say that I am excusing their self interested lies and disinformation. I think that many of these people should be tarred and feathered in a public square for attempting to dissuade the public from preparing in a practical way for severe economic instability. I do not think they see themselves as being responsible to the people who actually take their nonsense seriously and their attitude needs adjustment. I am only explaining how it is possible for an entire profession of supposed “experts” to be so wrong so often. Mainstream financial analysts WANT to believe their own lies as much as many in the public want to believe them.

  Like I said, normalcy bias is a rather horrifying thing.

  One of the root pieces of disinformation in the mainstream that feeds all other lies is the disinformation surrounding falling global demand. MSM pundits cannot and will never fully admit to the cold hard reality of collapsing demand within the global economy. If they are forced to admit to falling demand, then the facade of a steady or recovering U.S. economy crumbles.

  I covered the facts behind falling global demand for raw goods and consumer goods last year in part one of my six-part article series, 'One Last Look At The Real Economy Before It Implodes.' The hard evidence and numbers I presented have only become more important in recent months.

  For example, U.S. inventories are building and freight shipments are declining in the U.S. as retailers cite falling demand for goods as the primary culprit. Official retail sales numbers for the holiday season of 2015 have come in flat. When one takes into account real inflation in prices, consumer sales are actually far in the negative. According to the more accurate methods the U.S. government used to use in their calculations of CPI in the 1980’s, we are looking at annual price inflation rate of around 7%. Price inflation does not necessarily equal improved sales.

  Energy usage has been crushed since 2008. Despite a growing population and supposedly a growing economic system, oil consumption in 2014 according to the World Economic Forum dropped to levels not seen since 1997.

  This is the exact opposite of what should be happening and it is the opposite of mainstream projections for oil consumption made back in 2003. This is why inventories and storage for oil across the globe are reaching capacity in a manner never seen before. American demand for oil is not growing exponentially as expected because Americans cannot afford to support such growth anymore. Falling energy demand at these extreme levels is an undeniable indicator of a failing economic system.

  Of course, mainstream economists in their desperation to keep market psychology rolling forward and the equities casino producing profits seek to spin this problem as an “oversupply” issue rather than a demand issue. And this is where the disparity in their arguments begins to bleed through.

  Here is the problem presented in the mainstream; what came first, the chicken or the egg? Did falling demand lead to oversupply and thus a fall in prices? Or, is demand remaining steady and is overproduction the cause of falling prices?  Yes, let's confuse the issue instead of looking at the obvious.

  As already linked above, it was falling demand which came first in 2008, and demand which continues to fall in relation to past trends. Have producers failed to reduce oil production to match falling demand? Yes. But this does not change the fact that oil demand today is well below levels needed to sustain the kind of economic growth markets have come to expect. Mainstream economists attempt to distract by hyper-focusing on supply, or twisting the discussion into an either/or scenario. Either it is a supply problem, or it is a demand problem, and they assert it is only a supply problem. This is not reality.

  In fact, both can and often do exist at the same time, though one problem usually feeds the other. Falling demand does tend to result in oversupply in any particular sector of the economy. The bottom line, however, is that in our current crisis demand is the driving force and supply is a secondary issue. Supply is NOT the driving force behind the volatility in oil markets. Period.

  This same chicken and egg distraction rears its ugly head in discussions on shipping markets as well.

  The mainstream claim that the historic implosion of the Baltic Dry Index is nothing more than a problem of “too many ships” operating in the cargo market has been throttled, dissected and debunked so many times that you would think that it is surely dead. But the lie just will not die.

  Mainstream propaganda houses like The Economist and Forbes continue to produce articles on a regular basis which deny the issue of falling demand for raw goods and claim that oversupply of vessels is the root cause of the BDI losing around 98 percent of its value since its highs in 2008.

  I haven’t seen any of these articles offer actual stats or evidence to back their claims that oversupply of ships is the culprit and that demand is not a legitimate issue. But beyond that, why does the mainstream seem so hell bent on dismissing the BDI as a reliable economic indicator? Well, because shipping rates fall when demand falls, thus, when the BDI falls, it signals a lack of global demand. This is a fact they refuse to accept. When the BDI falls by 98 percent since the 2008 highs preceding the derivatives crisis, this signals a disaster in the making.

  So, let’s stamp out the “too many ships came first” disinformation once and for all, shall we?

  Shipping companies like Maersk Lines have already publicly admitted that falling global demand is the core problem behind falling rates and that supply is a secondary driver. They view the current financial crisis to be “worse than 2008”.

  The fact that the largest shipping company in the world is warning of falling demand does not seem to be having any effect on the mainstream talking heads, though.

  So, what do major shipping companies do when demand is falling and too many ships are operating on the market? Do they field those ships anyway and drive rates down even further? No, that makes no sense.

  What companies do is either leave ships idle in port or scrap them. According to BIMCO (Baltic And International Maritime Council), 2015 was the busiest year since 2012 for the scrapping of older ships to make way for new arrivals. This process of scrapping ships or storing them idle destroys the argument that too many ships are driving falling rates in the BDI. In fact, as chief shipping analyst Peter Sand of BIMCO stated last year:

  “The increase in Capesize scrapping comes at a much needed time for the market. Looking at the development so far this year the fleet growth has actually been negative, with a reduction of 0.8 %.”

  I hope the garbage peddlers at Forbes and The Economist caught that — NEGATIVE growth of ship supply, not massive over-growth of ship supply. The scrapping increase was also across the board for other models of ships, not just the Capsize, and the increase of cargo capacity by new ships has been negligible.  Yet, shipping rates continue to plummet to historical lows.  Only falling demand, as Maersk Lines admits, explains the crash of the BDI in light of this information.

  China in particular has been offering considerable incentives to those companies that do scrap older ships, to the point that some are even scrapping semi-new ships in order to cash in.

  Now, this is not to say there is not an “oversupply” of ships. There are indeed many ships within cargo fleets that are not in operation. But again, this is because demand has declined so completely that even with increased scrapping and idling, shipping companies cannot keep up.  Falling demand OCCURRED FIRST, and oversupply is nothing more than a symptom of this root problem.

  So, mainstream hacks, can we please put the “too many ships” nonsense to rest and get on with a real discussion on obvious issues of demand?  Stop focusing on the symptoms and examine the cause for once.

  These are just a few of the hundreds of fundamental problems plaguing the global economy today, and they are all problems that the mainstream continues to ignore or dismiss out of hand. Which brings us to the now accelerating volatility in stock markets.

  Stock markets are crashing, there is no other way to paint it. They are crashing incrementally, but crashing nonetheless. When you have violent swings in equities and commodities between 5 percent and 10 percent a day, then something is very wrong with your economy and has been wrong for some time. If global consumption and demand were really steady or growing, then you would not see the kind of systemic backlash in the financial system that we are now seeing.  If companies listed on the Dow were making legitimate profits due to a healthy consumer base and enjoying solid expansion, stocks would not be increasingly volatile.  If investors and mainstream analysts actually looked at the real numbers in demand (among other things), then the strange behavior in markets would be easy for them to understand. They will not look at such numbers until it is too late.

  Instead, markets have chosen to chase headlines, and here is where the ugly circle of normalcy bias and cognitive dissonance completes itself. There are no positive indicators within the fundamentals today to energize market faith or market investment. So, investors and algorithmic trading computers track news headlines instead. The MSM hacks now have the power (along with central banks and governments) to create massive stock rallies with one or two carefully placed news tags, such as “Russia To Discuss Oil Production Cuts With OPEC.”

  Market speculators and trading computers jump on these headlines without verifying if they are true. In most cases, they end up being false or just hearsay from an “unnamed source.” And so, the markets then crash further down into the abyss, waiting for the next headline to bolster activity even for a day.

  The sad truth is, if any of these headlines turned out to be legitimate, their effect would still be meaningless in the long run as the overwhelming weight of the fundamentals continues to topple poorly placed optimism. Now that the investment world no longer has the certainty of central bank intervention as a useful tool, they don’t know if bad news is good news or if good news is bad news. The fact that the system is moving into a death spiral without the psychological crutch of central bank stimulus measures should tell you all you need to know about the supposed recovery since 2008.

  No society wants to admit economic failure or economic sabotage, and this is why the con-game is able to continue in the face of so much concrete truth. Ultimately, the market trends and economic trends will flow into the negative. In the meantime, expect massive market rallies, rallies which will then disintegrate in a matter of days. And, whatever happens, never take what mainstream economists say very seriously. They have failed the public for long enough.

  

  

  

  

  

• BofA Asks: Is This The Chinese Shadow Bank Failure That Will This Trigger The Chain Reaction

  While various Chinese bubbles have already burst in recent years, including those in the real estate, stock market and fixed investment sectors, so far the credit and shadow banking bubbles linger on with bond yields recently touching on record lows as the money invested in the various other bubbles has migrated into various forms of fixed income, including investment companies which promise exorbitant returns.

  The reason why this particular bubble has proven so resilient is because up to this point the government has been willing to directly or indirectly bail out the participants. However, as Bank of America’s David Cui writes today, that may not be the case for much longer.

  Take the case of Shanxi-based shadow bank Xinsheng. As CBN writes today, this is the latest shadow bank to collapse, a bank whose Shanghai subsidiary alone sold RMB1.9 billion in wealth management products to over 5,000 investors and is now unable to return the funds.  As Chiecon writes, the company marketed “asset securitisation” wealth management products promising annual returns between  13%-24%. In reality, client funds were diverted into real estate projects, mainly office buildings, in lower tier cities, where chronic oversupply has depressed local property prices. Some investors are now protesting outside the company’s Shanghai branch office.

  As Bank of America adds, as large as Xinsheng’s sounds, it pales against some of the other recent defaults in the lightly regulated P2P and private wealth management product markets. For example, in July 2015, a commodity exchange, Fanya, defaulted on Rmb43bn, involving some 220k investors nationwide (Yunnan News, Feb 5); in Nov, a P2P platform, Caifu Milestone, defaulted on Rmb5bn from some 75k individuals (China Business News, Jan 11); in Dec, a P2P platform, eZubao, defaulted on Rmb50bn from some 900k investors (New Beijing News, Feb 1); in Jan, a P2P platform, Rongzicheng, defaulted on Rmb1.5bn (Economic Information, Jan 26); another P2P player, Shengshi Caifu, defaulted on Rmb2bn from some 7k investors (Rong360, Jan 21).

  The charts below show BofA’s estimates related to the default cases in the shadow banking sector, based on media reports of high profile actual default cases. What is notable is that while the number of reported cases has remained relatively low, the size of the blow ups has soared in recent months.

  

  So far, none of the six cases mentioned above in the P2P and private wealth management product markets have been resolved, and there has been no clarification from the companies or local governments on potential solutions. Unless the government decides to bail investors out, large losses could ensue, Cui warns.

  Previously, defaults mainly occurred in more stringently regulated areas e.g. trust and bond, and involved financial institutions with large balance sheets. The cases were often resolved in investors’ favor.

  In a scenario in which investors are not bailed out and thus become more cautious, eg, rolling over some of the debt instruments in the shadow banking sector, some borrowers may struggle to obtain credit, for example, developers and coal miners.

  Whether this scenario would trigger a chain reaction is a key risk that needs to be monitored.

  Moreover, given the default pressure in the trust and bond market markets as detailed in the list of defaults at the end of this article, cases may emerge there eventually.

  The paradox, as Cui concludes, is that if shadow banking investors continue to be bailed out, this would imply a further strengthening of the implicit guarantee, and potentially, put pressure on growth, increase the debt burden and hurt RMB stability.

  BofA’s conclusion: “financial system risk is arguably the most important risk facing market this year. Until the debt issue is addressed, we believe it is unlikely we will see the bottom of the market.“

  We don’t know, but we find it disturbing that suddenly a whole lot of banks around the globe – from Germany to China – are being watched very closely as a potential catalyst that will spark the next crisis. Wasn’t the entire point of the 2008/9 bailout and subsequent injection of trillions in central bank liquidity to ensure that precisely this scenario does not occur?

  And speaking of defaults of either plain vanilla companies, or shadow bank trusts, here is a brief list of all recent Chinese defaults: how long until the the losses from any one of these – or some upcoming default – are simply too large for the government to pocket, and the inevitable “chain reaction” is finally triggered.

  

  

  

  

  

  

  

  

  

  

  

  

  

• When Paper Money Becomes Trash

  Submitted by Nick Giambruno via InternationalMan.com,

  This definitive sign of a currency collapse is easy to see…

  When paper money literally becomes trash.

  Maybe you’ve seen images depicting hyperinflation in Germany after World War I. The German government had printed so much money that it became worthless. Technically, German merchants still accepted the currency, but it was impractical to use. It would have required wheelbarrows full of paper money just to buy a loaf of bread.

  At the time, no one would bother to pick up money off the ground. It wasn’t worth any more than the other crumpled pieces of paper on the street.

  Today, there’s a similar situation in the U.S. When was the last time you saw someone make the effort to pick up a penny off the street? A nickel? A dime?

  Walking around New York City recently, I saw pennies, nickels, and dimes just sitting there on busy sidewalks. This happened at least five times in one day. Even homeless people wouldn’t bother to bend over and pick up anything less than a quarter.

  The U.S. dollar has become so debased that these coins are essentially pieces of rubbish. They have little to no practical value.

  Refusing to Acknowledge the Truth

  It costs 1.7 cents to make a penny and 8 cents to make a nickel, according to the U.S. Government Accountability Office. The U.S. government loses tens of millions of dollars every year putting these coins into circulation.

  Why is it wasting money and time making coins almost no one uses? Because phasing out the penny and nickel would mean acknowledging currency debasement. And governments never like to do that. It would reveal their incompetence and theft from savers.

  This isn’t new or unique to the U.S. For decades, governments around the world have refused to phase out worthless currency denominations. This helps them deny the problem even exists. They refuse to issue currency in higher denominations for the same reason.

  Take Argentina, for example. The country has some of the highest inflation in the world. In the last 12 months, the peso has lost over half its value.

  I was just in Argentina, and the largest bill there is the 100-peso note, which is worth around $7. It’s not uncommon for Argentinians to pay with large wads of cash at restaurants and stores. The sight would unnerve many Americans, who’ve been trained by the government through the War on Cash to view it as suspicious and dangerous.

  For many years, the Argentine government refused to issue larger notes. Fortunately, that’s changing under the recently elected pro-market president Mauricio Macri. His government has promised to introduce 200-, 500-, and 1,000-peso notes in the near future.

  This is the opposite of what’s happening in the U.S., where the $100 bill is the largest bill in circulation. That wasn’t always the case. At one point, the U.S. had $500, $1,000, $5,000, and even $10,000 bills. The government eliminated these large bills in 1969 under the pretext of fighting the War on Some Drugs.

  The $100 bill has been the largest ever since. But it has far less purchasing power than it did in 1969. Decades of rampant money printing have debased the dollar. Today, a $100 note buys less than a $20 note did in 1969.

  Even though the Federal Reserve has devalued the dollar over 80% since 1969, it still refuses to issue notes larger than $100.

  Pennies and Nickels Under Sound Money

  For perspective, consider what a penny and a nickel would be worth under a sound money system backed by gold. From 1792 to 1934, the price of gold was around $20 per ounce. Under this system, it took around 2,000 pennies to make an ounce of gold. At today’s gold price, a “sound money penny” would be worth about 55 modern pennies. A “sound money nickel” would be worth about $3.

  I don’t pick up pennies off the sidewalk. But I would if pennies were backed by gold. If that were to happen, I doubt there would be many pennies sitting on busy New York sidewalks.

  Ron Paul said it best when he discussed this issue…

  “There is an old German saying that goes, ‘Whoever does not respect the penny is not worthy of the dollar.’ It expresses the sense that those who neglect or ignore the small things cannot be trusted with larger things, and fittingly describes the problems facing both the dollar and our nation today.

  Unless Congress puts an end to the Fed’s loose monetary policy and returns to a sound and stable dollar, the issue of U.S. coin composition will be revisited every few years until inflation finally forces coins out of circulation altogether and we are left with only worthless paper.”

  There’s an important lesson here.

  Politicians and bureaucrats are the biggest threats to your financial security. For years, they’ve been quietly debasing the country’s currency… and inviting a currency catastrophe.

  Most people have no idea how bad things can get when a currency collapses… let alone how to prepare.

  

  

  

  

  

• Crypto-Wars Escalate: Congress Plans Bill To Force Companies To Comply With Decryption Orders

  Seemingly angered at the temerity of Apple's Tim Cook's defense of individual's privacy and security, Congress has escalated the 'crypto-wars' that are dividing Washington and Silcon Valley. In its most directly totalitarian move yet, WSJ reports that Senate Intelligence Committee Chairman Richard Burr (R., N.C.) is working on a proposal that would create criminal penalties for companies that don’t comply with court orders to decipher encrypted communications. It seems Edward Snowden was right, The FBI is creating a world where citizens rely on Apple to defend their right, rather than the other way around.

  Liberty Blitzkrieg's Mike Krieger provides some much-needed background in the escalation of the crypto-wars. The feds, and the FBI in particular, have been very vocal for a long time now about the desire to destroy strong encryption, i.e., the ability of citizens to communicate privately. A year ago, I wrote the following in the post, By Demanding Backdoors to Encryption, U.S. Government is Undermining Global Freedom and Security:

  One of the biggest debates happening at the intersection of technology and privacy at the moment revolves around the U.S. government’s fear that the American peasantry may gain access to strong encryption in order to protect their private communications. Naturally, this isn’t something Big Brother wants to see, and the “solution” proposed by the status quo revolves around forcing technology companies to provide a way for the state to have access to all secure communications when they deem it necessary.

   

  Many technology experts have come out strongly against this plan. Leaving aside the potential civil liberties implications of giving the lawless maniacs in political control such power, there’s the notion that if you create access for one group of entitled people, you weaken overall security. Not to mention the fact that if the U.S. claims the right to such privileged access, all other countries will demand the same in return, thus undermining global privacy rights and technology safeguards.

   

  We are already seeing this play out in embarrassing fashion. Once again highlighting American hypocrisy and shortsightedness, as well as demonstrating that the U.S. government does’t actually stand for anything, other than the notion that “might means right.” Sad.

  And today's decision by Tim Cook not to comply with the government's latest demands confirms what Edward Snowden noted on Twitter:

  The @FBI is creating a world where citizens rely on #Apple to defend their rights, rather than the other way around. https://t.co/vdjB6CuB7k

  — Edward Snowden (@Snowden) February 17, 2016

   

  Krieger adds that Tim Cook deserves tremendous credit for the courage to come out and so aggressively and publicly denounce what the FBI is trying to do.  

  If he hadn’t decided to publicly challenge the court order and write a detailed treatise on precisely why, the American citizenry would be left completely in the dark. This would be an unethical and unacceptable position.

   

  Second, this case could very well be headed up to higher courts. The greatest risk in these sorts of cases revolves around judicial ignorance when it comes to technology issues. The government knows all too well that most judges are clueless when it comes to tech, and that all they have to do is scaremonger with the word “terrorism” and judges will almost always default to the government position. Cook’s very public stance will at least shine some light on the issue and hopefully fuel robust, intelligent public debate which could inform judges ahead of being presented with technology related cases they don’t really understand.

  Which is perhaps why Congress is escalating the situation, as The Wall Street Journal reports,

  Senate Intelligence Committee Chairman Richard Burr (R., N.C.) is working on a proposal that would create criminal penalties for companies that don’t comply with court orders to decipher encrypted communications, four people familiar with the matter said, potentially escalating an issue that is dividing Washington and Silicon Valley.

   

  …

   

  Mr. Burr hasn’t finalized plans for how legislation would be designed, and several people familiar with the process said there hasn’t been an agreement among any other lawmakers to pursue criminal penalties. It’s also unclear whether Mr. Burr could marshal bipartisan support on such an issue during an election year that has divided Washington in recent months.

   

  The bill could be written in a way that modifies the Communications Assistance for Law Enforcement Act, a 1994 law that compels telecommunications companies to construct their systems so they can comply with court orders.

   

  …

   

  Mr. Burr has spent months pressuring technology companies to work more closely with law enforcement and others to prevent encryption tools from being used to plan and carry out crimes. He warned technology firms that they need to consider changing their “business model” in the wake of the widening use of encrypted communications.

  Read that last sentence again!! Since the scale of criminal penalty could be anything – as opposed to the 'cost of doing business' fines associated with the US banking system – this theoretically forces tech companies to comply, no matter what.

  The critical question then, once again, as Mike Krieger concludes, is:

  Do we really want to sacrifice overall privacy and security in order to get information from one person’s phone?

  Or what about the following question posed by cryptography professor Matthew Green:

  If the US government dictating iPhone encryption design sounds ok to you, ask yourself how you'll feel when China demands the same.

  — Matthew Green (@matthew_d_green) February 17, 2016

   

  These are enormous questions with tremendous implications. I just hope we as a society choose wisely.

  

  

  

  

  

• Swiss Politicians Slam Attempts To Eliminate Cash, Compare Paper Money To A Gun Defending Freedom

  As we predicted over a year ago, in a world in which QE has failed, and in which the ice-cold grip of NIRP has to be global in order to achieve its intended purpose of forcing savers around the world to spend the taxed product of their labor, one thing has to be abolished: cash.

  This explains the recent flurry of articles in outlets such as BBG and the FT, and op-eds by such “established” economists as Larry Summers, all advocating the death of cash, a process which would begin by abolishing high denomination bills and continue until all physical cash in circulation is eliminated, something we warned about when the first made it first NIRP hint last September.

  We were s rather surprised by the candor of a WSJ piece overnight which actually told it how it is:

  The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.

  * * *

  By all means people should be able to go cashless if they like. But it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? Why wouldn’t they eventually ban all cash transactions much as they banned gold and silver as mediums of exchange?

   

  Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.

  We were even more surprised when we read that in Switzerland, the place which offers the highest denomination banknote in Europe, the 1,000 Swiss Franc note (and the second highest in the world after the Singapore $10,000 note) two politicians, Philip Brunner and Manuel Brandberg, members of the right-wing Swiss People’s Party, have proposed a motion that they hope Zug will support for a cantonal initiative seeking changes to the federal currency law.

  They argue that the creation of 5,000-franc notes will ensure that the Swiss franc maintains its status as a safe haven currency.

  As we reported previously, this proposal is the diametrical opposite of what the ECB hopes to do, and of where the European Union wants to go, where finance ministers have talked about withdrawing 500-euro bills from circulation to deter their use for “financing terrorism, money laundering and other illegal activities”, all made up terms designed to give the impression that politicians are slowly eliminating physical currency in circulation for your own good.

  They are not.

  This is what the Swiss politicians admit too: Brunner and Brandberg maintain that the tendency in the EU and in OECD member countries is to “weaken individual liberties” and to exercise greater control over citizens.

  But it is what they say next that may define the libertarian political platforms around the globe for the next several years – also known as the global NIRP period – because it is 100% spot on:

  In this context “cash is comparable to the service firearm kept by Swiss citizen soldiers,” the pair argued in their motion, saying they both “guarantee freedom”.

   

  “In France and Italy already cash payments of only up to 1,000 euros are allowed and the question of the abolition of cash is being seriously discussed and considered in Europe, “ Brunner said on his Facebook page.

   

  The move toward electronic payments allows governments “total surveillance” over individuals, the pair claim.

  Of course, the proposal was promptly shot down by the Swiss National Bank: “Walter Meier, a spokesman for the Swiss National Bank, which is responsible for Switzerland’s money, told 20 Minuten newspaper the introduction of banknotes of a higher denomination is “not an issue.” 

  Keep in mind this is the same central bank which in late 2014 pushed hard against a popular referendum to replenish Swiss sovereign gold by buying gold in the open market, only to generate billions in paper losses months later when it admitted defeat in the currency war with the ECB; a central bank which then lost even more billions when it decided to buy shares of AAPL at their all time high price and is now sitting on substantial paper losses.

  As for the Swiss proposal to print higher denomination currencies, we are confident it won’t pass now: if it did, there would be an unprecedented rush from around the globe to park savings in Swiss cash, just like in the good old days.

  But the time of big currency denominations is coming one way or another: after all, NIRP is the falling Keynesian system’s penultimate hope. When it fails, there is just one last option, the one we have said is coming ever since 2009, the one which even the “smartest money in the world” agreed today is inevitable: helicopter money.

  And as Ben Bernanke made it all so clear in 2002, once the helicopter money comes, hyperinflation is very close behind. And one thing hyperinflation always brings with it, is very highly denominated bank notes. Just ask Zimbabwe.

  

  

  

  

  

• "I Guess It's Food Stamps": 400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts

  Dale Dorsey isn’t happy.

  After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school.

  Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade.

  “A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.”

  “What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States,” said Jay Perry, a longtime Teamsters member.

  Jay is probably correct.

  Public sector pension funds are grossly underfunded in places like Chicago and Houston, while private sector funds are struggling to deal with rock bottom interest rates, which put pressure on expected returns and thus drive the present value of funds’ liabilities higher.

  Illinois’ pension burden has brought the state to its knees financially speaking and in November, Springfield was forced to miss a $560 million payment to its retirement fund. In the private sector, GM said on Thursday that it will sell 20- and 30-year bonds in order to meet its pension obligations. 

  “At the end of last year GM’s U.S. hourly pension plan was underfunded by $10.4 billion,” The New York Times writes. “About $61 billion of the obligations were funded for the plan’s roughly 360,000 pensioners.” Maybe it’s time for tax payers to bail themselves out. 

  Speaking of GM, Kenneth Feinberg – the man who oversaw the distribution of cash compensation to victims who were involved in accidents tied to faulty ignition switches – is now tasked with deciding whether the Central States Pension Fund’s proposal to cut benefits passes legal muster. “Central States’ proposal would allow the retirees to work and still collect their reduced benefits. But some are no longer able to work, and the idea didn’t seem plausible to others,” the Star goes on to note.

  “You know anybody hiring a 73-year-old mechanic?” Rod Heelan asked Feinberg. “I’m available.”

  “I’ll have to go find a job. I don’t know. I’m 68,” Gary Meyer of Concordia, Mo said. “It would probably be a minimum-wage job.” 

  To be sure, retirees’ frustrations are justified. That said, the fund is simply running out of money. “We simply can’t stay afloat if we continue to pay out $3.46 in pension benefits for every $1 paid in from contributing employers,” a letter to retirees reads. 

  The fund is projected to go broke by 2026. Without the proposed cuts, no benefits at all will be paid from that point forward. 

  According to letters shared with The Star, cuts range from around 40% to 61%. “[The] average pension loss was more than $1,400 a month,” the paper says.

  

  As for what will become of those who depend upon their benefits to survive, the above quoted Gary Meyer summed it up best: “I guess food stamps. Hopefully not. It would be a last resort.”

  Don’t worry Gary, you aren’t alone…

  

  Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=c…

  Read more here: http://www.kansascity.com/news/business/article60760061.html#storylink=c…

  

  

  

  

  

• Why Negative Interest Rates Spell Doom For Capitalism

  Submitted by Robert Romano via NetRightDaily.com,

  Interest rates in Switzerland, Denmark, Sweden, the European Central Bank and now the Bank Japan have now plunged into negative territory, starting a new phase in the era of central banking that is very much uncharted.

  Time will tell if it leaves the global economy lost at sea.

  So far, banks are primarily being charged for keeping excess reserves on account at these central banks, a policy designed to jumpstart lending by making it more expensive for banks to sit on reserves. In some cases, like Sweden, the deposit rates have gone negative, too.

  Whether it will all work out or not remains to be seen — initiating inflation and economic growth.  Maybe it will, but so far it’s not really looking good.

  So what if it doesn’t work? The longer term implication is that central banks will then feel compelled to move their discount rates and other rates negative, too. Once that Pandora’s Box is open, it will mean that when financial institutions borrow money from the central bank, they will earn interest instead of owing it.

  You read that right. When, not if, central banks go completely negative, they will wind up paying banks to borrow money from them.

  That’s quantitative easing by another name.

  Say, the interest rate is -1 percent. For every $1 trillion that is lent, the central bank in theory would owe an additional $10 billion in interest to the borrowing banks.

  Fast forward 10 or 20 years into the future. Can you imagine a world where commercial banks pay their customers to borrow money?

  Sure, scoff now. But mark my words. Central banks are so desperate to kick start the economy and credit creation, they will do almost anything. So, if they have to bribe you to borrow money to start acquiring more things, then that’s exactly what they’ll do.

  A few problems immediately emerge.

  If it ends up costing money for banks to lend money, how will they make any profits?

  The answer might be that the profits will be the difference between the interest earned from that bank borrowing the money from the central bank less the interest owed to the borrowing customer.

  So, say the bank borrowed from the central bank at -5 percent and then issued a loan with that money at -1 percent. The customer still earns 1 percentage point of negative interest, and the bank still gets to pocket the remaining 4 percentage points of negative interest from the central bank.

  But what about savers? Would they be charged just to put money into the bank? If so, why would they keep it there?

  Since banks depend on deposits to make up their capital requirements, they would have a powerful disincentive against charging customers to keep deposits, lest it provoke a run on the banks.

  But why invest in bonds?

  This is where the real rub comes. Already the Japan 10-year treasury is testing 0 percent levels.

  Can you imagine a retirement fund that earns less than zero percent? That would mean less than zero percent return on investment. An investor has to pay to hold the bond, only to have principal returned when it comes due. Why bother?

  The only way that might make sense would be in an outright deflationary environment. So, say, inflation is at -10 percent, and you’re in a bond that charges -1 percent to hold the bond. In theory, the investor would come out 9 percent ahead because the value of holding cash is still technically appreciating via increased purchasing power.

  But even then, it would still make more sense to simply just hold cash to begin with.

  So to incentivize bond-buying still and deposits, central banks would simply ban keeping cash. Already the discussion is of discontinuing higher-denomination bills like €500 or $100 bills. To fight crime, they say. Yeah, sure it is. This forecasts eventually our society will be cashless.

  In the future, perhaps the only way to get paid will be via a bank account. Then it would be a simple equation. Keep money in an account for too long, pay more. Put it into a bond or spend it all immediately, pay less or nothing.

  Then, buying bonds could become the digital equivalent of stockpiling physical gold or silver to prepare for a financial Armageddon. You can see the slogans now: “Buy bonds now and only lose 2 percent this year!”

  Okay, so we’ve worked through how financial institutions might survive the scourge of negative interest rates and remain profitable, and how central banks would forestall any more bank runs by simply banning them. And how even investors could in theory still come out “ahead” by putting money into bonds that cost less than keeping it idle.

  Which brings us to the issue of deflation. By going negative, are not central banks basically forecasting that deflation — that is, outright asset price depreciation whether in stock prices or home values — is at hand? Perhaps banks can get by in such an environment since they apparently plan on getting paid to borrow money. But what about everyone else?

  For, what negative interest rates are really projecting are low-to-no growth and zero-profit environments for the entire global economy sometime in the future, where businesses simply cannot make money. Not now, but perhaps soon.

  In the Great Depression, when it came to such price volatilities for, say, farmers, the government instituted a series of agricultural subsidies to keep the farms profitable so they could pay their mortgages.

  The implication of no growth and deflation today are that all businesses will come to the government seeking subsidies. We already see it in agriculture. Education. Health care. Housing. Whether it is loan programs for customers or outright grants. There will be more.

  This is why capitalism cannot survive no growth. Economies would naturally revert to some form of subsistence, where the need to trade is reduced greatly. But investors demand return on investment. Remember, it’s a world without profits. In a no-growth, deflationary environment, those who over-produce are the ones who get punished by markets. So businesses will demand subsidies for their surplus stock, or for not producing at all, as in the Depression.

  Of course, this is all madness. Negative interest rates have never really been tried before. And if they fail to jumpstart the economy and inflation now, the implication is that deflation and low-to-no growth are already at hand. Can you say, “Sell?” It’s almost as if central banks are trying to create the conditions for a bear market. Maybe they’ll ban those, too.

  

  

  

  

  

• This Is The Real Reason For The War On Cash

  Originally posted Op-Ed via The Wall Street Journal,

  These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

  Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

  Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade.

  The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.

  The real reason the war on cash is gearing up now is political: Politicians and central bankers fear that holders of currency could undermine their brave new monetary world of negative interest rates. Japan and Europe are already deep into negative territory, and U.S. Federal Reserve Chair Janet Yellen said last week the U.S. should be prepared for the possibility. Translation: That’s where the Fed is going in the next recession.

  Negative rates are a tax on deposits with banks, with the goal of prodding depositors to remove their cash and spend it to increase economic demand. But that goal will be undermined if citizens hoard cash. And hoarding cash is easier if you can take your deposits out in large-denomination bills you can stick in a safe. It’s harder to keep cash if you can only hold small bills.

  So, presto, ban cash. This theme has been pushed by the likes of Bank of England chief economist Andrew Haldane and Harvard’s Kenneth Rogoff, who wrote in the Financial Times that eliminating paper currency would be “by far the simplest” way to “get around” the zero interest-rate bound “that has handcuffed central banks since the financial crisis.” If the benighted peasants won’t spend on their own, well, make it that much harder for them to save money even in their own mattresses.

  All of which ignores the virtues of cash for law-abiding citizens. Cash allows legitimate transactions to be executed quickly, without either party paying fees to a bank or credit-card processor. Cash also lets millions of low-income people participate in the economy without maintaining a bank account, the costs of which are mounting as post-2008 regulations drop the ax on fee-free retail banking. While there’s always a risk of being mugged on the way to the store, digital transactions are subject to hacking and computer theft.

  Cash is also the currency of gray markets—amounting to 20% or more of gross domestic product in some European countries—that governments would love to tax. But the reason gray markets exist is because high taxes and regulatory costs drive otherwise honest businesses off the books. Politicians may want to think twice about cracking down on the cash economy in a way that might destroy businesses and add millions to the jobless rolls. The Italian economy might shut down without cash.

  By all means people should be able to go cashless if they like. But it’s hard to avoid the conclusion that the politicians want to bar cash as one more infringement on economic liberty. They may go after the big bills now, but does anyone think they’d stop there? Why wouldn’t they eventually ban all cash transactions much as they banned gold and silver as mediums of exchange?

  Beware politicians trying to limit the ways you can conduct private economic business. It never turns out well.

  

  

  

  

  

• Jobless Benefits Claims Soar 100% In Canada's Dying Oil Patch As Construction Jobs Plunge 84%

  2015 was not a good year for job creation in Alberta.

  In fact, the net 19,600 jobs the province shed marked the worst year for job losses since 1982.

  

  Alberta is of course suffering from the dramatic collapse in oil prices, which look set to remain “lower for longer” in the face of a recalcitrant Saudi Arabia and an Iran which is hell bent on making up for lost time spent languishing under international sanctions.

  Suicide rates are up in the province, as is property crime and foodbank usage. The malaise underscores the fact that Canada’s oil patch is dying. WCS prices are teetering just CAD1 above marginal operating costs, and the BoC failed to cut rates last month, meaning it’s just a matter of time before the entire Canadian oil production complex collapses on itself.

  On Thursday, a new industry report shows that crude’s inexorable decline could end up costing 84% of oilsands construction jobs over the next four years.

  “The oilsands sector is in danger of losing its reputation as a job-creating machine,” The Calgary Herald writes. “A new industry report shows the sector may require 84% fewer construction workers in 2020 compared to 2015 as project cancellations pile up amid a crippling oil-price environment.” Here’s more:

  “Overall workforce requirements for the oil and gas industry has been severely impacted by a reduction in investment,” said Carol Howes, vice-president of communications at Petroleum Labour Market Information, part of the industry-funded Enform based in Calgary.

   

  As crude oil prices plunged, capital expenditures in the oilsands declined 30 per cent last year from $35 billion in 2014. Canada has led the world in project deferrals during the 16-month downturn, as oilsands projects with a combined production of three million barrels per day have been shelved, according to Tudor Pickering Holt & Co.

   

  The downturn has taken the shine off Alberta’s job-creating engine and has wiped out 100,000 direct and indirect jobs according to one industry estimate.

   

  Recruitment consultancy Hays estimates Canadian oil and gas workers saw a 1.4 per cent decline in their paychecks last year, compared to a cumulative eight per cent growth over the previous five years.

   

  “Hiring has pretty much seized, unless it’s for a business critical position,” said Neil Gascoigne, global business development expert at Hays, based in Houston.

   

  “A lot of the E&P business are going through significant restructure and looking to further reduce costs, and wages and salaries are one of their high costs.”

   

  “Companies have cut as much as they can without jeopardizing their actual business.”

  That reflects something we said back in October. Namely, there’s no more “fat” to be trimmed. In other words, further cost savings will have to come from salary cuts because going forward, cutting jobs altogether will imperil companies’ ability to operate.

  Meanwhile, the number of people receiving jobless benefits in Alberta jumped more than 100% in December. “Statistics Canada said 62,500 Alberta residents received job-insurance benefits in December, up from 31,200 a year earlier and accounting for most of the 7.3% increase in job-insurance beneficiaries nationally,” WSJ wrote on Thursday, adding that Vancouver-based Finning International Inc., the world’s largest dealer of Caterpillar Inc. equipment, “said it would cut 400 to 500 jobs globally on top of the 1,900 positions since the start of last year.”

  Going forward, the outlook is bleak as underlined by Canada’s Conference Board which on Thursday reported that its business-confidence index “suffered its third consecutive decline in the fourth quarter of 2015, falling 1.5 percentage points to 86.6.” That’s the lowest level since the crisis.

  But don’t worry, “the decline was modest compared with the previous quarter, when the index plunged from 105.6 to 88.1.” 

  So things are still getting worse in Canada. Just at a slower pace. Allahu akbar. 

  

  

  

  

  

• Bear Market Rallies & Bailing-Out Bad Behavior

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Biggest Rallies Occur In Bear Markets

  As expected, the market was oversold enough going into last Friday to elicit a short-term reflexive bounce. Not surprisingly, it wasn’t long before the “bulls” jumped back in proclaiming the correction was over.

  If it were only that simple.

  First, as I have discussed in the past, market prices remain in a “trend” until something causes that trend to change. This can be most easily seen by looking at a chart of the S&P 500 as compared to its 400-day moving average.

  

  As you will notice in the main body of the chart, during bull markets, prices tend to remain ABOVE the 400-dma (orange-dashed line). Conversely, during bear markets, prices tend to remain BELOW the 400-dma.

  The one event in 2011, where all indicators suggested the market was transitioning back into a bear market, was offset by the Federal Reserve’s intervention of “Operation Twist” and eventually QE-3.

  During cyclical bear markets, bounces from short-term oversold conditions tend to be extreme. Just recently Price Action Lab blog posted a very good piece on the commonality of short-term rebounds during market downtrends:

  “The S&P 500 gained 3.63% in the last two trading sessions. About 75% of back-to-back gains of more than 3.62% have occurred along downtrends. Therefore, a case for a bottom cannot be based solely on performance.”

  

  “It may be seen that 73.85% back-to-back gains of more than 3.62% have occurred along downtrends, i.e., this performance is common when markets are falling. The sample size consists of 195 back-to-back returns greater than 3.62%.

  Therefore, strong rebounds along a downtrend cannot be used to support a potential bottom formation.”

  After a rough start to the new year, it is not surprising that many are hoping the selling is over.

  Maybe it is.

  But history suggests that one should not get too excited over bounces as long as the downtrend remains intact.

  I Bought It For The Dividend

  One of the arguments for “buy and hold” investing has long been “dividends.” The argument goes this way:

  “It really doesn’t matter to me what the price of the company is, I just collect the dividend.”

  While this certainly sounds logical, in reality, it has often turned into a very poor strategy, particularly during recessionary contractions.

  A recent example was Kinder Morgan (KMI). In late-2014, as I was recommending that individuals begin to exit the energy sector, Kinder Morgan was trading around $40/share. The argument then was even if the share price of the company fell, the owner of the shares still got paid a great dividend.

  Fast forward today and the price of the company has fallen to recent lows of $15/share (equating to a 62.5% loss in value) and the dividend was cut by 80%.

  Two things happened to the investor’s original thesis. The first, was that after he had lost 50% of his capital, the dividend was no longer nearly as important. Confidence in the company eroded and the individual panic sold his ownership into the decline. Secondly, when a company gets into financial trouble, the first thing they will do is cut the dividend. Now you have lost your money and the dividend.

  But it is not just KMI that has cut dividends as of late. Many companies have been doing the same to shore up internal cash flows. As pointed out recently by Political Calculations:

  “Speaking of which, the pace of dividend cuts in the first quarter of 2016 has continued to escalate. Through Friday, 12 February 2016, the number of dividend cuts has risen into the “red zone” of our cumulative count of dividend cuts by day of quarter chart.”

  

  Importantly, while the media keeps rambling on that we are “nowhere” close to a recession, it is worth noting the following via NYT:

  “The only year in recent history with more dividend cuts was 2009, when the world was staggering through a great financial crisis. A total of 527 companies trimmed dividends that year, Mr. Silverblatt’s data shows. Coca-Cola and other dividend-paying blue chips like IBM and McDonald’s were under severe stress in those days, too, but their financial resources were deep enough to allow them to keep the dividend stream fully flowing.”

  Buying “dividend yielding” stocks is a great way to reduce portfolio volatility and create higher total returns over time. However, buying something just for the dividend, generally leads to disappointment when you lose your money AND the dividend. It happens…a lot.

  Preservation of capital is first, everything else comes second.

  Empathy For The Devil

  Danielle DiMartino Booth, former Federal Reserve advisor and President of Money Strong, recently penned an excellent piece that has supported my long-held view on the fallacy of “consumer spending.” To wit:

  “As for the strongest component of retail sales, it’s not only subprime loans that are behind the 6.9-percent growth in car sales over 2015. Super prime auto loan borrowers’ share of the pie is now on par with that of subprime borrowers – each now accounts for a fifth of car loan originations. What’s that, you say? Can’t afford that new set of wheels? Not to worry. Just lease. You’ll be in ample company — some 28 percent of last year’s car sales were made courtesy of leases, an all-time high. ”

  

  What has been missed by the vast majority of mainstream economists is that in a country driven 68% by consumer spending, there are limits to that consumption. A consumer must produce (work) first to be paid a wage with which to consume with. Each dollar is finite in its ability to create economic growth via consumption. A dollar spent on a manufactured good has a greater multiplier effect on the economy than the same dollar spent on a service. Likewise, a dollar spent on a manufactured good or service has a greater economic impact than a dollar spent on paying taxes, higher healthcare insurance costs, or interest payments.

  The only way to increase the level of spending above the rate of income is through leverage. However, rising debt levels also suggests more of the income generated by households is diverted to debt service and away from further consumption. The chart below shows the problem.

  

  Over the 30-year period to 1982, households accumulated a total of $2 trillion in debt in an economy that was growing at an average rate of 8%. Wages grew as stronger consumption continued to push growth rates higher. Over the next 25-year period, households abandoned all fiscal responsibility and added over $10 trillion in debt as the struggle to create a higher living standard outpaced wage and economic growth.  Since the turn of the century, average economic growth has been closer to 2%. See the problem here.

  The bailouts following the financial crisis kept households from going through a much needed deleveraging. Likewise, since banks were taught they would be bailed out repeatedly for bad behavior, no lessons were learned there either. Not surprisingly, as shown by the recent Fed Reserve 2016 Loan Officer Opinion Survey, lending standards are now back to levels seen just prior to the financial crisis.

  

  

  What could possibly going wrong? The problem is the consumer is all spent out and all leveraged up. While you shouldn’t count the consumer out, just don’t count on them too much.

  Just some things to think about.

  

  

  

  

  

• Gold Glows, Bonds Bid, Crude Crumbles, FANGs Fizzle

  It was all too easy there eh? Never. Gets. Old…

   

  The US Open and NYMEX Close were the triggers today…

  

   

  Stocks did not go higher today confounding business TV anchors worldwide…

  

   

  But off last Thursday's lows, it is still impressive…

  

   

  The "short squeeze" ended today…

  

   

  FANGs dropped 1.4% on the day – the biggest drop in 8 days (after 5 straight up days)…

  

   

  Ugly afternoon for the FANGs…

  

   

  Credit wasn't buying it again…

  

   

  Treasury yields declined for the first time in 4 days, led by a 6bps plunge in 30Y (3.5bps 2Y)…

  

   

  As extreme options skews unwind…

  

   

  The USD gained modestly again today, led by EUR weakness but we note JPY was bid (following overnight comments from Kuroda)…

  

   

  USDJPY plunged into the close of NY trading…

  

   

  Extending The BoJ's utter fail even more… NKY back below 16000

  

   

  Crude tumbled back to earth a little but gold (and silver) were the best performers today with a ramp starting as US opened and accelerating after EU closed…

  

   

  Gold's 2nd best day in 13 months…

  

   

  Crude roundtripped its gains from API 'draw' overnight…

  

   

  Charts: Bloomberg

  Bonus Chart: You Are Here

  

  

  

  

  

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• America's Largest Union Refuses To Back Hillary Over Sanders

  In what could be the biggest blow yet for her campaign, the leader of the America's largest federation of unions (counting 12 million active and retired "everyday Americans") has chosen not to endorse Hillary Clinton over Bernie Sanders.

  Clinton has racked up endorsements from 18 unions, according to The Hill, including the Service Employees International Union and the National Education Association, while Sanders has garnered just three union endorsements.

   

  Many of these unions have expressed support for the labor policies touted by Sanders, but believe Clinton is more electable.

  But, in a relative win for the Sanders' campaign, according to Huffington Post, the American Federation of Labor and Congress of Industrial Organizations (AFL–CIO) – the largest federation of unions in the United States,  made up of fifty-six national and international unions, together representing more than 12 million active and retired workers – will not be endorsing Hillary…

  Richard Trumka – the president of the AFL-CIO – told members of the executive council that the body won't be holding a vote on whether to endorse Democratic presidential candidates Hillary Clinton or Bernie Sanders at its annual winter meeting in San Diego.

   

  "Following recent discussion at the AFL-CIO’s Executive Committee meeting and subsequent conversations with many of you, I have concluded that there is broad consensus for the AFL-CIO to remain neutral in the presidential primaries for the time being and refrain from endorsing any candidate at this moment," Trumka said.

   

  The decision is a coup for Sanders' backers within organized labor. Clinton has managed to lock down endorsements from unions representing a majority of unionized workers in this country. But the AFL-CIO endorsement is the most potent of all, and it won't be going to Clinton — at least, not yet.

   

  Under AFL-CIO procedures, an endorsement by the executive council needs to be ratified by leaders of the federation's member unions. It's likely that Clinton doesn't yet have the required votes for an endorsement to be ratified.

  In his email to members, Trumka said the council would "continue its ongoing discussion" about the 2016 campaign, and thus we suspect this is merely a stalling tactic as quid-pro-quo negotiations are undertaken. Although, given the trend in her numbers…

  

   

  And this…

  "We're extremely happy" about the decision, said RoseAnn DeMoro, executive director of National Nurses United, a union that has broken away from many other labor groups and endorsed Sanders.

  Anything is possible in this election season.

  

  

  

  

  

• The People Vs. The Police State: The Struggle For Justice In The Supreme Court

  Submitted by John Whitehead via The Rutherford Institute,

  “We are not to simply bandage the wounds of victims beneath the wheels of injustice, we are to drive a spoke into the wheel itself.”—Dietrich Bonhoeffer

  The untimely death of Supreme Court Justice Antonin Scalia has predictably created a political firestorm.

  Republicans and Democrats, eager to take advantage of an opening on the Supreme Court, have been quick to advance their ideas about Scalia’s replacement. This is just the beginning of the furor over who gets to appoint the next U.S. Supreme Court justice (President Obama or his successor), when (as soon as Obama chooses or as long as Congress can delay), how (whether by way of a recess appointment or while Congress is in session), and where any judicial nominee will stand on the hot-button political issues of our day (same-sex marriage, Obamacare, immigration, the environment, and abortion).

  This is yet another spectacle, not unlike the carnival-like antics of the presidential candidates, to create division, dissension and discord and distract the populace from the nation’s steady march towards totalitarianism.

  Not to worry. This is a done deal. There are no surprises awaiting us.

  We may not know the gender, the orientation, the politics, or the ethnicity of Justice Scalia’s replacement, but those things are relatively unimportant in the larger scheme of things.

  The powers-that-be have already rigged the system. They—the corporations, the military industrial complex, the surveillance state, the monied elite, etc.—will not allow anyone to be appointed to the Supreme Court who will dial back the police state. They will not tolerate anyone who will undermine their policies, threaten their profit margins, or overturn their apple cart.

  Scalia’s replacement will be safe (i.e., palatable enough to withstand Congress’ partisan wrangling), reliable and most important of all, an extension of the American police state.

  With the old order dying off or advancing into old age rapidly, we’ve arrived at a pivotal point in the makeup of the Supreme Court. With every vacant seat on the Court and in key judgeships around the country, we are witnessing a transformation of the courts into pallid, legalistic bureaucracies governed by a new breed of judges who have been careful to refrain from saying, doing or writing anything that might compromise their future ambitions.

  Today, the judges most likely to get appointed today are well-heeled, well-educated (all of them attended either Yale or Harvard law schools) blank slates who have traveled a well-worn path from an elite law school to a prestigious judicial clerkship and then a pivotal federal judgeship. Long gone are the days when lawyers without judicial experience such as Earl Warren, William Rehnquist, Felix Frankfurter, and Louis Brandeis could be appointed to the Supreme Court.

  As Supreme Court correspondent Dahlia Lithwick points out, “a selection process that discourages political or advocacy experience and reduces the path to the Supreme Court to a funnel” results in “perfect judicial thoroughbreds who have spent their entire adulthoods on the same lofty, narrow trajectory.”

  In other words, it really doesn’t matter whether a Republican or Democratic president appoints the next Supreme Court justice, because they will all look alike (in terms of their educational and professional background) and sound alike (they are primarily advocates for the government).

  Given the turbulence of our age, with its police overreach, military training drills on American soil, domestic surveillance, SWAT team raids, asset forfeiture, wrongful convictions, and corporate corruption, the need for a guardian of the people’s rights has never been greater.

  Unfortunately, as I document in Battlefield America: The War on the American People, what we have been saddled with instead are government courts dominated by technicians and statists who march in lockstep with the American police state.

  This is true at all levels of the judiciary.

  Thus, while what the nation needs is a constitutionalist, what we will get is a technician.

  It’s an important distinction.

  A legal constitutionalist believes that the authority of government derives from and is limited by a body of fundamental law (the Constitution) and strives to hold the government accountable to abiding by the Constitution. A judge of this order will uphold the rights of the citizenry in the face of government abuses.

  Justice William O. Douglas, who served on the Supreme Court for 36 years, was such a constitutionalist. He believed that the “Constitution is not neutral. It was designed to take the government off the backs of the people.” Considered the most “committed civil libertarian ever to sit on the court,” Douglas was frequently controversial and far from perfect (he was part of a 6-3 majority in Korematsu vs. United States that supported the government’s internment of American citizens of Japanese descent during World War II). Even so, his warnings against a domineering, suspicious, totalitarian, police-driven surveillance state resonate still today.

  A legal technician, on the other hand, is an arbitrator of the government’s plethora of laws whose priority is maintaining order and preserving government power. As such, these judicial technicians are deferential to authority, whether government or business, and focused on reconciling the massive number of laws handed down by the government.

  John Roberts who joined the Supreme Court in 2005 as Chief Justice is a prime example of a legal technician. His view that the “role of the judge is limited…to decide the cases before them” speaks to a mindset that places the judge in the position of a referee. As USA Today observes, “Roberts’ tenure has been marked by an incremental approach to decision-making — issuing narrow rather than bold rulings that have the inevitable effect of bringing the same issues back to the high court again and again.”

  Roberts’ approach to matters of law and justice can best be understood by a case dating back to his years on the U.S. Court of Appeals for the District of Columbia. The case involved a 12-year-old black girl who was handcuffed, searched and arrested by police—all for eating a single French fry in violation of a ban on food in the D.C. metro station. Despite Roberts’ ability to recognize the harshness of the treatment meted out to Ansche Hedgepeth for such a minor violation—the little girl was transported in the windowless rear compartment of a police vehicle to a juvenile processing center, where she was booked, fingerprinted, and detained for three hours, and was “frightened, embarrassed, and crying throughout the ordeal”—Roberts ruled that the girl’s constitutional rights had not been violated in any way.

  This is not justice meted out by a constitutionalist.

  This is how a technician rules, according to the inflexible letter of the law.

  Circuit Judge Sri Srinivasan of the DC Court of Appeals, who is rumored to be a favorite pick for Scalia’s spot on the court, is another such technician. When asked to strike down a 60-year-old ban on expressive activities in front of the Supreme Court Plaza, Srinivasan turned a blind eye to the First Amendment. (Ironically, the Supreme Court must now decide whether to declare its own free speech ban unconstitutional.)

  By ruling in favor of the ban, Srinivasan also affirmed that police were correct to arrest an African-American protester who was standing silently in front of the Supreme Court wearing a sign protesting the police state on a snowy day when no one was on the plaza except him.

  Srinivasan’s rationale? “Allowing demonstrations directed at the Court, on the Court’s own front terrace, would tend to yield the opposite impression: that of a Court engaged with — and potentially vulnerable to — outside entreaties by the public.”

  This view of the Supreme Court as an entity that must be sheltered from select outside influences—for example, the views of the citizenry—is shared by the members of the Court itself to a certain extent. As Lithwick points out:

  “The Court has become worryingly cloistered, even for a famously cloistered institution… today’s justices filter out anything that might challenge their perspectives. Antonin Scalia won’t read newspapers that conflict with his views and claims to often get very little from amicus briefs. John Roberts has said that he doesn’t believe that most law-review articles—where legal scholars advance new thinking on contemporary problems—are relevant to the justices’ work. Ruth Bader Ginsburg, Scalia’s opera-going buddy, increasingly seems to revel in, rather than downplay, her status as a liberal icon. Kennedy spends recesses guest-teaching law school courses in Salzburg.”

  Are you getting the picture yet?

  The members of the Supreme Court are part of a ruling aristocracy composed of men and women who primarily come from privileged backgrounds and who have a vested interest in maintaining the status quo.

  These justices, all of whom are millionaires in their own rights, circulate among an elite, privileged class of individuals, attending exclusive events at private resorts orchestrated by billionaire oil barons, traveling on the private jets of billionaires, and delivering paid speeches in far-flung locales such as Berlin, London and Zurich.

  When you’re cocooned within the rarefied, elitist circles in which most of the judiciary operate, it can be difficult to see the humanity behind the facts of a case, let alone identify with the terror and uncertainty that most people feel when heavily armed government agents invade their homes, or subject them to a virtual strip search, or taser them into submission.

  If you’ve never had to worry about police erroneously crashing through your door in the dead of night, then it might not be a hardship to rule as the Court did in Kentucky v. King that police should have greater leeway to break into homes or apartments without a warrant.

  If you have no fear of ever being strip searched yourself, it would be easy to suggest as the Court did in Florence v. Burlington that it’s more important to make life easier for overworked jail officials than protect Americans from debasing strip searches.

  And if you have never had to submit to anyone else’s authority—especially a militarized police officer with no knowledge of the Constitution’s prohibitions against excessive force, warrantless searches and illegal seizures, then you would understandably give police the benefit of the doubt as the Court did in Brooks v. City of Seattle, when they let stand a ruling that police officers who had clearly used excessive force when they repeatedly tasered a pregnant woman during a routine traffic stop were granted immunity from prosecution.

  Likewise, if you’re not able to understand what it’s like to be one of the “little guys,” afraid to lose your home because some local government wants to commandeer it and sell it to a larger developer for profit, it would be relatively easy to rule, as the Supreme Court did in Kelo v. New London, that the government is within its right to do so.

  Now do you understand why the Supreme Court’s decisions in recent years, which have run the gamut from suppressing free speech activities and justifying suspicionless strip searches to warrantless home invasions and conferring constitutional rights on corporations, while denying them to citizens, have been characterized most often by an abject deference to government authority, military and corporate interests?

  They no longer work for us. They no longer represent us. They can no longer relate to our suffering.

  In the same way that the Legislative Branch, having been co-opted by lobbyists, special interests, and the corporate elite, has ceased to function as a vital check on abuses by the other two branches of government, the Judicial Branch has also become part of the same self-serving bureaucracy.

  Sound judgment, compassion and justice have taken a back seat to legalism, statism and elitism.

  Preserving the rights of the people has been deprioritized and made to play second fiddle to both governmental and corporate interests.

  In the case of the People vs. the Police State, the ruling is 9-0 against us.

  So where does that leave us?

  The Supreme Court of old is gone, if not for good then at least for now.

  It will be a long time before we have another court such as the Warren Court (1953-1969), when Earl Warren served alongside such luminaries as William J. Brennan, Jr., William O. Douglas, Hugo Black, Felix Frankfurter and Thurgood Marshall.

  The Warren Court handed down rulings that were instrumental in shoring up critical legal safeguards against government abuse and discrimination. Without the Warren Court, there would be no Miranda warnings, no desegregation of the schools and no civil rights protections for indigents.

  Yet more than any single ruling, what Warren and his colleagues did best was embody what the Supreme Court should always be—an institution established to intervene and protect the people against the government and its agents when they overstep their bounds.

  That is no longer the case.

  We can no longer depend on the federal courts to protect us against the government. They are the government.

  Yet as is the case with most things, the solution is far simpler and at the same time more complicated than space allows, but it starts with local action—local change—and local justice. If you want a revolution, start small, in your own backyard, and the impact will trickle up.

  If you don’t like the way justice is being meted out in America, then start demanding justice in your own hometown, before your local judges. Serve on juries, nullify laws that are egregious, picket in front of the courthouse, vote out judges (and prosecutors) who aren’t practicing what the Constitution preaches, encourage your local newspapers to report on cases happening in your town, educate yourself about your rights, and make sure your local judges understand that they work for you and are not to be extensions of the police, prosecutors and politicians.

  This is the only way we will ever have any hope of pushing back against the police state.

  

  

  

  

  

• Gov Officials Admit Turkey Has REPEATEDLY Carried Out False Flag Terror

  Terror attacks have repeatedly rocked Turkey over the last year.

  The government has blamed ISIS and Kurds for the attacks … and is about to use this "justification" to launch troops into Syria.

  But there is an alternative explanation.  Specifically, government officials have admitted that Turkey has repeatedly carried out false flag attacks.

  For example:

  (1) 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.

  (2) 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 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” (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.

  Turkish false flag attacks carried out pursuant to this program include – by way of example only:

  • The murder of the Turkish Prime Minister (1960)

  • Terror attacks in Turkey kill hundreds (1971)

  • Shootings in Istanbul, Turkey (1977)

  (3) 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”.

  (4) High-level American sources admitted that the Turkish government – a fellow NATO country – carried out the chemical weapons attacks blamed on the Syrian government; and high-ranking Turkish government admitted on tape plans to carry out attacks and blame it on the Syrian government.

  Two members of the Turkish parliament stated:

  Sarin was sent to Syria from Turkey via several businessmen.

   

  ***

   

  The purpose of the attack was allegedly to provoke a US military operation in Syria which would topple the Assad regime …

  Pulitzer-prize winning investigative reporter Seymour Hersh – who uncovered the Iraq prison torture scandal and the Mai Lai massacre in Vietnam  – previously reported that high-level American sources tell him that the Turkish government carried out the chemical weapons attacks blamed on the Syrian government.

  As Hersh noted:

  ‘We knew there were some in the Turkish government,’ a former senior US intelligence official, who has access to current intelligence, told me, ‘who believed they could get Assad’s nuts in a vice by dabbling with a sarin attack inside Syria – and forcing Obama to make good on his red line threat.’

  Indeed, it’s long been known that sarin was coming through Turkey.

  (5) While Turkey pretends it’s fighting ISIS, Turkey is actually one of the main supporters of ISIS.

   

  

  

  

  

• Bullard Admits It's "Unwise" To Continue Rate Hikes, Says "If Needed" Will Do More QE

  For the latest confirmation of just how trapped in a corner of its own making the Fed now finds itself, look, or rather read no further than the presentation given moments ago by St. Louis Fed president James Bullard before the CFA Society in St. Louis which was circular, confusing, illogical, and thus a splendid summary of the Fed’s “thinking” from beginning to end.

  In it Bullard, who one month ago said he favors 4 rate hikes in 2016, said that it would now be “unwise” for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility, in comments that mark a stark change of direction for one of the Fed’s more hawkish inflation foes. 

  What he really meant is that having digested the Fed’s policy error which was the decision to hike rates in December in the middle of a global recession (as warned here quite explicitly) not only did global markets tank, but so did inflation expectations (the 5Y5y inflation outlook for the US was lower than that for Europe as recently as one week ago) with the market now pricing in not only a halt to rate hikes, but a return to ZIRP if not Negative rates in the U.S.

  And here comes the first confirmation of just how confused the Fed is:

  • BULLARD SAYS FED HAD GOOD REASONS TO HIKE IN DECEMBER AND DOES  NOT CONSIDER THE MOVE A MISTAKE

  Yes, the Fed it hiked: and the hike itself led to the collapse in not only inflation expectations but markets, and the latest devaluation of the Yuan. But one clearly can not be a Fed economist to realize all these very simple things.

  The ironies continues: Bullard, who for much of last year argued for an earlier rate hike, said he now feels key assumptions supporting higher rates have been undermined.

  Inflation expectations have fallen “too far for comfort,” making it more probable inflation itself will fall and continue to miss the Fed’s 2 percent target, Bullard said in remarks prepared for delivery to a gathering of financial analysts.

  “I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations,” Bullard said. In addition, declining equity prices and other tightened financial conditions have made dangerous asset bubbles “less of a concern over the medium term.”

  As a result, it would be “unwise” for the Fed to continue hiking interest rates given declining inflation expectations and recent equity market volatility.

  And just like that, Bullard admits that just like all throughout the 2009-2015 period, the Fed remains hostage to the market’s every whim.

  Then there was the topic of bubbles, which was mentioned on at least 8 separate occasions in his presentation. His point here was simple: at 2100, the S&P is too high and so the Fed was justified to hike; at 1900 the S&P is too low and the bubbles have popped. It appears that for the Fed, the Fed balance sheet implied fair value of 2,000 for the S&P is the perfect sweet spot of “fair value”. 

  This lunacy is best summarized by the following tweet:

  Bullard says one reason for hiking was to prevent bubbles. Then after they hike and stocks fall he says they should pause hiking. Circular?

  — GreekFire23 (@GreekFire23) February 18, 2016

  Here is one of the Fed’s biggest fake hawks justifying the need for a full Fed relent, and halting the rate hike cycle until risk asset prices increase:

  • BULLARD:TIPS SPREADS DOWN 100 BP; WANT TO SEE COME BACK UP

  But what about the Fed’s own inflation survey which suggest far higher inflation expectation?

  • BULLARD:DON’T TRUST SURVEY MEASURES OF INFL EXPCNS; TOO STATIC

  Translation: these aren’t influenced by the S&P500 so ignore them.

  Another question: what if the market is simply reflecting the slide of the world into another recession?

  • BULLARD: DON’T THINK GLOBAL MKT SELL-OFF PREDICTING RECESSION

  Oh ok. But what if it is?

  • BULLARD: PLENTY OF CAPACITY TO EASE IF NEED TO

  Yeah, 25 basis points.

  But the punchline, and why tonight’s speech was a rerun of the first Bullard moment from October 15, 2014 when the market soared after Bullard hinted at QE4 was the following:

  • BULLARD: MOST NATURAL OPTION IF NEED WOULD BE FURTHER Q.E.

  And there it is: the first admission that the Fed is not only contemplating NIRP – in the middle of a rate-hike cycle no less – but also QE.

  What should be most troubling for the Fed is that while any other time a Fed hint of more QE would have sent futures soaring, that this time nothing is happening as a result of the “second Bullard moment” is the most disturbing sign that not only can the Fed can no longer jawbone the market higher, even with the most nonsensical statements and hidden promises, but that the Fed is on the verge of losing control of the market.

  For those who wish to waste 5 minutes of their life, his presentation is below (pdf)
  

  

  

  

  

  

• How Government Buys Your Support

  Submitted by James Brovard via The Mises Institute,

  In Iraq and Afghanistan, US military officers routinely handed bundles of cash to local residents to buy influence and undermine resistance to the American occupation. Such payments came in especially handy after US troops inadvertently killed innocent civilians or sheep. Billions of dollars were shoveled out with little or no oversight as part of the Pentagon’s “Money as a Weapon System” program.

  In the same way, politicians have long relied on money as a weapon system to buy votes or to undermine resistance to Washington. Presidents and congressmen are not carrying out a formal counterinsurgency against the American people. But they realize that addicting citizens to government handouts is the easiest way to breed mass docility and stretch their power.

  Politicians are dividing Americans into two classes — those who work for a living and those who vote for a living. Federal food programs are now feeding more than 100 million Americans. Since 1983, the number of people receiving aid from the federal government has more than doubled — rising from 66 million to 153 million people. The number of people tapping means-tested handout programs has soared from 42 million to 109 million. Dependency has skyrocketed during an era of relative prosperity.

  In the same way that King Henry VIII cemented his power by distributing seized monasteries to his supporters in the early 1500s, contemporary politicians buttress their power by showering hundreds of billions of dollars on likely voters.

  Like medieval kings who distributed land to any favored lackey, today’s politicians feel entitled to redistribute income to any group they please. Nowadays, there is no property title half as sacrosanct as a politician’s decree that some group deserves more handouts. But every new benefit program increases political control over recipients and over the people forced to finance the benefits.

  Handouts provide cheap halos for politicians. Some people view government handouts as if they are nothing more than good intentions made manifest. But every government aid intervention shifts the incentives on how millions of people live. Federal student aid drove up college tuition which is helping spawn demands for federally-paid free tuition for all students. Medicaid and Medicare roiled the health care system and sparked perpetual inflation that spurs demands for nationalized health care. ObamaCare is spawning millions of new dependents who will view politicians as saviors in the coming years.

  Politicians and bureaucrats strive to undermine traditional American virtues and maximize the number of people on the dole. The Agriculture Department is financing propaganda recruiting programs for food stamps. Recent reforms in most states allow people to snare food stamps merely by making a phone call or filling out an online application. That is far less bothersome than going to a job interview.

  The Obama administration claims that the surge of food stamp dependency is making America prosperous because each dollar given in food stamps supposedly generates $1.84 in economic activity. If that was true, then government could make us all rich by giving food stamps to everyone. In reality, handouts are merely political multipliers.

  Good faith government handouts are almost as rare as good faith wars. The welfare state buttresses itself with an array of statistical sleights intended to make citizens appear worse off than they are. USDA conducts an annual “food security” survey whose results are widely reported (including by Obama) as a proxy for the number of hungry Americans. If someone feared running out of food on a single day (but didn’t run out), that is an indicator of being “food insecure” for the entire year. If someone craved organic kale but could only afford conventional kale, that is another “food insecure” indicator. However, families receiving food stamps are over 50 percent more likely to be ”food insecure” than similar low-income households not on food stamps, according to a analysis. And “Food insecurity” was far more widespread in 2013 (14.3 percent of all households) than in 2007 (11.1 percent) even though the number of food-stamp recipients rose from 26 million to 47 million in the same period.

  H.L. Mencken quipped that “every election is a sort of advanced auction of stolen goods.” The more politicians promise to some people, the more they entitle themselves to seize from everyone else. The federal government poached more than $3 trillion in taxes last year — largely to bankroll payments and services to its dependents.

  The more people who depend on Washington, the more difficult it becomes to leash politicians. For scores of millions of voters, the biggest peril from Washington is that politicians may curtail their handouts. The more people who receive government aid, the less attention will likely be paid to government abuses.

  Handouts tamper with elections as effectively as passing out hundred dollar bills at the polling booth. Unfortunately, using tax dollars to buy reelection is perfectly legal under federal campaign finance rules. And as long as government dependents are political assets, it is absurd to expect politicians to make reasonable or fair decisions on who gets what. Ironically, some of the politicians who want to effectively make work optional also want to make voting mandatory.

  Politicians have a long history of pauperizing the public to perpetuate their power. Plutarch observed of the dying days of the Roman Republic, “The people were at that time extremely corrupted by the gifts of those who sought office, and most made a constant trade of selling their voices.” Montesquieu warned in 1748: “It is impossible to make great largesses to the people without great extortion: and to compass this, the state must be subverted. The greater the advantages citizens seem to derive from their liberty [of voting], the nearer they approach towards the critical moment of losing it.”

  Politicians cannot undermine self-reliance without subverting self-government. The ultimate victim of handouts is democracy itself. The more important entitlement reform is to prohibit politicians from buying one person’s vote with another person’s paycheck.

  

  

  

  

  

• Venezuela Devalues Currency By 37% As Maduro Announces 62-Fold Increase In Gasoline Prices

  Maybe because between the specter of defaulting in under three months, the threat of handing over its gold to Deutsche Bank, or the reality of rampant hyperinflation and a collapsing society, the already crushed population of Venezuela did not have enough things to worry about, moments ago Venezuela’s Nicolas Maduro unveiled a double whammy of “shock and awe” when the socialist president not only announced the latest devaluation of the country’s official currency, but also presented his countrymen with the first gasoline price increase since 1996.

  These moves represent the latest attempt to stem a widening economic crisis, though critics of the socialist leader quickly dismissed the moves as insufficient.

  On the devaluation side, the latest measure of desperation will lower the strongest official exchange rate by 37% to 10 bolivars per dollar from 6.3, and streamline the previous three-tiered system into a dual exchange rate mechanism. The weaker of the two rates will be a “free float” based on an existing system that currently sells dollars at around 200 bolivars, Maduro said.

  As Reuters reports, critics immediately questioned the latter claim, noting that the government has repeatedly announced “free-floating” systems that withered away precisely because authorities never allowed them to be determined by demand.

  Meanwhile, Venezuela’s true “free floating”, market-clearing currency, the black-market “dolar today” recently plunged to over 1,000 per dollar, and was at 1,045.90 as of today. It is this currency that Maduro has sought to eliminate by actually suing the website that reports what it is on a daily basis.

  

   

  That was the largely irrelevant awe, especially since virtually nobody transacts at the official exchange rate which is over 100 times stronger than Venezuela’s true currency level.

  As for the shock, it came in the form of 62-fold increase in the price of 95-octane gasoline to 6 bolivars/liter.

  The price of premium gasoline will rise by 1,329 percent, but fuel is so heavily subsidized that fueling a small car will still cost about half the price of a soft drink, or about $0.23 based on the black market exchange rate. 91-octane gasoline will cost 1 bolivar per liter

  Putting these prices in perspective for western readers should result in laughter: the new price for 95-octane is equivalent to $0.11/gallon using weakest official Simadi FX rate of about 203 VEF/USD, and 5 times less using the black market FX rate. The price previously was 0.097 bolivar/liter or about one-fifth of a U.S. cent per gallon.

  And while the price is indeed laughable to western readers, price increases such as this one are all too tragic to the local population which is paid in local currency terms, and for whom this is merely the latest checkmark on the hyperinflationary wall.

  Maduro’s attempt to make the price increase more palatable failed: “The time has come for a system that guarantees access to oil products but that covers the cost PDVSA pays to produce it,” Maduro says during a national TV broadcast. “Venezuela has the cheapest gasoline in the world. The cost is almost nothing,” Maduro said before announcing new price.

  But if it’s almost nothing then why do it, aside from antagonizing your already miserable people?

  The reason is that the measures are meant to help shore up the OPEC nation’s finances as plummeting oil prices and a collapsing state-led economic model have left the country with a severe recession, triple-digit inflation and chronic product shortages.

  “This is a necessary measure, a necessary action to balance things, I take responsibility for it,” Maduro said, in reference to the fuel hike during a combative four-hour speech in which he insulted opposition leaders and occasionally used foul language.

  The reforms risk fueling triple-digit inflation at a time when millions are struggling to make ends meet, and comes two months after the ruling Socialist Party suffered a blistering defeat in parliamentary elections due to anger over the crisis.

  The package will likely be seen by Wall St. investors, who are increasingly concerned about a potential default, as mildly positive but still vastly insufficient to help Venezuela make some $10 billion in debt payments amid a major cash crunch.

  “Bottom line is no change to cashflow for this year and hefty year end debt payments,” wrote Siobhan Morden of Nomura in an email.

  “The devaluation from 6.3 to 10 will not have a relevant impact,” wrote economist and pollster Luis Vicente Leon on Twitter. “With respect to the gasoline, the only way to consolidate is to adjust (the price) regularly, otherwise it will be pulverized by inflation.”

  Critics say the only solution to Venezuela’s economic problems is to entirely dismantle the 13-year-old currency system created during the government of late socialist leader Hugo Chavez.

  Which will happen, but not before Maduro first sells all the country’s gold, and then proceeds to obliterate the domestic economy, formerly known as the “socialist paradise” of Latin America.

  We hope Bernie Sanders is paying close attention.

  

  

  

  

  

• ISIS Stops Handing Out Snickers Bars, Gatorade As Cash Crunch Deepens

  Late last month, we reported that ISIS has cut its fighters’ salaries in half due to “exceptional circumstances the caliphate is facing.”

  Those “exceptional circumstances” include Russia’s unrelenting aerial campaign against the group’s illicit oil trafficking business in Syria. The US-led “coalition” likes to take credit for helping to cripple the oil trade, but in reality it was Vladimir Putin (and Zero Hedge) that put the issue in the spotlight in November.

  After Putin’s comments at the G20 summit in Antalya and the subsequent aggressive push by the Russian air force to disable the group’s oil production and transport capabilities, the US was effectively forced to join the party. Asked why The Pentagon hadn’t hit ISIS oil trucks during the 14 months the US has supposedly been bombing the group, Washington responded by claiming that America didn’t want to risk collateral damage. In other words, Washington’s excuse for not targeting Islamic State’s $450 million/year oil trade is that the US was worried about a few truck drivers.

  In any event, the group’s ability to fund its activities through the sale of stolen oil has been curtailed and it will be months (at least) before that money can be recouped through the capture of Libyan crude. That means less money for fighters and civil servants.

  And it also means no more Gatorade.

  And no more Snickers bars.

  “The extremists who once bragged about minting their own currency are having a hard time meeting expenses, thanks to coalition airstrikes and other measures that have eroded millions from their finances since last fall,” AP reports. “Having built up loyalty among militants with good salaries and honeymoon and baby bonuses, the group has stopped providing even the smaller perks: free energy drinks and Snickers bars.”

  

  Yes, no more damn Snickers. And when it comes to taxes and utility bills, it’s now “dollars only.” Here’s AP again:

  Within the last two weeks, the extremist group started accepting only dollars for “tax” payments, water and electric bills, according to the Raqqa activist, who asked to be identified by his nom de guerre Abu Ahmad for his safety. “Everything is paid in dollars,” he said. His account was bolstered by another ex-Raqqa resident, who, like Ahmad, also relies on communications with a network of family and acquaintances still in the city.

  That’s exceptionally ironic because it was just last August when ISIS released a propaganda video announcing the return on the gold dinar which the group said was set to replace a worthless “piece of paper called the Federal Reserve dollar note.” Back to AP:

  “Circumstances include the dramatic drop in global prices for oil — once a key source of income — airstrikes that have targeted cash stores and oil infrastructure, supply line cuts, and crucially, the Iraqi government’s decision to stop paying civil servants in territory controlled by the extremists.

   

  A former Raqqa resident now living in Beirut said Syrians abroad are sending remittances in dollars to cover skyrocketing prices for vegetables and sugar. The resident, whose wife and baby still live in the city, did not want his name used for their safety. One of the other ex-residents, now living in Gaziantep, Turkey, said the road to Mosul was cut off late last year, and prices have risen swiftly — gas is up 25 percent, meat up nearly 70 percent, and sugar prices have doubled.

   

  In Iraq, where Islamic State has slowly been losing ground over the past year, the Iraqi government in September cut off salaries to government workers within territory controlled by the extremists, after months of wavering about the humanitarian costs paid by those trapped in the region. Iraqi officials estimate that Islamic State taxed the salaries at rates ranging from 20 to 50 percent, and analysts and the government now estimate a loss of $10 million minimum each month.

   

  In the Iraqi city of Fallujah, fighters who once made $400 a month aren’t being paid at all and their food rations have been cut to two meals a day, according to a resident. The account of the resident, who spoke on condition of anonymity for fear of death at the hands of extremists, was supported by that of another family trapped in Fallujah that said inhabitants can only leave the city if they pay $1,000 — a sum well beyond the means of most in the Sunni-majority city that was the first in Iraq to fall to Islamic State in 2014.

  IS is also allowing Fallujah residents to pay $500 for the release of a detainee, the family in Fallujah told the AP, saying that they believed the new policy was put in place to help the group raise money — a system akin to bail.

   

  Mosul residents contacted by AP say IS has begun fining citizens who do not adhere to its strict dress code, rather than flogging them as before. The residents say they believe this is in response to financial problems in part because the group has already confiscated anything valuable, namely cars and other goods that are later resold in Syria.

  As an aside, the Assad government still pays the salaries of civil servants in Raqqa. Those salaries are likely also taxed at high rates in order to line the pockets of top ISIS officials and, ironically, to continue the battle to destabilize Syria. 

  In any event, one important thing to note here is that to the extent ISIS is running out of cash, it isn’t a consequence of one airstrike on a Mosul cash center as AP and other Western media would have you believe. We’re talking about an organization that brings in a billion dollars a year here, so destroying a few million in hard currency isn’t going to make a difference. 

  This is a direct result of Russia’s move to decimate the oil trafficking business and that includes the PR effort to put Turkey’s role in the international spotlight. 

  Going forward, the big question is this: to what extent will ISIS be able to plug the funding gaps by commandeering assets in Libya, where the group isn’t subject to Russian airstrikes and where government (to the extent there is a government) forces aren’t backed by a major state actor like Iran? 

  Or perhaps the better question is this: how long before Libya becomes yet another theatre in World War III?

  *  *  *

  For those who might have missed it, here’s the actual ISIS document announcing the pay cuts:

  

  Islamic State

  Bayt Mal al-Muslimeen

  Wilayat al-Raqqa

  Decision no.: n/a

  Month of Safr 1437 AH [c. November-December 2015]

  In the name of God, the Compassionate, the Merciful

  God Almighty has said: “Go forth, lightly or heavily armed. And wage jihad with your wealth and souls in the path of God. That is best for you if you know” (al-Tawba 41) [Qur’an 9:41]. And on the authority of Anas (may God be pleased with him): that the Prophet (SAWS) said: “Wage jihad against the mushrikeen with your wealth, souls & tongues”- Musnad Ahmad: Musnad Anas Malek (11798).

  Jihad of wealth has been mentioned with jihad of soul in the Qur’an in ten cases, and in nine of those cases jihad of wealth has been presented beforehand over jihad of the soul, and only in one case has jihad of the soul been presented beforehand over jihad of wealth. And on the authority of Omar bin al-Khattab (may God be pleased with him): “The Messenger of God (SAWS) ordered us to give charity and that coincided with the time I had some wealth. So I said: ‘Today I will outdo Abu Bakr, if ever I have outdone him.’ So I came with half of my wealth, and so the Messenger of God (SAWS) said: ‘What have you left for your family?’ I said: ‘The same amount.’ And Abu Bakr came with all he had, so he said: ‘Oh Abu Bakr, what have you left for your family?’ He said: ‘I have left for them God and His Messenger.’ I said: ‘By God, I can never outdo him in anything.'” (muttafiq alayhi).

  So on account of the exceptional circumstances the Islamic State is facing, it has been decided to reduce the salaries that are paid to all mujahideen by half, and it is not allowed for anyone to be exempted from this decision, whatever his position. Let it be known that work will continue to distribute provisions twice every month as usual.

  And God is the guarantor of success.

  

  

  

  

  

• China Food Prices Soar Most Since 2013 As Producer Prices Hit 47th Straight Month Of Deflation

  Another month and another massive deflationary print for Chinese Producer Prices. Year-over-year, PPI dropped 5.3% ('better' than the 5.3% drop expected and the 5.9% plunge last month) making this the 47th month in a row of deflation with mining's collapse picking up again to -19.8% YoY. On th emore worrisome side, CPI rose 1.8% YoY, below expectations of +1.9% but still the hottest consumer price rise since August (and this was amid the greatest credit binge in history) driven by the biggest jump in food prices since 2013.

   

  47th months and counting of PPI deflation… (all that stimulus is not helping)

  

   

  But it is Consumer Prices that are more worrisome for the "gimme moar easing" brigade as the headline CPI hit 1.8% YoY – th emost since August, driven by a 4.1% surge in food costs – the most since Dec 2013…

  

   

  And the blame for missing expectations – well they learned that from the Americans…

  • *CHINA M/M CPI AFFECTED BY COLD WEATHER, CHINESE NEW YEAR

  The month-on-month rise in CPI was affected by cold weather which lead to a rise in vegetable and fruit prices, as well as a pork price increase over the Lunar New Year holiday, the National Bureau of Statistics said in statement.

  So to summarize, apart from New Years, Weather, and Pork prices, amid the biggest credit binge in recorded history (China January TSF rose half a trillion dollars), PPI continued to limp towards its deflationary hell and PPI missed expectations.. The trouble is of course that with protests already seen in the streets, social unrest will escalate dramatically if food prices start to soar even more.

  

  

  

  

  

• 9 Searing Images From Today's Deadly "Terrorist" Attack In Turkish Capital

  Earlier today, a massive explosion shook the Turkish capital of Ankara, where a vehicle packed with explosives was detonated while military buses were passing by. 

  It was “an act of terrorism,” Deputy Prime Minister Bekir Bozdag said. “We reaffirm our strong partnership with our NATO ally Turkey in combating the shared threat of terrorism attacks,” US State Department spokesperson Mark Toner proclaimed.

  

  “The attack targeted a shuttle bus carrying military personnel, and there were several other military vehicles nearby – all of which were waiting at the traffic lights. Most of the casualties are believed to be soldiers,” BBC reports, adding that “the Turkish army strongly condemned the attack and called it ‘a treacherous terror act'”. 

  Right. A “treacherous terror act” that’s sure to be trotted out as an excuse for an invasion of Syria where Kurdish forces are looking to close the Azaz corrider and cut off Sunni rebels from their supply lines to Turkey. 

  Ankara explosion: Turkish soldiers targeted, PKK or ISIS main suspects. If PKK, Turkish retaliation in Kurdish controlled Syria may follow.

  — Jonathan Rugman (@jrug) February 17, 2016

  Or, as we put it moments after the blast: “Expect this to be pinned on either ISIS or the PKK. If it’s the latter, Ankara will once again claim that the group is working in concert with the YPG and that will be all the evidence Erdogan needs to march across the border.”

  While we wait to see whether this will indeed serve as the excuse Erdogan needs to send troops into Syria, we bring you the following images from the site of the deadly attack which killed “at least” 28 people. 

  Via Reuters

  

  

  

  

  

  

  

  

  
  

  

  

  

  

• 21 New Numbers That Show That The Global Economy Is Absolutely Imploding

  Submitted by Michael Snyder via The Economic Collapse blog,

  After a series of stunning declines through the month of January and the first half of February, global financial markets seem to have found a patch of relative stability at least for the moment.  But that does not mean that the crisis is over.

  On the contrary, all of the hard economic numbers that are coming in from around the world tell us that the global economy is coming apart at the seams.  This is especially true when you look at global trade numbers.  The amount of stuff that is being bought, sold and shipped around the planet is falling precipitously. 

  So don’t be fooled if stocks go up one day or down the next.  The truth is that we are in the early chapters of a brand new economic meltdown, and I believe that all of the signs indicate that it will continue to get worse in the months ahead.  The following are 21 new numbers that show that the global economy is absolutely imploding…

  #1 Chinese exports fell by 11.2 percent year over year in January.

  #2 Chinese imports were even worse in January.  On a year over year basis, they declined a whopping 18.8 percent.

  #3 It may be hard to believe, but Chinese imports have now plunged for 15 months in a row.

  #4 In India, exports were down 13.6 percent on a year over year basis in January.

  #5 In Japan, exports declined 8 percent in December on a year over year basis, while imports plummeted 18 percent.

  #6 For the sixth time in six years, Japanese GDP growth has gone negative.

  #7 In the United States, exports were down 7 percent on a year over year basis in December.

  #8 U.S. factory orders have fallen for 14 months in a row.

  #9 The Restaurant Performance Index in the United States has dropped to the lowest level that we have seen since 2008.

  #10 This month the Baltic Dry Index fell below 300 for the first time ever.

  #11 It is now cheaper to rent a 1,100 foot merchant vessel than it is to rent a Ferrari.

  #12 Orders for Class 8 trucks in the United States dropped by 48 percent on a year over year basis in January.

  #13 Due to a lack of demand for trucks, Daimler just laid off 1,250 U.S. workers.

  #14 Even though Saudi Arabia and Russia have agreed to freeze oil production at current levels, the price of U.S. oil has still fallen below 30 dollars a barrel.

  #15 It is being reported that 35 percent of all oil and gas companies around the world are at risk of falling into bankruptcy.

  #16 According to CNN, 67 oil and gas companies in the United States filed for bankruptcy during 2015.

  #17 The number of job cuts in the United States skyrocketed 218 percent during the month of January according to Challenger, Gray & Christmas.

  #18 All over America, retail stores are shutting down at a stunning pace.  The following list of store closures comes from one of my previous articles…

  -Wal-Mart is closing 269 stores, including 154 inside the United States.

  -K-Mart is closing down more than two dozen stores over the next several months.

  -J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.

  -Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.

  -The Gap is in the process of closing 175 stores in North America.

  -Aeropostale is in the process of closing 84 stores all across America.

  -Finish Line has announced that 150 stores will be shutting down over the next few years.

  -Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.

  #19 The price of gold is enjoying its best quarterly performance in 30 years.

  #20 Global stocks have fallen into bear market territory, which means that about one-fifth of all global stock market wealth has already been wiped out.

  #21 Unfortunately for global central banks, they have pretty much run out of ammunition.  Since March 2008, central banks have cut interest rates 637 times and they have purchased a staggering 12.3 trillion dollars worth of assets.  There is not much more that they can do, and now the next great crisis is upon us.

  Without any outside influences, the global economy and the global financial system will continue to rapidly fall apart.

  But if we do have a major “black swan event” take place, that could cause the bottom to fall out at any moment.

  In particular, I am deeply concerned about the possibility that World War III could be sparked in the Middle East.  In an article that I published earlier today entitled “Turkey Is Asking The United States To Take Part In A Ground Invasion Of Syria“, I included a quote from Turkish Foreign Minister Mevlut Cavusoglu that reveals just how eager Turkey and Saudi Arabia are for war to begin…

  “Some countries like us, Saudi Arabia and some other Western European countries have said that a ground operation is necessary,” Turkish Foreign Minister Mevlut Cavusoglu told Reuters in an interview.

   

  However, this kind of action could not be left to regional powers alone. “To expect this only from Saudi Arabia, Turkey and Qatar is neither right nor realistic. If such an operation is to take place, it has to be carried out jointly, like the (coalition) air strikes,” he said.

  The Turks and the Saudis very much want the United States to take a leading role in any ground invasion of Syria, but the Obama administration is not likely to do that.

  So we shall see if the Turks and the Saudis are willing to go ahead without us.  Let us hope that they do not decide to invade Syria, because that could start the biggest war in the Middle East that any of us have ever seen.

  Unfortunately, Turkey is already attacking.

  Turkey has been shelling Kurdish and Syrian military positions in northern Syria for four days in a row even though the Obama administration has been urging them to stop.

  The first month and a half of 2016 has already been quite chaotic, and the stage is set for global events to greatly accelerate during the months ahead.

  Sadly, the mainstream media in the United States is largely ignoring the preparations for a ground invasion of Syria, and they keep telling us that the global economy is going to be just fine, so most ordinary Americans are going to be absolutely blindsided by what is about to happen.

  

  

  

  

  

• Australia Stops "Cooking" Its Jobs Report And The Result Is A Disaster: Full-Time Jobs Plunge Most Since 2013

  One week ago, we were delighted to report that Australia admitted that its glorious, 6 and 8-sigma outlier job numbers from October and November, were nothing but a “technical issue” glitch, in other words, one big political lie.

  

   

  Specifically it was Treasury Secretary John Fraser, who admitted during testimony to parliamentary committee that jobs growth for the two months in question “may be overstated.”  What’s the reason? The same one the propaganda bureau always uses when its lies are exposed: “technical issues”, 

  There were some “technical issues” in October and November that may have made the employment figures “look a little bit better than otherwise would be the case,” he said. The technical issues relate to “rolling off” of participants in the labor survey.

   

  Australia’s economy added 55,000 jobs in October and a further 74,900 in November, before shedding 1,000 in December to produce the record quarterly gain. Questions regarding the accuracy of the data have been raised following acknowledgment by the statistics agency in 2014 of measurement challenges.

  In conclusion we asked “why the sudden admission it was all a lie? Simple: weakness in commodity prices “is far greater than people had been expecting,” Fraser said in earlier remarks to the panel. Australia is now “swimming against the tide” because of uncertainties in the global economy, he added.”

  What this really meant, as we translated, is that: “we need more easing, and to do that, the economy has to go from strong to crap.” And with the Australian economy suddenly desperate for lower rates from the RBA, one can ignore the propaganda lies, and focus once again on the far uglier truth.

  That “far uglier truth” was revealed moments ago, when not only was the “jobs miracle” of October and November buried for good…

  

   

  … but suddenly – as we predicted – the far uglier truth finally emerged, when Australia reported that not only did total jobs tumble by 7,900, far below the +13,000 forecast (down from the December’s 800 job decline)…

  

   

  … but the actual number of full-time jobs plunged by 40,600, the biggest monthly plunge since October 2013!

  

   

  The end result a sudden, and unexpected bounce in the unemployment rate from 5.80% to 6.00%, some 20 basis point above the consensus estimate.

  And judging by the corresponding tumble in the AUDUSD, suddenly the realization that the RBA – no longer able to delay reality – will be the next bank to ease as the Chinese deflationary tsunami proves to strong for anyone to resist.

  

  

  

  

  

  

• Housing 'Recovery' Hope Humbled As Billings & Purchases Plunge

  Following this morning's weak Starts and Permits data, even homebuilders are starting to lose faith in the recovery meme but there is a long way to go before that is priced in. Perhaps the follwoing two data points will help to wake up the rest of the investing public that all is not as well as hoped. For the 3rd week in a row mortgage applications for purchases slid (reflecting the 'now')…

  

   

  and even more worrying, Architecture Billings tumbled into contraction (below 50) throwing doubt on the imminent future as the inquiry index plunged from 60.5 to 55.3.

  

   

  Still, stocks are surging – led by homebuilders – so everything must be fine, right?

  

  

  

  

  

  

• "Bigger Than Watergate" – Hillary Clinton And The Syrian Bloodbath

  While we would be the first to admit that we disagree with Jeffrey Sachs on virtually every other issue, on the topic of Hillary Clinton, the ongoing Syria bloodbath which has come to define the geopolitical situation for the past 3 years, and how this is an event that would  “surely rival Watergate in shaking the foundations of the US establishment” if the truth were fully known, we agree 100 percent. 

  Hillary Clinton and the Syrian Bloodbath, by Jeffrey Sachs, originally posted on HuffPo

  In the Milwaukee debate, Hillary Clinton took pride in her role in a recent UN Security Council resolution on a Syrian ceasefire:

  But I would add this. You know, the Security Council finally got around to adopting a resolution. At the core of that resolution is an agreement I negotiated in June of 2012 in Geneva, which set forth a cease-fire and moving toward a political resolution, trying to bring the parties at stake in Syria together.

  This is the kind of compulsive misrepresentation that makes Clinton unfit to be President. Clinton’s role in Syria has been to help instigate and prolong the Syrian bloodbath, not to bring it to a close.

  In 2012, Clinton was the obstacle, not the solution, to a ceasefire being negotiated by UN Special Envoy Kofi Annan. It was US intransigence – Clinton’s intransigence – that led to the failure of Annan’s peace efforts in the spring of 2012, a point well known among diplomats. Despite Clinton’s insinuation in the Milwaukee debate, there was (of course) no 2012 ceasefire, only escalating carnage. Clinton bears heavy responsibility for that carnage, which has by now displaced more than 10 million Syrians and left more than 250,000 dead.

  As every knowledgeable observer understands, the Syrian War is not mostly about Bashar al-Assad, or even about Syria itself. It is mostly a proxy war, about Iran. And the bloodbath is doubly tragic and misguided for that reason.

  Saudi Arabia and Turkey, the leading Sunni powers in the Middle East, view Iran, the leading Shia power, as a regional rival for power and influence. Right-wing Israelis view Iran as an implacable foe that controls Hezbollah, a Shi’a militant group operating in Lebanon, a border state of Israel. Thus, Saudi Arabia, Turkey, and Israel have all clamored to remove Iran’s influence in Syria.

  This idea is incredibly naïve. Iran has been around as a regional power for a long time–in fact, for about 2,700 years. And Shia Islam is not going away. There is no way, and no reason, to “defeat” Iran. The regional powers need to forge a geopolitical equilibrium that recognizes the mutual and balancing roles of the Gulf Arabs, Turkey, and Iran. And Israeli right-wingers are naïve, and deeply ignorant of history, to regard Iran as their implacable foe, especially when that mistaken view pushes Israel to side with Sunni jihadists.

  Yet Clinton did not pursue that route. Instead she joined Saudi Arabia, Turkey, and right-wing Israelis to try to isolate, even defeat, Iran. In 2010, she supported secret negotiations between Israel and Syria to attempt to wrest Syria from Iran’s influence. Those talks failed. Then the CIA and Clinton pressed successfully for Plan B: to overthrow Assad.

  When the unrest of the Arab Spring broke out in early 2011, the CIA and the anti-Iran front of Israel, Saudi Arabia, and Turkey saw an opportunity to topple Assad quickly and thereby to gain a geopolitical victory. Clinton became the leading proponent of the CIA-led effort at Syrian regime change.

  In early 2011, Turkey and Saudi Arabia leveraged local protests against Assad to try to foment conditions for his ouster. By the spring of 2011, the CIA and the US allies were organizing an armed insurrection against the regime. On August 18, 2011, the US Government made public its position: “Assad must go.”

  Since then and until the recent fragile UN Security Council accord, the US has refused to agree to any ceasefire unless Assad is first deposed. The US policy–under Clinton and until recently–has been: regime change first, ceasefire after. After all, it’s only Syrians who are dying. Annan’s peace efforts were sunk by the United States’ unbending insistence that U.S.-led regime change must precede or at least accompany a ceasefire. As the Nation editors put it in August 2012:

  The US demand that Assad be removed and sanctions be imposed before negotiations could seriously begin, along with the refusal to include Iran in the process, doomed [Annan’s] mission.

  Clinton has been much more than a bit player in the Syrian crisis. Her diplomat Ambassador Christopher Stevens in Benghazi was killed as he was running a CIA operation to ship Libyan heavy weapons to Syria. Clinton herself took the lead role in organizing the so-called “Friends of Syria” to back the CIA-led insurgency.

  The U.S. policy was a massive, horrific failure. Assad did not go, and was not defeated. Russia came to his support. Iran came to his support. The mercenaries sent in to overthrow him were themselves radical jihadists with their own agendas. The chaos opened the way for the Islamic State, building on disaffected Iraqi Army leaders (deposed by the US in 2003), on captured U.S. weaponry, and on the considerable backing by Saudi funds. If the truth were fully known, the multiple scandals involved would surely rival Watergate in shaking the foundations of the US establishment.

  The hubris of the United States in this approach seems to know no bounds. The tactic of CIA-led regime change is so deeply enmeshed as a “normal” instrument of U.S. foreign policy that it is hardly noticed by the U.S. public or media. Overthrowing another government is against the U.N. charter and international law. But what are such niceties among friends?

  This instrument of U.S. foreign policy has not only been in stark violation of international law but has also been a massive and repeated failure. Rather than a single, quick, and decisive coup d’état resolving a US foreign policy problem, each CIA-led regime change has been, almost inevitably, a prelude to a bloodbath. How could it be otherwise? Other societies don’t like their countries to be manipulated by U.S. covert operations.

  Removing a leader, even if done “successfully,” doesn’t solve any underlying geopolitical problems, much less ecological, social, or economic ones. A coup d’etat invites a civil war, the kind that now wracks Afghanistan, Iraq, Libya, and Syria. It invites a hostile international response, such as Russia’s backing of its Syrian ally in the face of the CIA-led operations. The record of misery caused by covert CIA operations literally fills volumes at this point. What surprise, then, the Clinton acknowledges Henry Kissinger as a mentor and guide?

  And where is the establishment media in this debacle? The New York Times finally covered a bit of this story last month in describing the CIA-Saudi connection, in which Saudi funds are used to pay for CIA operations in order to make an end-run around Congress and the American people. The story ran once and was dropped. Yet the Saudi funding of CIA operations is the same basic tactic used by Ronald Reagan and Oliver North in the Iran-Contra scandal of the 1980s (with Iranian arms sales used to fund CIA-led covert operations in Central America without consent or oversight by the American people).

  Clinton herself has never shown the least reservation or scruples in deploying this instrument of U.S. foreign policy. Her record of avid support for US-led regime change includes (but is not limited to) the US bombing of Belgrade in 1999, the invasion of Afghanistan in 2001, the Iraq War in 2003, the Honduran coup in 2009, the killing of Libya’s Muammar Qaddafi in 2011, and the CIA-coordinated insurrection against Assad from 2011 until today.

  It takes great presidential leadership to resist CIA misadventures. Presidents get along by going along with arms contractors, generals, and CIA operatives. They thereby also protect themselves from political attack by hardline right-wingers. They succeed by exulting in U.S. military might, not restraining it. Many historians believe that JFK was assassinated as a result of his peace overtures to the Soviet Union, overture he made against the objections of hardline rightwing opposition in the CIA and other parts of the U.S. government.

  Hillary Clinton has never shown an iota of bravery, or even of comprehension, in facing down the CIA. She has been the CIA’s relentless supporter, and has exulted in showing her toughness by supporting every one of its misguided operations. The failures, of course, are relentlessly hidden from view. Clinton is a danger to global peace. She has much to answer for regarding the disaster in Syria.

  

  

  

  

  

• Japanese Trade Data Collapses, Crushes "Devalue Our Way To Prosperity" Dreams

  Seriously – how many more times can a central bankers' policies be exposed for the total sham that they are?

  “The turmoil in global markets is making companies cautious about spending and also weakening global demand. That will be negative to Japanese exports,” Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo, said before the trade report was released.

   

  “There will be no driver for Japan’s economy as domestic consumption may remain weak, and sluggish exports and production may weaken capital spending in the coming months.”

  Japanese trade data was just unleashed on the world… and it is abysmal.

  • *JAPAN JAN. EXPORTS FALL 12.9% Y/Y

  Notably worse than the expected 10.9% drop and the biggest YoY plunge since October 2009. This was driven by a collapse in exports to the most rapidly contracting marginal economy in the world: China. According to Bloomberg, "exports to China, Japan’s largest trading partner, were down almost 18 percent, driving an overall decline of nearly 13 percent in the value of overseas shipments in January from a year earlier. Imports dropped 18 percent, leaving a 645.9 billion yen ($5.7 billion) trade deficit, the Ministry of Finance said on Thursday."

  But we thought that the market had decided China was fine?

  Some more humor from Bloomberg:

  Falling exports compound poor sentiment in Japan, where wage gains have stagnated, consumer prices are barely rising and households are reluctant to spend. This year stocks have plunged and the yen has gained more than 5 percent against the dollar amid concerns over China’s slowdown and U.S. growth. This adds to worries about the seesawing nature of Japan’s economy between modest growth and contraction.

  Sarcasm aside, the chart below proves once and for all that the devaluation of the JPY did less-than-nothing to improve Japan's competitiveness…

  

   

  And then there is Imports – reflecting the "modest" improvement in the domestic economy…

  • *JAPAN JAN. IMPORTS FALL 18.0% Y/Y

  Nope – complete carnage!! The biggest YoY drop since october 2009…

  

   

  Is it any wonder Abe says no more stimulus and Kuroda did not unleash anymore QE – they know it's over and now it's desperation.

  We leave it to Alhambra's Jeff Snider to sum up… Japan is the very definition of insanity…

  GDP fell 1.4% in Q4 2015, marking the fifth contraction out of the past nine quarters and yet the word “stimulus” remains attached to QQE, the Bank of Japan and Abenomics in general. At this point, how much more time and sample size is necessary before calling it a failure? In about six weeks, Kuroda’s massive “stimulus” will mark its third anniversary and the best that can be said of it is that GDP has gone nowhere. Two and three quarters years later, real GDP (SAAR) in the last three months of 2015 was the slightest bit higher than Q2 2013 when everyone was so sure “stimulus” was all so sure.

  

  The media provides all the evidence necessary as to why everything is so “unexpected.”

  The data suggest Japan’s economy is still plagued by the weakness of domestic demand as it enters a fourth year of record monetary stimulus, with wages not rising fast enough to persuade consumers to spend.

  There is no sign of a downward spiral in the economy but with the yen rising to trade at Y113.8 to the dollar in recent weeks, the figures put pressure on the Bank of Japan for even more monetary stimulus to encourage a strong round of wage rises this spring.

  While economists try to determine if technical definitions for recession have been met, the plain truth of QQE is that monetary “stimulus” put Japan into recession almost immediately and it has never left. The key for any recession definition are the words “significant” and “sustained.” In other words, it is a significant and sustained deviation from the prior or underlying growth trend. By Japan’s GDP figures alone, Japan is in a significant and sustained period of weakness or contraction even when compared to the unsatisfactory growth that prevailed before it.

  

  Since the first appearance of negative GDP in Q4 2013, long before the tax change, Japan’s average quarterly (SAAR) growth rate has been -0.07%. Period to QQE from just after the earthquake quarter, GDP averaged 1.74%. No matter how you present the GDP data, there was a significant change in economic growth dating to or close to QQE’s introduction. Since that burst of monetarism was enormous, just as policymakers had once claimed (curious, again, that commentary about QE in whatever form is derived by its tense; it will be powerful and effective vs. it was disappointing and needed more), that leaves little doubt as to the source of the economy’s digression from at least its prior trend, unacceptable as that might have been.

  

  The fact that Japanese households have borne the brunt of the disaster only confirms its negating nature. Prior to QQE, household spending and income had been better than the overall GDP figures; after QQE, that relative position has reversed and intensely so. Nobody would accuse the Japanese economy of being robust between the tsunami and the start of 2013, but at least for households there was steady growth without “inflation” and disorder. Japan was certainly in need of re-orientation and reform so that its system could finally become a full economy once again, but QQE was the exact opposite of what was required – especially since it was just amplifying what had already failed nine times (at least) before.

  

  The Bank of Japan and Abenomics in general put the Japanese economy into a recession from which it hasn’t yet recovered; nor are there any signs that it is even close to doing so. The conditioned response in the media and by economists is entirely the problem – it doesn’t take much to realize that “stimulus” created the recession, therefore more “stimulus” will likely only do the same.

  “Consumption was weak, even after taking out seasonal factors, as households tightened their purse strings,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “The downside risks to Japan’s economy are likely to increase as the yen’s gains may damp capital spending and exports, and private consumption also is looking weak. There’s no clear driver to support Japan’s economy.”

  That’s an astounding piece of commentary after nearly three years; to have “no clear driver to support Japan’s economy” is utterly damning. Monetarism doesn’t work, that much is inarguable no matter which data you use or how you use it. That it is directly harmful may be somewhat debatable, but that view is becoming less so with each passing quarter. Japanese households, in particular, were at least experiencing some steady growth prior and now they are most certainly not. Central bankers declare that the cost of implementing a full recovery, yet it is nowhere to be found even in overall GDP (which is the most generous account of any economy). After three years (let alone fifteen), there is no basis anymore for “stimulus.” None.

  Sure enough, stocks are rallying in the dismal news in anticipation of some more insanity from Kuroda…

  

  

  

  

  

  

• BREXIT Risk Spikes To Record High

  Amid today's summit and Cameron's looming pitch to The Brits, the market is starting to take the risk of UK's exit from the EU seriously…

  Various indicators across markets can be used as a 'sentiment' guide for fears (or hopes) about BREXIT, but, as MacroMan notes, perhaps the simplest and cleanest is the 3/6/12 month implied vol butterfly in GBP/USD, given that the referendum is widely expected for June, a little over four months from now.

  

   

  MacroMan continues,

  Simply put, the butterfly is more negative (i.e., pricing the average of 3 and 12 month vol under 6 month vol) than it has been in the 20 year history of the Bloomberg dataset.

   

  (Actually, there was a lower print on 9/11/01 , but Macro Man's taking it as read that ensuring valid closes for the cable vol curve wasn't a priority that day, so smoothed it out.)

   

  The only period that remotely comes close was, funny enough, just over a year ago, when Britain was looking at the possible prospect of a hung Parliament.

   

  One could easily argue that an existential issue such as Britain's membership of the EU should command a larger vol premium than a hung parliament.

  So – simply put – if you thought the market was shrugging off BREXIT fears, think again… as some 'markets' are growing very concerned

  

  

  

  

  

• Land Of The Debt Slave: Texas Man Arrested At Gunpoint For Not Paying $1500 Student Loan

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Laws are effective only to the extent they are enforced. A law on the books has little impact if prosecution is highly unlikely.

   

  The failure to punish big corporations or their executives when they break the law undermines the foundations of this great country: If justice means a prison sentence for a teenager who steals a car, but it means nothing more than a sideways glance at a CEO who quietly engineers the theft of billions of dollars, then the promise of equal justice under the law has turned into a lie. The failure to prosecute big, visible crimes has a corrosive effect on the fabric of democracy and our shared belief that we are all equal in the eyes of the law.

   

  Under the current approach to enforcement, corporate criminals routinely escape meaningful prosecution for their misconduct. This is so despite the fact that the law is unambiguous: if a corporation has violated the law, individuals within the corporation must also have violated the law. If the corporation is subject to charges of wrongdoing, so are those in the corporation who planned, authorized or took the actions. But even in cases of flagrant corporate law breaking, federal law enforcement agencies – and particularly the Department of Justice (DOJ) – rarely seek prosecution of individuals. In fact, federal agencies rarely pursue convictions of either large corporations or their executives in a court of law. Instead, they agree to criminal and civil settlements with corporations that rarely require any admission of wrongdoing and they let the executives go free without any individual accountability.

   

  – From the post: Elizabeth Warren Releases Blistering Report on Corporate Criminality – Singles Out SEC Uselessness

  What a cute little Banana Republic this America has become. Our government can’t put a single bank executive in jail for destroying the global economy, but when a mere peasant is caught not paying back his student debt, a team of U.S. Marshals arrive at his door to arrest him at gunpoint.

  Land of the thief, home of the slave, indeed.

  Fox26 reports:

  Believe it or not, the US Marshals Service in Houston is arresting people for not paying their outstanding federal student loans.

  Paul Aker says he was arrested at his home last week for a $1500 federal student loan he received in 1987.

  He says seven deputy US Marshals showed up at his home with guns and took him to federal court where he had to sign a payment plan for the 29-year-old school loan.

   

  Congressman Gene Green says the federal government is now using private debt collectors to go after those who owe student loans.

   

  Green says as a result, those attorneys and debt collectors are getting judgements in federal court and asking judges to use the US Marshals Service to arrest those who have failed to pay their federal student loans.

   

  Our reliable source with the US Marshal in Houston say Aker isn’t the first and won’t be the last.

   

  They have to serve anywhere from 1200 to 1500 warrants to people who have failed to pay their federal student loans.

  Now here’s the most absurd part. Yahoo notes that:

  Unfortunately, it looks like it was a lapse in communication that landed Aker in handcuffs (to be clear, he did not spend time in jail — he was escorted by Marshals to court). And, to add insult to injury, he was ordered to pay more than $1,200 in fees back to the U.S. Marshals service for the cost of arresting him. 

  Yes, Federal US Marshals spent $1,200 arresting a guy for $1,500 in debt. Brilliant use of taxpayer funds. Yet somehow they still can’t find a single bank executive who did anything wrong.

  Watch the following clip for more information:

  Thanks for playin’ America.

  

  

  

  

  

• "Perma-bears" 2 – BofA Economist 0

  It was just last month when we checked in on BofA economist Ethan Harris who, in May of 2015 derided the “perma-bear” crowd for crowing about an abysmal Q1 GDP print.

  “Looking ahead, it is much too soon to declare victory, but we expect the data to improve in the months ahead as seasonal and other distortions fade,” Harris concluded, suggesting that if the double-adjusted data continued to “improve”, BofA’s economics team would be able to proclaim that the bears had been vanquished once and for all.

  8 months later, Harris admitted that “a series of shocks have undercut [his] optimism.” Those shocks are, i) slumping oil prices, ii) the demise of HY, iii) generally terrible news from the US industrial sector, and iv) market “moodiness” related to China and oil.

  Of course all of those factors were already at play at the beginning of last year. Saudi Arabia had already begun its war on the US shale space which would have been all the evidence you needed to predict both the collapse of oil prices and the turmoil in HY, it was already abundantly clear that US corporates were eschewing capex for buybacks, and if you didn’t see the writing on the wall in China by January of 2015, then you can’t really call yourself an economist.

  “Who could have possibly anticipated these ‘shocks’”?, we asked last month. “Oh yes, those pesky perma-bears, who actually looked at all economic indicators, not just the ones goalseeked to validate some initial (and erroneous) hypothesis,” we said, answering our own question as we are so very often forced to do.

  BofA went on to lower their 2016 GDP forecast from 2.3% to 2.1%.

  On Wednesday, Harris is back and although he’s doing his best to stay positive (bless his heart), he’s willing to admit that “recent market fragility” will likely force the Fed to lean more dovish and he also says “the stock market is pricing in a 50% or so probability of a recession.”

  Apparently, Harris is also “surprised” by the strength of the dollar (because who could have seen that coming given the epic diveregence in monetary policy between the Fed and other DM CBs) and the tightening in financial conditions. He also concedes that “Q4 GDP growth was particularly weak.” Here’s an excerpt from Harris’ latest note: 

  It has been an ugly start to the New Year: at Friday’s close, the S&P 500 was down 8.8% year to date (11.6% off its November high), 10-year treasury yields were down about 50bp ytd, and there had been a further widening in high yield spreads. Capital markets seem to be pricing in a 50% or higher probability of a US recession. For example, a simple probit model shows that the 6 month growth rate in the S&P500—falling by 8.8% from July to January — is signaling a 49% chance of a recession starting sometime in the next 12 months (Chart 3). Our rates team has developed an adjusted yield curve measure that signals a 68% probability of recession.

  

   

  But don’t worry, Harris believes the market as well as BofA’s rate team may be “peddling fiction.” Here’s why: 

  In our view, the weakness in 4Q GDP reflects both the erratic nature of recent GDP releases and some temporary factors holding down growth. The weakness in the second half of last year also reflects three partly temporary headwinds.  

   

  Inventories rose about $113bn in both 1Q and 2Q last year. That is about double the sustainable pace. With moderate sales growth, companies were forced to slow production to slow the accumulation. Investment has now slowed to $69bn, slicing 0.7pp and 0.5pp off of growth in the last two quarters. As a result, we believe the adjustment is largely over: we expect a 0.2pp drag from inventories in 1Q and no drag thereafter. A similar story applies for the collapse in the mining sector: the worst is behind us. The third, and most important, headwind is the strong dollar.  

  And while Harris doesn’t necessarily see the strong dollar problem as being “temporary” like the other headwinds facing the econony, he does say it’s important to remember that “the equity market is not the economy” (an effort to downplay the market’s pricing in of a looming recession).

  Harris is right. The equity market is not the economy. Although judging by the Fed’s new reaction function, we’re not sure Janet Yellen agrees.

  

  

  

  

  

  

• How Far Will The U.S. Go If Turkey Invades Syria?

  Submitted by Gregory Copley via OilPrice.com,

  The Government of Turkey has now put itself in a position whereby it must act rapidly and precipitously to avoid moving to an ultimately losing strategic position in the war against Syria, which could result in being forced back to fight a full-scale civil war to prevent the break-up of the State into at least two components, one being a new Kurdish state.

  Turkey’s leadership, in insisting – in 2011-12 – on sponsoring a proxy war to overthrow Syrian President Bashar al-Assad, has already led to a refugee crisis of irreversible strategic damage to Europe, but Turkish Presisdent Reçep Tayyip Erdogan, the Saudi Arabian military-political leadership, the U.S. Barack Obama administration, and the Qatari Emir now find themselves with nowhere to go except to escalate further in the hope that the Syrian revival, backed by Russia and Iran, will collapse.

  Clear indications are emerging in Washington, DC, that the Pentagon is preparing to support a direct military invasion of Syria by Turkish Armed Forces, despite the Munich accord in the week ending February 13, 2016, which was meant to bring about a ceasefire in Syrian fighting. US officials have been actively engaged with those of Turkey and possibly Saudi Arabia in the preparations for ground force attacks on Kurd-ish military formations inside northern Syria, and U.S. Air Force Fairchild A-10 strike aircraft have deployed over northern Syrian territory in early February.

  The planned intervention by Turkey (and possibly other powers, such as Saudi Arabia) is specifically not aimed at countering the activities of ISIS (asad-Dawlah al-Islamiyah  al-‘Iraq wash-Sham/Islamic State), but solely about countering the growing capability of Syrian- and Iraqi-based Kurdish fighters, and to offset the gains which Syrian Government forces, supported by Russian and Iranian/HizbAllah forces, made in and around Aleppo.

  The prospect of yet another abandonment of the Kurds is causing considerable division within some U.S. military and intelligence circles, but the fiction is that the Turkish battle is with ISIS.

  It is understood that the Turkish Government wishes to establish a cordon sanitaire inside Syria, along the Turkish border, to prevent the flow of Kurdish fighters from Syria into Turkey, where they are reportedly supporting the civil war which is now underway in the Kurdish areas of Turkey. General Adem Huduti, commander of the Second Turkish Army, based in Malatya, has primary ground force responsibility for the areas contiguous with Syria and Iraq, and was believed to be key to the operation, which could engage, initially, some 20,000 or so of the Second Army’s 100,000-man strength, supported by Turkish Army Avia-tion AH-64W helicopter gunships, and other airborne systems, and possibly Turkish Air Force fixed-wing ground attack support and fighter cover, to protect against Syrian and Russian Air Force fighters. At least two armored brigades, with modern main battle tanks, and two mechanized infantry brigades, would be deployed, based on current observations of forward deployments by the Second Army. They would be sup-ported by self-propelled 15mm artillery.

  The Obama Administration and the Government of Turkish President Erdoan and Prime Minister Ahmet Davutoglu appear to have calculated — probably correctly — that the Russian Government would not di-rectly interfere with the assault on Kurdish forces, the YPG [People's Protection Units (Kurdish: Yekîneyên Parastina Gel)] in a move designed to split those forces, driving to a depth of some 25 miles inside Syria.

  Meanwhile, it should be expected that a number of false-flag attacks would be mounted by U.S. and Turk-ish operators to give the impression that the Turkish incursion would be responding to humanitarian con-cerns. Questions, then, should be raised by reports of attacks on February 14-15, 2016, by aircraft against civilian hospital targets in Aleppo. False-flag attacks (ie: purporting to be from one side, but in reality by another) have been used consistently by Islamist forces since the Sarajevo attacks (blamed on the Serbs) in the 1990s, and through later conflicts.

  The proposed major military assault into Syria holds considerable risk for Turkey, not the least of that being a possible accidental escalation of hostilities with Russia, but it now seems unavoidable if Ankara is not to see a major disaster, not only wasting more than five years of intense effort to overthrow the Syrian Gov-ernment of President Bashar al-Assad, but also to avert the unfettered escalation of the Kurdish war to wrench a large part of Turkey away from Ankara to create a new Kurdish state which would link with Iraqi and Syrian Kurds. Already, Turkey has paid an enormous price in unanticipated consequences from its ef-fort to lead a coalition (Turkey, Saudi Arabia, Qatar, and the U.S.) into overthrowing Assad.

  The war has taken far longer than anticipated, and has cost Turkey all of its regional allies; it has also united the Kurds of Turkey, Iraq, and Syria into a desire to finally create their Kurdish state; it has generated a refugee flow from Syria and Iraq which is now beyond Ankara’s capacity to manage; and it has created a major rift between Turkey and the European Union, while costing Turkey most of its political support in Washington (except from the Obama White House and the State Dept.). Moreover, the escalation has led to the Russo-Turkish rift, in which Russian sanctions against Turkey are now starting to bite into an already fragile Turkish economy.

  At the same time, the Iranian Government feels that Iranian vital strategic interests have been directly challenged by Ankara, and that while Iran had few options but to trade through Turkey during the period of international sanctions, it now — with sanctions being lifted — no longer has to hold back so much in de-fending its interests against Turkish depredation.

  Senior levels of the U.S. Defense Dept., albeit impacted by consistent browbeating from the White House, have said repeatedly that there were no vital U.S. interests at stake which would warrant a major U.S. military intervention inside Syria, but no Defense official would countermand a direct order from the White House to undertake covert or support operations assisting the Turkish position. The White House and Ankara have been seeking triggers which would force the U.S. into a position where it would have to intervene directly.

  Russia is unlikely to provide that casus belli, largely because of the 1936 Montreux Convention could give Turkey the right to close the Bosphorous transit link between the Black Sea and the Mediterranean to Russian naval shipping in the event of a formal state of war between Turkey and Russia. Moscow has consist-ently refused to rise directly to Turkish military provocations. Rather, it has preferred to respond politically and economically.

  It has been obvious for some time to Russian, Kurdish, Iranian, and Syrian officials that Turkey would have to lash out to defend its position.

  As a result, all of those states in confrontation with Turkey have had time to begin bolstering their defenses in the area which Turkey intends to invade in Syria.

  Moreover, the reality is that Turkey now places itself in the position, de facto, of declaring war on Syria. This has a significant new element and catalyst:

  Turkey and its allies have been operating through a range of proxies, including ISIS, the al-Nusra Front, and so on to wage war on Syria. Thus, at least, Syrian forces would, in facing a conventional Turkish military invasion, legitimately be able to respond militarily, if they could gain the territorial foothold to do so. Thus the determination by Damascus and Moscow to regain as much territory in and around Aleppo as quickly as possible. This raises the question, however, of whether Turkey would use this as a pretext to attempt to engage NATO forces, or at least the forces of the US.

   

  NATO as a whole has been resisting Turkish overtures to join the conflict, or to allow Turkey to cite “Article Five” of the North Atlantic Treaty, stating that an attack on a NATO member is an attack on all of the alliance.

  But the Obama Administration, with less than a year to run on its term, is also throwing caution to the winds, and is empowered in this by the diversion of U.S. political attention on the November 2016 Presidential elections. President Obama hopes to move the U.S. into an irrevocable military action in Syria before the Washington political establishment can warn him off it. And he might succeed. But to what end? This has become an ideological commitment for the White House. The engagement by U.S. President William Clinton in fabricating a casus belli for intervention in Serbia in the 1990s provides a precedent, and there has for some time been a strong psychological campaign underway to sway Western public/political opinion on the necessity for armed intervention in Syria.

  What, then, are the options open to the governments and forces seeking to oppose the Turkish military intervention, knowing that, at the very least, Turkish forces would be able — with their strong combined arms operations and advanced systems, supported by U.S. and Turkish command and control operations — to make swift and significant gains inside Syrian territory?

  There are several factors. Firstly, Turkish forces should be expected to attempt more than one cross-border operation, in an attempt to divide Kurdish forces. Secondly, Kurdish forces themselves should be expected to respond with their own “diversionary” attacks behind Turkish lines, well inside Turkey, alt-hough Turkey has ample forces to deal with that in the initial stages.

  It must be assumed that the Kurdish forces would have already been reinforced with significant anti-tank capabilities. As the Turkish Army discovered when it moved into Iraqi Kurdistan on several occasions, it cannot expect to emerge unscathed from the operation. Moreover, Russian and Syrian forces will have utilized the available time to determine how best, for example, to cut or minimize Turkish abilities to re-supply its forces inside and around Aleppo, and Ankara may have to accept that to gain its cordon sanitaire it may also lose Aleppo back to the Syrian Government.

  Moreover, while the cordon sanitaire may push Kurdish forces back from the Turkish border, this does not necessarily guarantee that Turkey can maintain its logistical lines with ISIS. The Russian destruction of the ISIS oil trade routes to Turkey may continue to erode the economic viability of the Islamic Caliphate, and cut into the revenues being earned from that trade by the Erdo?an family.

  Whatever happens, the Russian economic sanctions against Turkey, coupled with the prospective loss of Iranian trade, the ongoing decline in energy transit revenues, and the now-determined and organized Kurdish bid for a new state to be carved out of Turkey mean that Ankara is grasping at straws to reverse its fortunes. Little wonder that Washington has been increasing its pressures on Israel to restore relations with Turkey to supply gas from Israeli Mediterranean fields in the future, to compensate for the losses from Russian-controlled sources.

  It is even possible that the U.S. may even seek a viable solution to the Turkish military occupation of the northern 37 percent of Cyprus since 1974 (unlike the Turkish-biased 2004 Annan Plan), in order to get Cyprus – a strategic partner with Israel, Greece, and Egypt on the gas fields – to go along with the U.S. plan to get Mediterranean gas to Turkey to save it from the Russian sanctions.

  

  

  

  

  

• "The Islamic Rape Of Europe" – A Polish Magazine's Shocking Cover

  You would have thought that if there was any one event that could turn Europeans against the notion that the EU is capable of accommodating the millions of asylum seekers fleeing the war-torn Mid-East it would be a terrorist attack on a major European capital.

  As it turns out, sentiment towards refugees was remarkably resilient in the wake of the Paris attacks. Sure, France closed its borders, but by and large, it appeared that Europeans viewed the attacks as a reminder of why people were fleeing Syria and Iraq rather than as emblematic of what they would ultimately export to Western Europe.

  But sentiment did eventually sour. Not due to a terrorist attack, but rather due to a wave of sexual assaults on New Year’s Eve.

  Women gathered in the city center in Cologne, Germany reported being groped and robbed by “gangs” of Arabs, and once reports of the attacks made international headlines, victims came out of the woodwork as allegations poured in from Austria to Finland, to Sweden where several prominent newspapers alleged a vast coverup of incidents that allegedly took place at a youth festival in central Stockholm’s Kungsträdgården last August.

  The revelations have sparked a massive backlash against refugees and have also served to whip certain segments of the population into a nationalistic furor that now threatens to upend the political establishment in a number of European countries.

  “We have seen what they are capable of. They are testosterone bombs,” far-right Dutch politician Geert Wilders said last month. “It’s sexual terrorism, a sexual jihad,” he added.

  Now, in what will likely go down as one of the most politically incorrect sets of images in recent memory, wSieci (a conservative Polish magazine) has run a cover story entitled “The Islamic Rape of Europe.” Here are the rather edgy visuals:

  

  

  Make no mistake, we certainly understand Europe’s frustration with what, if the allegations are true, are a series of deplorable attacks and with the ineptitude officials have shown when it comes to tackling the bloc’s refugee crisis.

  But we can’t help but wonder whether it occurred to wSieci that Syria and Iraq (where the refugees are coming from) have been getting “raped” by the West and its regional allies for more than a decade. Metaphorically speaking of course.

  

  

  

  

  

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• Russia's Trap: Luring Sunnis Into War

  Submitted by Burak Bekdil via The Gatestone Institute,

  • Washington should think more than twice about allowing Turkey and Saudi Arabia, its Sunni allies, militarily to engage their Shiite enemies in Syria. Allowing Sunni supremacists into a deeper sectarian war is not a rational way to block Russian expansion in the eastern Mediterranean. And it certainly will not serve America's interests.

  • Turkey and Saudi Arabia are too weak militarily to damage Russia's interests. It is a Russian trap — and precisely what the Russians are hoping their enemies will fall into.

  After Russia's increasingly bold military engagement in war-torn Syria in favor of President Bashar al-Assad and the Shiite bloc, the regional Sunni powers — Turkey and its ally, Saudi Arabia — have felt nervous and incapable of influencing the civil war in favor of the many Islamist groups fighting Assad's forces.

  Most recently, the Turks and Saudis, after weeks of negotiations, decided to flex their muscles and join forces to engage a higher-intensity war in the Syrian theater. This is dangerous for the West. It risks provoking further Russian and Iranian involvement in Syria, and sparking a NATO-Russia confrontation.

  After Turkey, citing violation of its airspace, shot down a Russian Su-24 military jet on Nov. 24, Russia has used the incident as a pretext to reinforce its military deployments in Syria and bomb the "moderate Islamists." Those are the Islamists who fight Assad's forces and are supported by Turkey, Saudi Arabia and Qatar. The Russian move included installing the advanced S-400 long-range air and anti-missile defense systems.

  Fearing that the new player in the game could vitally damage their plans to install a Sunni regime in Damascus, Turkey and Saudi Arabia now say they are ready to challenge the bloc consisting of Assad's forces, Russia, and Shiite militants from Iran and Lebanon.

  As always, Turkish Prime Minister Ahmet Davutoglu spoke in a way that forcefully reminded Turkey-watchers of the well-known phrase: Turkey's bark is worse than its bite. "No one," he said on Feb. 9, "should forget how the Soviet forces, which were a mighty, super force during the Cold War and entered Afghanistan, then left Afghanistan in a servile situation. Those who entered Syria today will also leave Syria in a servile way." In other words, Davutoglu was telling the Russians: Get out of Syria; we are coming in. The Russians did not even reply. They just kept on bombing.

  Will direct military involvement in Syria by Turkey and Saudi Arabia spark a NATO-Russia confrontation? Pictured: Russian President Vladimir Putin with Turkish President Recep Tayyip Erdogan (then prime minister), meeting in Istanbul on December 3, 2012. (Image source:kremlin.ru)

  Turkey keeps threatening to increase its military role in Syria. Deputy Prime Minister Yalcin Akdogan pledged that Turkey will no longer be in a "defensive position" over maintaining its national security interests amid developments in Syria. "Can any team," he said, "play defensively at all times but still win a match? … You can win nothing by playing defensively and you can lose whatever you have. There is a very dynamic situation in the region and one has to read this situation properly. One should end up withdrawn because of concerns and fears."

  Is NATO member Turkey going to war in order to fulfill its Sunni sectarian objectives? And are its Saudi allies joining in? If the Sunni allies are not bluffing, they are already giving signals of what may eventually turn into a new bloody chapter in the sectarian proxy war in Syria.

  First, Saudi Arabia announced that it was sending fighter jets to the Incirlik air base in southern Turkey, where U.S. and other allied aircraft have been hitting Islamic State strongholds inside Syria. Saudi military officials said that their warplanes would intensify aerial operations in Syria.

  Second, and more worryingly, Turkish Foreign Minister Mevlut Cavusoglu said that Turkey and Saudi Arabia could engage in ground operations inside Syria. He also said that the two countries had long been weighing a cross-border operation into Syria — with the pretext of fighting Islamic State, but in fact hoping to bolster the Sunni groups fighting against the Shiite bloc — but they have not yet made a decision.

  In contrast, Saudi officials look more certain about a military intervention. A Saudi brigadier-general said that a joint Turkish-Saudi ground operation in Syria was being planned. He even said that Turkish and Saudi military experts would meet in the coming days to finalize "the details, the task force and the role to be played by each country."

  In Damascus, the Syrian regime said that any ground operation inside Syria's sovereign borders would "amount to aggression that must be resisted."

  It should be alarming for the West if Turkey and Saudi Arabia, two important U.S. allies, have decided to fight a strange cocktail of enemies on Syrian territory, including Syrian forces, radical jihadists, various Shiite forces and, most critically, Russia — all in order to support "moderate" Islamists. That may be the opening of a worse disaster in Syria, possibly spanning over the next 10 to 15 years.

  The new Sunni adventurism will likely force Iran to augment its military engagement in Syria. It will create new tensions between Turkey-Saudi Arabia and Iraq's Shiite-dominated government. It may also spread and destabilize other Middle Eastern theaters, where the Sunni bloc, consisting of Turkey, Saudi Arabia and Qatar, may have to engage in new proxy wars with the Shiite bloc plus Russia.

  Washington should think more than twice about allowing its Sunni allies militarily to engage their Shiite enemies. This may be a war with no winners but plenty of casualties and collateral damage. Allowing Sunni supremacists into a deeper sectarian war is not a rational way to block Russian expansion in the eastern Mediterranean. And it certainly will not serve America's interests.

  Turkey with Saudi Arabia are too weak militarily to damage Russia's interests. It is a Russian trap — and precisely what the Russians are hoping their enemies will fall into.

  

  

  

  

  

• Visualizing America's Shocking Defense Spending

  Wouldn’t it be a strange world to live in if 50% of military spending was paid for by just 5% of the population? Sometimes truth is stranger than fiction.

   

  

  Courtesy of: Visual Capitalist

   

  Every year, the United States government spends the equivalent of $3,300 for each working citizen on its military budget. In aggregate, this grand total of $610 billion in defense spending amounts to about half of the dollars globally spent on the military.

  With $216 billion spent per year, China has the next largest budget by far. But, to get to a number even close to U.S. spending, the military budgets of China, Russia, Saudi Arabia, India, Japan, United Kingdom, and France would have to be added together.

  From another perspective, the amount of annual defense spending per working person in the U.S. is higher than the income per capita of 70 countries, including places such as Morocco, Nigeria, Nicaragua, India, and Ukraine.

  This means that if somehow the people of Nicaragua were taxed 100% with all money going to defense, it would only amount to a budget 1.8% of the size of America’s.

  Source: Visual Capitalist

  

  

  

  

  

• The Mainstream Media Wants Marco Rubio To Be Your Next President

  Submitted by Neal Gabler via TheAntiMedia.org,

  So here is how you play the media like an accordion.

  First, you deliver a debate performance so notably bad, so mechanical and unthinking, that you have everyone buzzing about it, even those in the media who gush over you. Then you take responsibility for being awful because, after all, you don’t want to give the impression that you might not really be responsible for uttering the words you uttered – four times.

   

  Then you invite a bunch of reporters on your campaign plane to show what a personable fellow Marco Rubio is, how unrehearsed and natural, and they take the bait, basically writing mash notes about how unrehearsed and natural you are. Note Sean Sullivan of The Washington Post: “His hour-long charter flight interview also did not begin with an emphasis on his ‘new American century’ theme, as is often the case. Instead, it started with Twix bars: Rubio wanted to demonstrate how cold and hard they were after explaining at breakfast that he had cracked a molar biting into one.” What a normal, unrobotic guy!

   

  And then the piece de resistance. You don’t repeat yourself mindlessly at the next debate. You give exactly the same kind of debate performance you gave before Gov. Chris Christie called you out, sounding like a polished kid in a high school debate club. And guess what? Surprise of surprises, the media declare you the winner because you didn’t make the same idiotic mistake you made the last time out. Chris Cillizza of the Post found him “thoughtful, nuanced and convincing.” (Whatever else one might say about them, nuanced is about the last thing any of these Republicans is.) The reliable Republican booster, Jennifer Rubin, in the same paper called his performance a “strong comeback.” CNN: “Rubio turned in a notably better performance than he did the last time.” Charles Krauthammer: “I think he was number one, Rubio.” And, best of all, from the Washington Examiner: “The narrative coming out of this debate will be about Rubio redeeming himself.”

  Exactly. The narrative the press comes away with – the narrative they just happen to be writing — is that Rubio is back. But, let’s face it. He isn’t back because he was so brilliant last Saturday night, wielding some sort of rapier wit or intellectual superiority or a plethora of ideas. The New York Times, which hasn’t had much of a Rubio crush, save for a small post-Iowa lapse, found him lackluster. No. He’s back because the media desperately need him to come back to save the Republic from Trump and Cruz. The media, who are usually just content to stir up some trouble so that they can cover it, have got a horse in this race, and they are going to keep whipping him to the finish line, even after he stumbles.

  It’s enough to give you whiplash. Two weeks ago, the media cheered Marco Rubio’s third-place finish in the Iowa caucuses – yes, third place – as a stunning victory. On Tuesday, NBC Nightly News declared “Rubio Rising.” Before the Iowa vote, The New York Times reported, “A Resurgent Marco Rubio Sprints to the Finish in Iowa” and then, after the vote, bannered, “Marco Rubio Sees Bounce in Latest New Hampshire Poll.”

  Two days later it ran an idolatrous piece (that aforementioned lapse) which would turn into a major goof considering what was to come: “Once Cautious in Campaign, Rubio Shows More of His Personal Side.” The AP also gushed: “Rubio Could See Fortunes Rise From Iowa Finish.” “Rubio Soars,” wrote Washington Post columnist Jennifer Rubin. CNN’s Alex Conant explained, “Why Marco Rubio is the Real Winner.” Bill O’Reilly declared “Rubio a big winner.” Did I mention he finished third with 23% of the vote?

  Then came New Hampshire, where Rubio finished fifth behind even the political zombie Jeb Bush, prompting Nick Baumann of The Huffington Post to crack sarcastically: “Marco Rubio Was the Real Winner of the New Hampshire Primary.” And now? He’s baaaack

  Before we get to the debate debacle in which New Jersey Gov. Chris Christie eviscerated Rubio and derailed his candidacy (at least temporarily), you have to understand why the media seem to love Rubio, and why they were willing to elevate him to frontrunner status when he was barely registering in the polls they so worship, not only because it helps explain Rubio but also because it helps explain the media.

  

  It was back in February 2013 that TIME magazine ran its now-famous cover of Rubio, staring confidently into the camera, with “The Republican Savior” slathered over him in big yellow letters. Here is how Michael Grunwald’s article began:

  “Oriales Garcia Rubio knows how it feels to want more. When she was a girl in central Cuba in the 1930s, her family of nine lived in a one-room house with a dirt floor. Her dolls were Coke bottles dressed in rags. She dreamed of becoming an actress. Instead she married a security guard, moved with him to the U.S. and found work as a hotel maid. Her husband got a job as a bartender while starting a series of failed businesses – a vegetable stand, a dry cleaner, a grocery. They never had much. But their house had a real floor. Their daughters had real dolls. They sent all four of their children to college to chase their own dreams.”

  No, that’s not a Rubio press release. That was actually written by a journalist. But you can see the appeal. It is a stirring if somewhat stale narrative, and the media are narratively driven. It panders to American exceptionalism, and the media are, after all, in the pandering business. And it turns Rubio into a star, and the media are into the star making.

  None of this would matter, of course, if Rubio didn’t also have the aesthetic desiderata the media adore. Despite the saying that politics is show business for ugly people, the media recognize the role of aesthetics. Mitt Romney based his entire political career on them. Rubio was young, which meant he was new – an iPhone 6 in an iPhone 5 business. He had “boyish good looks” according to Grunwald. He knew how to give a good speech – “a compelling speaker,” said Grunwald. He was Hispanic in a party that had pretty much disdained Hispanics even though that demographic was expanding. And he had seemed to strike a balance between idealism and pragmatism – between the aspirational, as pundits like to call it, and the political.

  In short, he was a designer candidate – practically hand-tooled to fill the holes in the Republican demographic, which is why he was allowed to jump the line to get to the presidency.

  And then there was the symmetry. Rubio is often called the GOP’s Barack Obama, given their ages and the fact that both were first-term senators at the time of their candidacies. They each have minority status, they delivered well-received keynote speeches at their party conventions, and they were ambitious enough not to wait their turn. (Of course the dissimilarities are far more striking.)

  The mainstream media love this sort of symmetry – Rubio is Obama, Sanders is Trump, the Clintons are the Bushes — presumably because it allows them to appear balanced and thus defend themselves from the bias flak they invariably take. It is the Newton’s Law of political coverage that for every action in one party, there is an equal and opposite reaction in the other, though these are usually false equivalencies that have served to make the Republican Party seem more rational than it really is. Denial of climate change? Well, Democrats want to stop coal-burning plants. So there!

  For Rubio, symmetry had another advantage besides making him seem less extremist. It made him the youthful idealist of the party, its unifier, and blessed him with a sense of Obama-like inevitability.

  And  that was before the 2016 race began to unfold. No one suspected in the early going that Donald Trump, a kind of novelty candidate, would actually gain traction, much less become a serious contender. And though the media knew that Cruz would have a formidable advantage in his evangelical base, no one took him seriously as the actual nominee for the simple reason that just about everyone in the party except the extremist rank and file hated him.

  Rubio’s only real competitor for what pundits call the “moderate lane” way back in the fall was Jeb Bush, and he was a tired one at that. Once the race began, however, and Trump and Cruz attracted their constituencies, while Jeb foundered, the Florida senator became not only the Chosen One but also the Great Hispanic Hope who, we are told endlessly, is the candidate who can and must stop Trump and Cruz from getting the nomination. Among party stalwarts, Nate Silver’s FiveThirtyEight has him with a commanding lead in the endorsement poll.

  It is certainly no coincidence that the media, who loathed Trump and didn’t like Cruz much either, saw Rubio as their kind of candidate, too. That is precisely the argument New York Times’ columnist Ross Douthat made back in October when he predicted Rubio would be the GOP nominee. The party had no choice, he wrote, since it couldn’t possibly nominate Trump (or Carson back then) and Cruz had that likeability problem. And don’t forget this when you consider why Rubio is such a media favorite: whereas Trump and Cruz don’t need the media, Rubio needs them desperately. With his thin resume, they give him credibility. The media enjoy that power. They like being kingmakers, or even savior-makers.

  The new narrative of the campaign season, then, was that Trump might pull in the “angries” and Cruz the “crazies,” but that one establishment candidate would emerge to stop them and that Rubio was the most likely to do so, which is why he got such an outpouring of media attention after Iowa. Not incidentally, this also plays into one of the few demonstrable media biases. The mainstream press likes moderates, or at least those they perceive to be moderates, much better than it likes extremists or alleged extremists. Presumably it fits the press’s self-image both as objective observers and as national stewards, gently guiding the country away from the fringes. Rubio is not a moderate by any means. In fact, he brags that he is the most conservative candidate in the race, and he might not be far off. But in this field, the media have apparently decided he is one because, again, they may feel they have no other choice.

  So there it was – Trump bloviating toward a New Hampshire victory, Cruz lazing his way through the state on his way to Super Tuesday and the South, and Rubio, the fair-haired boy, needing only a second or third-place finish to set the media hearts aflutter. What happened last Saturday night at the Republican debate, with Chris Christie’s perfectly timed attack on Rubio’s authenticity, suddenly changed all that.

  We know now that Rubio committed a huge gaffe by repeating verbatim four times a little speech about Obama deliberately changing America, just as Christie was accusing him of repeating the same rote speeches again and again and again. (It is worth mentioning, since no one seems to have done so, that the substance of Rubio’s charge of Obama being the first president to change the country, which should have been the object of obloquy, is both idiotic and just plain wrong.) But the problem really wasn’t that Rubio was on autopilot. He had been on autopilot throughout the entire campaign. Indeed, Rubio had often been praised by the media for the very thing Christie called him out on. Rubio had “got his message locked down,” according to one reporter. He was “well-spoken” and “articulate” – a “great debater.” In debate after debate, in which he recited his talking points mechanically without any hesitation or evident ratiocination, the pundits declared him a winner.

  What voters didn’t seem to know, and what they certainly weren’t told by the media, is that whenever Rubio appeared, he was regurgitating what he had memorized. If you do a Lexis-Nexis search of the terms “Rubio” and “robot” in major newspapers from January 1 through February 6, here is what you will find: Not once was the term “robot” or “robotic” applied to him.

  Political reporter Jason Zengerle of GQ explained why. “Want to know a dirty little secret about political journalists?” he wrote on his blog after the debate. “A lot of the time, we don’t pay attention to the speeches of the politicians we cover.”

  Yes, they all heard Rubio saying the same things over and over. The father/bartender story, the mother/K-Mart story, the American Dream stuff, etc. etc., etc. – all canned. And, Zengerle goes on: “Even Rubio’s jokes are canned. And Rubio doesn’t merely confine these lines to his stump speech. They unerringly show up in debates and his answers to voters’ questions, as well. In fact, when The New York Times recently published a story about Rubio’s supposedly ‘intimate—and increasingly improvised—glimpses’ into his life in response to voters’ questions [the story cited earlier], at least two of the examples buttressing this dubious claim were well-worn passages from his stump speech.”

  So, many in the press knew. They knew what Christie knew. They knew Rubio wouldn’t, couldn’t, deviate from the script. Why didn’t they tell us? Because they didn’t much care, even if Rubio continuously crossed the line from repetitive to rehearsed to robotic. What’s more, they didn’t think the voters would care either.

  Again, Zengerle of Christie’s criticisms: “It was hard to imagine them striking a chord with voters.” Even after Rubio’s Teddy Ruxpin performance, Byron York of the Washington Examiner wrote that the press coverage of Rubio’s debate flub “showed again how the concerns of the media commentators are sometimes far from the minds of the actual voters.” And, York didn’t seem to realize, sometimes they aren’t. The press couldn’t imagine that voters might actually want candidates who were thoughtful and authentic and intellectually nimble.

  What the MSM did not think worthy of reporting, however, the blogosphere did report. (In fairness, one local New Hampshire reporter, Erik Eisele of The Conway Daily Sun, wrote on December 23, after spending twenty minutes with Rubio for an editorial interview, that “it was like someone wound him up, pointed him towards the doors, and pushed play.”) Go back into the Twitter-sphere – way back to last year – and you’ll find hundreds if not thousands of tweets talking specifically about Rubio’s repetitions, about his canned speeches, about his avoiding answering press questions, about his obsession with his talking points. The tweeters knew, many of them, because they had seen him doing it during the debates – the very same debate performances the media lauded. And when Christie, who may very well have been following the lead of the Twitter-sphere, lunged, Twitter erupted. (An argument actually ensued over whether Marcobot was a better moniker for Rubio than Rubiobot.) It took Christie to do the work the media should have been doing. But it probably took the blogosphere and social media to poke Christie.

  And then, and only then, the media pounced, not because they observed something they hadn’t previously seen, but because, I guess, they didn’t want to be left behind by the social media. (It is hard to keep a tally of how many YouTube views of the Rubio repetitions there have been; I lost count at about two million.) Thus did Rubio’s standard operating procedure become his Howard Dean Scream or his Rick Perry Brain Freeze.

  But there were differences between his gaffe and theirs, not the least being that Rubio’s was not an aberration; it was his campaign. The media didn’t need any prompting to humiliate and ultimately destroy Dean and Perry because the media didn’t particularly like them. Dean’s media narrative was that he was a lucky, somewhat daffy, beneficiary of a leftish tilt in the Democratic Party after the Iraq War, and Perry’s was that he was a dunce. Their actions only confirmed the pre-existing narratives, and the media were only too happy to amplify their missteps in print and on the air. (When you come right down to it, Dean’s exuberance, which turned out to be a mic problem not a candidate problem, or Perry’s forgetfulness really weren’t much of anything, except for confirming the media narrative.)

  On the other hand, the media liked Rubio. They were the ones who had helped propel him. They didn’t want to pile on. But when Christie underlined Rubio’s mindless parroting, he not only struck at one of the struts of Rubio’s alleged strength – that well-spokenness – and made him look foolish, he made the media look foolish, too. Rubio turned out to be a confirmation of exactly what Christie had said he was – a “student council president,” an empty suit, a face-man. As Ross Douthat, who had predicted Rubio’s eventual victory, tweeted that debate night: “I’ve watched Rubio for a long time, always thought that critiques of him as a talking points robot were way overblown. But oh dear.”

  You might have thought Rubio would be finished. And If Marcobot had become a meme, like the Scream or the Brain Freeze, he would indeed have become political toast. Now we know that is not going to happen. The only story the media like better than burying a candidate is resurrecting one, and Rubio had already been anointed the savior. What’s more, the GOP establishment and the media still need their unifier, the hero to oppose the villains Trump and Cruz, and there aren’t too many candidates left from whom to choose, only Rubio, Bush and Kasich. And Rubio, for his part, has a Dracula candidacy. You get the feeling you’ll have to put a stake through its heart to stop it.

  Trying to save himself, Rubio was contrite on election night in New Hampshire. He said he accepted responsibility for what had happened and promised he wouldn’t do it again, though exactly what that meant was hard to parse. Of course, he was responsible. Who else could be? And what wouldn’t he do again? Repeat himself word for word four times while he was being told he kept repeating himself? But no sooner had Rubio issued his mea culpa than Van Jones, one of CNN’s talking heads, pronounced himself impressed, and said it “took a lot of character” for Rubio to do what he had done. Later that week, on the PBS NewsHour, Mark Shields said the same thing. He actually praised Rubio for taking responsibility.

  So the rehabilitation had begun almost as soon as the New Hampshire debate ended, and it was pre-ordained that as soon as the South Carolina debate ended, the media would announce that Rubio is back on the ascent — a self-fulfilling prophecy, if ever there was one. After all, the media were the ones writing the script. It is going to take a lot more than self-inflicted wounds to fell this candidacy. It is going to take an objective media. Good luck with that.

  

  

  

  

  

• 50% Of Canadians Say They Are Within $200/Month Of Being Unable To Pay Their Bills

  It was just last month when we profiled Canada’s “other problem”: record high household debt.

  Canada is struggling to cope with falling crude prices which have put enormous amounts of pressure on some parts of the country, most notably Alberta, where suicide rates are on the rise, as is property crime and foodbank usage.

  Amid the malaise, households are also being pressured by persistent CAD weakness – which is of course a symptom of falling crude. The currency’s decline has driven up prices for things like fresh fruits and vegetables, 75% of which Canada imports. That puts an extra burden on households that are already laboring under record debt.

  

  As we showed three weeks ago, household debt relative to disposable income is sitting at 171% in Canada meaning that for every $100 in disposable income, households have debt obligations of $171. That’s the highest figure for any G7 country.

  

  That’s disconcerting for any number of reasons. As we wrote, “this would be bad enough in a favorable economic environment with a benign outlook for rates, but it’s a veritable nightmare when the economy is sliding headlong into recession and central planners are hell bent on trying to normalize policy some time in the next five or so years.”

  In other words, the outlook for Canada’s economy isn’t good, and that means joblessness is likely to rise going forward…

  

  But interest rates have virtually nowhere to go but up – at least in the medium to long-term. Sure Stephen Poloz may cut rates one or two more times to try and help the oil patch avert certain insolvency, but at 50 bps, there’s only so much lower Canada can go unless the BoC intends to experiment with NIRP. 

  This means that households could face the disastrous prospect of rising rates in an unfavorable economic environment. Think a monetary policy mistake like hiking into a recession can’t happen? Just look at what the Fed did in December. Throw in the fact that many families are overburdened thanks to the astronomical cost of housing in places like Vancouver and Toronto and one is inclined to think that some Canadian households may find themselves in quite a bit of trouble going forward. 

  But don’t take our word for it, just ask Canadians, half of whom said in response to a new Ipsos Reid survey that they are within $200 per month of not being able to pay their bills and make their debt payments.

  “Ipsos Reid conducted the poll about a week after the Parliamentary Budget Office issued a report on Jan. 19 that said Canada has seen the largest increase in household debt relative to income of any G7 country since 2000,” The Calgary Herald writes, adding that “31 per cent of respondents said any increase in interest rates could move them towards bankruptcy“.

  The survey also found that 25% of Canadians are already unable to cover their bills and service their debt.

  So what do you do if you’re the BoC? Cut rates to boost the economy and rescue the oil patch at the risk of driving the cost of imported goods through the roof, thus pressuring consumer spending and thereby creating another headwind for the economy? Or hike to bolster the loonie at the risk of tanking not only the oil patch but also the 31% of the country that say they’ll slip into bankruptcy it rates rise?

  Your guess is as good as ours.

  

  

  

  

  

• "We're Voting With Our Middle Finger": South Carolina Explains Why It Will Pick Trump

  Earlier today, we noted that going into the South Carolina primary, Donald Trump is sitting on a commanding lead not just in the state, where he’s up 17 points, but nationally, where his lead over Ted Cruz is an even larger 20 points.

  Perhaps most disconcerting for Cruz, Trump has a nine point national edge among white evangelicals, a voter base the Texas senator should by all rights dominate. Trump is also only 3 points behind Cruz among voters who identify as “very conservative.”

  

  In short, the Teflon Don is living up to the hype and while everyone was laughing last summer when Trump declared his candidacy, the only one who is laughing now is Trump himself.

  Some were surprised that the latest GOP debate – which appeared at times as though it might devolve into a fist fight – didn’t dent Trump’s numbers. We’re not sure why the shock.

  Quite a bit of what Trump said at the debate was true. America shouldn’t have gone to Iraq. There were no weapons of mass destruction. Jeb Bush’s brother didn’t prevent 9/11. All of those statements – which drew boos from a crowd Trump claimed was stacked with Bush supporters – pale in comparison to virtually everything else the bellicose billionaire has said on the campaign trail. We’re talking about a candidate that called immigrants rapists, says he will demand that Mexico pay for a wall on the border, said John McCain isn’t a war hero, and called for a ban on Muslims. And people are somehow surprised that a few slightly controversial comments about foreign policy didn’t sink him in the polls? The most amusing thing about the debate – well, besides how utterly absurd it was – was that Trump at times appeared to have a better grip on foreign policy than anyone else on the stage.

  In any event, The LA Times is out with a new piece that explores why South Carolina voters are overwhelmingly coming out in support of Trump. Excerpts are presented below, but John Baldwin, a used-car dealer from Greenville summed up the mood quite succinctly: “We’re voting with our middle finger,” he declares. We imagine Bernie Sanders’ supporters would say the exact same thing, if asked. A message to Washington’s entrenched political aristocracy: Americans have just given you the finger. Literally.

  *  *  *

  From The LA Times

  Robert Bowers, a 50-year-old debt collector, conceded that Donald Trump may have gone “overboard just a little bit” when he attacked President George W. Bush, saying he lied about weapons of mass destruction in Iraq and failed to stop the Sept. 11 attacks.

  But that did not stop Bowers, of Fountain Inn, S.C., from putting on a cap with Trump’s “Make America Great Again” slogan and walking through an icy cold parking lot so he could crowd into a raucous Trump rally Monday night.

  “I hope he drops an F-bomb,” one fan said to another on the way into the rally.

  During past controversies, Trump’s supporters have stuck with him, believing his unvarnished criticism of immigrants, Muslims, women and Sen. John McCain’s war record shows he is willing to take on establishment interests and unwilling to bend to what he calls political correctness.

  “We’re voting with our middle finger,” said John Baldwin, a used-car dealer from Greenville.

  Baldwin and his wife were passing out stickers and signs calling Trump’s supporters the “silent majority,” a phrase that dates to President Nixon and is used by Trump to assert that he is giving voice to beliefs that others are afraid to say out loud.

  Betty Carter also didn’t like the way Trump went after former President Bush. But she’s still sticking with him.

  “He needs to know where he is: He’s in Bush country,” she said waiting in a long line to see him Tuesday afternoon at Riverview Park in North Augusta, where she moved more than 15 years ago to care for her grandkids. “I didn’t like it, but I’m still voting for him.”

  Monday night’s rally was typical of Trump’s performances, which feel like arena rock concerts as much as political events. Thousands packed into the TD Convention Center. Many stood along the sides of the cavernous convention hall when the seats ran out. Others were sent to an overflow room or turned away. Giant screens lit up Trump’s face; spotlights vacillated in front of the stage; Van Halen music blared.

  “Didn’t you love this last debate?” Trump said to cheers. “They came at me from every angle.”

  “We shouldn’t have gone into Iraq. That was a big mistake because it destabilized the whole Middle East,” Trump said. “Some people say ‘Oh, don’t say that.’”

  “Everything you see right now is an offshoot of that decision,” he added,

  “Saddam Hussein killed terrorists,” Trump said. “He didn’t do it politically correct. He found a terrorist, they were gone within five seconds, OK. With us, we find a terrorist, it’s going to be 25 years and a trial.”

  *  *  *

  We’re reasonbly sure Trump has no idea that Islamic State’s top ranks are almost entirely comprised of former Baathists.

  But in this case we’ll forgive his ignorance because when he says that everything wrong in the Mid-East today is “an offshoot” of the decision to invade Iraq, he is 100% correct.

  

  

  

  

  

• Guest Post: Abolish The Supreme Court

  Submitted by Ryan McMaken via The Mises Institute,

  The current frenzy over the vacancy on the Supreme Court in the wake of Scalia’s death should be enough to make it clear to even the most naïve observer that the Supreme Court is a partisan and political institution, and nothing like the group of disinterested non-political sages that we are supposed to believe the court to be. As I wrote in “The Mythology of the Supreme Court,” the idea of the court as a group of jurisprudential deep thinkers is a tale for little school children:

  This view of the court is of course hopelessly fanciful, and the truly political nature of the court is well documented. Its politics can take many forms. For an example of its role in political patronage, we need look no further than Earl Warren, a one-time candidate for president and governor of California, who was appointed to the court by Dwight Eisenhower. It is widely accepted that Warren’s appointment was payback for Warren’s non-opposition to Eisenhower’s nomination at the 1952 Republican convention. The proposition that Warren somehow transformed from politician to Deep Thinker after his appointment is unconvincing at best. Or we might point to the famous “switch in time that saved nine” in which Justice Owen Roberts completely reversed his legal position on the New Deal in response to political threats from the Franklin Roosevelt administration. Indeed, Supreme Court justices are politicians, who behave in the manner Public Choice theory tells us they should. They seek to preserve and expand their own power.

  In practice, the Supreme Court is just another federal legislature, although this one decides matters of public policy based on the opinions of a mere five people, most of whom spend their time utterly divorced from the economic realities of ordinary people while cavorting with oligarchs and other elites.

  The court’s legislative power is matched by its political power since every vacancy on the court is a gift to the dominant political parties. Every time a justice dies or retires, the event provides political parties with yet another opportunity to issue hysterical fundraising letters to the more monied supporters and demand unqualified support from the rank and file while claiming the SCOTUS-appointment process makes the next election “the most important ever.”

  It seems to bother few, however, that we live in a political system where the most important political and economic matters of the day — or so we are told — are to be decided by a tiny handful of people, whether they be the chairman of the Federal Reserve, five Supreme Court justices, or a president with his “pen and phone.”  

  Just as it is supremely dysfunctional for a major economy to hang on every word of a central bank chairman, so too should it be considered abnormal and unhealthy for a country of 320 million people to wait with bated breath for the latest prognostications of nine friends of presidents in black robes from their palatial offices in Washington, DC.

  The Court Is Just a Group of Nine Politicians in Fancy Robes

  We’re told by pundits and politicians from across the spectrum how indispensable, awe-inspiring, and absolutely essential the Supreme Court is. In truth, we should be looking for ways to undermine, cripple, and to generally force the Court into irrelevance.

  With the expected eulogies for Scalia among his supporters, we’re being berated with the idea that Scalia was an “originalist” who stuck doggedly to the clear text of the Constitution as imagined by its authors. In truth, Scalia was no originalist, since, if he had been one, he would have rejected the whole notion of judicial review, which is itself a total innovation and fabrication dreamed up by Chief Justice John Marshall. Absolutely nowhere does Article III of the Constitution (the part that deals with the court, and is half a page long) give the court the power to decide on what can be legal or not in every state, town, village or business of the United States. Moreover, as Jeff Deist notes today, the Court’s powers we so blithely accept as fait accompli are mostly made up:

  • The concept of judicial review is a fabrication by the Court, with no basis in Article III. 
  • Constitutional jurisprudence is not constitutional law.
  • The Supreme Court is supreme only over lower federal courts: it is not supreme over other branches of government.
  • Congress plainly has constitutional authority to define and restrict the jurisdiction of federal courts.

  A Tool of Centralization of Power

  But don’t look for many in Washington to admit this any time soon. The Supreme Court serves a very important function in centralizing federal power in DC and in the hands of a small number of senior federal personnel. And how convenient it is for members of the ruling classes to influence and access these guardians of the federal government's intellectual respectability: the members of the court, presidents, and senators are all generally all members of the same socio-economic class, send their children to the same elite schools, and work and live together in the same small social circles. At the same time, this closed social and professional circle also helps to diminish the influence of those outside the Washington, DC bubble. 

  The Court in Its Present Form Could be Abolished Overnight

  If it wished to, Congress could overhaul the Court this afternoon. Nothing more than simple legislation would be necessary to radically change or completely abolish the lower federal courts.  Congress could decide what topics fall under the lower courts' jurisdiction, and thereby limit the Supreme Court’s jurisdiction as well. Congress could also decide that the Supreme court is made up of one justice or 100 justices.

  Indeed, since the Supreme Court is nothing more than a legislature, why not make it one? Why not make SCOTUS a body of 50 “judges,” with the understanding that the Senate will not ratify any appointment which does not hold to the rule that each state gets a judge on the Court? Politics and ideology prevent this, but no Constitutional provision does. 

  “But the court would just declare all those reforms to be unconstitutional,” some might say. That is true, although to that, we need only paraphrase the (possibly apocryphal) words of Andrew Jackson: “the Court has made its decision. Now let them enforce it.”

  The Court need not worry, though, since its can nearly always count on the support of the President and the Congress precisely because the Court serves an essential role in augmenting the power of the other branches of the federal government.

  The Solution: Mock the Court and Seek to Undermine It

  Far too often we’re told to revere the Court simply because it is enshrined in the Constitution. Slavery is enshrined in the Constitution too. Need we revere that?

  Even if the Supreme Court’s current form were actually Constitutional (which, again, it is not) it would still be a obsolete relic of a distant age. The idea that the Supreme Court could somehow address all the legal issues arising in a vast confederation was absurd from the outset, but all the more so now.Recognizing this, the authors of the Constitution created the Court as a body designed to address only conflicts between states, or between individuals of different states. In other words, it was supposed to head off conflicts that could lead to crises between state governments; it was designed to prevent wars between states. Whether or not your local confectioner should bake a cake for gay couples wasn’t exactly at the top of the agenda.

  Even in the late 18th century though, the Court's status as a tiny elite club required the creation of the myth that the court was somehow "apolitical" which was buttressed by the creation of lifelong tenure for judges, no matter how senile or out of touch. Otherwise, prevailing ideas of representation in government at the time would have never allowed for a political institution like the Court to gain acceptance. This can be illustrated by the fact that in 1790, Congress was far more "democratic" than it is now, in the sense that there were far more representatives per person than today. Elections in many state governments were annual affairs, and legislative districts very small by today's standards, ensuring that your elected officials lived in close proximity to you and were physically accessible. 

  In contrast to this, in 1790, there was one Supreme Court judge for every 600,000 Americans.  Today, there is one Supreme Court judge for every 35 million Americans. Not even the Soviet politburo managed that level of non-representation. 

  On the other hand, there is no reason why a council of state governments could not be employed to address issues of conflicts between states, and the states (or even small portions thereof) — not nine political appointees — should perform the function of judicial review. This isn't the 18th century.  Having delegates from a variety of diverse and geographically varied states remain in constant contact and regularly meet is by no means a logistical impossibility. 

  Even worse, many of the justices haven't had a real job in decades and have no idea how reality actually works. It's unlikely that the older members of the Court could even use Google to find a phone number on the internet, let alone understand the complexities of  how modern people run their businesses, raise their families, or function in every day life. The Court is largely the domain of geriatrics who are paid generously to make complex judgments about a world they rarely engage and can scarcely understand.

  If Americans want a government that's more likely to leave them in peace, they should ignore the pleas to elect another politician who will just appoint another donor or political ally to the court. Instead, state and local governments should seek at every turn to ignore, nullify, and generally disregard the rulings of the Court when they run counter to local law and local institutions where — quite unlike the Supreme Court — average citizens have some actual influence over the political institutions that affect their lives.

   

  

  

  

  

  

• Yuan Extends Slide As China Weakens Fix By Most In 5 Weeks

  It appears last night’s terrible trade data has reawoken the beats of Chinese devaluation. Amid offshore Yuan’s slide since China came back from vacation, PBOC fixed the Yuan 107 pips weaker against the USD – the biggest ‘devaluation’ since the first week of January. Chinese stocks are opening modestly lower (despite exuberant panic-buying in Japan at the open which spiked Nikkei 200 points).

  The biggest Fix weakening since the first week of January…

  

   

  as Offshore Yuan extends its post-holiday decline…

  

   

  This has pushed CNH “cheap” once again to CNY as outflows rise and shorts rebuild positions.

   

  Charts: Bloomberg

  

  

  

  

  

• "Venezuela’s CDS Is Now At The Same Level As Greece’s Three Months Before Its Default"

  In addition to being a hyperinflating, socialist banana republic with a devastated economy Venezuela has another problem: debt,  of which it has some $70 billion with $9.5 billion due this year. It also has $15.4 billion in foreign reserves, of which two-thirds or around $10 billion, are held in gold bars, which as we said last week, “limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.”

  Furthermore, with Venezuela oil prices in the low $20s, it is unclear if PDVSA can even cover its costs, let alone save up cash for debt repayment.

  And while Venezuela recently enacted another gold swap this time with Deutsche Bank to allow it to monetize its gold, it remains to be seen if the local population which has so far taken all the punishments unleashed by the Maduro reign stoically, will stand idly by as the ruling regime quietly liquidates its last remaining assets.

  But while Venezuela’s upcoming default is not exactly news to anyone, the question remains “when” will it happen. Yes, the time is drawing close, but how close?

  Today we show one attempt at an answer, coming morbidly enough, from the very bank which will be holding Venezuela’s gold as part of the country’s gold swap – Deutsche Bank.

  This is what DB said:

  Keep an eye on EM credit: Venezuela’s CDS spread has risen above 9,500bps, like Greece’s in 2011 and our EM economists worry that a “Venezuela bond default has moved closer”. Venezuela has only about $70bn of external debt, according to the BIS, but a default would increase pressure on other commodity exporters, further adding to the general market stress

  The bottom line: “Venezuela’s CDS spread is now at the same level as Greece’s three months before its default” which is the strongest hint yet on how long the troubled socialist paradise has left.

  Visually:

  

   

  So is the reason why Deutsche Bank rushed to do Venezuela’s gold swap, something which would lead to the German bank almost certainly ending up in possession of its physical gold in case of a sovereign bankruptcy, the result of this prediction for a T-minus 90 days before Venezuela’s default? Find out some time in mid May.

  As for another important tangent, if Venezuela indeed defaults, the question then becomes: what will happen to its oil production – will the successor (military) regime pump more or less. That is a question the oil bulls (and bears) better answer quick.

  

  

  

  

  

• Foreign Officials Sell A Record $48 Billion In U.S. Treasurys In December

  There has been much speculation whether foreign official institutions (central banks, SWFs, reserve managers and so on) are selling Treasurys or equities, or both as part of the Quantitative Tightening phenomenon.

  Moments ago, courtesy of the latest TIC data we have an answer: based on the monthly flow report breaking down Treasury transactions between foreign official and private entities, in December the far more important, former, group sold $48.1 billion in US Treasurys: the highest single monthly outflow on record.

  

   

  This was partially offset by a $12.2 billion purchase by Private buyers, however as the chart below shows, on an LTM basis, December saw a total of $20.3 billion in selling, and was the third consecutive month of net selling by foreigners. This was the first such occurrence in 15 years.

  

   

  Finally, for all those curious what China is doing with its US Treasury holdings, using the TIC’s stock data, we find that between China and its offshore trading proxy “Belgium”, China dumped another $41 billion in TSYs, a move which continues to track the decline in its official reserve holdings almost TIC for TIC, pardon the pun.

  

  

  

  

  

  

• Presenting The Most Striking Way Chinese Are Evading Capital Controls

  First it was over-invoicing 'exports' to friends in Hong Kong; then it was Bitcoin, most recently it was buying domain names, and now, the ever-industrious (and increasingly desperate) Chinese have found a new way to beat the government's quasi capital controls… by losing.

  China Law Blog's Dan Harris explains how the Chinese are getting money out of China by losing in Arbitrations…

  File this one under “just when I thought I had seen/heard everything.”

  A month ago (exactly) we wrote about how it is getting a lot tougher to get money out of China. See Getting Money Out of China: What The Heck is Happening? Two weeks later, our own Steve Dickinson was interviewed by Bloomberg for a video piece, entitled, The Problem of Getting Money out of China. In the meantime, our China lawyers are getting a whole host of phone calls and emails from mostly foreigners who want to know (1) whether what their China counter-parties are giving as an excuse for not being able to send funds to invest or buy is true and (2) what can be done to get the funds?

  Some of those callers/emailers want to use us to test some idea/scheme/plan to get money out of China. With all due respect/disrespect, 99 times out of 100, their ideas are either severely flawed and/or likely to lead to jail time.

  But my favorite out of all of them came in through from an “advisor” to a Chinese company and the scheme they wanted to run by me was a plan to have the Chinese company quickly lose an arbitration in the United States. This is what I quickly surmised anyway, but it took me a bit of probing to discern this. Here, very roughly and with changes made to improve blog flow and to camouflage any identifiers (including nationality),  is how our conversation went.

  Australian advisor: Can your firm defend a Chinese company in a U.S. arbitration involving a $3.5 million breach of contract.

  Me: Sure. Not a problem, but that is not going to be inexpensive and we are going to require a large amount be paid upfront.

  Australian advisor: This one is going to be different because both sides will want it to move forward as quickly and as cheaply as possible.

  Me: Okay, that may be what they are saying now, but once these things get started that very well might change.

  Australian advisor: It won’t in this case.

  Me: Okay (while thinking, how many times have I heard someone insist that their matter is the one in a hundred that strays from the norm?)

  Australian advisor: The parties would even be willing to agree on the award.

  Me: Then why do they even need to arbitrate? The fastest, cheapest, easiest thing for them to do would be to enter into a settlement agreement that can be enforced in both China and the U.S. I’m just assuming that the other side is a U.S. company and that is why the arbitration is in the U.S.

  Australian advisor: There are extenuating circumstances.

  Me: Like what. And by the way, do you have the contract with the arbitration provision in front of you right now. What exactly does it say about arbitration? Where is it supposed to be and before what arbitral body? Does it provide for the winner to get its attorneys’ fees?

  Australian advisor: Not exactly. We were kind of hoping to have you draft the arbitration agreement.

  Me:  What? What are you talking about? Now I’m really confused. You cannot have an arbitration unless both parties agree to arbitrate. Are you saying that the contract between these two parties does not provide for arbitration but now the parties have agreed to arbitrate? That’s possible.

  Australian advisor: Yes.

  Me: Okay, what is the name of the other party and who is its lawyer?

  Australian advisor: We were going to ask you to form the American company and represent it too.

  Me: What? I don’t get it. My firm can’t represent both your Chinese company and the opposing party. It just can’t.

  Australian advisor: What if they were really the same party?

  Me: But they’re not.

  Australian advisor: Well, they really are.

  Me: How is that?

  Australian advisor: Because the whole point of this arbitration is to get an award that the Chinese company can show to the Chinese government.

  Me: “Not interested. No way are we going to do this and I really don’t appreciate your having wasted my time. Good-bye.”

  Get it?

  The Chinese company wanted us to represent it in a completely fake arbitration that it would lose so that it could then send $3.5 million to its own U.S. company so that — no doubt — in turn that US company could buy a house somewhere in the United States.

  Other lawyers: you have been warned.

  

  

  

  

  

• The Three Branches Of 'New Normal' US Government

  Presented with no comment.. but a big sigh…

   

  

   

  h/t The Burning Platform

  

  

  

  

• Why Aren't Presidential Candidates Discussing Who They Would Pick For Fed Chairman?

  Submitted by California State Assemblyman Mike Gatto

  Electing the next head of the Federal Reserve

  The large and eclectic field of presidential contenders is in full-out campaign-promise mode, as voters demand positions on everything from ISIS to ethanol.  With the economy so fragile, now might be a good time to seek commitments on who our next president will appoint to the Federal Reserve, and statements on what the proper role of the Fed should be.

  Recent history is too important to ignore. After the Fed lowered interest rates to zero during the recession, it found itself lacking options for further “stimulating” the economy. It therefore began what it called Quantitative Easing (QE), which works more or less as follows: A bank buys a treasury bond for $97 million. Assume this bond matures in one year, and will be repaid at $100 million, or (very roughly) a 3 percent annual interest rate.

  Under QE, the Fed creates new money. In our example, it will create $98 million, to buy this bond. By doing so, the interest rate has decreased to approximately 2 percent. And the bank made an easy profit, risk-free, on top of any commissions. But if the bank fails to lend out those funds, it does little for the economy.

  You might ask yourself why the quasi-governmental Federal Reserve doesn't just buy bonds directly from the Treasury. “No,” they say, “that would be too close to just printing money for the government.” As if using a middleman and generating private profits makes the process significantly more palatable.

  After easing for years, now the Fed seeks to raise rates. Of the available methods, it does not wish to force the government to repay loans, so it rolls over the bonds where possible. It also doesn't want to sell the bonds right back to the banks, which might make it appear they were “churning” – generating transactions to earn fees. And the Fed's typical pre-recession move – controlling the supply of money by soaking up bank reserves – would be ineffective now, since it created so much new money during the last decade.

  So, what will the Fed do? It will offer interest to banks on the funds they hold on reserve. In other words, the Fed will pay banks to let their money stay put, instead of lending it to me and you. The percentages might seem small, but remember, this is risk-free profit, generated on vast sums. If you're questioning these actions – bidding up an asset that private parties own, paying them a commission to buy it, and then paying interest on the money you gave them – you're not alone.

  Now that we've established that QE has profited banks, you might ask what it has done for the overall economy. Recently, certain economists have raised the possibility that it might have actually hurt it. Recall that conventional economics is often bad at predicting outcomes, like the extent that government spending (a theoretical stimulus) can “crowd out” private spending (and thus paradoxically hurt the economy) – or how the S&P downgrade of the United States' credit rating in August 2011 counterintuitively caused U.S. borrowing costs to decrease.

  These contrarian economists seek to explain why decades of Japanese efforts to spark inflation have had the opposite effect, and why similar efforts in the U.S. largely failed to reflate anything besides the stock market. They wonder if the reduction of interest rates has had a counterintuitive result.

  Conventionally, the "real" interest rate is the nominal (or common) interest rate, minus inflation. Therefore, if your bank pays you 5 percent on a CD, but inflation eats up 4 percent, your real interest rate is 1 percent. Similarly, if you borrow money at 7 percent, but inflation (and wages, investment returns, etc.) rise by 6 percent, then you're only really paying 1 percent on your loan. The contrarian economists theorize that real interest rates will always seek a certain level, independent of central-bank actions. Therefore, if the Fed depresses interest rates, inflation too will fall, to meet the real interest rate that the economy is pricing by itself. So if the Fed has driven down nominal interest rates to 1 percent, but the economy stubbornly sets a “real” interest rate of 1 percent, inflation will thus be zero.

  I believe the real interest rate is more the result of a subtraction calculation, than an innate level on which one can base a re-arranged equation. But one wonders if the Federal Reserve, by raising their interest-rate target during a time when many questioned the move, perhaps wants to test this theory.

  At any rate (pun intended), Americans are right to question whether the Fed's actions have had the intended results, whether they've benefitted anyone besides banks, and whether the Fed is experimenting with the economy at a time where everything feels pretty fragile. Let's hope the presidential field understands these concepts and lets us know where they stand sometime soon.

  Gatto is the longest serving member of the California State Assembly Committee on Banking and Finance, overseeing the world’s 8th largest economy.  He represents California’s 43rd Assembly District, which includes Los Angeles, Glendale and Burbank. www.asm.ca.gov/gatto

   

  

  

  

  

  

• Calgary's Housing Market Collapses While "Three-Alarm Blaze" Burns Next Door In Vancouver

  In Waterloo, Ontario, the property market is red hot.

  Dubbed “Canada’s Silicon Valley,” the city of just 140,000 people is drawing interest from real estate investors far and wide. Waterloo is around 70 miles west of Toronto and is home to a Google office as well as two universities and “dozens” of startups.

  One-bedroom apartments in a new development being pitched to investors are going for CAD$270,000 while a two-bedroom will run you CAD$340,000. Rents in the building are as high as $2,000/month.

  Vacancy rates are running at just 1.5%.

  Meanwhile, in Vancouver, housing has gone full-retard. Average home prices for detached residences rose to an astronomical $1.82 million in January. It’s not as insane in Toronto, but at $631,092, there aren’t too many “bargains” to be had.

  

  (Vancouver prices)

  New data out on Tuesday shows average property values on resold homes in the Greater Vancouver area rising by 30.9% in January while average prices in the Greater Toronto Area and in the abovementioned Waterloo rose 14.2% and 9% for the month, respectively.

  But oh what a difference a province makes.

  While the Canadian housing bubble is alive and well in Ontario and British Columbia, in the heart of Canada’s dying oil patch the picture isn’t pretty. We’ve documented the glut of vacant office space in downtown Calgary on a number of occasions. Here’s a visual for those who missed it. 

  

  Calgary is of course in Alberta, where collapsing crude has driven WCS down to just CAD1 above marginal operating costs. That’s led employers to cut jobs. In fact, last year was the worst year for provincial job losses since 1982. This has had a profound effect on Calgary and on Tuesday we learn that it isn’t just office space that’s sitting unoccupied.

  According to data from Altus Group sales of condos in the city fell a whopping 38% from 3,000 units to 4,805 units in 2015, marking the largest y/y drop since 2008. “The drop-off doesn’t bode well for 2016,” Bloomberg notes. “Calgary, the biggest city in the oil-producing province of Alberta, ended 2015 with one of the highest inventories of unsold condos, at 3,356 suites in the fourth quarter, according to Altus.”

  

  If you want to understand all of the above you need only look at the following chart which contrasts home prices in Calgary with those in Vancouver and Toronto:

  

  Clearly, one of those things isn’t like the others. “While we continue to believe that things just can’t any hotter, markets in B.C. and Ontario continue to prove us wrong,” TD economist Diana Petramala said. “[For Toronto and Vancouver], every month of double-digit home price growth raises the risk of a deeper home price correction down the road.” 

  “Hot doesn’t quite describe Vancouver’s three-alarm fire of a housing market,” Bank of Montreal chief economist Doug Porter remarked.

  So while you can’t give condos and office space away in Calgary, you for all intents and purposes have to be a millionaire to afford to live in British Columbia and especially in Vancouver which, judging by the parabolic chart shown above, is one of the most desirable locales on the face of the planet. 

  We close by noting that the Canadian real estate “bargain” we profiled three weeks ago has indeed sold – for $102,000 more than the original asking price…

  

  

  

  

  

  

• Stocks Surge On Biggest Short-Squeeze In 4 Months As Crude, Credit, & Carry Crumble

  Stocks are up – just ignore everything else… "all is well"

   

  One of these things is not like the other… Stocks were panic-bought once Europe closed but Crude, Credit, and Carry crumbled…

  

   

  From the moment a UAE minister opened his mouth last Thursday afternoon, US equities have soared…

  

   

  This is the best 2-day gain for the S&P since August!

  

   

  Small Caps & Trannies were best as the squeeze came on… panic-buy8ing into the close…

  

   

  As "Most Shorted" have soared 7% off Thursday lows with a big squeeze at the open today…

  

   

  The last 2 days are the biggest short-squeeze in over 4 months…

  

   

  US equities decoupled from Oil and USDJPY as Europe closed…

  

   

  US credit markets – having had the day off yesterday – are not buying the euphoria…

  

   

  Financials and Energy stocks both showed gains on the day despite credit weakness (and underlying weakness in crude)…

  

   

  Don't show Jamie Dimon this chart…

  

   

  While many European banks gave up their early equity gains – including CS and DB – US Financial stocks enjoyed another day of exuberance following Jamie Dimon' "Big Buy" – the only trouble is… credit risk for these names actually rose 1bp to 171bps… are you really going to fall for this again?

  

   

  Once again VIX was extremely noisy with spikes (all lower) all morning..

  

   

  Treasury yields traded in a narrow range with the long-end underperforming as they extended their surge off last week's V-shaped bottom, not helped by AAPL and IBM issuance likely weighed on the complex…

  

   

  The dollar rose for the 3rd day in a row (something it has not done for a month) for the best run in 2 months…

  

   

  Between dollar strength, Goldman warnings, and the magic in stocks, commodities all weakened as hope disappeared from Crude..

  

   

  As crude plunged off the hope highs back to a $28 handle…

  

   

  Notably, the front-second month roll spread has narrowed back to pre-Phillips 66 dump levels…

  

   

  Charts: Bloomberg

  

  

  

  

• "You Should Be Very Worried, You Should Be Prepared" Warns Jim Rogers

  "[Central Banks] think they are smarter than the market," exclaims billionaire investor Jim Rogers, "they are not!"

  Warning CNN in this brief but disturbing reality check that "we are all going to get hurt by a global recession," Rogers takes aim at the incompetence of the "academic and bureaucrats who don't know what they are doing," raging that "this is going to be a disaster in the end."

  Rogers concludes:

  "You Should Be Very Worried, You Should Be Prepared"

  200 Seconds of awful truth…

  And if you are not concerned enough, Rogers did an extended radio interview, explaining that the inevitable consequence of disastrous easy-money policy from central planners is war…

  Highlights:

  39:35 – Jim discusses inevitable consequences of disastrous easy-money policy from central planners is war.

  40:00 – Jim discusses heightened xenophobia during difficult economic times and how it can lead to conflict.

  40:57 – Jim discusses how the coexistence of a rising world power and a stagnant or in-decline world power leads to conflict.

  42:26 – Jim discusses precious metals.

  45:30 – Jim discusses a history of poor leadership from US Presidents will continue, money printing and currency debasement will continue, no matter who gets elected this year.
   
  47:49 – Jim discusses coming sovereign debt crises, loss of confidence in government, and how it can lead to war.

  48:35 – Jim says "read your history," politicians will continue to make things worse, capital controls will intensify, economic conditions will continue to deteriorate and war is likely.
   
  52:05 – Jim says that by plot of pure circumstance, the USD will fall from its place as world's reserve currency. Dollar will destroy itself and a replacement will come along.

  54:30 – Jim discusses potential bubble in the USD

  

  

  

  

  

• Keynesianism's Long March To The Dustbin Of History

  Submitted by Gary North via GaryNorth.com,

  We read on Wikipedia:

  The phrase "ash heap of history" (or "dustbin of history") figuratively refers to the place to where persons, events, artifacts, ideologies, etc., are relegated upon losing currency and value as history. A notable usage was that of the Russian revolutionary Leon Trotsky referring to the Mensheviks: "You are pitiful, isolated individuals! You are bankrupts. Your role is played out. Go where you belong from now on — into the dustbin of history!" in response to the Menshevik faction walking out of the All-Russian Congress of Soviets (25 October 1917) in Petrograd, which allowed the Bolshevik faction to dominate the party. In a speech to the British House of Commons (8 June 1982), U.S. President Ronald Reagan said that "freedom and democracy will leave Marxism and Leninism on the ash heap of history."

  It is now the Keynesians' turn to join the losers of history.

  They do not see it. Their critics do not see it. But it is a fact.

  Allow me to shift metaphors away from the ashcan of history.

  One of the most inspiring stories in the Bible is the story of the final night of the rule of the Babylonian Empire.

  The Bible does not tell us what had happened. We know from secular history what happened. The general in command of the Medo-Persian forces had ordered his troops to redirect the Euphrates River to bypass the city. This left the river's entry point into the city undefended. The Army streamed into these undefended points and conquered the city.

  The rulers of the city had not seen it coming. They should have seen it, but they didn't. They undoubtedly had reconnaissance information on the fact that the Medo-Persian army was at work up the river to redirect the river. But they did not respond fast enough. They did not see what was coming.

  We may see this in retrospect as abnormal, but it is normal. Rulers at the end of the dynasty or an empire think it will go on forever. It may not last the night.

  We are told that the King of Babylon invited the prophet Daniel to assess the situation. There follows one of the most famous incidents in the Bible.

  At a banquet, a holy ghostly hand had written words on the wall. This terrified the king and his guests. He called in Daniel to explain. He had previously ignored Daniel.

  25 And this is the writing that was written, Mene, Mene, Tekel, Upharsin.

  26 This is the interpretation of the thing: Mene; God hath numbered thy kingdom, and finished it.

  27 Tekel; Thou art weighed in the balances, and art found wanting.

  28 Peres; Thy kingdom is divided, and given to the Medes and Persians.

  29 Then commanded Belshazzar, and they clothed Daniel with scarlet, and put a chain of gold about his neck, and made a proclamation concerning him, that he should be the third ruler in the kingdom.

  30 In that night was Belshazzar the king of the Chaldeans slain.

  31 And Darius the Median took the kingdom, being about threescore and two years old.

  From this, we get the saying: "The handwriting is on the wall."

  The handwriting is on the wall for Keynesianism.

  THE POWER OF COMPOUNDING

  In his remarkable 2001 article, "The Law of Accelerating Returns," Raymond Kurzweil described the decline in the cost of information, beginning in 1890, and extending to the year 2000. If he had taken it back to 1844, he could've made an even stronger case, but the data are less clear. He began with the census of 1890, which was the first census to use punch cards.

  He said that the cost of information fell by 50% every three years from 1890 to about 1950. Then, with the development of vacuum tube technologies in computers, it fell by 50% every two years. Then, sometime around 1965, with the development of transistor technology, it began to fall by 50% every 18 months. He said in 2001 that he believed that it was falling by 50% every 12 months.

  Nothing like this has ever happened in the history of man. There has been no compounding process that continued for this long a period. This process is now approaching what some people call a tipping point. Others call it an inflection point. Kurzweil called it the upward move of the exponential curve. Whatever we call it, we are now in the middle of it.

  In a follow-up article in 2003, Kurzweil made a fundamental point that has not been recognized by free-market economists, Keynesians, or social theorist in general. The rate of change, meaning the compound decline in the cost of information, was in no way slowed during the Great Depression. The world economy stopped growing for a decade, but the compound decline in the cost of information continued throughout the decade. He said this also applied in both world wars.

  We don't absolutely know what the future will bring, and if you look at the models, they're absolutely linear.

  We don't take into account this law of accelerating returns, which is absolutely a factor.

  If you look at the economy as a whole, either per capita or just the total economy, it is growing exponentially. But the various recessions, even the Great Depression, are relatively minor features that you really see in this chart that is a big exponential. And what's interesting is that when the recession is over, including the Great Depression, it starts back to where it would have been had that never occurred in the first place. It does not represent even a permanent slowing down or delay in the underlying exponential.

  The really pervasive phenomena is the exponential growth. We have exponential growth in productivity. Even that is understated because we're measuring the value in dollars of what can be accomplished. But what can be accomplished for a dollar today is far greater than what could be accomplished for a dollar 10 years ago.

   

  Computation is not the only technology that is growing exponentially. Communications, bandwidth, speed and price performance–both wireless and wired–are also doubling every year. Biological technologies, the price performance of base pair scanning, for example, have doubled every year.

  George Orwell was correct: we find it difficult to see what is under our noses. let me briefly mention what has been under my nose ever since I read this article over a decade ago. It means that, with respect to the most important transformation of modern times, the exponential declining cost of digital technologies, Keynesianism has not been able to deflect the spread of these technologies.

  Keynesianism can affect which special-interest groups benefit and lose as a result of these technologies, because Keynesianism can control the allocation of physical resources. But Keynesianism cannot control the spread of information itself. This means that, at the core of the economic system, Keynesianism is impotent.

  As bad as Keynesianism is, and as bad as regulation is, it can only marginally affect the transformations that are taking place today. These regulations can have major affect when they apply to individuals who are caught in the web of regulation. These regulations can affect the supply and quality of goods that are produced through large-scale physical production systems. The regulators can squeeze large companies. They can put small companies out of business. But what they cannot do is in any way retard the compound growth effects of information technology.

  So, it really does not matter for the long run that the Keynesians are in charge. They can stretch out their control with respect to certain kinds of physical production. They can stretch it out with respect to certain kinds of licensing and regulation. But the steady compounding effects of the decline in the cost of information are going to overwhelm all attempts by all governments to keep social and economic change on government approved pathways. There really is no way for governments to do anything, including fighting a war, to stop the progress of digital technologies.

  Regulatory actions can and do affect the kinds of innovations that take place. It especially can affect the kinds of applications of new digital technologies. These statist interventions are almost always negative. They protect some special-interest group. But, in the long run, meaning over the next 40 years, the whole Keynesian regulatory structure is going to collapse. Why? Because we are reaching an inflection point. We are reaching the point at which the exponential curve turns sharply upward. There is no way for the regulatory agencies to keep up with what is now taking place under their noses.

  I see this as good news. It is good news for liberty, and it is bad news for the arrogant theorists of Keynesian central planning, the arrogant tenured bureaucrats of central banks, and the protected employees of virtually every other government-regulated industry or profession. These people are going to be replaced, and they are going to be replaced within three decades, or four at the most. They are presiding over the final stages of the illusion of central planning.

  It has already happened to the socialists. History tossed them into the dustbin when the Soviet Union went belly-up in 1991. It was all over but the shouting at that point. Almost nobody defends socialism as an ideology these days. Nobody gets a hearing. They want to call themselves liberals. They want to call themselves Progressives.

  The central planners cannot stop the arrival of the exponential curve of liberty and voluntarism. Maybe they can slow it down at the margin, but I doubt it. If the Great Depression did not slow it down, Janet Yellen cannot slow it down. Janet Yellen and her crew of bureaucrats are the only ones in a position to slow it down. The politicians can barely affect the process.

  This should be under your nose. Think through your own profession, your own career prospects, and the legacy you expect to leave behind. Think it through in terms of an increase in the rate of technological change, and a decrease in the products of all digital technologies.

  The days of wine and roses are coming to an end for the Keynesians. The ashcan of history awaits them. I will do what I can to speed up the process, but I don't think I can speed up the process. I can only prepare you and other readers by pointing out what should be obvious.

  UNDER THE NOSES OF INSIDERS

  I want to discuss a couple of examples in history of entire industries that did not see what was coming, even while it was almost upon them. Like a tsunami that pulls the tide out rapidly just before it hits, people playing on the beach do not notice what is happening, and do not run for cover from what will soon follow.

  I teach a course in the history of American literature for the Ron Paul Curriculum. After 1912, I focus entirely on movies. Movies are the way in which storytellers affect tens of millions of people. Movies have displaced novels and short stories as the way to tell stories, which in turn are the foundations of literature.

  Beginning with the 1915 movie, The Birth of a Nation I cover only films. My course has a 15-year gap: 1915-1930.

  The movie industry had a warning. It was the equivalent of the tide that sweeps out rapidly. That was The Jazz Singer (1927). It had sound. It had sound only for Al Jolson's songs. The movie was not really a talkie. It was a "singie."

  From the day that this movie was released, silent movies faced the handwriting on the wall. Yet even in 1928, movie producers still tried to get the public to attend silent films. In 1929, the deluge overwhelmed the entire industry.

  My next piece of literature after Birth of a Nation is All Quiet on the Western Front (1930). The soundtrack is good. The photography is good. The story line, based on the best-selling novel by Remarque, is excellent. It won the Academy Award as the best picture in 1931. The director also won the Academy Award. The movie was highly successful, both artistically and at the box office.

  Consider that transition. It took basically three years: from 1927 to 1930. Basically, 1929 was the year of the transition. This gets little attention in the textbooks, because 1929 was the year of the stock market crash. The stock market crash gets a great deal of attention, crowding out almost everything else.

  I think of the two as related. Herbert Hoover was elected in 1928. That was the last year in which anybody could make money producing silent movies. In 1929, talking pictures overwhelmed silent movies, and the first stage of the depression overwhelmed Hoover's administration. Hoover suffered the equivalence of what silent movies suffered in 1929. But the great smash happened much more rapidly to silent movies than it did to Hoover.

  In Hollywood in 1928, there were still people in the movie industry who were convinced that talking pictures were a fad. For those of you who have seen Aviator, you know the story of Howard Hughes. He had almost completed his nearly bankrupting movie, Hell's Angels. Then he started over. He added sound. The Wikipedia entry is accurate.

  Hell's Angels is a 1930 American war film, directed and produced by Howard Hughes and starring Ben Lyon, James Hall and Jean Harlow. The film, which was written by Harry Behn and Howard Estabrook, centers on the combat pilots of World War I. The picture was released by United Artists and, despite its initial poor performance at the box office, eventually earned its production costs twice over . . .

  Originally shot as a silent film, Hughes retooled the film over a lengthy gestation period. Most of the film is in black and white, but there is one color sequence–the only color footage of Harlow's career. Hell's Angels is now hailed as one of the first sound blockbuster action films.

  As we saw in Aviator, everybody in Hughes' tool company was opposed to his decision to retool the movie so that it would have sound. It should have been obvious to everybody in late 1929 that this was mandatory, but it wasn't obvious.

  Hughes risked everything on the success of the movie. He knew that it had to have sound. He knew that it would be a failure if it did not have sound. He had sunk a fortune into the movie, and yet he dared not release it on time. It had to be delayed. It had to have sound. He was right. His critics were wrong. The entire movie industry was wrong.

  I point this out for a reason. Sometimes, without any warning, a new technology completely changes an industry.

  Consider Google. The Wikipedia entry on the history of Google says:

  By the end of 1998, Google had an index of about 60 million pages. The home page was still marked "BETA", but an article in Salon.com already argued that Google's search results were better than those of competitors like Hotbot or Excite.com, and praised it for being more technologically innovative than the overloaded portal sites (like Yahoo!, Excite.com, Lycos, Netscape's Netcenter, AOL.com, Go.com and MSN.com) which at that time, during the growing dot-com bubble, were seen as "the future of the Web", especially by stock market investors.

  I used Alta Vista from 1996 until about 2002. It may have been 2001. Then I switched to Google. Wikipedia writes:

  AltaVista was an early web search engine established in 1995. It was once one of the most popular search engines, but it lost ground to Google and was purchased by Yahoo! in 2003, which retained the brand but based all AltaVista searches on its own search engine. On July 8, 2013, the service was shut down by Yahoo! and since then, the domain has redirected to Yahoo!'s own search site.

  And then there is Wikipedia. It has put out of business all physically published general encyclopedias. Encyclopaedia Britannica still exists online, but I would never use it, and I can't imagine anybody else using it. Wikipedia has simply destroyed all rival general encyclopedias. It did it without any advertising. It did it without any warning.

  New technologies can transform societies in short periods of time. Not many of them ever do this, but a handful can.

  STEADY GROWTH, RADICAL CHANGE.

  Digital technologies have transformed our lives through steady improvements. The cost of information keeps dropping. This is the Steady Eddie change that, without any fanfare, transforms people's lives so slowly that they do not perceive what is happening to them and their environment.

  If Kurzweil is right, this is going to happen to the cost of solar power. He thinks it is going to happen a lot faster than I do, because he is concentrating on solar panel technology, but solar panel technology constitutes only about 20% of what goes into an electrical power grid, whether local or national. The cost of the other components is not declining at anything like the decline in the cost per watt of solar panels. Nevertheless, there is a steady improvement, and it does not look as though this is going to be reversed. To the extent that panels can become less dependent on physical paraphernalia, the more rapidly this substitution process will take place.

  My assessment is that YouTube will not be replaced by anything anytime soon. There will be steady improvements in YouTube, and these will produce steady transformations of those aspects of society that are dependent on digital viewing. I cannot imagine any rival company to YouTube. It is backed up by the income produced by Google searching, and it has no serious rivals today. There is not that much that we want to get out of videos. They consume a lot of time, and they consume a lot of bandwidth, but the cost of bandwidth keeps declining, unlike the value of our time.

  There may be 3-D videos at some point. There may be high definition 3-D videos that can be projected on a wall. But my guess is this: they will be YouTube videos. It is very difficult to compete against "free."

  We can see that YouTube is not going to be reversed or replaced. We see no swift movement of the video tide. Now the trick is to figure out how YouTube is going to transform the way we do things. It is certainly transforming education. This is not going to stop. This is going to accelerate. Yet there are teachers who do not see the handwriting on the wall. They are like people in the movie industry in 1928. They ought to be able to see what is going to happen, but they don't. They are going to be overwhelmed.

  They are like IBM executives in 1982. They could see that Moore's law was going to enable the IBM PC's to overwhelm the minicomputer market. The idiots at Armonk forbade the innovators in Boca Raton to adopt Intel's 386 chip. They thought a 386-based computer would wipe out the market for the entry-level minicomputers sold by IBM's main branch. So, Compaq adopted the 386 computer, and destroyed the minicomputer market. IBM never caught up.

  We do not want to admit what is going to happen to us, even when we can see what is going to happen to us. We think that something is going to save us. Nothing is going to save us, other than the government. The government can protect an industry or a profession, but the free market does not. Then, when the government tanks and finally collapses, the industry of the profession is overwhelmed in just a few years.

  When I watch a movie produced in 1930, I can still enjoy it if there is a good script. We all enjoy King Kong (1933). It is a better movie than the recent versions. Gable and Colbert still make us laugh in It Happened One Night (1934). Snow White (1938) still works. (Grumpy is my guy.)

  The great breakthrough in movies came in one year, 1939. There has never been a year in the history of the movies like that 1939. One man directed two movies: Gone with the Wind and The Wizard of Oz. Can you name him? Probably not. But those two movies changed entertainment forever.

  In that year, John Ford directed Stagecoach, which was the breakthrough role for John Wayne, Young Mr. Lincoln, which was the breakthrough role for Henry Fonda, and Drums Along the Mohawk, a confirming role for Henry Fonda. The next year, he produced Grapes of Wrath, starring Henry Fonda. Yet there was more change in 1939 than there had been through the entire 1930's. From 1939 on, movies are pretty much the same as they are today, except they were better in 1939.

  We cannot connect emotionally with the silent film era. We laugh at Charlie Chaplin's sight gags, but other than Chaplin's movies, we don't watch silent movies. Yet we can easily connect with the earliest talking movies. That single technological change made possible what we know as the movies. And yet from 1903 until 1929, people were transformed by the movies. Somehow, silent movies were able to get inside the minds of masses of people. Hollywood did not see the potential for talking pictures.

  Color pictures were a marginal improvement on black and white pictures. But would you really want to watch Casablanca if it were colorized? I don't think I would. What about Stagecoach? Maybe.

  As it turned out, 3-D pictures were a setback. Only with modern cartoons and science fiction movies have 3-D movies reappeared. We still don't pay extra to see a 3-D movie unless there is a lot of action involved. A 2-D movie is fine for most storylines.

  Sound was the big transformation. The coming of modern loudspeakers in the 1930's pulled us into the movies in a new way. Yet Hollywood did not see it coming. It was literally under their noses, or blaring in their ears, in 1927, but they still neither saw nor heard it.

  I don't think this is abnormal. I think this is normal. George Orwell was right. It takes a great deal of effort to see what is under our noses.

  CONCLUSION

  Keynesians today are like the dinner guests on Babylon's last night. They are the silent film producers in 1928. They are Alta Vista's owners in 2001. They are headed for the ashcan of history.

  The steady decline in the cost of information, especially communications, has undermined every establishment on the face of the earth — North Korea excepted.

  Here is how I view the future of Keynesianism. It is in the northern half of the map.

  

  

  

  

  

  

• Carl Icahn, David Einhorn Dump "No Brainer" Apple Shares

  Having opened his position in AAPL in Q3 2013, Carl Icahn's projections, prognostications, and positioning have all lent credence (for CNBC watchers) to buying into the "no brainer" stock. However, it appears the plunge in the stock of the last few months has taken the shine of Icahn's glee as, according to his fund's latest 13F, he dumped 7 million shares (or aound 14% of his position) in Q4 2015. In addition, Greenlight's David Einhorn dumped 44% of his holding in Tim Cook's releveraging firm.

  It began here in August 2013…

  

   

  And here is where it appers to be ending…

  • *ICAHN CUT APPLE STAKE BY 7M SHRS TO 45.8M SHRS

  His first adjustment since Q1 2014…

  

   

  AAPL stock is limping lower after-hours on the news…

  

   

  But, according to Bloomberg, his cost basis for the entire position is $68.05 and so his exit here is still significantly positive.

  In addition, Greenlight Capital, the hedge fund led by David Einhorn, also slashed its stake in Apple by 44% during the fourth quarter. According to Bloomberrg, Einhorn's averasge cost basis was $74.53…

  

   

  The firm sold 4.9 million shares of Apple, leaving it with 6.3 million shares worth $661.5 million as of Dec. 31, according to a regulatory filing Tuesday.

  *  *  *

  

  

  

  

  

• "Truck-ocalypse" Hits Main Street As Daimler Fires 1,250 Amid Collapsing Demand

  If you were looking for signs that US trade may be collapsing on itself, a good place to start would be Class 8 truck orders which, as we first documented in early December, have posted sharp y/y declines of late.

  In November for instance, orders collapsed 59% y/y. In December, the drop was 37%, and in January, Class 8 orders dove 48% from the year ago period.

  

  This is all consistent with the trend towards broadly lower global growth and trade, something which at this point looks to be structural and endemic rather than transient and cyclical.

  To be sure, the writing has been on the wall for quite a while. Have a look, for instance, at Morgan Stanley’s Dry Van TLFI:

  

  As you can see, things haven’t been this bad since the crisis. And expectations aren’t looking so hot either:

  

  Speaking of trucking and expectations, Daimler pretty clearly shares the rather dour outlook expressed by Morgan Stanley’s survey respondents because on Monday, the company laid off 1,250 people in North Carolina.

  “We see a fall in demand of about 10 percent for heavy trucks in North America this year,” a spokeswoman said. “This is a response to lower demand,” she added, flatly. 

  “Workers at Daimler’s truck manufacturing plants in Mount Holly and Cleveland, North Carolina, said they were told Monday morning that the company is cutting hundreds of jobs at each plant at the end of the week,” the local WSOCTV wrote yesterday, adding that “Daimler has taken over the plants that were run by Freightliner in Rowan and Gaston counties, and workers at the plant in Cleveland told Eyewitness News the announcement of job cuts came as a shock to many.”

  “I know that I’m one of the ones that’s going to be laid off, so it’s going to affect me,” said Andre Tucker, who has worked at the plant since May 2014. “Right now probably the biggest thing is to figure out the next step as far as trying to find a new job,” he laments. Tucker has a wife and two children.

  Daimler also laid off 900 employees in Rowan County last month. “Everybody around here’s been hurting, and it’s going to hurt even more,” a convenience store clerk told WSOCTV.

  Yes, it most assuredly is “going to hurt even more,” because as we’ve said time and again as it relates the collapsing Baltic Dry, central banks can’t print trade. The US economy is bumping along at a barely positive 0.69% growth rate, and that’s according to the BEA who, as we saw last summer, is prone to doing all sorts of things to make the data look better than it actually is.

  Quick, someone tell the executives at Diamler that the industry forecasters who see a double-digit decline in Class 6-8 demand this year are merely “peddling fiction.”

  Full statement from Daimler

  Pursuant to the notification requirements of the Worker Adjustment and Retraining Notification Act of 1988 (“WARN”), Daimler Trucks North America (DTNA) has announced that it will implement a reduction in force of approximately 700 employees at its Mt. Holly Truck Manufacturing Plant and approximately 550 employees at its Cleveland Truck Manufacturing Plant, effective April 16, 2016. Employees at the Mt. Holly and Cleveland plants were notified in Town Hall meetings yesterday and today.

  The last day of work for employees affected by this announcement will be Friday, February 19, 2016 in both facilities. Impacted employees will receive payment in lieu of the notice period at each employee’s regular rate of pay, and employees are free to seek and accept other employment during the notice period without jeopardizing their entitlement to the WARN period payment or benefits.

  As of February 22, the workforce at the Mt. Holly Truck Manufacturing Plant will be reduced from approximately 2,150 to approximately 1,450 employees, with plant operations scaled back to two full shifts per day. The workforce at the Cleveland Truck Manufacturing Plant will be reduced from approximately 2,150 to approximately 1,600, with plant production scheduled at one full shift per day. The Cleveland reduction in force is in addition to a previous workforce adjustment announced in January affecting approximately 936 employees at the Cleveland Truck Manufacturing Plant, effective March 5, 2016.

  These workforce adjustments are in response to a sustained reduction in orders and a diminished build rate, and are expected to be temporary, based on future market developments. 2015 was an extraordinarily strong market for trucks in NAFTA. DTNA anticipates the North American truck market Class 6 to 8 to be down around minus 10 percent in 2016. This is still expected to be above the 2014 Class 6 to 8 market.

  The Mt. Holly Truck Manufacturing Plant is located in Mt. Holly, North Carolina and manufactures medium-duty Freightliner trucks. The Cleveland Truck Manufacturing Plant is located in Cleveland, North Carolina and manufactures heavy-duty Freightliner and Western Star trucks.

  The company has no further comment pertaining to the announcement. 

  

  

  

  

  

• President Obama Explains Why He Must Appoint A New Justice (Or Else) – Live Feed

  Due up at 1635ET, President Obama holds his first post-Scalia press conference. We assume the propaganda du jour will be the imminent need to appoint a new SCOTUS justice… and why anyone who blocks that plan is "peddling fiction." While he is up there, we assume some comments regarding the escalations in Syria will be discussed… and why Russia (and Putin most clearly) are to blame.

   

  Live Feed…

  One wonders if the next justice will break the records…

  Recent Supreme Court Nominations | Graphiq