• Star Wars VII: The Audience Awakens

   

  

   

   

  By EconMatters

  While I do not see EconMatters as a movie critic like Roger Ebert, sometimes it feels almost like civil duty to let people know not to waste money on a bad movie. I missed the Start War VII when it opened during Christmas last year and at the same time endured a horrible experience with Fandango. In retrospect, I should have taken it as an omen not to see the movie at all. But since everyone was telling me how “awesome” the movie was, I finally made it to the theater last night.

   

  One of the Worst Movies I’ve Ever Seen

   

  Compared to the previous installments, this Episode 7 was a major disappointment and it was the most excruciating 2.5 hours I’ve ever experienced in a movie theater. It was a bad movie compunded by an old and filthy movie theater (AMC Studio 30, located in the better part of Houston). The movie and the movie theater were so bad that I actually had the thought to short both Disney (NYSE:DIS) and AMC Entertainment (NYSE:AMC) stocks.

   

  When Disney bought Lucasfilm from George Lucas for $4 billion in 2012, it gave Disney ownership of the “Star Wars” franchise but also “Indiana Jones” franchise. Now, I can’t wait to see how bad Disney can mess up Indiana Jones.

   

  I like action, suspense, and thriller movies. Although I think the Twilight movie series is nothing more than a teen romance story wrapped in vampire myths and action (I am a fan of “The Underworld”, though), I do have certain appreciation and understanding of Twilight’s popularity — It has an interesting story line about the romance, marriage, family, etc. between a social misfit teenage girl and a vampire guy/boy (I think he is actually at least several hundred years old).

   

  Watch: The Silver Market, Jan. 31, 2016 (Video)

   

   

  Make a Movie That Tells a Story

   

  Anyway, I still believe movies are about story telling and Star War VII has no story line to keep me remotely interested. The movie has a very simple plot: a bunch of people (heroes and villains) chase a secret map to find Luke Skywalker, the last Jedi, to help fight the new evil power–the First Order. While there’s nothing wrong with a simple plot, it is a cinematic crime to have such a poor screenplay without any substance like Star Wars VII.

   

  “Making Something for the [Kardashian] Fans”

   

  Reportedly Lucas had some ideas for how Star Wars VII story could be told. According to Lucas, “All I want to do is tell a story…”, but Disney was keen on “making something for the fans.” I now totally understand why Disney told George Lucas and his story to take a hike — Disney sees no use to spend time and effort to develop any story in an established franchise with built-in audience like Star Wars.

   

  Yes, I can totally see how all the galaxy air fighting and bombs away can put the simpleton Kardashian-following crowd in awe. However, the repetitive explosions, shooting and space fighting gets old real quick. The 135-minute movie is way too long with cliché after cliché, and predictable outcome.

   

  “Jurassic World” and “Avatar” are two deservingly awesome movies with good story, production and beautiful high tech graphic scenes to boot. Star Wars VII is not even in the same zip code as the similarly cliché Transformers franchise, in my opinion.

   

  Only High Point: Original Han Solo & Chewie

   

  Even the space air fighting scenes are not that impressive as I’ve seen better alien, space fighting scenes from any number of high tech movies adapted from the Marvel or DC Comics.

   

  In fact, the only high point of the entire movie was when the original cast of Han Solo (Harrison Ford) and Chewie appear. The interaction between Han Solo, Chewie, and Princess Leia (Carrie Fisher) is interesting, nostalgic but too little too late to save the movie.

   

  Lipstick on a Pig Sold as a Beauty Queen

   

  In all fairness, I have to applaud Disney Studio’s Marketing Department for an outstanding job of promoting the movie a year in advance with a superb editing job on the promotional trailer. The trailer gives an impression of much more grandeur to build up hype, expectation and, in my opinion, directly led to the box office success.

   

  Yes Lucas, You Sold Your Children

   

  During a recent interview, George Lucas indicated he felt he sold the company he created, Lucasfilm, to “the white slavers,” referring to Disney (Lucas later issued an apology to Disney). Lucas also said he felt like he sold his children [for $4 Bn].

   

  After watching the first Star Wars movie by Disney, I can understand how Lucas must have felt after Disney butchered his legendary creation — Star Wars. However, in this case, Lucas made his bed (and was well-compensated) on Star Wars and now he must lie in it.   

   

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• Paul Craig Roberts: The West Is Being Reduced To Looting Itself

  Authored by Paul Craig Roberts,

  I, Michael Hudson, John Perkins, and a few others have reported the multi-pronged looting of peoples by Western economic institutions, principally the big New York Banks with the aid of the International Monetary Fund (IMF).

  Third World countries were and are looted by being inticed into development plans for electrification or some such purpose. The gullible and trusting governments are told that they can make their countries rich by taking out foreign loans to implement a Western-presented development plan, with the result being sufficient tax revenues from economic development to service the foreign loan.

  Seldom, if ever, does this happen. What happens is that the plan results in the country becoming indebted to the limit and beyond of its foreign currency earnings. When the country is unable to service the development loan, the creditors send the IMF to tell the indebted government that the IMF will protect the government’s credit rating by lending it the money to pay its bank creditors. However, the conditions are that the government take necessary austerity measures so that the government can repay the IMF. These measures are to curtail public services and the government sector, reduce public pensions, and sell national resources to foreigners. The money saved by reduced social benefits and raised by selling off the country’s assets to foreigners serves to repay the IMF.

  This is the way the West has historically looted Third World countries. If a country’s president is reluctant to enter into such a deal, he is simply paid bribes, as the Greek governments were, to go along with the looting of the country the president pretends to represent.

  When this method of looting became exhausted, the West bought up agricultural lands and pushed a policy on Third World countries of abandoning food self-sufficiency and producing one or two crops for export earnings. This policy makes Third World populations dependent on food imports from the West. Typically the export earnings are drained off by corrupt governments or by foreign purchasers who pay little while the foreigners selling food charge much. Thus, self-sufficiency is transformed into indebtedness.

  With the entire Third World now exploited to the limits possible, the West has turned to looting its own. Ireland has been looted, and the looting of Greece and Portugal is so severe that it has forced large numbers of young women into prostitution. But this doesn’t bother the Western conscience.

  Previously, when a sovereign country found itself with more debt than could be serviced, creditors had to write down the debt to an amount that the country could service. In the 21st century, as I relate in my book, The Failure of Laissez Faire Capitalism, this traditional rule was abandoned.

  The new rule is that the people of a country, even a country whose top offiials accepted bribes in order to indebt the country to foreigners, must have their pensions, employment, and social services slashed and valuable national resources such as municipal water systems, ports, the national lottery, and protected national lands, such as the protected Greek islands, sold to foreigners, who have the freedom to raise water prices, deny the Greek government the revenues from the national lottery, and sell the protected national heritage of Greece to real estate developers.

  What has happened to Greece and Portugal is underway in Spain and Italy. The peoples are powerless because their governments do not represent them. Not only are their governments receiving bribes, the members of the governments are brainwashed that their countries must be in the European Union. Otherwise, they are bypassed by history. The oppressed and suffering peoples themselves are brainwashed in the same way. For example, in Greece the government elected to prevent the looting of Greece was powerless, because the Greek people are brainwashed that no matter the cost to them, they must be in the EU.

  The combination of propaganda, financial power, stupidity and bribes means that there is no hope for European peoples.

  The same is true in the United States, Canada, Australia, and the UK. In the US tens of millions of US citizens have quietly accepted the absence of any interest income on their savings for seven years. Instead of raising questions and protesting, Americans have accepted without thought the propaganda that their existence depends upon the success of a handful of artificially created mega-banks that are “too big to fail.” Millions of Americans are convinced that it is better for them to draw down their savings than for a corrupt bank to fail.

  To keep Western peoples confused about the real threat that they face, the people are told that there are terrorists behind every tree, every passport, under every bed, and that all will be killed unless the government’s overarching power is unquestioned. So far this has worked perfectly, with one false flag after another reinforcing the faked terror attacks that serve to prevent any awareness that this a hoax for accumulating all income and wealth in a few hands.

  Not content with their supremacy over “democratic peoples,” the One Percent has come forward with the Trans-Atlanta and Trans-Pacific partnerships. Allegedly these are “free trade deals” that will benefit everyone. In truth, these are carefully hidden, secret, deals that give private businesses control over the laws of sovereign governments.

  For example, it has come to light that under the Trans-Atlantic partnership the National Health Service in the UK could be ruled in the private tribunals set up under the partnership as an impediment to private medical insurance and sued for damages by private firms and even forced into abolishment.

  The corrupt UK government under Washington’s vassal David Cameron has blocked access to legal documents that show the impact of the Trans-Atlantic partnership on Britain’s National Health Service. 

  For any citizen of any Western country who is so stupid or brainwashed as not to have caught on, the entire thrust of “their” government’s policy is to turn every aspect of their lives over to grasping private interests.

  In the UK the postal service was sold at a nominal price to politically connected private interests. In the US the Republicans, and perhaps the Democrats, intend to privatize Medicare and Social Security, just as they have privatized many aspects of the military and the prison system. Public functions are targets for private profit-making.

  One of the reasons for the escalation in the cost of the US military budget is its privatization. The privatization of the US prison system has resulted in huge numbers of innocent people being sent to prison, where they are forced to work for Apple Computer, IT services, clothing companies that manufacture for the US military, and a large number of other private businesses. The prison laborers are paid as low as 69 cents per hour, below the Chinese wage.

  This is America today. Corrupt police. Corrupt prosecutors. Corrupt judges. But maximum profits for US Capitalism from prison labor. Free market economists glorified private prisons, alleging that they would be more efficient. And indeed they are efficient in providing the profits of slave labor for capitalists.

  Here is a news report on UK Prime Minister Cameron denying information about the effect of the Trans-Atlantic partnership on Britains’ National Health.

  The UK Guardian, which often has to prostitute itself in order to maintain a bit of independence, describes the anger that the British people feel toward the government’s secrecy about an issue so fundamental to the well being of the British people. Yet, the British continue to vote for political parties that have betrayed the British people.

  All over Europe, the corrupt Washington-contolled governments have distracted people from their sellout by “their” governments by focusing their attention on immigrants, whose presence is a consequence of the European governments representing Washington’s interests and not the interest of their own peoples.

  Somthing dire has happened to the intelligence and awareness of Western peoples who seem no longer capable of comprehending the machinations of “their” governments.

  Accountable government in the West is history. Nothing but failure and collapse awaits Western civilization.

  

  

  

  

  

• Japanese Bond Yields Continue To Collapse As China Margin Suffers Longest Losing Streak On Record

  Following Kuroda’s panic policy measures from Friday, JGB yields continue to collapse across the curve (though notably 30Y is selling off – is someone actually concerned about long-term survival risk?). 2Y Yields have collapsed all the way to BoJ’s -10bps rate, 5Y is plunging – now close to -9bps, and 10Y has dropped 20bps to just over 6bps… with BofA warning a negative 10Y rate looms. However, Japan is not having all the excitement as China’s margin debt (driver of all animal spirits) dropped again today – making this the longest losing streak in history as China’s stock market investors continue to leave the levered building screaming fire.

  JGB yields are collapsing… not exactly the risk-on stock-buying euphoria Abe and Kuroda were hoping for
  

  With 10Y JGB yields closing in on negative, the percentage of global debt below 0% will explode.

  *  *  *

  And then there is China… where margin debt has collapsed for the longest losing streak in history…

  The outstanding balance of Shanghai margin debt dropped for 21st consecutive day on Friday, the longest streak since the exchange began compiling the data on April 1, 2010.

  

   

  But apart from that – everything is stable.

  

  

  

  

  

• So It Begins: Bloomberg Op-Ed Calls For An End Of Cash

  In a moment of curious serendipity, a little over 90 minutes after we showed what a dystopian, centrally-planned, cashless society unleashed in a negative interest rate world would look like (“by forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs”), and briefly after we laid out the countless recent warnings from “very serious people” that cash is evil and should be banned:

  • Norway’s Biggest Bank Demands Cash Ban
  • Bank Of England Economist Calls For Cash Ban, Urges Negative Rates
  • Citigroup’s Gold “Expert” Demands A Cash Ban
  • Leading German Keynesian Economist Calls For Cash Ban

  … while warning to await a full-on coopted media assault about the dangers of cash “which is an anacrhonysm from a bygone era, and that the world will be so much better if only everyone dutifully exchanges the physical currency in their pocket for digital, traceable, and deletable 1s and 0s”, none other than Bloomberg issued an editorial Op-Ed in which it had one simple message: “Bring On the Cashless Future.”

  For those who were amused by our warning that a cashless world may be coming, here is precisely why the warning was issued, in Bloomberg’s digital ink:

  Bring On the Cashless Future

   

  Cash had a pretty good run for 4,000 years or so. These days, though, notes and coins increasingly seem declasse: They’re dirty and dangerous, unwieldy and expensive, antiquated and so very analog.

   

  Sensing this dissatisfaction, entrepreneurs have introduced hundreds of digital currencies in the past few years, of which bitcoin is only the most famous. Now governments want in: The People’s Bank of China says it intends to issue a digital currency of its own. Central banks in Ecuador, the Philippines, the U.K. and Canada are mulling similar ideas. At least one company has sprung up to help them along.

   

  Much depends on the details, of course. But this is a welcome trend. In theory, digital legal tender could combine the inventiveness of private virtual currencies with the stability of a government mint.

   

  Most obviously, such a system would make moving money easier. Properly designed, a digital fiat currency could move seamlessly across otherwise incompatible payment networks, making transactions faster and cheaper. It would be of particular use to the poor, who could pay bills or accept payments online without need of a bank account, or make remittances without getting gouged.

   

  For governments and their taxpayers, potential advantages abound. Issuing digital currency would be cheaper than printing bills and minting coins. It could improve statistical indicators, such as inflation and gross domestic product. Traceable transactions could help inhibit terrorist financing, money laundering, fraud, tax evasion and corruption.

   

  The most far-reaching effect might be on monetary policy. For much of the past decade, central banks in the rich world have been hampered by what economists call the zero lower bound, or the inability to impose significantly negative interest rates. Persistent low demand and high unemployment may sometimes require interest rates to be pushed below zero — but why keep money in a deposit whose value keeps shrinking when you can hold cash instead? With rates near zero, that conundrum has led policy makers to novel and unpredictable methods of stimulating the economy, such as large-scale bond-buying.

   

  A digital legal tender could resolve this problem. Suppose the central bank charged the banks that deal with it a fee for accepting paper currency. In that way, it could set an exchange rate between electronic and paper money — and by raising the fee, it would cause paper money to depreciate against the electronic standard. This would eliminate the incentive to hold cash rather than digital money, allowing the central bank to push the interest rate below zero and thereby boost consumption and investment. It would be a big step toward doing without cash altogether.

   

  Digital legal tender isn’t without risk. A policy that drives down the value of paper money would meet political resistance and — to put it mildly — would require some explaining. It could hold back private innovation in digital currencies. Security will be an abiding concern. Non-cash payments also tend to exacerbate the human propensity to overspend. And you don’t have to be paranoid to worry about Big Brother tracking your financial life.

   

  Governments must be alert to these problems — because the key to getting people to adopt such a system is trust. A rule that a person’s transaction history could be accessed only with a court order, for instance, might alleviate privacy concerns.

   

  Harmonizing international regulations could encourage companies to keep experimenting. And an effective campaign to explain the new tender would be indispensable.

   

  If policy makers are wise and attend to all that, they just might convince the public of a surprising truth about cash: They’re better off without it.

   

  To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.

  And so it begins. It will most certainly not end there.

  

  

  

  

  

• "This Is Much Larger Than Subprime" – Here Are The Legendary Hedge Funds Fighting The Chinese Central Bank

  One month ago, we first revealed that for one prominent winner from the subprime crisis, Hayman Capital’s Kyle Bass, “the greatest investment opportunity right now” is to short the Chinese Yuan: as he explained “given our views on credit contraction in Asia, and in China in particular, let’s say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there’s one thing that is going to happen: China is going to have to dramatically devalue its currency.” He even went so far as to give a timeframe: “we think it’s going to be in the next 12-18 months.”

  Then, during the Davos boondoggle, none other than the man who broke the Bank of England, George Soros, noted that he too is shorting the Yuan, which in turn prompted China’s communist party mouthpiece, the People’s Daily to officially warn Soros to back off adding in a petulant, schoolyard bully-ish voice “You Cannot Possibly Succeed, Ha, Ha.” Yes, China really said that.

  Then, just last week, in a sad letter in which Bill Ackman blamed everyone and everything for his pathetic performance in 2015, most notably hedge fund herding and hotels, which he was so eager to exploit on the way up with presentation-filled idea dinners, and so eager to blame for dumping his names on the way down, we found out that Ackman had also decided to put on a Yuan devaluation trade just days before the Yuan devaluation announcement (perhaps he read our post from August 8, which said that a devaluation is imminent 3 days before it was revealed):

  “Last summer, we built large notional short positions in the Chinese yuan through the purchase of puts and put spreads in order to protect the portfolio in the event of unanticipated weakness in the Chinese economy…Two days after we began to build our position in the Chinese yuan, China did a 2% surprise devaluation which substantially increased the cost of the options we had intended to continue purchasing. We continued to build the position thereafter by buying slightly more out of the money puts and selling further out of the money puts so as to keep the cost and risk/reward ratio of the position attractive.”

  Sadly, Ackman has still to make money on this trade.

  But Bass, Soros and Ackman are not alone.

  In fact, as the WSJ writes today, the who’s who of hedge funds appears to agree with our post from December 11, in which we said that “anyone who thought that the Yuan devaluation is over, now that the currency is at the lowest level relative to the dollar since 2011, the reality is that the devaluation relative to everyone else is only just starting.”

  And, with the PBOC’s warning that the “RMB is relatively a strong currency among the major international currencies” the real devaluation is, just as we warned four months ago, about to be unleashed. Expect at least a 15% reduction in Trade-Weighted terms in the coming weeks and months, especially if the Fed hikes

  Sure enough, just a few weeks later we were proven correct again when the PBOC unleashed a second, far more violent devaluation round, one which has cost the PBOC hundreds of billions in FX intervention costs and a desperate attempt to plug capital control holes as the domestic population desperately wants out sensing that its currency is losing its value by the minute.

  So who are the brave souls who have decided to very openly fight the People’s Bank of China?

  Here is a sample: Soros, Bass, Ackman, Druckenmiller, Tepper, Schreiber, Einhorn, Scogging, and Carlyle, Nexus and many more.

  Some more details on just how massive these bets are:

  Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.

   

  It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money.

  Why is Kyle Bass practically all in? Simple: for him “‘this is much larger than the subprime crisis, said Mr. Bass, who believes the yuan could fall as much as 40% in that period.”

  Then there are the legends: Billionaire trader Stanley Druckenmiller and hedge-fund manager David Tepper have staked out positions of their own against the currency, also known as the renminbi, according to people familiar with the matter.  David Einhorn’s Greenlight Capital Inc. holds options on the yuan depreciating.

   

  Mr. Druckenmiller, who now invests his own wealth, and one of his former protégés, Zach Schreiber, who runs the roughly $10 billion hedge-fund firm PointState Capital LP, also have had sizable shorts against the renminbi since last year, people familiar with the matter said.

   

  The funds’ bets come at a time of enormous sensitivity for China’s leaders. The government is struggling on multiple fronts to manage a soft landing for the economy, deal with a heavily indebted banking system and navigate the transition to consumer-led growth.

   

  Other firms that have profited from shorting China’s currency include the $2 billion Scoggin Capital Management and Carlyle Group LP’s Emerging Sovereign Group, according to people familiar with the matter.

   

  * * *

   

  The situation grew more tense after billionaire investor George Soros predicted at the World Economic Forum gathering in Davos, Switzerland, recently that “a hard landing is practically unavoidable” for China’s economy. He said he is betting against commodity-producing countries and Asian currencies as a result.

   

  Days later, a commentary appeared in China’s state-run Xinhua News Agency warning that “radical speculators” trying to short sell, or bet against, the Chinese currency would “suffer huge losses” as the Chinese monetary authority takes “effective measures to stabilize the value of the yuan.”

  To be sure, the show of force has scared off some fund managers from adding to their wagers. Some traders have scaled back or even exited from their short bets, saying they have little appetite to go up against the Chinese government. However, since it is merely a matter of time and having a large enough balance sheet to withstand the whipsaws by the PBOC, many will simply double down, and perhaps not so much on the Yuan but on parallel currencies who central banks aren’t as paranoid: “some say they are looking with new interest at shorting the currencies of other Asian countries that they expect would fall if the yuan keeps depreciating.”

  Finally, there is a saying “don’t fight the Fed,” Well, ironically, by devaluing the Yuan, China is doing precisely that: it is fighting the Fed’s aggressive attempts to push the USD ever higher with its obstinate push to hike rates even as the entire world slides into a global USD-denominated recession, by devaluing at appropriate intervals and shocking the global financial system. Perhaps all these “brave hedge fund warriors” are not so much fighting the PBOC as they are siding alongside the Fed, if only for the time being. However at this rate of credibility loss, between the US, China and most recently Japan, not to mention the ECB’s December debacle, pretty sure it won’t be fighting this or that central bank, but all of them at the same time.

  As of this moment, however, all these hedge funds who have taken on the PBOC are winning, because after another massive intervention round on Friday, one which cost the PBOC more billions of dollars from its rapidly dwindling FX reserve pile, the CNH is already weaker tonight: will the PBOC burn through another $10 billion just to teach these hedge funds a lesson even as the market is implying far more pain for the PBOC? 

  

  Worst of all, since they are not physically located in China, the local authorities will find it just a little more difficult to physically arrest these “evil shorts” and “disappear” them for good.

  

  

  

  

  

• This Question Should Not Be A Difficult One To Answer

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  At what point do we accede back to logic and rational thought? The Bank of Japan is “forced”, not my word, to unleash negative nominal interest rates and that is taken as a positive for everyone everywhere. Such a move is, without question, an open admission that QQE failed and failed spectacularly (since it was even expanded not really that long ago). That is cause for celebration and optimism?

  Bloomberg tells us that a grim January gets to now end on a high note (that was the article’s title, after all) without ever pausing to consume the fact that January was so grim to begin with because nothing central banks do actually matter beyond the very short run.

  U.S. stocks joined an advance in global equities, while bonds rallied as the Bank of Japan’s unexpected monetary stimulus boosted confidence that central banks remain vigilant of slowing economic growth. The yen tumbled, while oil gained.

  The story performs the usual magic trick of semantics in favor of a positive reinforcement on the central bank activity; “central banks remain vigilant”, as if vigilance is all that is required or offered. It is neither. In the Bank of Japan’s case, what was delivered was supposed to be an enormous monetary wave of such fury and power as to leave no doubt as to how this was going to end. In April 2013, BoJ officials were so confident that they even provided a timetable for its expected completion – sustainable 2% inflation by the middle of 2015 (the end of 2015 if “unforeseen” problems developed).

  Because inflation is taken as a signal of a healthy economy, that was all that was thought necessary. It obviously wasn’t, since not only was there a striking and deep recession in the middle of 2014 for Japan (which was and is blamed, wrongly, on the tax alteration) the BoJ actually scaled up QQE later that year.

  

  The initial conditions for QQE in April 2013 were questionable, but central bankers remained undeterred; going so far as to vow to keep doing QE in its last format until it worked.

  Former investment-bank economists Takahide Kiuchi and Takehiro Sato, who joined the board last year, opposed today’s statement that inflation is likely to reach 2 percent in the latter half of the three-year BOJ forecast horizon, Kuroda told reporters at a press briefing today. He said he personally thinks the goal will be achieved in the 2015 fiscal year.

   

  Kuroda said that no board member judged that additional easing was needed now, and that policy adjustments would be made if necessary. The bank will keep its stimulus until stable 2 percent gains in consumer prices are realized, he said.

  Even under the expanded version of QE10 (or 11, depending on how you define and count them) it isn’t enough. If the BoJ “has” to now add negative interest rates the only way to judge all the QE’s dating back to 2001 is as total failures. But that isn’t the full weight of reckoning, either, as it is plain that the Japanese people, households, have paid a very heavy price for all of the continuous balance sheet expansion and yen debasement.

  The idea of monetary intervention in this fashion is redistribution; that some economic agents will benefit at the expense of others. While that “expense” is acknowledged by the monetary central planners, they feel it necessary in order to achieve economic pump priming again. Thus, those who lose out in the initial stages of QE are expected to be eventually rewarded by the full recovery (omelets need broken eggs). Ben Bernanke was (in)famous in that respect, often talking about the woes of those savers depending upon fixed income who will be richly rewarded for their pain when his theory is proven correct.

  When I was chairman, more than one legislator accused me and my colleagues on the Fed’s policy-setting Federal Open Market Committee of “throwing seniors under the bus” (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings…

   

  In recent years, several major central banks have prematurely raised interest rates, only to be forced by a worsening economy to backpedal and retract the increases. Ultimately, the best way to improve the returns attainable by savers was to do what the Fed actually did: keep rates low (closer to the low equilibrium rate), so that the economy could recover and more quickly reach the point of producing healthier investment returns.

  That last paragraph is tragic in all the ways that are evident right now and suggested for the upcoming intermediate term. Savers and households (true state of the labor market) not just in Japan have been bearing this burden of redistribution for more than a decade (and almost a decade in the US and Europe) and still they are forced to ask where is the recovery to reward their dictated drain? It’s all the more distressing given that question still unresolved just as concerns turn increasingly toward the “next” downturn. Why is the economy always in the initial stages of recovery so that, years upon years later, it still cannot withstand the slightest alteration of monetary genius? It stops being redistribution and takes on the proportions of unnecessary and even criminal torture. The banks must always win so that the people might in a generation or two down the road?

  This is madness, pure and simple. And it takes on just those characteristics in light of the ECB’s totally deficient experience with negative rates and QE. Consider: the BoJ is now supplementing QQE with negative rates just as the ECB has been supplementing negative rates with QE. What planet is this?

  The end of QE as a monetary appeal should be heralded as a huge victory for the forces of common sense, but instead it only demands the further death of money. Not merely content to squeeze “store of value” down to its last remaining elements, central banks apparently will take the next step and make it actually painful as if it wasn’t before. There are no “high notes” to this kind of affair, only lower lows.

  This is why economics is not in any way like a science, let alone an actual scientific discipline. It is the Aristotelian method of divining essence and then expecting the world to unfold according to that internal epistemology; and when it inevitably doesn’t, there is no mechanism for correction. The economist will declare in no uncertain terms that monetary policy works, and that a lot of it will undoubtedly work well. No matter how long that position remains in the negative, nothing causes feedback that dislodges the initial premise. Instead, as if to prove the anti-scientific nature of orthodox economics and especially econometrics, the economist will search high and low in everything but monetary policy for the potential answer (such is the holy grail of monetary neutrality).

  In March 2015, Kuroda had already essentially dismantled QE anyway by exposing that myth.

  First, the initial rounds of QE weren’t potent enough. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” Kuroda recently explained. “It requires greater power than that of a satellite that moves in a stable orbit.”

  This is hysteresis, an unnecessarily complicated word that essentially means an economy cannot move without external strength of monetary policy; you have to unleash enough force to get even small rock to roll down an incline. The bigger the rock, the more force necessary to get it rolling. That was the point of the “Q” in QE. The term itself was meant to convey the supposedly objective mathematics at work, harnessed by experts displaying immense technical knowledge. That economists working in central banks could precisely measure and determine the size of the rock and the degree of the slope so that they could exactly, quantitatively calculate the exact force necessary to start the forward rolling progress. Stock prices cheered when they made the claim, and now they cheer when it is disproven?

  Actually, the entire idea was disproven by time some time ago, instead stocks are nearly euphoric (even for just a day) that such was actually acknowledged by those central bankers moving on to another kind of “Q’ (and hoping you don’t notice). I wrote just last Friday:

  So in broad and general terms, we find that central banks all around the world have turned to increasingly absurd ways with which to make monetary policy find their intended depth; and still they never do. The things that have happened in the past few years would have in 2006 been judged utterly insane. We may have become far too desensitized by now, but if you told Bernanke that the Bank of Japan would be buying corporate debt at negative yields, as it did just this week, and that it wasn’t so outlandish to assume that the Fed might follow, he and everyone else would have dismissed you outright as insane. It no longer is.

   

  If this year turns out the way it is already shaping up, can you really not imagine Janet Yellen (or her successor, assuming she doesn’t survive the growing debacle) doing the same as the Bank of Japan? There has already been a steady growth of stories and rumors, all emanating carefully from that policy corridor, of intellectual flirtations with negative interest rates. Not only that, the FOMC in June 2003, just as Greenspan was achieving his “ultra-low”, ridiculed the Bank of Japan for its first two (of ten or eleven, depending on how you count) QE’s – only to follow them almost exactly just five years later.

  Ten years ago, all this would have been written off as the stuff of an insane mind or conspiracist. Now, it is just normal and economists would have you think it the only option. This is inflation; true inflation. The standards of actual conduct have been so eroded and degraded as to be totally meaningless; there is nothing left for honest trade except the further death of money. What we are finding is that it is not a “clean death”, however, but a tortured journey on a winding road of further and further madness. It only ends when someone finally gets to question why an economy needs monetary policy in the first place. Can an economy really not grow without it, or central banks? If there is only increasingly absurd monetarism in our future, the answer to that most fundamental question is not all that difficult.

  

  

  

  

  

• "Stable" China's Economic Bounce Is Over: PMIs Plunge In January

  After an almost unprecedented surge in credit (total social financing) and over-invoicing enabled a bounce in China’s PMI data in December, both Manufacturing and Services data tumbled in January, confirming South Korean trade data. While manufacturing continues its contraction (dropping to 49.4, the weakest since Aug 2012), it is non-manufacturing’s plunge from a one-year high “transition is happening, see” narrative to practically the weakest print since 2008. But apart from that all that, China is “stabilizing” according to officials.

  China’s economy is improving under medium-to high-speed growth, according to a People’s Daily commentary written by Zhong Sheng, who wasn’t identified.

   

  There is consensus in the international community that long- term basic element in the Chinese economy is still strong: commentary

   

  NOTE: Zhong Sheng is a homonym in Chinese for “voice of China” and commonly used in commentaries by the People’s Daily, which is published by the Chinese Communist Party

  Does this look like stabilization to you?

  

   

  Of course – if we just wait around long enough (like 45 minutes) Caixin’s PMI will print and explain all this ‘craziness’ away.

  Time for some more devaluation – which is exactly what China’s CDS is implying.

  

  

  

  

  

• America's #1 Import: Deflation

  Submitted by Erico Matias Tavares of Sinclair & Co.,

  It seems that everyone these days is exporting deflation to the US.

  The drop in commodity prices and the US dollar rally versus a broad basket of currencies in recent years had a big impact of course, but the magnitude of the decline of US import prices has been very significant indeed. And this matters for many reasons.

  Competition for the all-important US consumer remains fierce, as exporting countries devalue their currency and/or further reduce their costs to maintain market share. While imports represent a relatively small percentage of US GDP (typically <17%), the technocrats at the Federal Reserve will now have to work harder to fan the flames of inflation across the economy (hint: not by continuing to raise interest rates…). Moreover, these price patterns suggest that all is certainly not well in the global economy.

  

  The graph above shows the evolution of selected US import price indices by country of origin since January 2009 (=100), when the world was in the throes of the great recession, as provided by the US Bureau of Labor Statistics.

  The dotted line shows total import prices excluding oil, to isolate the direct impact of the recent collapse in crude oil prices. After staging a post-crisis rally, prices of overall imports pretty much remained in a range between mid-2011 and mid-2014. But then something happened: the US dollar started to rally hard and that price index quickly went the other way.

  How the major industrial exporters have responded is where things get really interesting.

  The price index of the three majors peaked at different times: Chinese import prices peaked in early 2012, the Japanese later that year and the Europeans kept raising their US dollar prices until mid-2014. While the composition of the imports varies from country to country, it were the diverging policy responses that largely dictated what followed.

  

  The graph above shows the 12-month change (in %) of each of those indices, providing a better sense of the magnitude of the price change. As a result of Abenomics and the crushing of the Yen, Japanese exporters have been the most aggressive in reducing their US dollar prices since 2013. The Chinese had started that process a few months earlier, but that has been more subdued until now. And the Europeans eventually jumped in the bandwagon, substantially cutting their prices throughout 2015.

  With Japan joining the negative interest rate club last week, any subsequent Yen weakness will further tighten the screws on its competitors. And as the US dollar price of a Lexus becomes cheaper compared to a Mercedes, probably the Europeans will have to follow suit.

  While the Chinese may not compete directly in the same high-end segments, with these dynamics it looks likely that they will have to further reduce their US dollar prices at some point. And if they do so in a meaningful way the impact on their competitors – from all over the world – could be quite dramatic.

  Meanwhile American companies will have a much harder time competing domestically and abroad, certainly if the US dollar remains elevated.

  

  The graph above shows the 12-month change (in %) for the EU import price index only, this time extended to the start of the data series in September 1993. When it goes negative it is usually associated with a major financial crisis, a global recession or both. So the recent price move suggests that there is trouble out there indeed.

  American consumers will be delighted with everyone sending cheaper goods their way. However, what this may do to their income and employment prospects is a whole different matter.

   

  

  

  

  

  

• Global Trade Collapsed In January: Bellwether South Korea Exports Crash "Most Since Lehman"

  As the first major exporting nation to report each month, all eyes and hopeful speculative capital was glued to tonight’s South Korean trade data. After a brief respite in November, December’s drop was worrisome, but January’s just reported 18.5% crash – the most since the financial crisis – has only been seen during a US economic recession. Worse still, South Korean imports plunged over 20% in January as it appears crashing crude and cliff-diving freight indices are less about supply and more about demand (there is none) after all.

  Annother red flag in the US recession looming camp…

  

   

  Furthermore, with China accounting for around one quarter of South Korean exports – and following a 16.5% YoY plunge in December – tonight’s headline data suggests January was a total disaster for the Chinese economy also… though later we will get the PMI data to explain everything.

  

  

  

  

  

• Is Germany Paying African Nations To Take Back Rejected Refugees?

  As Der Freitag reports (via Google Translate), if the German authorities do not get rid of a refugee, you can just change his nationality. African embassies are paid for their help…

  Joseph Koroma does not understand to this day why he was deported to Nigeria – a country in which he had never before set foot. When he fled to Germany in 2006, he applied for asylum and told his escape story: He had been persecuted in Sierra Leone, by supporters of the Poro secret society that controls whole regions in West Africa. They killed his father and threatened also to murder, unless he would join the Confederation him.

   

  But the Federal Office for Migration and Refugees rejected the application for asylum. Among other things, questioned the officials, whether Koroma really come from Sierra Leone. He made ??a subsequent application and put new documents in front of his persecution, including a recent newspaper article, who took up his case. However, the application was subsequently rejected, Koroma sued – and lost. According to the competent ended court one could easily launch newspaper articles in Sierra Leone.

   

  Now he was obliged to leave, but without a passport. So his stay by the German authorities was tolerated for many years – would be to his identity definitively clarified. In 2012, members of the Embassy of Nigeria changed his birthplace in the Nigerian state of Ogun – initially without Koroma's knowledge. A year later knocked policemen at his bedroom door. He should quickly grab a few things, the officials said, they would take him. His plane to Nigeria fly in a few hours. Koroma was stunned.

  As SputnikNews confirms, the procedure is claimed to take place in the framework of the so called "Readmission Agreements" and mainly applies to African countries.

  According to these agreements, the countries have to readmit their own citizens who were rejected an asylum status by Germany. But despite that, they are encouraged to accept rejected asylum seekers from other countries, who travelled through these transit countries to get to Europe.

   

  As reported by refugee rights organization Pro Asyl, African embassies are paid for their assistance. German immigration authorities have allegedly invited officials from African States to participate in special meetings where they "decide on refugees' nationality."

  This is by no means a small issue. As Der Freitag continues, based on the most recent figures from the year 2014…

  At that time, found, according to the Federal Police 50 mass hearings with representatives of African countries instead of 18. A total of 720 refugees were questioned, or an average of more than ten per appointment. In addition, an unknown number of hearings, organize the federal states. The "success rates" vary: In hearings by Nigerian delegations about half of the presented was declared citizens, at the Embassy of Benin there are three of the four escapees.

   

  But the method is not only error-prone. There are also conflicts of interest. The embassy staff get namely money if they allow deportation. For Germany, this is cheaper than the month-long tolerance of refugees.

   

  Cooperation with the Nigerian Embassy designed a long time difficult to staff a reimbursement for the hearings have been promised: 250 Euros per summons, another 250 euros for identification, including issuing the travel document. Benin employees will each receive 300 euros. The different levels will be officially on the grounds that it concerns charges of the respective embassy and Germany it had no effect.

   

  Officially, the federal police does not comment on this case.

  Away from the dubious method of establishing identity, the question arises whether it is reasonable to make precisely Nigeria one of the main deportation destinations in Africa. In 2012, a memorandum of understanding between Germany and Nigeria was signed, which determines the course of the hearings, and reaffirms the common will to work together. Even Frontex praises the close cooperation with Nigeria, there is a contract against "illegal migration".

  The situation in the African country is unstable.

  Since late 2010, the Islamist militia Boko Haram perpetrated regularly attacks on the population. Even the state security forces are accused of serious human rights violations such as killings, brutal mistreatment and torture. The Embassy of the Republic of Nigeria wants to express no opinion on repeated request.

  

  

  

  

  

• Shining A Light On Sociopaths In Politics

  Submitted by Doug Casey via InternationalMan.com,

  

  There are seven characteristics I can think of that define a sociopath, although I’m sure the list could be extended:

  1. Sociopaths completely lack a conscience or any capacity for real regret about hurting people. Although they pretend the opposite.

  1. Sociopaths put their own desires and wants on a totally different level from those of other people. Their wants are incommensurate. They truly believe their ends justify their means. Although they pretend the opposite.

  1. Sociopaths consider themselves superior to everyone else, because they aren’t burdened by the emotions and ethics others have – they’re above all that. They’re arrogant. Although they pretend the opposite.

  1. Sociopaths never accept the slightest responsibility for anything that goes wrong, even though they’re responsible for almost everything that goes wrong. You’ll never hear a sincere apology from them.

  1. Sociopaths have a lopsided notion of property rights. What’s theirs is theirs, and what’s yours is theirs too. They therefore defend currency inflation and taxation as good things.

  1. Sociopaths usually pick the wrong target to attack. If they lose their wallet, they kick the dog. If 16 Saudis fly planes into buildings, they attack Afghanistan.

  1. Sociopaths traffic in disturbing news, they love to pass on destructive rumors, and they’ll falsify information to damage others.

  The fact that they’re chronic, extremely convincing, and even enthusiastic liars, who often believe their own lies, means they aren’t easy to spot, because normal people naturally assume another person is telling the truth. They rarely have handlebar mustaches or chortle like Snidely Whiplash. Instead, they cultivate a social veneer or a mask of sanity that diverts suspicion. You can rely on them to be “politically correct” in public. How could a congressman or senator who avidly supports charities possibly be a bad guy? How could someone who claims he just wants the U.S. to defend some foreign minority possibly be a warmonger? They’re expert at using facades to disguise reality, and they feel no guilt about it.

  Political elites are primarily, and sometimes exclusively, composed of sociopaths. It’s not just that they aren’t normal human beings. They’re barely even human, a separate subspecies, differentiated by their psychological qualities. A normal human can mate with them spiritually and psychologically about as fruitfully as a modern human could mate physically with a Neanderthal; it can be done, but the results will be problematical.

  It’s a serious problem when a society becomes highly politicized, as is now the case in the U.S. and Europe. In normal times, a sociopath stays under the radar. Perhaps he’ll commit a common crime when he thinks he can get away with it, but social mores keep him reined in. However, once the government changes its emphasis from protecting citizens from force to initiating force with laws and taxes, those social mores break down. Peer pressure, social approbation, and moral opprobrium, the forces that keep a healthy society orderly, are replaced by regulations enforced by cops and funded by taxes. Sociopaths sense this, start coming out of the woodwork, and are drawn to the State and its bureaucracies and regulatory agencies, where they can get licensed and paid to do what they’ve always wanted to do.

  It’s very simple, really. There are two ways people can relate to each other: Voluntarily or coercively. The government is pure coercion, and sociopaths are drawn to its power and force.

  The majority of Americans will accept the situation for two reasons: One, they have no philosophical anchor to keep them from being washed up onto the rocks. They no longer have any real core beliefs, and most of their opinions – e.g., “We need national health care,” “Our brave troops should fight evil over there so we don’t have to fight it over here,” “The rich should pay their fair share” – are just reactive and comforting catch phrases. The whole point of spin doctors is to produce comforting sound bites that elude testing against reality. And, two, they’ve become too pampered and comfortable, a nation of overfed losers, mooches, and coasters who like the status quo without wondering how long it can possibly last.

  It’s nonsensical to blather about the Land of the Free and Home of the Brave when reality TV and Walmart riots are much closer to the truth. The majority of Americans are, of course, where the rot originates – the presidential candidates are spending millions taking their pulse in surveys and polls and then regurgitating to them what they seem to want to hear. Once a country buys into the idea that an above-average, privileged lifestyle is everyone’s minimum due, when the fortunate few can lobby for special deals to rake something off the table as they squeeze wealth out of others by force, that country is on the decline. Lobbying and taxation are replacing production and innovation as the national modus vivendi; parasites are unable to sustain prosperity. The wealth being squeezed took centuries to produce, but it is not inexhaustible.

  I suspect most now reading this tend to vote Republican. Republicans say they believe in economic freedom (they don’t), and they definitely don’t believe in social freedom. Compared to the Democrats, they are viewed (correctly) as hypocrites. At least the Democrats are honest about disliking economic freedom. Republican candidates are at once laughable and pathological – it doesn’t matter if Trump, Cruz, or Rubio get the nod. They’re all so horrible and embarrassing that I’ve heard they’re even desperately considering recycling Mitt Romney, an empty suit, only marginally better than the previous Republican nominee, the hostile and mildly demented John McCain.

  All candidates decry the upper classes, say they love what’s left of the middle class, and want to shower more goodies on the proletariat.

  People generally fall into an economic class because of their psychology and their values. Each of the three classes has a characteristic psychological profile. For the lower class, it’s apathy. They have nothing, they’re ground down, and they don’t really care. They’re not in the game, and they aren’t going to do anything; they’re resigned to their fate. For the upper class, it’s greed and arrogance. They have everything, and they think they deserve it – whether they do or not. The middle class, at least in today’s world, is run by fear. Fear that they’re only a paycheck away from falling into the lower class. Fear that they can’t pay their debts or borrow more. Fear that they don’t have a realistic prospect of improving themselves.

  The problem is that fear is a negative, dangerous, and potentially explosive emotion. It can easily morph into anger and violence. Exactly where it will lead is unpredictable, but it’s not a good place. One thing that exacerbates the situation is that all three classes now rely on the government, albeit in different ways. Bankruptcy of the government will affect them all drastically.

  With sociopaths in charge, we could very well see the Milgram experiment reenacted on a national scale. In the experiment, you may recall, researchers asked members of the public to torture subjects (who, unbeknownst to the people being recruited, were paid actors) with electric shocks, all the way up to what they believed were lethal doses. Most of them did as asked, after being assured that it was “all right” and “necessary” by men in authority. The men in authority today are mostly sociopaths.

  WHAT TO DO

  One practical issue worth thinking about is how you, as someone with libertarian values, will manage in a future increasingly controlled by sociopaths. My guess is poorly, unless you take action to insulate yourself. That’s because of the way almost all creatures are programmed by nature. There’s one imperative common to all of them: Survive! People obviously want to do that as individuals. And as families. In fact, they want all the groups that they’re members of to survive, simply because (everything else being equal) it should help them to survive as individuals. So individual Marines want the Marine Corps to survive. Individual Rotarians want the Rotary Club to prosper. Individual Catholics leap to the defense of the Church of Rome.

  That’s why individual Germans during World War II were, as has been asserted, “willing executioners” – they were supporting the Reich for the same reasons the Marines, the Rotarians, and the Catholics support their groups. Except more so, because the Reich was under attack from all sides. So, of course, they followed orders and turned in their neighbors who seemed less than enthusiastic. Failing to support the Reich, even if they knew it had some rather unsavory aspects, seemed an invitation to invading armies to come and rape their daughters, steal their property, and probably kill them. So, of course, the Germans closed ranks around their leaders, even though everyone at the top was sociopath. You can expect Americans to do the same.

  Americans have done so before, when the country was far less degraded. During the War Between the States, even saying something against the war was a criminal offense. The same was true during World War I. In World War II, the Japanese were all put in concentration camps on groundless, racially based suspicions of disloyalty. During the early years of the Cold War, McCarthyism was rampant. The examples are legion among humans, and the U.S. was never an exception. It’s even true among chickens. If a bird has a feather out of place, the others will peck at it, eventually killing it. That out-of-place feather is deemed a badge of otherness announcing that its owner isn’t part of the group. Chicken Autre must die.

  Libertarians, who tend to be more intelligent, better informed, and very definitely more independent than average, are going to be in a touchy situation as the crisis deepens. Most aren’t going to buy into the groupthink that inevitably accompanies war and other major crises. As such, they’ll be seen as unreliable, even traitors. As Bush said, “If you’re not with us, you’re against us.” And, he might have added, “The Constitution be damned.” But, of course, that document is no longer even given lip service; it’s now a completely dead letter.

  It’s very hard for an individualist to keep his mouth shut when he sees these things going on. But he’d better keep quiet, as even H.L. Mencken wisely did during both world wars. In today’s world, just keeping quiet won’t be enough; the national security state has an extensive, and growing, file on everybody. They believe they know exactly what your beliefs, desires, fears, and associations are, or may be. What we’re now facing is likely to be more dangerous than past crises. If you’re wise, you’ll relocate someplace where you’re something of an outsider and, by virtue of that fact, are allowed a measure of eccentric opinion. That’s why I spend an increasing amount of time in Latin America. In truth, however, security is going to be hard to find anywhere in the years to come. The most you can hope for is to tilt the odds in your favor.

  The best way to do that is by diversifying your assets internationally. Allocating your wealth into real assets. Linking up with sound, like-minded people who share your values. And staying alert for the high-potential speculations that inevitably arise during chaotic times.

  *  *  *

  A big part of any strategy to reduce your political risk is to place some of your savings outside the immediate reach of the thieving bureaucrats in your home country. Obtaining a foreign bank account is a convenient way to do just that.

  That way, your savings cannot be easily confiscated, frozen, or devalued at the drop of a hat or with a couple of taps on the keyboard. In the event capital controls are imposed, a foreign bank account will help ensure that you have access to your money when you need it the most.

  In short, your savings in a foreign bank will largely be safe from any madness in your home country.

  Despite what you may hear, having a foreign bank account is completely legal and is not about tax evasion or other illegal activities. It’s simply about legally diversifying your political risk by putting your liquid savings in sound, well-capitalized institutions where they’re treated best.

  We recently released a comprehensive free guide where we discuss our favorite foreign banks and jurisdictions, including, crucially, those that still accept Americans as clients and allow them to open accounts remotely for small minimums.

  

  

  

  

• How The Masses Deal With Risk (And Why They Remain Poor)

  By Chris at www.CapitalistExploits.at

  Last week I discussed how humans are wired to pay attention to scary things. In financial speak: risk. Darwinism has chastised those who ignore risk by rewarding them with an early grave, and by process of elimination rewarded those who stay out of the cross hairs.

  Thing is, we no longer live in a world where saber-toothed tigers threaten our existence. In today’s world far greater risk lies in the truly enormous and disproportionate emotional attitude to (and assessment of) risk.

  This has nothing to do with Darwin but rather more to do with an educational system designed and built for the industrial age. Education today is an advertising agency which leads us to believe we need the society on which it relies upon for its existence.

  Beginning with the schooling system and followed by “higher education”, the middle and upper middle class in developed societies are by and large serfs. And they’re serfs because they don’t understand risk.

  The overwhelming majority look at risk incorrectly. They look at it two dimensionally: “The more risk I take the more ‘volatility’ I have.” The fact is, risk is actually subjective to your own personal situation. Mismanaging your own personal situation increases risk disproportionately.

  Let me give you an example of how easily an otherwise intelligent person gets royally screwed by the system by routinely miscalculating risk.

  Let’s take Harry, a fictional guy from a middle class family who’s just left high school. Harry really wants to get ahead and has set himself a goal of becoming a millionaire by the time he’s 25. He figures that by 35 he’ll be worth north of $10 million.

  Truthfully, these figures don’t mean much to him but he’s had a small taste of the life and he knows it costs. There was that time he was trying to impress a brunette, and they dined at one of David Chang’s NY restaurants and he still remembers the almost palpable smell of money in the air as diners around him flashed Hublots, diamond necklaces and sophistication.

  He remembers how the waiter unscrewed the cap of the water as though defusing a nuclear bomb. And although the beef he ordered was so thin that he had to lick it off the plate because it kept falling off the fork, his friends were really impressed and the girl so floored that she showed her appreciation by keeping him up all night.

  The first thing poor Harry is told is to get an education. And so he does just that. Years of schooling have failed to developed in him critical thought. And so, though he has access to almost every resource one can think of, and at a cost approaching zero, he automatically associates education with a four-walled institution where people who like books theorize on how the real world operates, most never having experienced it first hand.

  Here he spends 3 years getting into girls’ pants, drinking too much and associating with the same type of people as himself, which does little to develop his critical thought processes. Harry is rewarded with two pieces of paper. One represents his qualification and the other represents the six figure debt he now owes. Remember that the knowledge acquired between the drinking and sex is already free.

  

  This is Harry’s first critical step in miscalculating risk. He exits university with a piece of paper and the world skills and street-smarts of a juvenile because his free time has been spent drinking and test driving anything in a skirt. Most importantly his future income is already tied up in debt repayments.

  Fresh out of university Harry now has two doors ahead of him…

  The Red Door

  Choosing the red door takes Harry into a job. This promises a monthly revenue stream which appears to offer security and consistency. The lure is strong. After all the need to pay off his student debt lurks high on Harry’s list. He’s excited to put himself to test in the “real world” and believes that he can really target becoming wealthy once he’s got his student debt paid off and a few years under his belt.

  The Green Door

  Here Harry must take his skills learned and rapidly obtain an education. A real education. He will need to do this by becoming an entrepreneur and building his own outcome. This option offers no monthly revenue stream and no security or consistency. It also offers unlimited upside and a real, not imagined, shot at becoming wealthy.

  Unfortunately, Harry has a distorted view of risk for two reasons:

  1. He has debt and must make debt payments. This distorts his view of real risk.
  2. He doesn’t have an education which shows him the real cost of risk.

  The red door option appears far less risky than the green door option. After all, none of  Harry’s friends are doing this and when he brought up the topic with his parents they nearly blew a gasket. “Don’t give up your future so early on,” they pleaded.  Once again, poor Harry’s lack of critical thought gets the better of him and he takes the red door believing it to be less risky.

  

  Fast forward a few years into cubicle hell and Harry is now earning $60,000 a year. His student debts are easily manageable and in an attempt to get ahead, Harry buys a house, reasoning that he needs somewhere to live and this is the first step towards fulfilling his goal of becoming wealthy.

  He reasons that buying the house is a step in the right direction, but he hates his job more every day and it’s now dawned on him that it’s a long hard slog up the corporate ladder in order to earn the sort of money that can make him wealthy.

  Once again, he’s faced with a dilemma. Does Harry risk kicking in the job and starting a business of his own, doing something that he really loves, or does he stay put?

  And This Is How Harry Analyses The Risk

  Scratching at his now receding hairline he thinks to himself, “I can’t take the risk of starting my own business because it may fail.”

  The downside now is losing not only the $60,000 salary but defaulting on the payments now tied to this revenue stream. The risk is no longer $60,000. The risk now is in losing the ability to keep up student debt payments as well as mortgage payments.

  Pretty soon he’ll fill that house he bought with “stuff” which will either come on hire purchase or simply be added to his mortgage. He lies to himself saying, “Hey, at least I’ve got the income, which I wouldn’t have had without the college education. And at least I’m on my way up because I now own an asset.”

  Wrong! On So Many Levels…

  Here is how Harry should analyse risk for something as simple as deciding whether to quit a $60,000 a year job or not in favour of having a crack at becoming wealthy.

  Let’s look at the downside: if Harry has a job paying $60,000, chances are he’ll be able to pick up another paying $60,000.

  Let’s say that those chances are 60%. So he has a 60% chance of getting back to where he is now if he screws up.

  Let’s further say that there is a 20% chance he can only get another job paying $50,000, and another 20% chance he will only manage to get a position paying $40,000.

  The worst case scenario is therefore a 20% chance of a $20,000 loss. This is his real risk. What then is the upside?

  The upside is unlimited. Literally!

  Even if Harry completely screws things up, a year running his own business will provide him with 10 years worth of “higher education” leaving him far more qualified than he’ll ever be if he stays in his job.

  Why wouldn’t Harry risk a 20% chance of losing $20,000 for a potentially unlimited upside?

  The reason Harry doesn’t make the trade is because he’s already tied his $60,000 revenue stream to a host of liabilities. Now I hear some of you saying, “Oh no, but he owns a house and that’s an asset”. No, it’s not!

  Assets make you wealthy. They provide you with more, not less freedom. Is Harry’s house doing any of those things?

  Harry has already fallen into a trap where he is no longer free to make rational choices. Freedom is wealth.

  The financial infrastructure surrounding Harry and the education he’s received is DESIGNED to ensure that debt is never repaid, but only serviced.

  If you, dear reader, and I can create a loan for a $1 million and collect an interest payment on it for eternity, all the while getting the poor sucker who’s taken the loan to sign up for even more loans on more liabilities, then that, my friend, is an awesome deal for us. This is what banks, insurance companies and credit agencies make a living out of.

  80% of people routinely make the same decisions Harry does and then continue to do so throughout their life. Is it any wonder why despite having cars, boats, a house and all the trappings of the enslaved, they reach middle age, exhausted, unfulfilled, and forever trapped in these damn payments, with some far off absurd goal to pay off the loans upon retirement?

  This brings me to that Italian mathematician I mentioned last week.

  The Law Of The Vital Few

  Vilfredo Pareto first observed the phenomenon that 80% of the land in Italy was owned by 20% of the people. Since then this phenomenon has been mathematically proved across literally every spectrum of society and business.

  The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes.

  What I discussed last week was how we’re hard wired to take notice of pain. This neurological fact is played upon by many industries where we are led to believe things which just ain’t so. We can see the results in wealth distribution, just as Vilfredo observed in the early 20th century.

  

  Take early stage venture capital for example. If I had a brick for every person who’s told me that I’m taking massive risk by investing in early stage private companies, I’d have enough to rebuild the Berlin Wall.

  Risk is not one dimensional. It’s a known fact that well over 50% of early stage deals go belly up. Risky? Sure, it is if viewed in isolation.

  What is also a fact is that the mean return of early stage VC investments is north of 50% per annum. This is the mean and like anything else with a little bit (OK, a lot) of work, outperforming the average in anything is entirely achievable if you put effort into it.

  Use proven laws to tilt the balance of probability massively in your favour. Turn off the TV. Travel. Educate yourself.

  Unless you want to be part of Pareto’s 80%, then don’t invest in what 80% of the market are invested in. Look for asymmetry. Look for what lies in the 20%.

  – Chris

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• "Fight Me!": "Shocking" Video Shows Migrant Melee In Swedish Refugee Home

  Tensions are running high in Sweden, the country with the highest per capita rate of sheltered asylum seekers.

  Just yesterday we brought you video footage depicting a gang of “football hooligans” who stormed the central train station in Stockholm on the way to assaulting migrants and generally running amok in a show of nationalistic furor.

  The incident came on the heels of an attack at a migrant house that left 22-year-old Alexandra Mezher dead. She was stabbed to death by an unaccompanied migrant child who was living at an asylum center in Molndal, where she had been working for several months.

  “We refuse to accept the destruction of our once to safe society. When our political leadership and police show more sympathy for murderers than for their victims, there are no longer any excuses to let it happen without protest,” a kind of manifesto distributed ahead of the train station melee read. “’The justice system has walked out and the contract of society is therefore broken – it is now every Swedish man’s duty to defend out public spaced against the imported criminality.”

  On Sunday, we go back to Sweden to bring you footage from inside a migrant shelter near Jonköping where a fight nearly broke out between a staff member and a distraught refugee.

  It’s not entirely clear what went wrong, but here’s what The Local has to say:

  In the video, one of the refugee youths is seen pleading with the worker “please, please, please”, before the worker erupts in anger.

   

  “You have a problem with me?” the youth then asks, getting closer, before he begins shrieking, “fight me! fight me! fight me!” and then breaks down screaming and sobbing uncontrollably on the floor.

   

  A broken table is visible. In the background, shouts of “fuck you!”, and “shut up!” are clearly audible.

   

  The worker told Swedish Radio that a disturbance had broken out shortly before the video was recorded which had forced him and other staff members to lock themselves in their rooms.

   

  He claimed that the man filmed apparently undergoing a nervous breakdown was the ringleader of the refugee youth, and was faking his apparent anguish for the camera.

  As you can see, the “integration” process is going swimmingly.

  

  

  

  

  

• "The Fed Suspended The Laws Of The Market In Order To Save It" – What Happens Next

  That the Fed has been boxed in by unleashing destructive monetary policies to “fix” decades of prior policy mistakes, is something we have been warning about since our first day. And, with every passing day that the Fed and its central bank peers pile up error upon error  to offset prior mistakes, the day approaches when this latest bubble, which some have dubbed it the “central banks all-in” bubble, will burst as well: Friday’s shocking announcement of NIRP by the BOJ just brought us one step closer to the monetary doomsday.

  However, the one saving grace for the central banks was that as long as none of the market participants who benefited from these flawed policies dared to open their mouths and point out that the emperor is naked, nobody really cared: after all, why spoil the party, especially since virtually nobody outside of finance knows, let alone cares, about monetary policy or why the Fed is the most important institution in the world.

  All of that has changed in recent weeks, when just one week ago in the aftermath of the Fed’s dovish quasi-relent, the billionaires in Davos were quite clear that in light of the upcoming bursting of the latest “policy error” bubble by the central banks, “The Only Winning Move Is Not To Play The Game.” As the WSJ summarized the Davos participants’ mood so well, “their mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long.”

  There is just one problem: central bank intervention simply can not go away. Exhibit A: NIRP in Japan.

  To be sure, increasingly it is become a consensus view that central banks are trapped, with further intervention no longer beneficial and yet unable to relent; over this past weekend, this perspective was best summarized by Deutsche Bank’s credit derivatives strategist, Aleksandar Kocic, who writes that the Fed had to “suspend the laws of the market in order to save it.” He also adds that the market was not saved, and all the risk that piled up and was swept under the carpet courtesy of the Fed, is merely waiting for the outlet to be released in one risk explosion.

  Here is the full note previewing what the Fed hath wrought.

  Beyond the fourth wall

  It has been our contention for some time that when it comes to interaction between the Fed and the markets, the rules of the game have changed. There are two dimensions of this problem. One is the Fed/market communication and dynamic have been both transformed to resemble the Brechtian theatre where the fourth wall has been removed. The market is observing the Fed and the Fed is observing the market — the “audience” is actively involved in shaping the play. The actors look for clues from the audience and shape the script according to audience’s reaction. They are not merely passive spectator, but involved observers able to influence the play. The most explicit recognition of this has been the September FOMC. This type of circular reaction has been a consequence of the Fed assuming the role of a market stabilizer post-2008. However, as the stimulus is unwound, this type of interactive play will continue (this time in reverse) and stability of the markets could be compromised.

   

  The other dimension concerns the particulars of stimulus implementation. Policy response to the crisis consisted of unprecedented injection of liquidity, transfer of risk from private to public balance sheet, and reduction of volatility from its toxic levels. The net result was near-zero rate levels and collapse of volatility across the board, while different market sectors developed high degree of coordination. But, risk cannot disappear; it can only be transferred or postponed by temporarily suspending the existing transmission mechanisms and the rules of the markets.

   

  During QE days, Fed has acted as a non-economic actor. Its presence in the market was aimed at achieving “social” and not necessarily financial goals – bond purchasing was conducted in order to lower the yields rather than to make profit over any given time horizon. Markets laws had to be suspended in order to restore normal functioning of the markets. This was the intrinsic logic of QE.

   

  As such, policy response in its core is an extension of what in political context is known as the state of exception. The intrinsic contradiction of policy response to the crisis – suspend the laws of the market in order to save it – is resolved only by understanding that suspension is temporary. Stimulus will have to be unwound. But, and here lies the problem, accommodation has been in place for a very long time and this has had a profound impact on investors behavior, market functioning and its dynamics.

   

  At the moment, consensus is shaping around the view that the market is driving the “play” by demanding relent, suggesting the implication that stimulus withdrawal has been premature. Lack of relent, without improvements in Asia and global economy is a policy mistake territory. The Fed is hiking, while it is importing disinflation. The curve would continue to flatten while persistence of rate hikes supports USD and pushes the short end of the curve higher. This is unlikely to be supportive for risk and should cause higher risk asset vol. Continued decoupling and EM dilemma regarding the tradeoff between weaker currency and growth is likely to keep FX vol at elevated levels as well.

   

  Relent is supportive for risk and would mean return to carry trade in rates, while decoupling is no longer an issue and tensions in currency space and EM are no longer acute. This means lower vol across the board.

   

  As a consequence of this landscape, three themes would dominate the near term: Policy mistake, negative rates and risk assets range.

   

  In the background of all this looms the risk of massive, one time, devaluation by China and possibly entire region which could cause a significant repricing across the board and further destabilize global markets in the near term.

  Which brings us to the supreme irony: only a Fed which admits it has lost all credibility can “save” financial markets. However, since by definition its credibility would be henceforth lost, this would also be the final intervention that the Fed could engage in without proceeding to the next and final state of play: paradropping money in hopes of unleashing (hyper)inflation, as the opportunity cost to preserving credibility will, at that point, be zero.

  And since even market participants now have the courage to admit that “the Fed emperor is naked”, it is only a matter of time before the Fed has to decide: either welcome the crash, or relent and do everything in its power to unleash the BTFD animal spirits one final time.

  

  

  

  

  

• The Civil War Of "The Right"

  Submitted by Patrick Buchanan via Buchanan.org,

  The conservative movement is starting to look a lot like Syria.

  Baited, taunted, mocked by Fox News, Donald Trump told Roger Ailes what he could do with his Iowa debate, and marched off to host a Thursday night rally for veterans at the same time in Des Moines.

  Message: I speak for the silent majority, Roger, not you, not Megyn Kelly, not Fox News. Diss me, and I will do fine without Fox.

  And so the civil-sectarian war on the right widens and deepens.

  And two questions arise: Will the conservative movement and Republican Party unite behind Trump if he is the nominee? And will the movement and party come together if Trump is not the nominee?

  A breakdown of the balance of forces in this civil-sectarian war finds most of the media elite of the right recoiling from Trump, while Trump leads by a huge margin in Middle America.

  National Review, Commentary, The Weekly Standard, Wall Street Journal, and the conservative and neocon columnists on the op-ed pages at The Washington Post and The New York Times have almost all come out viscerally against Trump.

  He, in turn, has trashed several by name. Wounds have been inflicted that will not soon be forgiven or forgotten.

  But while columns and magazines appear in print twice weekly, weekly, biweekly and monthly, millions listen to talk radio every hour of every day. And though websites might be updated daily, radio, more than print, is a medium that moves people.

  Among the top talkers, Trump gets more than a fair hearing. Some of the talk shows with the largest audiences are sympathetic, others are supportive. And the Drudge Report, the daily newspaper of Middle America, tracks Trump’s every move.

  In the media battle, then, the media elite are being swamped by Trump. And Trump is winning the political battle as well. According to almost every poll, state or national, Trump is ahead of all rivals, with his closest challenger trailing by 10 or more points. Among the populist and Tea Party right, Trump has lapped the field, and he is now competitive among Evangelicals.

  

   

  How will the civil war on the right end?

  Because the differences are not simply about personalities and politics, but principles and policies, it may not end with this election.

  There is talk of having the anti-Trump conservatives unite behind the one establishment candidate — Jeb Bush, Marco Rubio, John Kasich, Chris Christie — who emerges strongest after New Hampshire, to storm through the later primaries and take down Trump.

  Yet such a scenario seems implausible.

  That audience of 24 million that tuned in to the first Fox News debate and the 22 million that tuned in to the CNN debate were drawn to Trump, and Ben Carson, Ted Cruz and Rand Paul, because these men seemed to represent real change.

  Democrats who support Bernie Sanders and Republicans who support Trump may disagree on where America should go, but both agree on the need for America to radically change direction.

  Yet, if this battle for the GOP nomination should yield another establishment Republican, would not all the fire and energy of the campaign of 2015-2016 soon disappear?

  Consistency not being their long suit, some among the conservative elites who denounced Trump’s walkout from the debate, threaten to walk out of the party should Trump win.

  But walkout is an option open to populists as well. And if, after the rise of the Tea Party, the capture of Congress in 2014, the Trump-Cruz-Carson rebellion, the GOP offers the silent majority yet another establishment candidate, will populists and Tea Party types rally to him?

  Perhaps. One recalls that, after the Revolution of 1789, the march on Versailles, the guillotining of Louis XVI, the rise of Robespierre, and the Era of Napoleon, the French got the Bourbon Restoration — Louis XVIII, brother of the beheaded king, sitting on the old throne.

  Still, if the populist-conservative struggle of the last five years, to put behind them the days of Bush 41 and Bush 43, produces Bush 45, or his moral equivalent, how many would shoulder arms and march for him?

  And, again, the argument over the acceptability of Trump aside, there is a deeper conflict within the GOP and conservative movement that may be irreconcilable. Millions of conservatives and independents believe it was the Republican policies of the recent past that also failed America.

  The Bush-Clinton-Obama trade policies produced the $12 trillion in trade deficits, which measures the net export of U.S. factories and manufacturing jobs, which explain the wage stagnation.

  The Republican-neocon foreign policy of intervention and nation building is a primary cause of the present disasters in Afghanistan, Iraq, Libya and Yemen.

  The immigration policies championed by Bush Republicans as well Clinton and Obama Democrats produced the immigration crisis that propels the Trump campaign.

  In short, it will be difficult for populists to unite with Beltway conservatives in 2016, when the former see the latter as part of the problem, not the solution.

  

  

  

  

  

• WalMart "Absolutely Shafted" Washington DC; Here's How

  It’s been nearly a year since a grinning Doug McMillon recorded a video message to the world in which he explained that WalMart was set to raise the minimum wage for its lowest paid employees.

  After all, McMillon said, “it’s our people that make the difference.”

  11 months later, those “people” (the lowly shelf stockers and cashiers) aren’t materially better off than they were before, because handing someone $10/hour instead of $9 is such a small concession that you might as well have done nothing. In other words, $10 is no more of a “living wage” than $9 is.

  But while the impact on the retailer’s legions of hourly employees has been minimal, the consequences for the company have been nothing short of dramatic.

  As we’ve explained on any number of occasions, you can’t very well just implement an across-the-board wage hike if you’re WalMart without making up for it somewhere. Why? Because the business model runs on razor thin margins and because WalMart is determined to maintain “everyday low prices” which means the cost of the raises can’t be passed on to the consumer.

  First WalMart tried squeezing the supply chain by asking vendors to pass along savings to Bentonville and by charging a variety of storage fees. When that didn’t work, the company started firing people and cutting hours. Here’s how that works:

  

  Some of the cuts came at the home office in Bentonville, meaning that the move to put a few extra pennies in the pockets of hourly workers resulted in the loss of hundreds of breadwinner jobs.

  Finally, in October, WalMart threw in the towel and announced a shocking guidance cut that prompted the stock to plunge by the most in 17 years.

  Earlier this month WalMart doubled down on the wage hike debacle by promising to raise wages for employees higher up the corporate ladder (something we predicted would happen last year). The retailer announced the new wave of raises just days after saying it would close 269 stores and fire 16,000 people.

  Apparently, the good folks in Bentonville are oblivious to the connection between the closures and previous wage hikes.

  Also oblivious are policy makers who have pushed for wage hikes without thinking through the consequences.

  “Washington, D.C., is beginning to look like a cautionary example of what can happen when bastions of liberalism throw caution to the wind in raising the minimum wage,” IBD wrote, earlier this month. “The nation’s capital is now losing about 700 jobs a year at restaurants, hotels and other leisure and hospitality sector venues, a sharp reversal from the gain of 2,000 such jobs per year the city was enjoying before it hiked the minimum wage by 27%, first from $8.25 to $9.50 an hour in July 2014 and then to $10.50 in July 2015.” Here’s more: 

  Now, as D.C. employers brace for yet-another minimum-wage hike to $11.50 set for this coming July, Wal-Mart has called off two of the city’s most-prized retail developments.

   

  Wal-Mart said it would close 154 stores in the U.S., mostly small-format locations. But even as the nation’s biggest retailer said it would keep opening supercenters, including 50 to 60 in the coming year, it told District officials that it won’t go forward with plans for two huge stores that were expected to create hundreds of new jobs in one of the city’s poorer sections.

   

  Company officials cited the city’s coming minimum-wake hiketo $11.50 an hour as one of the reasons for its change of heart. Wal-Mart has signaled to investors that its already-narrow profit margins could shrink by one-third as it voluntarily hikes its own base wage to $10 an hour.

  DC officials aren’t happy. 

  “It’s an outrage,” said former mayor Vincent C. Gray, who The Washington Post notes in 2013 completed the handshake deal for the stores. “This is devastating and disrespectful to the residents of the East End of the District of Columbia.”

  “I’m blood mad,” D.C. Mayor Muriel E. Bowser (D) fumed.

  As WaPo went on to recount, “under the initial deal, Walmart could build stores almost anywhere in the District, as long as it opened two stores in its poorest wards and areas of the city sometimes referred to as food deserts, with few — if any — options for fresh produce and groceries.” 

  While WalMart apologized and cited its own internal P&L calculations for the decision, officials say the real reason is the rising pay floor. Here’s WaPo again: 

  Council member Jack Evans (D-Ward 2), head of the council’s finance committee, sat in on the meeting Friday morning with Walmart officials and Brian Kenner, Bowser’s deputy mayor for planning and economic development.

   

  Evans said that, behind closed doors, Walmart officials were more frank about the reasons the company was downsizing. He said the company cited the District’s rising minimum wage, now at $11.50 an hour and possibly going to $15 an hour if a proposed ballot measure is successful in November. He also said a proposal for legislation requiring D.C. employers to pay into a fund for family and medical leave for employees, and another effort to require a minimum amount of hours for hourly workers were compounding costs and concerns for the retailer.

  “If I were mayor, I’d get on a plane and go to Bentonville,” Gray said. “We have absolutely been shafted. They should be held accountable.” 

  Yes, Mr. Gray, someone should be “held accountable” for the hundreds of jobs poor residents won’t get thanks to the city’s move to aggressively hike the pay floor. But when it comes to who should be held accountable, perhaps you should ask the city’s unemployed if they’d rather have a job with the minimum wage at $10/hour or be jobless with the minimum wage at $11.50/hour.

  Once you get your answer, look inward on the whole “accountability” thing.

  

  

  

  

  

• Did A Central Banker Just Margin Call All Other Central Banks' Credibility?

  Authored by Mark St.Cyr,

  In a stunning policy move Bank of Japan Governor Haruhiko Kuroda introduced and adopted negative interest rates. The word “stunning” is fitting, for just weeks prior he stated there was no need to adopt such measures. It seems by all accounts his mind changed (or was made right?) after returning from Davos.

  Whether or not this is the case one thing is certain: The Bank of Japan (BOJ) has thrown not just a monkey wrench into the financial system. He may have simultaneously made every other central bankers toolbox irrelevant, as well as incapable, to deal with the resulting damage. It’s one thing to have the right tool at the right time to tweak or fix. It’s quite another to lose grip of that tool where it falls into the running gears of the machinery. That’s when far more can (and usually does) go awry than just the original issue. (Think losing the small water pumps that keep water in a nuclear reactor as an analogy.)

  No matter what anyone in the “smart crowd” would argue different. Today, both the financial world along with business in general is currently being manipulated made possible via crony capitalism as well as simultaneously being stymied by central bank policies. All occurring through the direct myriad of interventions into the capital markets globally. I believe that in no other time since the days of direct rule of Kings and Queens has such a small cabal of people had so much influence, as well as control, of global finance and business influence. Ever.

  Politicians of all stripes sway or prestige are pale in comparison today as to the dictates coming from one central banking authority or another. However, with such authority comes a very heavy price. That price? It’s becoming easier to spot both the “who,” as well as the “where,” catastrophic mistakes in policies effecting societies well-being may originate from. And I don’t think many central bankers truly understand just how precarious in that position they now sit.

  We were told (“we” being the business world) ad nauseam by the central bankers themselves that they knew precisely what they were doing. In 2008 as the financial markets as well as the economy came-off-the-rails the Federal Reserve stepped in and stabilized what seemed to be an out of control death spiral. Many will argue valid points on both sides whether it was good, bad, or an ugly way the tools used to stem that tide were employed. Personally I believe there was a legitimate and valid argument to step in.

  However: It was the remaining “in” while supplying ever more of the very things that made the original crisis inevitable in the first place that had/has anyone with a modicum of business acumen apoplectic.

  The relentless iterations of QE (quantitative easing) and an unrelenting stance to remain at the zero bound on interest rate policies for years could be seen for the ever ballooning, ticking time bomb they were. It didn’t take too much imagination and thought thru to envision just how difficult along with its disruption in both financial as well as business thing would become once the proverbial punch-bowls were taken away.

  Economic theory as to explain and guide central banks through this malaise are suddenly finding themselves squarely in the line of fire of business and financial fact: They’ve created an absolute mess. And what’s worse? It may be the bankers themselves that may no longer trust their own omnipotence to deal with what’s coming. i.e., They aren’t going to wait or care any longer about coordination of moves. It’s now everyone for themselves as just witnessed by what many are now calling a “Kamikaze” bank policy move from the BOJ.

  Why is this so troubling many are asking. After all, it seems that the BOJ governor’s mind changed after meeting with all the other bankers and attendees at Davos. And if one is to believe all the reports; more QE, and negative interest rates were what was being called (as well as begged) for as to help stem the tide of this current market malaise. Maybe the BOJ just decided to emulate what’s now taking place in the EU? Sounds logical right?

  Well yes, maybe. However, what may be far more front-of-mind for the BOJ is the current meltdown in China. Japan may try to sweep away concerns regarding contamination of any meltdown at their nuclear plants. What they can’t turn a blind eye to is the potential for contagion in any currency meltdown in the CNY. e.g., Chinese Yuan. And it seems that potential grows stronger with each passing day.

  And just like the potential for radiation effects are at first unseen to the naked eye. The possible ramification of suddenly throwing one of the most heavily traded currencies (e.g., ¥Yen) into an anytime, anywhere, out-of-the-blue change in monetary pricing stability can affect carry trades across the global markets in ways far more treacherous, as well as dangerous than anyone ever considered. Especially in today’s highly levered, correlated, high frequency trading (HFT) algorithmic based market. The resulting effects are yet to be felt. After all – this all just happened Friday.

  I would garner there were many a meeting across many financial houses over the weekend than will admit. For when it comes to a carry trade – any carry trade – stability of perceived pricing models is key. A change of just one fractional amount too far in the wrong direction for assumption can render a fortress balance sheet into a falling house of cards with an immediacy most never truly comprehend. One would think 2007/08 would still be well-remembered. By the way many are talking – it seems as if it was ancient history. It’s unnervingly surreal.

  Today the markets are gyrating widely reminiscent of those early stage stresses and/or warning signs just prior to the first real downdraft experienced during the initial stages of the financial crisis. Back then we had one policy move, or jawboning official after another announcing plans to do this or that, sending the market into fits and starts near daily.

  Many times these daily knee-jerk rises of 1% plus moves were only to be followed with subsequent selloffs erasing (and then some) any gains made prior. Sometimes with incalculable speed and disruption. Today, with an ever infected market now under near complete and utter dominance via HFT parasitic trading programs, these swings may become even more violent as well as fear induced as supposed “liquidity” vanishes and/or appears from markets faster than the laser beams can quote stuff that “liquidity” in the first place.

  The problem now is: Which central banker or policy is to be believed? And more importantly: for how long? Couple that with: Who will now be trusted as having credibility both in stating what they mean, and doing what they said? As well as: doing what they said because they know what they are doing? Quite the conundrum, yes?

  The issue at hand is answering the question of: just why did the BOJ do what it just did – in the way that it did it? The ramification to those questions could not be more explicit in their meaning than almost any other in my opinion. For the global markets may be in far more perilous a position than the central bankers themselves ever imagined, let alone – contemplated.

  For those who never seen the movie “Margin Call” there’s a great scene as it’s then irrefutable and understood that it’s all about to fall apart where Sam Rogers (Kevin Spacey) is expressing concerns to John Tuld (Jeremy Irons) that he believes the firm is panicking in selling everything all at once, causing a possible run on everything and melting down the system. The response from Tuld is quite fitting when he states, “It’s not panicking if you’re first.”

  Today, as many of the financial media and others are trying to explain away this monetary move by the BOJ as something as simple as “Kuroda has said he likes to shake things up, or be unpredictable.” I think they may be looking in the wrong direction. For what now must be considered into that equation is something that portends to far more concern than meets the eye at first blush. To wit:

  Did the BOJ’s out-of-the-blue reversal on its monetary stance which was refuted just weeks prior by Mr. Kuroda himself take place because after listening to the arguments, suggestions, as well as concerns, from the participants at Davos he concluded much like what the movie “Margin Call” depicted: It was all about to unravel? And if so: is this him deciding to be “first” and considered it his only choice?

  And if so, what does his actions pose for the credibility of his brethren bankers? Do they now act from a place of “Who can they trust?” And what does that mean for the rest of us? The implications are staggering when you begin to open those doors for they have the potential of making Pandora’s box seem harmless in comparison.

  However, maybe this is all hyperbole and should be disregarded as over the top rhetoric from Chicken Little types with no actual central banking policy experience. Maybe we should take comfort in the unwavering hand of credibility that never saw the great financial crisis to begin with when he argued that subprime mortgages and the crisis they foretold were “contained.” Then Fed. chairman Ben Bernanke.

  What does he say today? Well, when he was speaking in Hong Kong at the Asian Financial Forum as Davos was also transpiring he stated, “I don’t think China’s economic slowdown is that severe to threaten the global economy, ” along with “The U.S. and China are not as closely tied as the market thinks.”

  Maybe “Margin Call” was one of the movies available on demand in the rooms at Davos, and all Mr. Kuroda is now doing is channeling his inner “Jon Tuld” moment. And why not? “It’s not panicking if you’re first.”

  However, for the rest of us, we can only wait and see what happens next.

  

  

  

  

  

• Who Warned "Be Careful What You Wish For… If Interest Rates Go Negative"

  Now that the Bank of Japan has joined other central banks such as Denmark, Sweden, the ECB, and Switzerland into pushing its rates into what until just two years ago was considered the monetary twilight zone below the zero bound, and in the process sending a record $5.5 trillion in government bond yields negative…

  

   

  … which quickly puts into in context all the recent warnings about physical cash being eliminated (because as a reminder negative rates and cash simply can not coexist as the latter provides a ready immunity from the former), such as the following:

  • Norway’s Biggest Bank Demands Cash Ban
  • Bank Of England Economist Calls For Cash Ban, Urges Negative Rates
  • Citigroup’s Gold “Expert” Demands A Cash Ban
  • Leading German Keynesian Economist Calls For Cash Ban
  • The War On Cash Is Advancing On All Fronts

  Perhaps the only open question is which comes first i) Japan hinting at a cash ban, or ii) the Fed going NIRP as well.

  So in light of all this monetary lunacy, we have dug up the following blast from the not so distant past, which contains several rather dire warnings about the dystopian future of a NIRP world:

  • if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.
  • I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.
  • If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.
  • As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly
  • if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers

  And the punchline:

  • we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation

  But the biggest surprise to all of the above is who the source of the warning is. First, however, here is the full text of said warning:

  If Interest Rates Go Negative . . . Or, Be Careful What You Wish For

   

  [T]his post examines some of the possible consequences. We suggest that significantly negative rates—that is, rates below -50 basis points—may spawn a variety of financial innovations, such as special-purpose banks and the use of certified bank checks in large-value transactions, and novel preferences, such as a preference for making early and/or excess payments to creditworthy counterparties and a preference for receiving payments in forms that facilitate deferred collection. Such responses should be expected in a market-based economy but may nevertheless present new problems for financial service providers (when their products and services are used in ways not previously anticipated) and for regulators (if novel private sector behavior leads to new types of systemic risk). 

   

  Cash and Cash-like Products 

   

  The usual rejoinder to a proposal for negative interest rates is that negative rates are impossible; market participants will simply choose to hold cash. But cash is not a realistic alternative for corporations and state and local governments, or for wealthy individuals. The largest denomination bill available today is the $100 bill. It would take ten thousand such bills to make $1 million. Ten thousand bills take up a lot of space, are costly to transport, and present significant security problems. Nevertheless, if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.

   

  If rates go negative, we should also expect to see financial innovations that emulate cash in more convenient forms. One obvious candidate is a special-purpose bank that offers conventional checking accounts (for a fee) and pledges to hold no asset other than cash (which it immobilizes in a very large vault). Checks written on accounts in a special-purpose bank would be tantamount to negotiable warehouse receipts on the bank’s cash. Special-purpose banks would probably not be viable for small accounts or if interest rates are only slightly below zero, say -25 or -50 basis points (because break-even account fees are likely to be larger), but might start to become attractive if rates go much lower.

   

  Early Payments, Excess Payments, and Deferred Collections

   

  Beyond cash and special-purpose banks, a variety of interest-avoidance strategies might emerge in connection with payments and collections. For example, a taxpayer might choose to make large excess payments on her quarterly estimated federal income tax filings, with the idea of recovering the excess payments the following April. Similarly, a credit card holder might choose to make a large advance payment and then run down his balance with subsequent expenditures, reversing the usual practice of making purchases first and payments later.

   

  We might also see some relatively simple avoidance strategies in connection with conventional payments. If I receive a check from the federal government, or some other creditworthy enterprise, I might choose to put the check in a drawer for a few months rather than deposit it in a bank (which charges interest). In fact, I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.

   

  Certified checks, which are liabilities of the certifying banks rather than individual depositors, might become a popular means of payment, as well as an attractive store of value, because they can be made payable to order and can be endorsed to subsequent payees. Commercial banks might find their liabilities shifting from deposits (on which they charge interest) to certified checks outstanding (where assessing interest charges could be more challenging). If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.

   

  As interest rates go more negative, market participants will have increasing incentives to make payments quickly and to receive payments in forms that can be collected slowly. This is exactly the opposite of what happened when short-term interest rates skyrocketed in the late 1970s: people then wanted to delay making payments as long as possible and to collect payments as quickly as possible. Some corporations chose to write checks on remote banks (to delay collection as long as possible), and consumers learned to cash checks quickly, even if that meant more trips to the bank, and to demand direct deposits. However, if interest rates go negative, the incentives reverse: people receiving payments will prefer checks (which can be held back from collection) to electronic transfers. Such a reversal could impose novel burdens on payment systems that have evolved in an environment of positive interest rates.

   

  Conclusion

   

  The take-away from this post is that if interest rates go negative, we may see an epochal outburst of socially unproductive—even if individually beneficial—financial innovation. Financial service providers are likely to find their products and services being used in volumes and ways not previously anticipated, and regulators may find that private sector responses to negative interest rates have spawned new risks that are not fully priced by market participants.

  So who is the the source of the above critical warning about the coming global NIRP, which clearly neither ther Bank of Japan, nor the ECB, nor the SNB, nor the Sveriges Riksbank nor the Danmarks Nationalbank read?

  Who Warned “Be Careful What You Wish For… If Interest Rates Go Negative”

  The answer: the Federal Reserve. And this time, they will not be able to say “we never saw it coming…”

  

  

  

  

  

• What A Cashless Society Would Look Like

  Submitted by Erico Matias Tavares of Sinclair & Co., and reposted from the original as of May 19, 2015 in light of the recent decision by the Bank of Japan to launch negative interest rates.

  What A Cashless Society Would Look Like
  

  Calls by various mainstream economists to ban cash transactions seem to be getting ever louder, while central bankers have unleashed negative interest rates on economies accounting for 25% of global GDP, with $5.5 trillion in government bonds yielding less than zero. The two policies are rapidly converging.

  Bills and coins account for about 10% of M2 monetary aggregates (currency plus very liquid bank deposits) in the US and the Eurozone. Presumably the goal of this policy is to bring this percentage down to zero. In other words, eliminate your right to keep your purchasing power in paper currency.

  By forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees).

  This in turn could boost consumption, GDP and inflation to pay for the massive debts we have accumulated (leaving aside the very controversial idea that citizens should now have to pay for the privilege of holding their hard earned money in a more liquid form, after it has already been taxed). So at long last we can finally get out of the current economic funk.

  The US adopted a policy with similar goals in the 1930s, eliminating its citizens’ right to own gold so they could no longer “hoard” it. At that time the US was in the gold standard so the goal was to restrict gold. Now that we are all in a “paper” standard the goal is to restrict paper.

  However, while some economic benefits may arguably accrue in the short-run, this needs to be balanced in relation to some serious distortions that could rapidly develop beyond that.

  Pros and Cons

  To be most effective, banning cash would most likely need to be coordinated between the US and the EU. Otherwise if only one of the two Western economic blocks were to do it, the citizens of that block might start using the paper currency of the other, thereby circumventing the restrictions of this policy. Can’t settle your purchase in paper euros? No problem, we’ll take US dollar bills.

  This is just one aspect that can give us a glimpse of the wide ranging consequences this policy would have. Let’s quickly consider some pros and cons, as we see them:

  Pros:

  • Enhance the tax base, as most / all transactions in the economy could now be traced by the government;
  • Substantially constrain the parallel economy, particularly in illicit activities;
  • Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment;
  • Foster the adoption of new wireless / cashless technologies.

  Cons:

  • The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money. This is why Greece may have to leave the euro, since its inability or unwillingness to adopt more austerity measures, a precondition to secure more euro loans, will force it to print drachma bills to pay for its debts;
  • Paper money costs you nothing to hold and carries no incremental risk (other than physical theft); converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency directly backed by the central bank for currency backed by your local bank;
  • This could have grave consequences for retirees, many of whom are incapable of transacting using plastic. Not to mention that they will disproportionately bear the costs of having to hold their liquid savings entirely in a (costly) bank account;
  • Ditto for very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent, on government handouts;
  • We wonder if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries;
  • Illegal immigrants would be out of a job very quickly – a figure that can reach millions in the US, creating the risk for substantial social unrest;
  • If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt;
  • Of course enforcing a government mandate to ban cash transactions must carry penalties. This in turns means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time;
  • Banning cash transactions might even propel the demise of the US dollar as the world’s reserve currency. The share of US dollar bills held abroad has been estimated to be as high as 70% (according to a 1996 report by the US Federal Reserve). One thing is to limit the choices of your own citizens; another is trying to force this policy onto others, which is much harder. Foreigners would probably dump US dollar bills in a hurry and flock to whichever paper currency that can offer comparable liquidity.

  In light of the foregoing does banning cash transactions make sense to you? Aren’t the risks at all levels of society just too large to be disregarded?

  Unintended Consequences

  Paper money can be thought of as a form of interest-free government borrowing and therefore as a saving to the taxpayer. Given the dire situation of Western government finances, probably the very last thing we should do right now is to ban cash transactions.

  Think about it. If the government prints bills and coins to settle its debts, rather than issuing bonds, it does not add to its snowballing debt obligations. Of course the counterargument is that this might result in significant inflation once politicians put their hands directly on the printing press. But isn’t this what the mainstream economists are so desperately trying to do to avoid deflation?

  And it’s not like people in the West have tons of cash under the mattress. Let’s do the math. If only 30% of US paper money is held by residents, this is only about 2% of GDP, and probably unevenly distributed. It is therefore very dubious that any boost to economic activity will be that significant. In fact there is no empirical evidence that demonstrates this policy will work as intended (not that this has ever stopped a mainstream economist)

  Moreover, an economy’s ability to create money would be even more impaired if its banking system were to crash – exactly at the time when it would need it the most. In reality it could be hugely deflationary because there would be no other currency alternatives. Talk about unintended consequences.

  As to who could replace the US in providing paper liquidity to the world, we don’t need to think too hard. China will surely not ban cash transactions given that almost a billion of its citizens are still quite poor and most have no access to banking services (plus it seems that their own economic advisors are much more sensible). Replacing the US in offshore cash transactions would create substantial demand for the Chinese yuan, at that stage without any real competition from other major economies as presumably none would be using paper.

  It is therefore doubtful that US political leaders would ever endorse such a policy; they would be effectively giving up on an incredible advantage – the US dollar ATM, to the benefit of their main geopolitical competitors. However, given the considerable influence of mainstream economists in financial and political circles this cannot be ruled out, especially during a crisis.

  And it would be just the latest in a set of unprecedented economic policies:

  “A depression is coming? Let’s put interest rates at zero. The economy is still in trouble? Let’s have the central bank print trillions in new securities. The banks are not lending? Let’s change the accounting rules and offer government guarantees and funds. People are still not spending? Let’s have negative interest rates. The economy is still in the tank? LET’S BAN CASH TRANSACTIONS!”

  More Central Planning

  The problem is that central planners never know how and where to stop. If a policy doesn’t work, they just find a way to tinker somewhere else – and with more vigor. Devolving the initiative back to the private sector is never an option.

  Micromanagement of every single detail of our economic lives thus seems to be inevitable. And at that point there will be no more free markets. As pointed out by Friedrich von Hayek, “the more the state plans the more difficult planning becomes for the individual.”

  Banning cash transactions seems like yet another excuse to postpone implementing real solutions to our financial problems. How can we have sustainable growth in the economy if:

  • The banks are not solid enough to lend?
  • Consumers are not solid enough to borrow?
  • Overindebted municipalities, states and governments seek ever more tax revenues?
  • An already overburdened private sector is underwriting the cost of every policy error?

  The guys and gals who generate real wealth and employment need encouragement and support, not more penalties on how they choose to go about their business.

  A cash ban does not address any substantive issues. What is needed is a sensible economic proposal and above all political courage to implement it, which so far seems to be lacking.

  There are no free lunches in economics. A cashless society is promising to have very tangible costs to our liberties and future prosperity.

  

  

  

  

  

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• Deep State: Inside Washington's Shadowy Power Elite

  This “state within a state” hides “mostly in plain sight, and its operators mainly act in the light of day,” says Lofgren, and yet the “Deep State does not consist of the entire government.”

  “Our plutocracy, whether the hedge fund managers in Greenwich, Connecticut, or the Internet moguls in Palo Alto, now lives like the British did in colonial India: ruling the place but not of it. If one can afford private security, public safety is of no concern; to the person fortunate enough to own a Gulfstream jet, crumbling bridges cause less apprehension, and viable public transportation doesn’t even compute. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare?”

   

  ? Mike Lofgren, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government

   

  "Our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise.

   

  But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened."

   

  Martin Gilens and Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, Princeton 2014

  "As a congressional staff member for 28 years specializing in national security and possessing a top secret security clearance, I was at least on the fringes of the world I am describing, if neither totally in it by virtue of full membership nor of it by psychological disposition.

   

  But, like virtually every employed person, I became, to some extent, assimilated into the culture of the institution I worked for, and only by slow degrees, starting before the invasion of Iraq, did I begin fundamentally to question the reasons of state that motivate the people who are, to quote George W. Bush,  'the deciders.'

   

  Cultural assimilation is partly a matter of what psychologist Irving L. Janis called groupthink,  the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive.

   

  As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said,  'It is difficult to get a man to understand something when his salary depends upon his not understanding it.'"

  Mike Lofgren

  h/t Jesse's Cafe Americain blog

  *  *  *

  As we previously concluded, for all intents and purposes, the nation is one national “emergency” away from having a full-fledged, unelected, authoritarian state emerge from the shadows. All it will take is the right event—another terrorist attack, perhaps, or a natural disaster—for such a regime to emerge from the shadows.

  As unnerving as that prospect may be, however, it is the second shadow government, what former congressional staffer Mike Lofgren refers to as “the Deep State, which operates according to its own compass heading regardless of who is formally in power,” that poses the greater threat right now.

  Consider this: how is it that partisan gridlock has seemingly jammed up the gears (and funding sources) in Washington, yet the government has been unhindered in its ability to wage endless wars abroad, in the process turning America into a battlefield and its citizens into enemy combatants?

  The credit for such relentless, entrenched, profit-driven governance, according to Lofgren, goes to “another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose.”

  This “state within a state” hides “mostly in plain sight, and its operators mainly act in the light of day,” says Lofgren, and yet the “Deep State does not consist of the entire government.”

  Rather, Lofgren continues:

  It is a hybrid of national security and law enforcement agencies: the Department of Defense, the Department of State, the Department of Homeland Security, the Central Intelligence Agency and the Justice Department. I also include the Department of the Treasury because of its jurisdiction over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall Street.

   

  All these agencies are coordinated by the Executive Office of the President via the National Security Council. Certain key areas of the judiciary belong to the Deep State, such as the Foreign Intelligence Surveillance Court, whose actions are mysterious even to most members of Congress. Also included are a handful of vital federal trial courts, such as the Eastern District of Virginia and the Southern District of Manhattan, where sensitive proceedings in national security cases are conducted.

   

  The final government component (and possibly last in precedence among the formal branches of government established by the Constitution) is a kind of rump Congress consisting of the congressional leadership and some (but not all) of the members of the defense and intelligence committees. The rest of Congress, normally so fractious and partisan, is mostly only intermittently aware of the Deep State and when required usually submits to a few well-chosen words from the State’s emissaries.

  In an expose titled “Top Secret America,” The Washington Post revealed the private side of this shadow government, made up of 854,000 contract personnel with top-secret clearances, “a number greater than that of top-secret-cleared civilian employees of the government.”

  Reporting on the Post’s findings, Lofgren points out:

  These contractors now set the political and social tone of Washington, just as they are increasingly setting the direction of the country, but they are doing it quietly, their doings unrecorded in the Congressional Record or the Federal Register, and are rarely subject to congressional hearings…

  The Deep State not only holds the nation’s capital in thrall, but it also controls Wall Street (“which supplies the cash that keeps the political machine quiescent and operating as a diversionary marionette theater”) and Silicon Valley.

  As Lofgren concludes:

  [T]he Deep State is so heavily entrenched, so well protected by surveillance, firepower, money and its ability to co-opt resistance that it is almost impervious to change… If there is anything the Deep State requires it is silent, uninterrupted cash flow and the confidence that things will go on as they have in the past. It is even willing to tolerate a degree of gridlock: Partisan mud wrestling over cultural issues may be a useful distraction from its agenda.

  Remember this the next time you find yourselves mesmerized by the antics of the 2016 presidential candidates or drawn into a politicized debate over the machinations of Congress, the president or the judiciary: it’s all intended to distract you from the fact that you have no authority and no rights in the face of the shadow governments.

  

  

  

  

  

• The United States Of Crazy Laws

  Presented with no comment… apart from Arizona wins!

   

  

  

  Click image for large legible version

  Source: The Burning Platform blog
  

  

  

  

  

  

• Glistening Gold & The Rumble In The Ruble – America's "Tribute Scam" Is Unraveling Fast

  Beforer we discuss The Empire of Chaos ongoing attacks on "The Assassin Putin" and The Master of the Universe attempts to topple any challenge to Washington's global hegemony, we thought the following chart may give some much needed context for where the pain really is – the drop in the oil price in local currency terms has been the least of all major nations… for Russia

  

   

  While a case can be made that for Moscow it would be a tremendous waste of hard-earned foreign exchange to try to counter a rig against their currency they simply cannot beat, as the entire fiat financial power of the US is against them.

  As Pepe Escobar via DoomsteadDiner.net notes,  Russia’s Central Bank by now should be all-out selling rubles for gold, and building Russia’s gold reserves.

  Well, it is happening, somewhat.

   

  Last week, Russia’s Central Bank estimated gold reserves to have reached 1,415 metric tons in 2015 – over 17 percent more than 2014, valued at almost $48.6 billion. The share of monetary gold in Russia’s foreign currency reserves rose from 11.96 percent to 13.18 percent.

   

  That’s still not good enough. Why? A harsh answer would be that the Russian Central Bank and the Ministry of Finance, as some analysts argue, are in effect run by saboteurs and vassals of the US financial elite, a.k.a. the Masters of the Universe.

   

  Still, the Russian Central Bank did not intervene to prop up the ruble. And they should not. The best course of action would be to let the ruble go, ending almost all imports, thus forcing self-sufficiency. Or introduce capital controls, with only approved transactions involving foreign currencies. It did work for Malaysia, for instance, after the 1997 Asian financial crisis.

   

  Forget about a China crash

   

  A serious case can be made that Russia does not need much Western foreign investment. That was mostly encouraged by the Central Bank, who held interest rates higher in Russia than the US and EU, naturally leading Russian companies to borrow abroad in US dollars or Euros.

   

  The responsibility of Russia’s Central Bank is to create domestic credit to build the industries that have been cut off from Russia by the falling ruble. This is not inflationary; the increased production out of these investments would nullify the inflationary implications on the newly created credit.

   

  The Russian Central bank instead went for tight money to fight inflation. It would have been much more profitable for Russia to fight inflation by creating credit at low interest rates to finance the construction of the industries necessary to replace the import of foreign products.

   

  Now let’s look at the Russia-China strategic partnership. While Russia may be on the ropes, China is not. China will grow at an estimated 6.5 percent this year – versus 7 percent in 2015. Amid an astounding web of economic restructuring and de-leveraging, US multinationals such as Apple and GM certainly have no interest in a Chinese “crash”.

   

  A key indicator to watch is the growth in China’s demand for oil. Construction has ebbed; but not car manufacturing, which is pumping out 25 million vehicles per year.

   

  To deal with China, the Masters of the Universe deployed a different strategy; they tried to stop Chinese economic growth from fueling the rise in the oil price. Thus the offensive by the usual Wall Street suspects trying to crash China’s stock market using cash settlement on A shares. It did not work.

   

  Now, the Masters of Universe, remote-controlling the Saudis, are essentially trying to pull the plug on global stock markets. One could call it a trillion dollar cash settlement derivative game. There’s no evidence this will be enough to break Russia.

   

  The “assassin” versus the fifth column

   

  Masters of the Universe hysteria on getting rid of President Putin (and reinstating vassal oligarchs) by any means available has reached fever pitch; the latest manifestation is “Putin The Assassin”, with crucial assistance provided by British“intelligence”.

   

  There is no question Masters of the Universe operatives are behind the collapse in oil and ruble prices. Somewhat it’s a repeat of the scenario in mid-2014, when the oil price crashed and there was no visible increase in output; what happened was the – invisible – dumping of seven million barrels a day of Gulf oil under orders by the Masters of the Universe, according to surefire (American) banking sources.

   

  The Fed mightily contributed to the present disorder by raising interest rates when the US economy was sick, while cash settlement manipulators in Wall Street used this as the basis for their move to tank the markets. It goes without saying that the usual suspects will make hundreds of billions of dollars out of the current market crash. A good place to watch is what goes on inside BlackRock.

   

  Into this gloomy scenario steps in none other than the aspiring Master of the (New) Universe, Chinese President Xi Jinping, in his high-profile tour of the Middle East. Xi’s three-pronged business/charm offensive in Saudi Arabia, Iran and Egypt should be interpreted as Beijing’s shot at reshaping Southwest Asia in a framework closer to the Shanghai Cooperation Organization (SCO).

   

  Xi as much as anyone knows very well how the whole American economy – based on a worthless global reserve currency – is fuelled by a rapacious, barely disguised tribute, paid by every nation in the world to the Empire of Chaos. And Xi knows how this tribute scam is unraveling, fast.

   

  In Riyadh, Xi even implied, in a very Chinese, nuanced way, that the House of Saud would be doing a very good deal if it eventually dropped Washington as the Mafia-style protector, as well as the petrodollar as the privileged conduit for recycling Saudi oil income. What about yuan-denominated bonds and yuan-based oil benchmarks?

   

  Needless to add, should the House of Saud even contemplate such a move en masse, a CIA-engineered coup in Riyadh would be a certainty, and all House of Saud assets confiscated – as many a Master of the Universe minion in the Beltway is already advocating off the record.

   

  So we have the Saudis – following Masters of the Universe orders – frantically dumping securities on the market while the Russian Central bank wavers on what to do next.

   

  Yet even if the Saudis managed to dump their $8 trillion in estimated assets Russia, adopting the correct strategy, could still move to a self-sufficiency that the US – or the EU – can’t even dream of. And on top of it enjoying full employment – while the West crashes itself down as their markets disintegrate.

  So, Russian Central Bank and Finance Ministry, the steaming hot ball is in your court.

  

  

  

  

  

• Peak "Sharing Economy" – Syphilis Rates Soar To Record Highs

  "What's mine is yours, for a fee," is the mantra of the new normal "sharing economy," as various segments of our heretofore under-utilized assets are 'rented' out for the enjoyment of others. However, as The LA Times reports, perhaps we are sharing just a little too much. As we previously noted, sexually transmitted diseases are on the rise across the nation, but the problem is particularly acute in Los Angeles County with health officials pointing the finger at casual sex arranged through social media as "the perfect storm."

   

  

   

  Not only does the county have the most cases, it also has some of the highest rates of chlamydia, gonorrhea and syphilis in California and the nation.

  Some public health experts have blamed the heavy use of online dating apps, arguing that they lead to more casual sex among people 25 and younger, who are the most likely to be infected and also the least inclined to seek testing.

  STDs spread in large part because people don't get tested enough, so undiagnosed infections are unknowingly transmitted from one person to another.

   

  As technology improves, Gaydos thinks people will eventually be able to pick up an STD test from a drugstore and get results immediately, much like a pregnancy test. "But in the meantime, they need to be tested."

   

  Dozens of organizations now offer STD tests that can be ordered online and mailed to homes. The customer provides a sample, sends it back to a lab and receives results within a few days.

   

  But as these tests become more popular, experts warn that they may not always be accurate.

   

  "We don't know — they could be doing [the testing] in their garage, they could be doing this on their kitchen table," said Dr. Charlotte Gaydos, an STD expert and professor at Johns Hopkins University School of Medicine.

  We can se the SuperBowl advert now – "Clap? There's An 'App' For That!"

  *  *  *

  So, in a consequence-free world of money printing to enable everything, too much of a good thing is bad for you after all…which reminds us…

  What's dangerous and eats nuts?

   

  …

   

  …

   

  Syphillis.

  

  

  

  

• A Chinese Banker Explains Why There Is No Way Out

  Over the past year, we have frequently warned that the biggest financial risk (if not social, which in the form of soaring worker unrest is a far greater threat to Chinese civilization) threatening China, is its runaway non-performing loans, which at anywhere between 10 and 20% of total bank assets, mean that China is one chaotic default away from collapsing into the post “Minsky Moment” singlarity where it can no longer rollover its bad debt, leading to a debt supernova and full financial collapse. And as China’s total leverage keeps rising, and according to at least one estimate is now a gargantuan 350% of GDP (incidentally the same as the US), the threat of a rollover “glitch” gets exponentially greater.

  To be sure, in recent months the topic of China’s bad debt has gained increasingly more prominence among the mainstream, and notably none other than Kyle Bass has made the bursting of China’s credit cycle the basis for his short Yuan trade as noted here previously:

  What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion.

  And judging by the surge in recent and increasingly louder calls for a Chinese devaluation, some advocating a major one-off currency debasement, Bass’ perspective is certainly prevalent among the trading community. Bank of America goes so far as to speculate that the “upcoming G20 meeting in Shanghai offers an opportunity for policy makers to seize the “expectations” initiative via a one-off China devaluation.” It does, however, also add that the “risk is markets need to panic first” before instead of piecemeal devaluation, China follows through with a Plaza Accord-type currency intervention.

  Friday’s adoption of NIRP by Japan, which send the US Dollar soaring, has only made any upcoming future Chinese devaluation even more likely.

  But whether China devalued or not, one thing is certain: it is next to impossible for China – under the current socio economic and financial regime – to stop the relentless growth in NPLs, which even by conservative estimates at in the trillion(s), accounting for at least 10% of China’s GDP.

  Sure enough, a cursory skimming of news from China reveals that even Chinese bankers now “admit the NPL situation is dire, but will keep on lending” anyway.

  As the Chiecon blog notes, NPL “ratios might be closer to 10%… supported by revelations in this article, where Chinese bankers complain of missing performance targets, spiraling bad loans, and end of year pay cuts.”

  “Right now, we’ve nowhere to issue new loans” said Mr. Zhang, a general manager in charge of new loans at one of the listed commercial bank branches. Zhang believes NPL ratios have yet to peak, with SME loans the worst hit area. Ironically this has forced Zhang to direct lending back to the LGFVs, property developers and conglomerates, industries which the Chinese government had previously instructed banks to restrict lending to, based on oversupply and credit risk fears.

  But the main reason why China is now trapped, and on one hand is desperate to stabilize its economy and stop growing its levereage at nosebleed levels, while on the other hand it is under pressure to issue more loans while at the same time it is unwilling to write off bad loans, can be found in the following very simple explanation offered by Mr. Zhou, a junior banker at a Chinese commercial bank.

  “If I don’t issue more loans, then my salary isn’t enough to repay the mortgage, and car loan. It’s not difficult to issue more loans, but lets say in a years time when the loan is due, if the borrower defaults, then I wont just see a pay cut, I’ll be fired, and still be responsible for loan recovery.“

  And that, in under 60 words, explains why China finds itself in a no way out situation, and why despite all its recurring posturing, all its promises for reform, all its bluster for deleveraging, China’s ruling elite will never be able to achieve an internal devaluation, and why despite its recurring threats to crush, gut and destroy all the evil Yuan shorts, ultimately it will have no choice but to pursue an external devaluation of its economy by way of devaluing its currency presumably some time before its foreign reserves run out (which at a $185 billion a month burn rate may not last for even one year).

  However, before it does, it will make sure that it also crushes every Yuan short, doing precisely what the Fed has done with equity shorts in the US over the past 7 years.

  

  

  

  

• I-Owe-Ah & The Crime Called Ethanol

  Submitted by Eric via EricPetersAutos.com,

  Ethanol – corn alcohol – won’t take you as far as a gallon of gas.

  

   

  But that doesn’t mean it is isn’t powerful stuff.

  Politically powerful stuff.

  Republican presidential candidate Ted Cruz is feeling the heat right now as the ethanol lobby pressures him to openly commit to expanded support for federal ethanol mandates – a kowtow every recent presidential candidate from both parties has done up to now.

  The ethanol lobby’s potency derives not only from the money it has and the campaign contributions it can make (or not) but also from the fact that – in a presidential election  year – the Iowa Caucuses are critical.

  And Iowa is a farm state.

  Cruz has at least criticized the federal Renewable Fuels Standard – the law behind the force-feeding of ethanol alcohol down the gullets of Americans and their cars.

  But The Lobby is very persuasive.

  

   

  And we are not talking “family farms” here but rather, enormous agricultural combines that exploit the family farmer by applying artificial economic pressure (via government subsidies) to divert food crops to ethanol production. Corn that  would otherwise be used to feed people – or animals that feed people – ends up being used to make ethanol, which is then mixed with gas in various concentrations.

  Currently, 40 percent of the U.S. corn crop goes to ethanol production – up from just 10 percent as recently as 2005.

  Most of the unleaded gas available in the United States is actually 10 percent ethanol and 90 percent gasoline. This fuel is labeled “E10″ gas.

  Which would be ok … if that’s what the market wanted.

  But it’s actually what the government (and corn lobby) want.

  And now they want more.

  

   

  Specifically, they want ethanol concentrations upped to 15 or even 25 percent (E15 and E25). And they want whomever is nominated and ultimately elected president to make it so.

  Big money – and big pressure.

  Cruz recently stated that “market access (for ethanol) is critical” and even gone so far as to argue that anti-trust laws be “vigorously enforced to ensure that the oil and gas industry cannot block access to the market for ethanol producers.”

  But ethanol has never been blocked from entering the market. The problem is just the opposite. Ethanol producers want a “market” created for their product – enforced by government. They want to suppress the market’s verdict about ethanol, bypass the preferences expressed by Americans for gasoline rather than ethanol-adulterated “gas.”

  

   

  They want ethanol forced down our throats – and into our tanks.

  Ethanol sounds good – superficially – because it is “renewable” and produced here in America. The problem is that a gallon of ethanol-laced contains less energy than a gallon of straight gasoline. Your car’s fuel economy goes down on ethanol and ethanol-blend fuels – by as much as 5-10 percent vs. straight gasoline because the engine has to burn more ethanol-adulterated fuel to get the equivalent energy out of it vs. a gallon of pure gasoline.

  So, Cruz’s statement (in a recent op-ed) that ethanol “could prove quite popular with American consumers” is based on a misunderstanding of the nature of ethanol as a fuel.

  Similarly his statements regarding octane.

  Ethanol can be used as an octane enhancer, but unless an engine was designed to operate on high octane fuel, using high octane fuel will usually result in reduced fuel economy. Octane is just a measure of a fuel’s burn rate, not its quality. High-octane premium is just the ticket for high-compression/high-performance engines designed for such fuels. But most cars are designed to run on regular (lower octane) unleaded – and so ethanol’s octane enhancing properties are irrelevant.

  

   

  And ethanol in higher concentrations – such as E15 and E25 and E85 (15 percent, 25 percent and 85 percent ethanol, respectively) will cause physical damage to engines and fuel systems not specifically designed and built to handle high-alcohol-concentrations.

  Alcohol is by nature corrosive – and it attracts moisture. If you read your vehicle’s owners manual you will find explicit warnings about using any gasoline with more than 10 percent ethanol (E10) unless the engine was designed for it – and an advisory that any damage resulting from its use will not be covered buy the vehicle’s warranty.

  So, Cruz is misinformed, minimally, when he states that “the EPA – through regulations used in vehicle emissions tests – imposes a hard wall against mid-level ethanol blends such as E25, making it largely illegal to sell gasoline with higher blends of ethanol.”

   

  

  The fact is that even E15 – 15 percent alcohol – would be disastrous for millions of vehicles currently in service. And not just for them, either. Virtually all the lawn mower, chainsaw and recreational power equipment (e.g., boat) engines currently in service cannot handle ethanol concentrations higher than 10 percent.

  Neither can the infrastructure.

  Pipelines and tanker trucks and the in-ground tanks where fuel is stored generally can’t stand up to higher-than-10-percent ethanol fuels. The fuels would have to be transported and stored separately – which involves duplication of effort – which adds another layer of artificial (government-imposed) costs.

  

   

  The only “hard wall” limiting ethanol concentrations in fuel is the limitation imposed by how much damage to our cars and wallets we’re willing to tolerate for the sake of the corn lobby.

  Cruz would be taking a political risk to say so openly – especially ahead of the Iowa Caucuses. But – as Donald Trump has shown – the public is desperate for straight-talking leaders who will stand up for them rather than serve as water-carriers for the “interests” that seem to own the government and use it for their benefit.

  Cruz has said he favors an “all of the above” policy when it comes to fuels – and that Washington “shouldn’t be “picking winners ands losers.”

  Exactly so.

  

  

  

  

  

• 2016's "Biggest Risk": Markets Will "Need To Panic" To Wake Up "Impotent" Policymakers

  On Friday, we brought you the 4 “D’s” of deflationary doom from BofA’s Michael Hartnett.

  For those who missed it, Hartnett says the reason “an almost manic monetary policy been so ineffective at generating a broad, sustained economic recovery,” is that the following four secular deflationary factors are conspiring to impede a robust recovery:

  • 1. Debt levels remain very large: according to the BIS, global debt as a share of GDP was 246% in Q4’2000, 269% in Q4’2007 and 286% in Q2’2014.
  • 2. Deleveraging has impeded the housing recovery and its “multiplier” effect: CoreLogic’s Housing Credit Index, which measures mortgage credit availability in the US, has plunged from 100 to 42 in the past seven years; US mortgage credit outstanding has fallen more than $1tn since its peak of $14.8tn in ’08.
  • 3. Demographics reveal a dramatic aging of the developed world’s population: in the next 10 days, 112,000 people in the US, Europe and Japan will reach the retirement age of 65.
  • 4. Disruption via innovation in robotics, AI and so on, which the World Economic Forum forecasts will cause the loss of a net 5.1mn jobs in the next 5 years.

  And so, those are the factors that explain why the DM world is stuck in neutral when it comes to economic activity. As BofA also suggested, the fact that the “recovery” isn’t really a recovery goes a long way towards explaining why populist candidates and political parties are polling so well across the developed world.

  So what, pray tell, can policy makers do to right the ship now that the world appears to have been thoroughly Japanified? 

  Well, to let BofA’s Hartnett tell it, there needs to be some manner of “global policy coordination” à la The Plaza Accord to reignite “corporate and household animal spirits” and combat the dreaded 4 “C’s”: China, commodities, credit, and the consumer. 

  This policy coordination could come at the G20 Finance Ministers and Central Bank meeting in Shanghai next month, Hartnett writes.

  We’ve long argued that if you want proof that the Keynesian insanity employed by DM central bankers has demonstrably failed, you needn’t look further than global demand and trade, which are both in the doldrums. 

  In short, if you want to resuscitate demand, you need policies that have a real impact on those from whom final demand emanates. Inundating Wall Street with fungible liquidity doesn’t accomplish that. It may drive asset prices higher, but Ben Bernanke’s fabled “wealth effect” pretty clear doesn’t exist. 

  So what’s the answer, you ask? Is there any hope for centrally planned markets in the wake of the extreme turbulence that played havoc with equities in January? Can central bankers reclaim the narrative on the way to orchestrating a real recovery? 

  Well, probably not, but BofA says there are 4 points that must be addressed if officials intend to attempt a coordinated policy response to anemic global growth. Below, find commentary on a possible “Shanghai Accord”.

  *  *  *

  From BofA

  In addition to the risk of a deeper profit recession, there is no doubt the recent sell-off has been exacerbated by policy impotence; the sense that policy-makers have little solution for global demand deficiency. A weak, disjointed recovery may also be threatened by the political shift toward capital controls in China, border controls in Europe and the US, as well as more aggressive redistributive taxation at a time of ongoing fiscal austerity.

  There are some echoes of the period leading up to the 1985 Plaza Accord between the United States, France, West Germany, Japan, and the United Kingdom, which agreed to weaken the US dollar to help the US improve its huge trade deficit and spur economic growth out of the doldrums of the early-1980s. This pro-growth agreement was spurred by weak growth, macro divergence, and interestingly in light of the current political trends, rising protectionism in the US. Leading up to the 1985 accord, interest rates and inflation were low, but macro cycles were out of sync and exchange rates were targeted to induce macro convergence. In addition, West Germany agreed to tax cuts, the UK agreed to reduce its public expenditure and transfer monies to the private sector, while Japan agreed to open its markets to trade, liberalize its internal markets and manage its economy by a true yen exchange rate. All agreed to increase employment.

  Most important was that the global policy cooperation inspired corporate and household animal spirits.

  In a similar fashion, we would argue that the upcoming G20 Finance Ministers and Central Bank meeting in Shanghai (Feb 26-27th) offers an opportunity for policy-makers to seize the “expectations” initiative. It’s probably too early to expect a Shanghai Accord, and our deep concern is that the macro and the markets may first need to worsen to inspire the correct policy response. But absent a rapid improvement in the 4C’s, we believe the investment bulls will need to sit on the sidelines until a G20 meeting announces:

  • A one-off devaluation in the Chinese currency
  • Fed announces swap lines, or other measures of financial system support, to avert contagion into fragile EM’s
  • The US Treasury announces it will act to pursue dollar stability, so as to help end the death spiral in US manufacturing, oil, and EM
  • The US, Germany, UK and France promise fiscal stimulus to boost public investment, especially in high-quality infrastructure

  *  *  *

  The danger, Hartnett concludes, is that in order for officials to agree on the four measures outlined above, markets will need to collapse first. We close with BofA’s simple conclusion: 

  “2016 risk is that markets need to panic [before there’s a coordinated policy response].”

  

  

  

  

  

• 2 Of The World's 20 Most Violent Cities Are In America

  While Caracas – the capital of socialist utopia Venezuela where gun control is extreme – remains the number one most violent city in the world, there are two new entrants from the USA into the World's Top 20 least desirable places to walk the streets – St. Louis (15th most violent city in the world) and Baltimore (19th). America, land of the free to indiscrimanently kill other people?

  As Statista's Nial McCarthy details, out of the world's 50 most violent cities, 41 are in Latin America including 21 in Brazil.

  The Mexico Citizens Council for Public Security releases its findings on the homicide rate in cities with populations over 300,000 every year. This infographic shows the world's top 20 cities, with Caracas, Venezuela, in first place with 119.87 homicides per 100,000 residents in 2015.

   

  San Pedro Sula, Honduras (111.03 homicides per 100,000) came second with San Salvador, El Salvador (108.54 homicides per 100,000) rounding off the top three. The majority of the violence in Latin America can be attributed to drug trafficking, gang warfare and political instability.

  The following map shows the number of homicides per 100,000 residents in 2015…

  
  You will find more statistics at Statista

  And here is the Top 50 – including 4 American cities…

  

   

  Exceptional USA not #1? Something to "shoot" for in 2016…

   

  h/t The Burning Platform blog

  

  

  

  

  

• The Happiest Place On Earth?

  …if you are an immigrant…

  As OneNewsNow reports, an attorney representing laid-off Disney workers claims the Fortune 500 company broke federal laws when it replaced them with immigrants.

  Attorney Sara Blackwell filed a federal lawsuit this week on behalf of two former tech employees of Disney after the corporation hired H-1B visa recipients from overseas.

   

  The employees were among approximately 250 laid off approximately a year ago, and some of them have filed complaints with the Equal Opportunity Employment Commission, The Orlando Sentinel reported.

   

  Blackwell tells OneNewsNow she is accusing Disney of violating Title VII, which bans discrimination under the Civil Rights Act of 1964.

   

  The lawsuit also accuses Disney of RICO-like violations, claiming it colluded with two hiring firms to misrepresent hiring plans in visa paperwork. 

   

  If a judge dismisses the lawsuit, Blackwell says, “I have 31 other plaintiffs that I can bring. It’s not going to stop me.”

   

  Disney said in a statement that the lawsuits are “based on an unsustainable legal theory and are a misrepresentation of the facts.”

  Congratulations, you’re going to unemployment-land…

  

  Source: Townhall.com

  

  

  

  

  

• The Chinese Economy Is Sinking, Not Transitioning

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  It makes for quite the juxtaposition, though perhaps not so jarring given that global banks are still enormous and disparate operations. On the one hand, Citigroup’s CEO was eminently confident from within the confines of Davos and the status quo:

  The market is “adjusting” to a series of headwinds that can be overcome, Citigroup CEO Michael Corbat said Thursday, a day after theS&P 500 fell to its lowest level in nearly two years.

   

  “We view what’s going on really as more a repricing than any big fundamental shift,” he told CNBC’s “Squawk Box” at the World Economic Forum in Davos, Switzerland.

  The question is who is the “we” to which he is referring? It was just a year ago that no bank would even contemplate the possibility of recession entering Janet Yellen’s perfect year, especially as it was setup by “unquestionable” growth in the middle of 2014 (best jobs market in decades). This January, however, while Citi’s CEO downplays recent turmoil, the staff inside his very own bank is thinking very much otherwise:

  The global economy is on the brink of a recession, with central bank stimulus less forthcoming and growth weakened by the slowdown in China, Citigroup warned on Thursday.

   

  The bank cut its 2016 global growth forecast to 2.7 percent from 2.8 percent and slashed its outlook for the U.S., U.K. and Canada, plus several emerging markets including Russia, South Africa, Brazil and Mexico. [emphasis added]

  That’s a lot of slashing in order to be so sanguine. I don’t agree with the premise, namely that this is all or even mostly due to China (the Chinese sell their industrial production to whom?), but the condition of the Chinese economy offers more universal interpretations upon these kinds of circumstances. That starts with the idea that China is slowing but within a more cheering transition to consumer rather than investment-led activity and margins. It is this idea that manufacturing and production matter, but not nearly as much as they used to and thus not enough to make a full recessionary difference right now.

  After some minor encouragement in December, industrial factors in January have turned (yet again) to the depressively concerning. Today it was industrial profits.

  Profits earned by Chinese industrial firms in December fell 4.7 percent from a year earlier, the seventh straight month of declines, as the slowing economy hits sales and forces many companies to cut prices to win business.

   

  The weak performance is bound to spark fresh concerns about investment cuts, job losses and bad loans in the world’s second-largest economy, and could put more pressure on China’s stock markets, which have been pummelled [sic] to 14-month lows.

  China’s stock market is a small, relative matter; the more troubling imbalances lie and remain elsewhere. This change in production profitability is concerning on three fronts; first in terms of where China’s economy, even in just industry, might actually be at right now. GDP says slowing but rather steady; these figures and many others suggest quite the opposite.

  China saw annual industrial ¬profits fall for the first time in more than a decade, prompting calls for strong stimulus to boost growth, even as Premier Li Keqiang on Wednesday vowed to cut loans to zombie firms and ¬increase financial support for high-tech industries.

   

  The gloomy figures add to the economy’s grim start to the year, coming amid growing panic over the depreciation of the yuan and state media reports on short sellers’ “attacks” in manipulating the market for the renminbi and other Asian currencies.

  “For the first time in more than a decade” is becoming a consistent qualifier for these sorts of economic indications. A week ago, China reported electrical output and steel production now at just such historical comparison:

  China’s output of electric power and steel fell for the first time in decades in 2015, while coal production dropped for a second year in row, illustrating how a slowing economy and shift to consumer-led growth is hurting industrial consumers.

   

  China’s economy grew at its weakest pace in a quarter of a century in 2015 and efforts to restructure have not only slashed demand but also exposed massive overcapacity in industrial sectors such as coal, steel and power.

  Despite these dire results and measurements, there is still this tug of “consumer-led transition” that, as noted in the quote above, remains as a bulwark optimistic sentiment. It can be distilled as if an economy operates in completely discrete and replaceable fashion; as if when industry struggles then services will just continue on that much better until industry no longer matters at all; and if industry really, really struggles, consumption and the service economy should only factor a minor nuisance being so separated. There are no such Chinese walls (pun intended) within an economic system (which extends globally).

  That brings up the second contradiction noted by persistently decreasing industrial activity in China (and elsewhere). To this point, despite production and output cuts (and to capex and capacity growth) there has yet to be the major transition to across-the-board resource reduction, including and especially labor. In other words, consumption in China might not look as bad as production but only because there are time lags and frictions (as economists call them) that forestall synchronization even in these downward recessionary legs. Once production stalls and contracts long enough, especially in profitability terms, businesses will eventually seek to harmonize production with their resources – the very bad news of total cutbacks, including and especially pay and then labor in full.

  To wit:

  China’s business confidence and recruitment activity slipped to record lows in January, a survey showed, adding to signs of weakness in the world’s second-largest economy that could prod policymakers to roll out more support measures…

   

  The staffing index fell to 50.3 in January, near the 50 no-change mark, from 50.8 in December, hitting its lowest since the survey began, as businesses have become more hesitant to recruit as economic activity weakens, the survey showed.

  And:

  The slowdown in the Chinese economy has spread its tentacles to China’s white-collar workers who have received fewer year-end bonuses, according to a survey carried out by a recruitment company.

   

  The study by Zhaopin, a Beijing-based recruitment website, said 66 per cent of the 10,615 white-collar workers polled had not received, or expected, a year-end bonus.

  That compares with the 61.2 per cent who gave the same answer when polled the previous year.

   

  About 14 per cent of the people surveyed did get a bonus for 2015.

   

  The average paid out was over 10,000 yuan (HK$12,000), nearly 3,000 yuan down from 2014, the survey showed. Workers were polled in 32 cities across China.

  The production decay is only, perhaps, just now starting to impact the wider Chinese economy. It counts not just in resource management and eventual capitulation on those terms, but also financial terms – precisely the problem with China’s “outflows.” This is the third worrisome notice from China’s industrial profitability, namely that defaults or at least perceptions of default risk will only exacerbate an already tenuous position for China’s financial networks; especially its “dollar” short.

  As the eurodollar standard built China in what looked like “hot money” inflows, that created lending formation and chained liabilities predicated on China being China forever; not China placing all its hopes and dreams on an unproven and hardly-detected consumer transition (that wasn’t really specified until economists started to belatedly recognize “something” was wrong with industry where they were sure nothing ever could be wrong). There are enormous financial implications in the slowdown as it reaches unknowable trigger points, some of which we have undoubtedly already witnessed. If you are a “dollar” provider into China’s banks, as NPL’s rise with this production massacre you are not going to remain statically attached while it all seems to get worse and worse (especially as central bankers and “experts” continue to protest there isn’t anything wrong in the first place that temporary tweaks won’t alleviate).

  

  Economics becomes finance, and finance only furthers those negative economics. Financial distress in and of China both confirms the onrushing economic disaster as it was, while suggesting, because financial imbalance has not yet relented, not even close, much more to come.

  Our three parts then sum to: China’s industry persists at only getting worse even though it has already reverted to a state not seen in a decade or more; consumer appearances may seem generally optimistic despite all that but only because industrial activity has yet to fully make adjustments through resources and labor; and financial trends are likely already at the stage of self-reinforcement within and without. You can see why China’s problems might trouble Citi’s economists and staff researchers in a way that perhaps the bank’s CEO might rather gloss over and around.

  “Our” problem is that these trends and analytics are not just for and of China. There are no discrete pockets of fortified economic resolve with which to withstand a global “manufacturing recession.” There are only interconnections between individual economic circumstances that are augmented, amplified and affected by reflexivity in financial markets and conditions. That Citigroup is now recognizing this as a very real possibility, in sharp contrast to last January’s “transitory” commandment, shows how truly far along the economic and financial disease has infiltrated – globally. After all, China’s vast industrial might was built through eurodollars to service “global consumers”, of which Americans account for the bulk; upward as well as downward.

  

  

  

  

  

• Here's Which Stocks Sovereign Wealth Funds Will Be Selling In 2016

  Back in August we explained why the headline figures for EM FX reserves paint an incomplete picture with regard to the UST liquidation among commodity producers and emerging market reserve managers.

  As Credit Suisse wrote last year, “for oil exporting nations, central bank official reserves likely underestimate the full scale of the reversal of oil exporters’ ‘petrodollar’ accumulation because a substantial part of their oil proceeds has previously been placed in sovereign wealth funds (SWFs), which are not reported as FX reserves (with the notable exception of Russia.”

  In other words, official data on FX reserves don’t tell the whole story. Not by a long shot. In fact, “oil exporting countries hold about $1.7trn of official reserves but as much as $4.3trn in SWF assets.”

  

  This has very real implications for markets.

  As a reminder, SWFs hold a variety of assets including equities. Just as FX reserve drawdowns act like QE in reverse, SWF sales put pressure on markets and drain liquidity from the system. Put simply: when the funds that have for years plowed their commodity proceeds into assets suddenly cease to be net exporters of capital, everyone should pay attention.

  Just four days ago we showed you which stocks are most likely to be sold by EM governments and wealth funds. For those who missed it, here’s the list:

  

  Earlier this month, we also discussed how large the equity outflow is likely to be.

  According to JP Morgan, SWFs will sell some $75 billion in equities this year. “Assuming selling in accordance to the average allocation of FX Reserve Managers and SWF across asset classes, we estimate that the sales of bonds by oil producing countries will increase from -$45bn in 2015 to -$110bn in 2016 and that the sales of public equities will increase from -$10bn in 2015 to -$75bn in 2016,” the bank’s Nikolaos Panigirtzoglou wrote.

  This week, Panigirtzoglou is out with a closer look at exactly what stocks are most vulnerable to SWF selling.

  *  *  *

  From JP Morgan

  For the oil producers that have SWF assets (other Middle Eastern, Norway, African and Latam countries), we assume a current account deficit for 2015 of around $40bn, again based on previous IMF estimates. This current account deficit was likely funded via depletion of SWF assets.

  What does this mean in terms of asset selling by SWFs and reserve managers? For the asset allocation of SWFs into public equities, government bonds, corporate bonds, cash and alternatives, we used information available from Norway, Abu Dhabi, Kuwait and Qatar investment authorities, which should be largely representative of the SWF universe. Using AUM weights results in a weighted asset allocation of 51% to public equities, 18% to government bonds, 7% to corporate bonds, 19% to alternatives such private equity and real estate and 6% to cash. For FX reserve managers, to accommodate the difference in the asset allocation of Saudi Arabia FX reserves (which accounted for the majority of reserve depletion of oil producing countries), we assume a 20% allocation to equities, 67% to government bonds, 3% to corporate bonds and 10% to cash.

  Assuming selling in accordance to the average allocation of FX reserve managers and SWFs above, and assuming no selling of alternative assets given their illiquidity, we estimate that in 2015, oil-producing countries sold $90bn of government bonds, $50bn of public equities, $7bn of corporate bonds and $15bn of cash instruments.

  What about 2016? For 2016, assuming an average oil price of $35, i.e. close to current prices, we project the current account balance for oil-producing countries to worsen from around $80bn in 2015 to $240bn in 2016. This estimate is based on the same sensitivity of the current account balance to the change in oil prices as last year – i.e. between 2014 and 2015. This dis-saving of $240bn should be mostly met via depletion of official assets, i.e. FX reserve and SWF assets ($220bn) rather than issuance of government debt ($20bn). For 2016, we assume a similar depletion in FX reserves as last year of around $130bn, and the remainder $90bn met from SWF asset depletion.

  Again, assuming selling in accordance to the average allocation of FX reserve managers and SWFs above, and assuming no selling of alternative assets, these assumptions would imply selling of $107bn of government bonds, $80bn of public equities, $12bn of corporate bonds and $19bn of cash instruments. Thus, the selling of government bonds by reserve managers and SWFs this year will likely be similar to last year, but worse for equities and corporate bonds.

  Within equities which sectors are most vulnerable? We aggregate publically available holdings data to see how overweight these SWFs funds are positioned in terms of sectors and regions relative to the composition of the MSCI AC World index. With the caveat that these publicly available data represent only a portion of their public equity holdings, we find that SWFs are most overweight Financials and Consumer Discretionary, and most underweight Healthcare, Consumer Staples and Technology. In terms of regional allocation, they appear overweight Europe, Middle East and Africa and Developed Asia and underweight North America and Emerging Asia. In terms of absolute holdings, they are more heavily invested in Western European equities as well as Mid East and Africa. Across sectors, they are more heavily invested in Financials and Consumer Discretionary (Figure 3 and Figure 4). 

  

  *  *  *

  Bear in mind that these estimates are conservative. The Saudis burned through $19 billion in reserves in December and Norway is tapping its massive rainy day fund as well. 

  Expect SWF flows to be a major talking point if commodity prices remain in the doldrums.

  

  

  

  

  

• The Bank Of Japan – Ringing In The Keynesian Endgame

  Submitted by Pater Tenebrarum via Acting-Man.com,

  Let’s Do More of What Doesn’t Work

  It is the Keynesian mantra: the fact that the policies recommended by Keynesians and monetarists, i.e., deficit spending and money printing, routinely fail to bring about the desired results is not seen as proof that they simply don’t work. It is regarded as evidence that there hasn’t been enough spending and printing yet.

   

  

  BoJ governor Haruhiko “Fly” Kuroda: is that a windshield I’m seeing?

   

  At the Bank of Japan this mantra has been gospel for as long as we can remember. Japan has always exhibited an especially strong penchant for central planning. We still recall that many Western observers were beginning to wonder in the late 1980s whether the Japanese form of state capitalism administered by the powerful Ministry of Trade and Industry and the BoJ wasn’t a superior economic system after all. Then this happened:

   

  

  The Nikkei Index from 1989 to 2003. Japan’s seemingly never-ending boom coupled with forever rising stock prices, carefully administered by Tokyo’s powerful bureaucrats, suddenly became an intractable bust – click to enlarge.

   

  This sudden change in fortunes should perhaps have been taken as a hint that central planning of the economy wasn’t such a good idea after all. That was not the conclusion of Japan’s movers and shakers though (or anyone else’s, for that matter). Instead it was decided that what was required were better planners, or at least a better plan.

  For decades Japanese policymakers have been inundated with well-meaning advice by prominent Western economists. Even Ben Bernanke famously admonished them to just print more. According to Bernanke, holding interest rates at zero and implementing several iterations of QE were indicative of “policy paralysis” – after all, these efforts were obviously just not big and bold enough!

   

  Going Big and Failing Again

  After the reelection of Shinzo Abe and the installation of Haruhiko Kuroda as BoJ governor, the BoJ decided to simply continue doing what it has always done – more than 20 years of utter failure notwithstanding. However, in deference to the admonitions of the Bernankes and Krugmans of this world, it increased the size of its meddling by an order of magnitude:

   

  

  Assets held by the Bank of Japan: since Kuroda has started this “QE on steroids” program in 2012, the central bank’s balance sheet has grown in parabolic fashion – click to enlarge.

   

  In short, over the past four years the BoJ has thrown all remaining caution to the wind, with the declared goal of reviving Japan’s economy and creating an annual “inflation” rate of 2%. However, it seems now that even that was not enough just yet!

  As an aside to this: no-one knows or can sensibly explain what lowering the purchasing power of one’s currency by exactly 2% p.a. is supposed to achieve. There exists neither theoretical nor empirical evidence that could possibly support the notion that it is a desirable goal. It is just another Keynesian mantra. Central bankers have basically pulled the 2% figure out of their hats.

  The BoJ has certainly succeeded in devaluing the yen’s external value and impoverishing Japan’s citizens accordingly. It has also created a short term windfall for people buying Japanese stocks. To give you a rough idea how its “success” has manifested itself otherwise, here are a few charts illustrating the situation. The first one shows the quarterly annualized growth rate of Japan’s machinery orders (note the most recent figure, which has been released only last week):

   

  

  The most recent data point of the BoJ-engineered “recovery”: machinery orders plunge by 14.4% – click to enlarge.

   

  And here is the monthly growth rate in manufacturing production – a sector that due to its export prowess was supposed to be an especially great beneficiary of Kuroda’s destruction of the yen:

   

  

  Japan’s manufacturing production, monthly annualized growth rate – the December data haven’t been released yet, but in light of last quarter’s machinery orders, production growth will likely be back in negative territory – click to enlarge.

   

  In light of the enormous decline of the yen’s exchange rate since 2012, one would normally expect that the BoJ has at least succeeded in achieving its bizarre goal of raising the consumer price inflation rate to 2%. Well, it did – for exactly one month. However, that was mainly due to a hike in the sales tax, so it can actually not be attributed to the BoJ. Japan’s consumers have been very lucky so far – the planned assault on their wallets has turned out to be a complete dud as well:

   

  

  Japan’s consumer price inflation rate, month-on-month. No dice, so far – click to enlarge.

   

  The Time for More Insanity has Come

  Stock markets around the world have recently swooned, with the Nikkei delivering an especially weak performance. After assuring everyone that the BoJ saw no need to add to its already enormous debt monetization program, Mr. Kuroda seems to have been convinced by recent market volatility that is was time to move on from an insane monetary policy to even more insane monetary policy. As Reuters reports:

  “The Bank of Japan unexpectedly cut a benchmark interest rate below zero on Friday, stunning investors with another bold move to stimulate the economy as volatile markets and slowing global growth threaten its efforts to overcome deflation.

   

  Global equities jumped, the yen tumbled and sovereign bonds rallied after the BOJ said it would charge for a portion of bank reserves parked with the institution, an aggressive policy pioneered by the European Central Bank (ECB).

   

  “What’s important is to show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it,” BOJ Governor Haruhiko Kuroda told a news conference after the decision.

  (emphasis added)

  Obviously, the BoJ cannot allow Draghi to get away with imposing policies that are even more crazy than its own. So it has now caught up with the lunatics running the monetary asylum in Europe. It is actually quite amusing that this admission of the complete failure of the policies implemented to date apparently caused stock markets to rally. JGB yields declined by more than 56% (!) on the day to a mere 10 basis points, and the yen got kneecapped, surrendering much of the gains it has achieved in recent weeks.

   

  

  JGB yields plunge by 13 basis points to just 10 basis points – a loss of 56% in just one trading day – click to enlarge.

   

   

  

  The yen is murdered, surrendering a large part of the gains it has made since early December – click to enlarge.

   

  As to the BoJ’s commitment to “achieve inflation”, it may well end one day with price inflation going from zero to infinity in the space of a few months. Kuroda should be thankful that Japan’s citizens haven’t lost confidence in the currency yet in spite of his efforts; one of these days they will, and then it will probably be “game over” in a flash.

  We should also point out that there is actually no deflation in Japan. There never has been and very likely, there never will be. Here is a chart of Japan’s narrow money supply M1, which consists of currency and demand deposits:

   

  

  Japan’s narrow money supply M1 since the 1950s. What terrible, terrible deflation! – click to enlarge.

   

  Reuters then unquestioningly parrots the official “reasoning” for why falling prices are allegedly “dangerous” (never mind that prices haven’t really fallen in Japan anyway – at best they were stable for a number of years) – readers are evidently supposed to just accept these unproven assertions as if it were perfectly obvious that they are true:

  “In adopting negative interest rates Japan is reaching for a new weapon in its long battle against deflation, which since the 1990s have discouraged consumers from buying big because they expect prices to fall further. Deflation is seen as the root of two decades of economic malaise.”

  This shows how utterly divorced from reality today’s mainstream economists and central bankers are – not to mention how lazy financial journalists are, who never seem to question this nonsense. The above assertion even flies into the face of economics 101. People buy less when prices decline? Since when? In what universe? Japanese consumers are allegedly waiting since the 1990s for “prices to fall further”? To call this utter bullsh*t feels almost like an insult to bullsh*t.

  We guess the billions of people in the world who keep buying smart phones, computers, TV sets and all the other things that are continually falling in price in spite of the ministrations of central bankers must represent the “exception from the rule”.

   

  

  Japan’s consumer price index has recently reached a new multi-decade high. Shouldn’t the central bank be glad that prices have actually been stable for so long? – click to enlarge.

   

  In his press conference Kuroda uttered the following:

  “Kuroda said the world’s third-biggest economy was recovering moderately and the underlying price trend was rising steadily.

   

  “But there’s a risk recent further falls in oil prices, uncertainty over emerging economies, including China, and global market instability could hurt business confidence and delay the eradication of people’s deflationary mindset,” he said.

   

  “The BOJ decided to adopt negative interest rates…to forestall such risks from materializing.”

  Perhaps Kuroda should instead have pondered what risks are likely to materialize on account of the imposition of negative interest rates. We have already discussed this topic extensively in the context of the ECB’s decision to introduce negative rates, but here is a brief reminder:

  Neither zero nor negative originary interest could possibly exist in an unhampered free market economy. Time preference cannot become zero or negative. Conceivably it could become zero if one were to fall into a black hole (it is theorized that no time passes there), or if scarcity were completely eliminated one day and no economic or technological progress would be seen as possible anymore. Neither of these hypothetical cases will ever be of practical importance.

  Other than that, the only thing artificially imposed negative rates will achieve is to destroy what is left of the economy – they will slowly but surely transform prosperity into poverty. As Ludwig von Mises has warned:

  “Not the impossible disappearance of originary interest, but the abolition of payment of interest to the owners of capital, would result in capital consumption. The capitalists would consume their capital goods and their capital precisely because there is originary interest and present want-satisfaction is preferred to later satisfaction.

   

  Therefore there cannot be any question of abolishing interest by any institutions, laws, and devices of bank manipulation. He who wants to “abolish” interest will have to induce people to value an apple available in a hundred years no less than a present apple.

   

  What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such laws would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty.”

  As we have always said in these pages, the cunning plan of the mad hatters running the world’s central banks seems to consist of making people richer by making them poorer. One can safely assume that they haven’t really thought this one through.

   

  Conclusion

  It appears to us that the ever more desperate monetary policy measures adopted by the BoJ are coming closer and closer to crossing a point of no return. In other words, the BoJ seems to be entering what is popularly known as the “Keynesian endgame”. Once the threshold beyond which confidence is finally lost is crossed, the long maintained sophisticated fiat money Ponzi scheme and the associated three card Monte played between central banks, commercial banks and government treasuries will come to a screeching halt.

  Naturally, we cannot tell you where this threshold precisely lies or how quickly said “endgame” will be playing out. Nor do we know with any precision what gyrations we may yet see as the situation evolves. We do however know that Kuroda’s decision has brought the world another step closer to the end. It would be a dangerous error to believe that such policies can be adopted without inviting severe consequences.

  Kuroda is a member of a small coterie of central planners running the worlds currency systems, who are completely divorced from reality and are playing with the savings and lives of millions. They are implementing extremely risky experiments and evidently haven’t even the faintest inkling of what the ultimate outcome will be.

  Unfortunately, none of us can do anything to stop them. It is therefore vitally important that one make a plan for oneself. It is quite ironic actually: the very people the economy depends on the most with respect to wealth creation are also most likely to be terrified by these developments. Consequently they are likely to withdraw more and more from genuine wealth creation activities. They will simply be far too busy trying to save themselves while it’s still possible.

  

  

  

  

  

• Ignore Day To Day Market Spikes: Are Stocks Being Accumulated Or Distributed?

  While on any given day, stocks may tumble or surge as marginal buyers send increasingly illiquid indices lower or higher on ever lower volume, a more important question is what is taking place below the surface: are large holders looking to offload large exposure (by selling), or vice versa.

  For the answer we go to Bank of America, which has models to measure precisely this.

  The first one, the Volume Intensity Model (VIM), measures short-term accumulation (up volume or buying) vs. distribution (down volume or selling). According to BofA, VIM remains negative across the board since distribution crossed above accumulation in mid-Nov. Accumulation remains low and has reflected a “buyers’ strike”.

  Of all indices, the selling is most pronounced among tech-heavy names, with distribution in the NASDAQ highest since Sept. 2011; NYSE distribution is highest since Oct. 2014 with similar extremes on the S&P 500 and Russell 2000.

  As BofA’s Stephen Suttemeir notes, this is tactical oversold reading similar to the Williams %R and VXV/VIX ratio. However, he adds that “any near-term oversold bounce as a “sell strength” rally as bullish “mean-reverters” take temporary control from more bearish “trend followers”. He concludes that “weight of the evidence supports the trend followers.”

  

   

  For the response on longer-term accumulation (up volume or buying) relative to distribution (down volume or selling), we refer to BofA’s VIGOR model. A rising VIGOR shows net accumulation, which is bullish. A falling VIGOR shows net distribution, which is bearish. More from BofA:

  VIGOR broke below the October 2015 and October 2014 lows on S&P 500 to complete a top. Meanwhile, VIGOR has held the breakdowns on Russell 2000 and NYSE and continues to weaken. The risk is that NASDAQ Comp will follow with a sustained move below the Oct. 2015 low to complete a top as well. Weak VIGOR suggests a sell strength environment.

  

   

  So while it is clear that as of this moment distribution is clearly overpowering accumulation, one final follow up is which sectors are seeing the biggest in and outflows. One way to gauge the sector rotation is to use relative strength and relative momentum, which is tracked by the relative rotation graph (RRG). The weekly RRG shows Telecom, Utilities and Staples as leadership; Tech, Industrials and Discretionary as weakening; and Financials, Materials and Energy as lagging. Health Care is improving and closing in on the leadership quadrant. The RRG reflects a defensive or risk off market. Tech and Discretionary have been big leadership groups (think FANG), but are only weakening and have not yet shifted to lagging sectors.

  

  

  

  

  

  

• The Islamization Of America In 2015, Part 2

  Submitted by Soeren Kern via The Gatestone Institute,

  • More than half (51%) of Muslims in America believe they should "have the choice of being governed according to Sharia." Only 39% of those polled said that Muslims in the U.S. should be subject to American courts. Nearly a quarter believed that, "It is legitimate to use violence to punish those who give offense to Islam by, for example, portraying the prophet Mohammed." Nearly one-fifth of Muslim respondents said that the use of violence in the U.S. is justified in order to make Sharia the law of the land in this country. – Poll commissioned by the Center for Security Policy, Washington, D.C.

  • "Ramadan is a special prayer time, a time for religion. We double-park here every Friday and they [allow it], but today they gave us all tickets, almost 100 cabs. This has never happened before. I can't help but to think they are being prejudiced. They don't understand. We have to be here." – Mohammad Zaman, New York City cab driver.

  • "We have no way … to know who these people are … we don't have databases on these individuals so we can't properly vet them, to know where they came from, to know what threat they pose." – Michael McCaul, Chairman of the House Committee on Homeland Security, commenting on the Obama administration plan to resettle Syrian refugees in the U.S.

  • ISIS is operating training camps just a few miles from El Paso, Texas. – Judicial Watch, citing Mexican law enforcement and intelligence sources.

  • Officials at Mason High School in Mason, Ohio, canceled "hijab day" after parents expressed opposition. Female students were asked to wear a headscarf, or hijab, for an entire school day, followed by a time for reflection and discussion.

  The following is a chronological survey of some of the main stories about Islam and Islamism in America during the second quarter of 2015. Part 1 of this series can be found here.

  Left: In June 2015, the New York Police Department issued parking tickets to more than 100 Muslim cab drivers parked illegally outside a mosque on the Upper West Side during Ramadan. Right: In January 2015, after complaints from Muslim students at the University of Minnesota, the university ordered that posters depicting a caricature of Mohammed be taken down. The ban was later rescinded.

  APRIL 2015

  April 1. Ahlam Ahmed, an 18-year-old year-old from Queens, said she wanted to become the first female Muslim firefighter in New York City. Ahmed stands five feet tall and weighs just 105 pounds. In an interview with the Village Voice, Ahmed expressed more concern over the dress code than the physical requirements for the job. "I have to be covered," she said. "I love wearing the scarf. It's for protection." FDNY press officer Elisheva Zakheim said: "We try to accommodate religious practices, but safety is our first concern, be it male or female. We approach a lot of these questions on a case-by-case basis."

  April 2. A study by the Washington, DC-based Pew Research Center forecast that, if current trends continue, there will be more Muslims in North America than Jews by 2035. The study, "The Future of World Religions: Population Growth Projections, 2010-2050," states that in the United States, Muslims will comprise 2.1% of the population in 2050, up from 0.9% in 2010. Jews, meanwhile, will fall to 1.4% of the U.S. population from 1.8% in 2010.

  April 2. A newsletter distributed by the Republican Central Committee in Bonneville County, Idaho, included an article, "Islam in Idaho," which warned that Muslims are "infiltrating" the state, and that Muslims have been taught to "be ready to rise up and kill" non-Muslims. The article called on readers to "demand that our lawmakers and law enforcers pay attention and ascertain whether or not there is a potential threat."

  April 7. U.S. President Barack Obama, speaking at an Easter prayer breakfast at the White House, criticized "less-than-loving" Christians. His remarks came just days after he sanitized any reference to Islam after jihadists slaughtered 148 Christians at a college in Garissa, Kenya. Bill Donohue, president of the Catholic League, said Obama's comments at the prayer breakfast were "very disturbing." He added:

  "This comes right on the heels of Muslim madmen singling out Christians, calling them out by name, knowing which ones they wanted to execute, in Kenya. We have a president who never mentions the word 'Christians' except when he wants to denigrate them."

  He doesn't want to offend Muslims. But he obviously doesn't mind offending Christians. Somehow it's okay to speak about Christians disappointing him, because they don't always act with love. Well, that's true. But what a grand opportunity to make a statement about what happened last week in Kenya. And once again, he's silent with Christians when it comes to us being the victims of genocide."

  April 7. A scheduled screening of "American Sniper" at the University of Michigan was abruptly cancelled after school officials received complaints that the film perpetuates "negative and misleading stereotypes" against Muslims. A statement said: "While our intent was to show a film, the impact of the content was harmful, and made students feel unsafe and unwelcomed at our program." On April 16, the university reversed its decision.

  April 8. Writing in a magazine called Index on Censorship, the organizers of a women's conference at the University of South Dakota recounted attempts by Muslim groups to ban a screening of Honor Diaries, a documentary film about the worldwide problem of honor killings and other violence against women.

  April 8. The Council on American-Islamic Relations (CAIR) demanded that a high school teacher in Richmond, Texas, be disciplined for distributing "virulently anti-Muslim" material to students. The 8-page handout, distributed in a senior economics class at Richmond's Foster High School, said that "Islam is more of an ideology than a religion. It is also an ideology of war." The document also said that Muslims believe all governments except Islamic ones should be overthrown. "Only a strong response to this attempt at student indoctrination will send a message that our schools must never be incubators of hate," said CAIR.

  April 10. A HuffPost/YouGov poll found that more than half (55%) of Americans say they have unfavorable views of Islam, and six in 10 either are not interested or do not know whether they want to learn more about the faith. Just 7% said they had a very favorable view of the religion, and 14% said they saw it somewhat favorably.

  April 13. Writing in Time magazine, Muslim feminist Asra Nomani described how Muslim groups pressed Duke University to cancel a speech she was invited to give to argue for a progressive, feminist interpretation of Islam in the world. The president of the Duke chapter of the Muslim Students Association sent an email to Muslim students about Nomani's "views" and alleging that she was in a nefarious "alliance" with "Islamophobic speakers." After she asked for evidence against her, Duke University re-invited her. Nomani wrote:

  "This experience goes beyond feminism to a broader debate over how too many Muslims are responding to critical conversations on Islam with snubs, boycotts, and calls for censorship, exploiting feelings of conflict avoidance and political correctness to stifle debate. As a journalist for 30 years, I believe we must stand up for America's principles of free speech and have critical conversations, especially if they make people feel uncomfortable.

   

  "By standing on stage, I was standing up to the forces in our Muslim communities that are increasingly using tactics of intimidation and smears such as "Islamophobe," "House Muslim," "Uncle Tom," "native informant," "racist" and "bigot" to cancel events with which they disagree.

   

  "These dynamics of silencing are often used against women such as Ayaan Hirsi Ali, a Somali-born activist and author of a new book, Heretic. Brandeis University uninvited her from speaking after protests from the Council on American-Islamic Relations and the Muslim Students Association last year, and the Muslim Students Association at Yale University protested her speech at the university last fall."

  April 13. Nearly 300 Muslim delegates from more than 20 states met with elected officials and congressional staffers on Capitol Hill during the first-ever National Muslim Advocacy Day. The event was sponsored by the US Council of Muslim Organizations (USCMO), a coalition of American Muslim groups, some of which are linked to the Muslim Brotherhood. Former FBI counterterrorism agent John Guandolo said the event was a "cunning bid by radical Islam to gain political power in the United States."

  April 14. Judicial Watch, citing Mexican law enforcement and intelligence sources, reported that ISIS is operating training camps just a few miles from El Paso, Texas:

  "The exact location where the terrorist group has established its base is around eight miles from the U.S. border in an area known as "Anapra" situated just west of Ciudad Juárez. Another ISIS cell to the west of Ciudad Juárez, targets New Mexico towns for easy access to the United States.

   

  "During the course of a joint operation last week, Mexican Army and federal law enforcement officials discovered documents in Arabic and Urdu, as well as "plans" of Fort Bliss. Muslim prayer rugs were recovered with the documents during the operation.

   

  "According to these same sources, "coyotes" engaged in human smuggling — and working for Juárez Cartel — help move ISIS terrorists through the desert and across the border. These specific areas were targeted for exploitation by ISIS because of their understaffed municipal and county police forces, and the relative safe-havens the areas provide for the unchecked large-scale drug smuggling that was already ongoing.

   

  "Mexican intelligence sources report that ISIS intends to exploit the railways and airport facilities in the vicinity. The sources also say that ISIS has "spotters" to assist with terrorist border crossing operations. ISIS is conducting reconnaissance of regional universities; the White Sands Missile Range; government facilities in Alamogordo, NM; Ft. Bliss; and the electrical power facilities near Anapra and Chaparral, NM."

  April 14. Students at Union Grove High School in Wisconsin were asked to "pretend you're a Muslim" and "give three examples of what you do daily for your religion and any struggles you face." WISN talk radio host Vicki McKenna posted the writing assignment on Twitter. "I feel that the purpose of the assignment is to show prejudices towards Muslims in America or to invent them or exaggerate them," said one parent.

  April 14. The Justice Department said U.S. citizens and residents can now find out whether they are on the "no-fly" list and possibly receive a summary of the reasons for their placement in the secret database. Around 47,000 people are on the no-fly list, 800 of whom are Americans. They are barred from boarding a U.S. carrier, a U.S.-bound flight or entering U.S. airspace.

  April 16. A legislative committee in Augusta, Maine, voted 8-2 to reject a bill that attempted to codify the state and U.S. constitutions as the law of the land. The legislation, LD 330, was modeled after a law passed in Tennessee aimed at preventing the use of Muslim Sharia law in state courts there.

  April 17. Officials at Mason High School in Mason, Ohio, canceled "hijab day" after parents expressed opposition. Female students were asked to wear a headscarf, or hijab, for an entire school day, followed by a time for reflection and discussion. Principal Mindy McCarty-Stewart said the "Covered Girl Challenge," sponsored by MHS' Muslim Students Association, was meant to combat stereotypes Muslim women may face when wearing head coverings. Former school board candidate Sharon Poe said: "My belief is wearing these hijabs represents the oppression of women and Sharia law. I do not recall ever getting an email announcing a Christian Cross Wearing day or a booth for information about the Christian persecution from Islamic terrorists. What happened to the argument of the separation of church and state?"

  April 20. The US Council of Muslim Organizations (USCMO), a coalition of groups, defended Turkey ahead of Armenian Genocide Remembrance Day on April 24. The USCMO published a statement opposing any recognition of the genocide of Armenian Christians in 1915 by the Ottoman Turks. The group claims there has not been a "proper investigation of these events by independent historians."

  April 20. Turkish media reported that U.S. President Barack Obama had agreed to accompany Turkish President Recep Tayyip Erdogan at the inauguration ceremony of a $100 million mega-mosque in Lanham, Maryland.

  April 22. Amir from Seattle, Washington, sought advice on his student loans from financial guru Steve Rhode:

  "I recently called to ask if I could get a lower pay-off amount as the original loans were 32K and now they are up to about 64K because of deferment and interest. They said no. My conditions have changed. I was born into Islam, however, never knew much about my religion. Since 2012, I have been learning more about my faith and it is strictly forbidden in my faith to have dealings with interest. I am offering to pay off the original amount I owe. However, due to religious reasons, I would like them to recognize that my awareness and conditions have changed from the time of originally accepting the loan. Can I get the interest wiped out and close this account and case with just paying the original amount borrowed?"

  April 22. Mohamed S. Abdullahi, 30, of Phoenix, Arizona, was arrested after physically and sexually assaulting a woman after their arranged marriage. Police said the victim's parents had married her to Abdullahi without her knowledge. After she learned of the marriage, she fled the state, but returned two weeks later to finish high school. The victim's family members reportedly took her to Abdullahi's residence against her will on April 20. Police said Abdullahi punched, bit and strangled her before sexually assaulting her.

  April 23. In a letter, U.S. Representatives Keith Ellison (D-MN) and André Carson (D-IN) asked the Obama administration to ban Dutch lawmaker Geert Wilders from visiting the United States because of his anti-Islam views: "We respectfully request that the U.S. government deny Mr. Wilders entry due to his participation in inciting anti-Muslim aggression and violence. Mr. Wilders' policy agenda is centered on the principle that Christian culture is superior to other cultures."

  April 24. The U.S. Justice Department said it would "monitor" an Arkansas gun range that declared itself a "Muslim-free zone." The Council on American-Islamic Relations (CAIR) complained about statements by Jan Morgan, the owner of Gun Cave Shooting Range in Hot Springs. In a letter addressed to Attorney General Eric Holder, CAIR said the range was "systematically banning Muslims from a place of business" and that doing so was "a violation of federal laws prohibiting racial and religious discrimination."

  April 24. The University of Maryland (UMD) postponed a screening of the film, American Sniper, after the UMD's Muslim Students Association complained that the film "only serves to fuel hatred, promote Islamophobia, and discriminate against Muslim individuals." One of UMD's most famous graduates, retired American football quarterback and current sports commentator Boomer Esiason, tweeted he was "never donating another dime" to the school. "As a 9/11/01 victim I'm deeply saddened and insulted. #ChrisKyle is a hero!" Pastor Franklin Graham wrote:

  "Can you believe that the University of Maryland canceled a screening of the movie American Sniper after Muslim students complained? Shame on the University of Maryland for listening to these voices! If these Muslim students can't support the military members who do their job to protect us, let them leave America and go to a Muslim country. God bless America and our heroes!"

  April 28. A middle school teacher in Georgia was fired after she criticized President Barack Obama and his supporters in front of students. Nancy Perry allegedly told students at Dublin Middle School that Obama is Muslim and Christians should not support him.

  April 29. The board of the Metropolitan Transportation Authority (MTA) voted 9-2 to ban political and religious ads on all subways and buses in New York City. The move came a week after Manhattan federal Judge John Koeltl ordered the MTA to run an ad from the American Freedom Defense Initiative, a free speech advocacy group. The ad featured a Muslim man with his face covered and the Hamas quote: "Killing Jews is worship that draws us close to Allah."

  April 29. An internal investigation found that the College of Liberal Arts at the University of Minnesota did not violate university policies on discrimination when it published a flyer depicting a caricature of Mohammed. Controversy erupted in January, when several professors organized a panel discussion about the Charlie Hebdo massacre. The panel was promoted with a flyer which recreated a Charlie Hebdo cover, with a red "CENSORED" stamp on top of it. After Muslim students complained, the university ordered that the posters be taken down, but then reversed the ban, saying it was a mistake. "There is no question in my mind that this poster was protected speech," said Jane Kirtley, a professor of media ethics and law. Professor Bruno Chaouat, who helped to organize the event, said the university's decision to launch an investigation was part of a worrisome trend: "I think what's going on is a global problem … of self-censorship."

  MAY 2015

  May 1. The Islamic Society of Milwaukee, Wisconsin, purchased a former Lutheran church across from the University of Wisconsin-Milwaukee Union and will convert it into a mosque for a growing east side Muslim community. The Islamic Society purchased property — including a 3,150-square-foot worship space and adjacent triplex — for $700,000. In March, the Islamic Society opened a new $3 million mosque in Brookfield — a first for Waukesha County.

  May 3. Elton Simpson, 30, and Nadir Hamid Soofi, 34, were killed by police after they opened fire outside the Muhammad Art Exhibit and Cartoon Contest in Garland, Texas. ISIS claimed responsibility for the shooting, believed to have been the first ISIS-inspired attack on U.S. soil. Simpson, a convert to Islam with a long history of extremism, had been prosecuted in 2010 for lying to the FBI after he spoke of joining Al Shabaab, a terrorist group in Somalia.

  May 3. A contract employee at Syracuse Hancock International Airport in Syracuse, New York, was charged with making a terrorist threat after he said he would bring a gun to work and "shoot everybody." Mohammad Salak, a 33-year-old employee of the company Envoy, hired by United Airlines to handle ground services, became the focus of an investigation after fellow employees accused Salak of saying:

  "They don't know where I'm from. I've been in wars. I've killed people and killing somebody is nothing to me. I'll leave here and go get my mask and my gun and come and kill everybody."

  Police later determined the threats were directed at fellow employees, not travelers or members of the public passing through the airport. The Onondaga County District Attorney's Office significantly reduced the initial charge against Salak from the felony of making a terroristic threat, to misdemeanor menacing, then to disorderly conduct.

  May 4. A new instruction manual issued by the Islamic State advises its supporters in the United States and Europe on ways to disguise themselves and their motives when trying to plan and carrying out "lone wolf" attacks. The guide notes:

  "Don't make it too obvious you have become a practicing Muslim. For example: If you haven't grown a beard, don't grow it now, because you will bring unwanted attention onto yourself. Mujahideen in Muslim lands remove their beards for deceptive purposes."

   

  "When a Muslim goes out in public, he wants to fit into society to make himself look as normal as possible. Remember this isn't because he fears his Islamic identity, but he is doing this so he is not suspected of being an outsider enemy."

   

  "Making yourself look more friendly and open minded to the Western public. For example: Muslims who call themselves by a Western nickname gain more acceptances by their non-Muslim colleagues."

   

  "People with Islamic names get less jobs than those with Islamic names. This alias might be important if you need an important position in a specific job, i.e. Mujahideen send people to work in power plants or enemy governmental positions to spy on and leak reports to the Islamic State leadership (as double agents)."

  May 6. Carmen Harlan, an anchorwoman for WDIV, NBC TV's local affiliate in Detroit, Michigan, angered local Muslims with comments she made about the ISIS threat in Michigan: "Given the fact that we have the largest Arab population outside the Middle East, I guess this [a higher risk of ISIS threats] should not come as a real surprise."

  The American-Arab Anti-Discrimination Committee (ADC) called for an apology, saying that Harlon was guilty of making "blanket generalizations about an entire group, unfairly exposing Muslim-Americans and Arab-Americans to contempt and ridicule while subjecting them to marginalization in their schools, places of employment, and other spheres of society."

  May 7. Noelle Velentzas, 27, and Asia Siddiqui, 31, both of Queens, New York, pleaded not guilty to charges of planning to build an explosive device for ISIS-inspired attacks in New York City. The two were arrested on April 2. Police searching their homes found gas tanks, a pressure cooker, fertilizer, handwritten notes on recipes for bomb making and jihadist literature. Velentzas told an informant that she could not understand why American citizens were traveling overseas to wage jihad when they could simply "make history" at home, according to court papers.

  May 8. Police in San Jose, California, arrested Mohammad Khaliqi, 31, for attempting to rape a 13-year-old girl as she returned home from school. The girl told investigators that Khaliqi had forced his way through the front door of her home as she went inside. She fought him off and he fled before police arrived. The girl then locked the door after he left, hid in a closet and texted her father: "DADDY COME HOME NOW. SOME GUY TRIED TO RAPE ME."

  May 13. The planning commissioner of El Monte, a city in Los County, California, faced pressure to resign after he wrote that a ban on Islam "sounds good" on his Facebook page. Art Barrios shared a news article on Facebook with the headline "China makes major moves to ban Islam." He added a comment: "Sounds good maybe the rest of the world should do the same." The Council on American-Islamic Relations (CAIR) called for his resignation. Barrios said his Facebook post was in reference to Islamic extremists "that are going out and killing other people." He said:

  "I thought it was about time that we stop kowtowing to the Islam that's doing the racist things and doing the things that are bad for any religion. I'm an American citizen. I have the right to think anything I want to think … I have the right to do what I want to do."

  Haroon Manjlai, the public affairs coordinator for CAIR-LA said:

  "Neither the article nor Mr. Barrios' comment on the article give any indication that he was talking about Muslim extremists. It sounded like he was talking about the religion as a whole and that is extremely insensitive and un-American."

  May 14. Lawmakers in South Carolina indefinitely postponed a vote on legislation that would prohibit the use of any foreign laws, including Islamic Sharia law, which violate the U.S. Constitution.

  May 15. The New York Times published an opinion article that called for an infusion of 50,000 migrants from Syria to revitalize Detroit:

  "Detroit, a once great city, has become an urban vacuum. Its population has fallen to around 700,000 from nearly 1.9 million in 1950. The city is estimated to have more than 70,000 abandoned buildings and 90,000 vacant lots. Meanwhile, desperate Syrians, victims of an unfathomable civil war, are fleeing to neighboring countries, with some 1.8 million in Turkey and 600,000 in Jordan. Suppose these two social and humanitarian disasters were conjoined to produce something positive."

  May 15. The Sheen Center for Thought and Culture, a performance center in downtown Manhattan, canceled an event featuring a new play by Neil LaBute on the grounds that it was offensive to Muslims. The event, "Playwrights for a Cause," featuring four new short plays about censorship in the arts, was set to take place on June 14. The Sheen Center said it "will not be a forum that mocks or satirizes another faith group." LaBute responded:

  "This event was meant to shine another light on censorship and it was unexpected to have the plug pulled, quite literally, by an organization that touts the phrase 'for thought and culture' on their very website. Both in life and in the arts, this is not a time to hide or be afraid? recent events have begged for artists and citizens to stand and be counted."

  May 21. The Texas Senate passed a measure that would prevent any 'international law' from being used in Texas civil courts. The bill does not specifically mention Islamic Sharia law, but guarantees that no laws from 'foreign courts' will be adopted by Texas civil court judges. "It's just to provide some belt and suspenders to make sure that, with judicial discretion, we don't trump Texas law, American law, with a foreign law regarding family law," said State Senator Donna Campbell. Muslim groups said the bill is a "solution looking for problem."

  May 21. The Chairman of the House Committee on Homeland Security, Michael McCaul, said that a plan by the Obama administration to resettle Syrian refugees in the U.S. is a "serious mistake" and should be stopped until safeguards are in place:

  "We have no way … to know who these people are … we don't have databases on these individuals so we can't properly vet them, to know where they came from, to know what threat they pose, because we don't have the data to cross-reference them with. While there are a lot of mothers and kids, there are also a lot of males of the age that could conduct terrorist operations."

  A group of Senate Democrats urged the Obama administration to allow at least 65,000 Syrian refugees to settle inside the United States.

  May 26. Public school officials in Nashville, Tennessee, announced that six schools in South Nashville, home to a burgeoning Muslim community, would begin offering Arabic language classes. Each of the schools has students who speak Arabic as their primary language. Political commentator Allen West said:

  "So the schools were chosen because there's a high number of native Arabic speakers in the neighborhood. Why exactly do they need Arabic lessons? Wouldn't English be more appropriate? And why is it the public school's role to help keep students "connected to their native culture?" I thought that was their parents' role. I thought the purpose of the American public school system was to keep Americans connected to their American culture."

  May 28. The governing board of the Washington, DC Metro system banned "issue-oriented" advertising on its trains and buses. The move came after the American Freedom Defense Initiative, a free speech advocacy group, sought to place ads featuring a cartoon of Mohammed. A top Metro official said:

  "My view is, you put that ad up on the side of a bus, you turn that bus into a terrorism target. I think it's a very bad outcome for everybody. But it's a risk we don't want to put our passengers under."

  AFDI's president, Pamela Geller, responded:

  "These cowards may claim that they are making people safer, but I submit to you the opposite. They are making it far more dangerous for Americans everywhere. Rewarding terror with submission is defeat. Absolute and complete defeat."

  Also in May, a study released by research corporation Westat, and commissioned by the US Department of Justice, estimated that 23-27 honor killings occur in the United States every year. The study, "Honor Violence Measurement Methods," noted that 91% of victims in North America are murdered for being "too Westernized," and in incidents involving daughters 18 years or younger, a father is almost always involved.

  The report — which identified four types of honor violence: forced marriage, honor-based domestic violence, honor killing and female genital mutilation — also estimated that 1,500 forced marriages occur in the United States every year.

  A separate study by the Population Reference Bureau estimated that 507,000 women and girls in the United States are at risk or have already undergone female genital mutilation (FGM), more than twice the number estimated in 2000.

  JUNE 2015

  June 1. The U.S. Supreme Court ruled in favor of Samantha Elauf, an American Muslim woman who was denied a job at Abercrombie & Fitch because she wears a hijab headscarf. Elauf claimed the company did not offer her a job because her religious identity violates Abercrombie's "look policy." The company said the scarf clashed with its dress code, which calls for a "classic East Coast collegiate style." Justice Antonin Scalia wrote: "An employer may not make an applicant's religious practice, confirmed or otherwise, a factor in employment decisions."

  June 3. United Airlines apologized after a flight attendant's refusal to give an unopened can of soda to a Muslim passenger led to a social media firestorm. Tahera Ahmad, 31, a Muslim chaplain at Northwestern University, was traveling from Chicago to Washington, DC, on May 29 when she said she asked for an unopened can of Diet Coke. Ahmad said the flight attendant told her she was "unauthorized to give unopened cans to people because they may use it as a weapon on the plane." Ahmad wrote on her Facebook page that she was in "tears of humiliation from discrimination."

  Other passengers on the flight later contradicted Ahmad's account. They said she became irate after the flight attendant handed her an unopened can of Diet Coke rather than a Coke Zero, as she had requested. The flight attendant returned with a Coke Zero, but said Ahmad could not have the entire can because there was not enough to go around for other passengers. Ahmad then went into a rage: "What, do you think I will use this as a weapon? Why can't I have the whole can? I think you are discriminating against me. I need your name." According to passengers seated near Ahmad, she kept repeating, "I need your name. I am being discriminated against." Ahmad then got on her phone and "started spinning this story on social media and she was never in tears."

  One observer noted:

  "What's really remarkable about this story is, near as I can tell, at no point … did any of these major media outlets try and independently verify the details of Ahmad's story. I would like to note that what's happened with this story is a complete and total perversion of journalism. Whether it's simply for clicks or because folks are anxious enough to promote any account of injustice that reinforces the media's center-left world view, it is inexcusable to turn someone's one-sided Facebook post into a national news story without making an effort to verify the details."

  June 4. A Department of Homeland Security Inspector General report found that the Transportation Security Administration (TSA) had failed to identify 73 airport workers with links to terrorism. The revelation came just days after an internal investigation of the TSA found security failures at dozens of the nation's busiest airports, where undercover investigators were able to smuggle mock explosives or banned weapons through checkpoints in 95% of tests.

  June 5. Michael Wolfe, 24, of Austin, Texas, was sentenced to almost seven years in federal prison and five years of supervised release for attempting to engage in violent jihad in Syria. According to the Justice Department, Wolfe admitted that he planned to travel to the Middle East to provide his services to ISIS. Wolfe also admitted to participating in physical fitness training, acquiring a U.S. passport, and trying to conceal his communications about foreign travel to join ISIS. Wolfe purchased plane tickets to Europe so he could meet with an undercover FBI agent, who he believed would help him travel to Syria through Turkey. Wolfe was arrested on June 17, 2014 in Houston as he attempted to board a flight to Canada.

  June 7. Munther Omar Saleh, 20, a college student in Queens, New York, was arrested and charged with trying to learn how to build a pressure cooker bomb for an attack in New York City on behalf of the Islamic State.

  June 9. The owners of the Empire State Building reached a confidential settlement with a Muslim family booted from the building's observation deck because they were praying. Fahad and Amina Tirmizi, of Long Island, New York, said in their federal lawsuit that they and their two young children had begun silently reciting their evening prayers in a quiet spot on the 86th-floor deck at about 11 p.m. July 2, 2013, when two security guards "forcibly escorted" them down to the lobby and out of the of the building. The couple was seeking $5 million in damages in the suit, filed in March 2014 in Manhattan federal court.

  June 9. The New York Police Department said it was working to recruit more Muslims. There currently are about 800 Muslim uniformed police officers out of about 35,000, according to the NYPD Muslim Officers Society. "The more Muslims who work in the NYPD the better," said Ibrahim Hooper, a spokesman for the Council on American-Islamic Relations (CAIR). "This is a way to break down the mistrust and create bridges in the community."

  June 12. Four Muslims who accused the FBI of putting them on a no-fly list because they refused to become informants said they would seek damages, even though the travel ban has been lifted. Plaintiff lawyer Robert Shwartz told U.S. District Judge Ronnie Abrams that "various FBI agents punished the men and put them on [the list] because they refused to become informants at their mosques." As a result, they suffered the "stigma of being treated as threats to aviation security." Shwartz added: "Money relief is really the only relief."

  June 12. Khalifa Said Derenkai, of Salt Lake City, Utah, filed a lawsuit against Pan Am International Flight Academy, based in Las Vegas, Nevada, for refusing to let him use a flight simulator. Derenkai says he was scheduled for flight simulator training, but Pan Am school manager Phil Spessard looked up his LinkedIn profile and denied him access to a flight simulator. Derenkai, originally from Eritrea, said Spessard reported him to the FBI's Terrorism Taskforce because he "looked suspicious" because of his African origins. Derenkai said he was seeking $400,000 in compensatory damages and punitive damages for discrimination.

  June 18. Samuel Rahamin Topaz, 21, of Fort Lee, New Jersey, was charged with planning to travel overseas to support the Islamic State. Topaz was arrested one day after federal prosecutors charged Fareed Mumini, 21, of Staten Island, New York, with trying to stab an FBI agent who was executing a search warrant at his home. A criminal complaint alleged that Mumini had pledged allegiance to the Islamic State, and that if he failed to join the group overseas, he planned to attack law enforcement in the United States.

  June 19. Justin Nojan Sullivan, 19, of Burke County, North Carolina, was arrested on charges of planning terrorist attacks in the United States on behalf of ISIS. The criminal complaint alleges that the FBI became aware of Sullivan's plans to obtain a semi-automatic AR-15 rifle, which he planned to use to kill a large number of U.S. citizens. An undercover FBI agent made contact with Sullivan beginning on or about June 6, 2015. Sullivan described himself to the agent as "a mujahid," and as a Muslim convert living in the eastern United States. Sullivan also told the agent that "the war is here," and gave the agent the opportunity to join what he called the Islamic State of North America, whose "doctrine is guerilla warfare in and out."

  June 23. A judge in St. Louis, Missouri, ruled that Raja Naeem, a Pakistani taxi driver, has a right to wear religious attire while working. Naeem had been battling the Metropolitan Taxicab Commission, which licenses drivers in the St. Louis area, for years regarding his clothing. The commission requires drivers to wear black pants and a white, button-down shirt. The commission said the dress code makes it easier for the public to identify licensed drivers. After a court ruling in 2013, the commission offered a compromise: a kurta, the loose-fitting clothing worn on the torso. Naeem said his freedom of religious expression was still being violated. Judge Robert Dierker ruled: "Mr Naeem's right to express his religious beliefs by his mode of dress is directly infringed by the Commission's dress code. The Missouri Constitution clearly prohibits such infringement."

  June 23. A poll commissioned by the Washington, DC-based Center for Security Policy found that more than half (51%) of Muslims in America believe they should "have the choice of being governed according to Sharia." Only 39% of those polled said that Muslims in the U.S. should be subject to American courts. Nearly a quarter of the Muslims polled believed that, "It is legitimate to use violence to punish those who give offense to Islam by, for example, portraying the prophet Mohammed." Nearly one-fifth of Muslim respondents said that the use of violence in the United States is justified in order to make Sharia the law of the land in this country.

  June 23. During an Iftar dinner to celebrate the Muslim holiday of Ramadan, U.S. President Barack Obama lamented the "distorted impression" that many Americans have of Muslims: "Here in America, many people personally don't know someone who is Muslim. They mostly hear about Muslims in the news — and that can obviously lead to a very distorted impression."

  June 26. The New York Police Department issued parking tickets to more than 100 Muslim cab drivers parked illegally outside a mosque on the Upper West Side during Ramadan. Cabby Mohammad Zaman, who was slapped with a $115 ticket for double parking, said:

  "This is a special prayer time, a time for religion. We double-park here every Friday and they [allow it], but today they gave us all tickets, almost 100 cabs. This has never happened before. I can't help but to think they are being prejudiced. They don't understand. We have to be here."

  June 29. Walmart apologized after the bakery at a store in Slidell, Louisiana refused a man's request for a Confederate flag cake, but accepted a design with the ISIS flag. Chuck Netzhammer said he ordered the image of the Confederate flag on a cake with the words, "Heritage Not Hate," but the bakery said no. "I went back yesterday and managed to get an ISIS battle flag printed. ISIS happens to be somebody who we're fighting against right now who are killing our men and boys overseas and are beheading Christians," Netzhammer said. "That's an ISIS battle flag cake that anybody can go buy at Walmart. But you can't buy a Confederate flag toy, with like, say, a 'Dukes of Hazzard's' car."

  

  

  

  

  

• A Bullish Blast From The Past

  The first time the S&P 500 was at the current levels was early June 2014… i.e. your equity market investment has returned nothing for 19 months.

  

   

  In the interests of “fair and balanced” reporting we offer the following “Sincere” headline from 2014… making it clear just what to do next.

  

  h/t @StockCats

  So you know what to do. Or does the phrase “permanently high plateau” ring any bells for anyone?

  

  

  

  

• Another Nail In The US Empire Coffin: Collapse Of Shale Gas Production Has Begun

  Via SRSroccoReport.com,

  The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun.  This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.

  Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry.  Without energy, the U.S. economy would grind to a halt.  All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal.  Energy drives the economy and finance steers it.  As I stated several times before, the financial industry is driving us over the cliff.

  The Great U.S. Shale Gas Boom Is Likely Over For Good

  Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015.  Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015:

  

  As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011.  Here are the production profiles for each shale gas field:

  

  According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high.  The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d.  Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year.

  

  The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d.  This was a huge 50% decline from its peak.  Not only is the drilling rig count in the Haynesville down 57% in a year, it fell another five rigs this past week.  There are only 18 drilling rigs currently working in the Haynesville.

  

  The EIA reports that shale gas production from the Eagle ford peaked in July 2015 at 5 Bcf/d and is now down 6% at 4.7 Bcf/d.   As we can see, total drilling rigs at the Eagle Ford declined the most at 117 since last year.  The reason the falling drilling rig count is so high is due to the fact that the Eagle Ford is the largest shale oil-producing field in the United States.

  

  Lastly, the Mighty Marcellus also peaked in July 2015 at a staggering 15.5 Bcf/d and is now down 3% producing 15.0 Bcf/d currently.  The Marcellus is producing more gas (15 Bcf/d) than the other top three shale gas fields combined (12.1 Bcf/d).

  I have posted the Haynesville shale gas production chart below to discuss why U.S. Shale Gas production will likely collapse going forward:

  

  What is interesting about the Haynesville shale gas field, located in Louisiana and Texas, is the steep decline of production from its peak.  On the other hand, the Barnett (chart above in red) had a much different profile as its production peak was more rounded and slow.  Not so with the Haynesville.  The decline of shale gas production at the Haynesville was more rapid and sudden.  I believe the Eagle Ford and Marcellus shale gas production declines will resemble what took place in the Haynesville.

  All you have to do is look at how the Eagle Ford and Marcellus ramped up production.  Their production profiles are more similar to the Haynesville than the Barnett.  Thus, the declines will likely behave in the same fashion.  Furthermore drilling and extracting shale gas from the Haynesville was a “Commercial Failure” as stated by energy analyst Art Berman in his Forbes article on Nov 22 2015:

  The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells in that play that cost $8-10 million apiece to sell gas at a loss into a over-supplied market.

   

  

   

  At $6 gas prices, only 17% of Haynesville wells break even (Table 3) and approximately 115,000 acres are commercial (Figure 2) out the approximately 3.8 million acres that comprise the drilled area of the play.

   

  The Haynesville Shale play is a commercial failure. Encana exited the play in late August. Chesapeake and Exco, the two leading producers in the play, both announced significant write-downs in the 3rd quarter of 2015.

  Basically, the overwhelming majority of the shale gas extracted at the Haynesville was done so at a complete loss.  So, why do they continue drilling and producing gas in the Haynesville?

  The reason Art Berman states is this:

  What we see in the Haynesville Shale play are companies that blindly seek production volumes rather than value, and that care nothing for the interests of their shareholders. The business model is broken. It is time for investors to finally start asking serious questions.

  Chesapeake is one of the larger shale gas producers in the Haynesville as well as in the United States.  According to its recent financial reports, Chesapeake received $1.05 billion in operating cash in the first three-quarters of 2015, but spent $3.2 on capital expenditures to continue drilling.  Thus, its free cash flow was a negative $2.1 billion in the first nine months of 2015.  And this doesn’t include what it paid out in dividends.

  The same phenomenon is taking place in other companies drilling for shale gas in the other fields in the U.S.  This insanity has Berman perplexed as he states this in another article from his site:

  This has puzzled me because the shale gas plays are not commercial at less than about $6/mmBtu except in small parts of the Marcellus core areas where $4 prices break even. Natural gas prices have averaged less than $3/mmBtu for the first quarter of 2015 and are currently at their lowest levels in more than 2 years.

  The reason these companies continue to produce shale gas at a loss is to keep generating revenue and cash flow to service their debt.  If they cut back significantly on drilling activity, their production would plummet.  This would cause cash flow to drop like a rock, including their stock price, and they would go bankrupt as they couldn’t continue servicing their debt.

  Basically, the U.S. Shale Gas Industry is nothing more than a Ponzi Scheme.

  The Collapse Of U.S. Shale Gas Production Even At Higher Prices

  I believe the collapse of U.S. shale gas production will occur even at higher prices  Why?  Because the price of natural gas increased from $2.75 mmBtu in 2012 to $4.37 mmBtu in 2014, but the drilling rig count continued to fall:

  

  As the price of natural gas increased from 2012 to 2014, gas drilling rigs fell 40% from 556 to 333.  Furthermore, drilling rigs continued to decline and now are at a record low of 127.  Just as Art Berman stated, the average break-even for most shale gas plays are $6 mmBtu, while only a small percentage of the Marcellus is profitable at $4 mmBtu.

  Looking at the chart again, we can see that the price of natural gas never got close to $6 mmtu.. the highest was $4.37 mmBtu.  Thus, the U.S. Shale Gas Industry has been a commercial failure.

  Now that the major shale gas producers are saddled with debt and many of the sweet spots in these shale gas fields have already been drilled, I believe U.S. shale gas production will collapse going forward.  If we look at the Haynesville Shale Gas Field production profile, a 50% decline in 4 years represents a collapse in my book.

  The Two Nails In The U.S. Empire Coffin

  As I stated in several articles and interviews, ENERGY DRIVES THE ECONOMY, not finance.  So, energy is the key to economic activity.  Which means, energy output and the control of energy are the keys to economic prosperity.

  While the collapse of U.S. shale gas production is one nail in the U.S. Empire Coffin, the other is Shale Oil.  U.S. shale oil production peaked before shale gas production:

  

  This chart is a few months out of date, but according to the EIA’s Productivity Reports, domestic oil production from the top four shale oil fields peaked in April of 2015… three months before the major shale gas fields (July 2015).

  Unfortunately for the United States, it was never going to become energy independent.  The notion of U.S. energy independence was built on hype, hope and cow excrement.  Instead, we are now going to witness the collapse of U.S. shale oil and gas production.

  The collapse of U.S. shale oil and gas production are two nails in the U.S. Empire coffin.  Why?  Because U.S. will have to rely on growing oil and gas imports in the future as the strength and faith of the Dollar weakens.  I see a time when oil exporting countries will no longer take Dollars or U.S. Treasuries for oil.  Which means… we are going to have to actually trade something of real value other than paper promises.

  I believe U.S. oil production will decline 30-40% from its peak (9.6 million barrels per day July 2015) by 2020 and 60-75% by 2025.  The U.S. Empire is a suburban sprawl economy that needs a lot of oil to keep trains, trucks and cars moving.  A collapse in oil production will also mean a collapse of economic activity.

  Thus, a collapse of economic activity means skyrocketing debt defaults, massive bankruptcies and plunging tax revenue.  This will be a disaster for the U.S. Empire.

  

  

  

  

  

• Tempers Flare Anew As Turkey Accuses Russia Of Violating Airspace

  Back in November, Turkey very nearly started a world war when Ankara decided it would be a good idea to shoot down a Russian warplane near the Syrian border.

  Only one of the two Su-24 pilots survived after the plane was ambushed by two Turkish F-16s.

  The other pilot was killed by the Syrian resistance and in a brazen move, the FSA destroyed a Russian search and rescue helicopter with a US-supplied TOW hours after the plane was downed.

  That incident triggered a rather heated war of words between Ankara and Moscow, with The Kremlin launching a PR campaign that accused Turkey of aiding and abetting Islamic State by, among other things, facilitating the group’s illicit oil trafficking business.

  Since then, Russia has also deployed S-400 advanced missile defense systems to Latakia which effectively means that Turkish F-16s are no longer allowed in the skies above Syria.

  Well, just when you thought the tensions between Erdogan and Putin were calming down, Turkey has summoned the Russian ambassador over what Ankara claims was another violation of Turkish airspace by Russian jets.

  “Turkey said Saturday that a Russian warplane breached its airspace, accusing Moscow of seeking to escalate tensions and warning of consequences two months after Turkish F-16s downed a Russian jet for violating its territory from Syria,” WSJ reports. “A Russian Su-34 entered Turkey’s airspace at 11:46 a.m. local time on Friday, despite repeated warnings from Turkish radar operators in Russian and English, the Foreign Ministry in Ankara said in an emailed statement Saturday.”

  “We are issuing an explicit and clear call to the Russian Federation to act responsibly in the matter of not violating the Turkish airspace, and therefore NATO airspace,” Turkey said, as though Russia had somehow forgotten that Turkey was a NATO member.

  We hope cooler heads will prevail in Ankara this time around because if Erdogan shoots down another Russian plane, they’ll be long range bombers over Erdogan’s $615 million palace.

  In any event, we’re sure Erdogan will write this off as a misunderstanding.

  After all, it was the Turkish President himself who in 2012 said “a short-term border violation can never be a pretext for an attack.”

  Meanwhile, assuring tensions between the two nations remains at their highest in years, a Turkish ultranationalist who bragged about killing the pilot of a Russian bomber shot down by Turkish fighter jets has showed up for the funeral of a fellow militant in Istanbul. Moscow has demanded the man’s arrest on war crime charges.

  Alparslan Celik is a Turkish citizen, the son of a former district mayor elected from Turkey’s Nationalist Movement Party (MHP) and a member of the party’s unofficial youth military arm, Bozkurtlar.

  He appeared in Istanbul on Wednesday for the funeral of Ibrahim Kucuk, the head of the MHP bureau in Istanbul’s Fatih district, who was killed in an airstrike in a Turkmen village in Syria, the Hurriyet newspaper reported.

  “The martyr [Kucuk] was our friend. He was with us in Bayirbucak and Turkmen Mountain. We were together,” he told journalists referring to the northwestern region of Syria, where ethnic Turks are an ethnic majority. The Turkish government has been supporting Turkmen militias in Syria, including the group in which Celik is deputy commander.

  

  Alparslan Celik is seen during an interview with the Do?an news agency in northwestern province of Kocaeli on Jan. 28. (Photo: DHA)

  Previously Celik challenged the Russian threat to his life, vowing he will continue to fight to defend the Turkmens’ territory in Syria against government forces backed by Russia.

  He confirmed that rebel groups fighting against Syrian government forces in the Turkmen region have been getting military support from Turkey.

  Underlining the rebels’ need to have air defense weapons to protect themselves against Russian jets, Celik reportedly praised Turkey’s assistance that has been given to Turkmens in the region; however, he said the amount of support is still not sufficient.

   

  He complained about still being provided with the same rudimentary weapons as the ones those given to them while they were fighting Syrian and Iranian forces — before the involvement of Russia on the side of the Syrian government.

  He reportedly told the news agency: “The same [kind of] weapons are coming today when we are fighting against Russia, which is a world power. We are not equipped with the weapons to counter their high-tech devices. But they [weapons] are certainly coming from the Turkish state. The [sort of] weapons that work in combat at close quarters. But we don’t have an air defense system… What we are asking from the Turkish state is to provide us with air defense weapons.”

  Celik previously implied he had killed Oleg Pe?kov, a Russian pilot, as he parachuted from his plane, which was hit by a Turkish jet for allegedly violating Turkish airspace. A Turkish F-16 shot down the Russian pilot’s Su-24 on Nov. 24, an act that has led to a crisis in relations between the two countries. Pe?kov was one of the two pilots in the downed jet that fell over Syrian territory near the Turkish border after being hit by a missile.

  The video of the mid-air execution can be found here.

  As for Russian threats, he is not afraid: “I have no such fear [of death]. We will continue our fight to the last person, the last breath, [and] the last drop of blood,” Celik told the Dogan news agency on Thursday.

  Putin may promptly oblige.

  

  

  

  

  

• Japan Just Lit the Fuse on a $9 Trillion Debt Bomb

  On Friday the Bank of Japan implemented Negative Interest Rate Policy, or NIRP.

   

  It is the second Central Bank to do so. The European Central Bank or ECB first went to NIRP in June 2014.

   

  Thus, between Japan and Europe, over 20% of the world’s GDP is being managed by a Central Bank with NIRP.

   

  More importantly, TWO major currencies in the world are now at NIRP while the US Dollar is at 0.5%.

   

  Why does this matter?

   

  Because hundreds of billions of Dollars in capital will be fleeing Japan to come to the US.

  The US Dollar has been in a bull market since mid-2014. It is not coincidence that it started when the Euro first went to NIRP: the minute the EBC implemented NIRP money began fleeing the Euro and moving into the US Dollar.

  

  To put this into perspective, this move was larger in scope than the “flight to safety” that occurred in 2008 when everyone thought the world was ending.

   

  The reason this is problematic?

   

  There are over $9 trillion in BORROWED US Dollars sloshing around the financial system.

  And much of it is parked in assets that are denominated in emerging market currencies (the very currencies that have imploded as the US Dollar rallied).

   

  This is the US Dollar carry trade… and it is larger in scope that the economies of Germany and Japan… combined.

  ALL of this DEBT is at risk of blowing up when the US Dollar began to rally. And now that both Europe AND Japan are implementing NIRP, the US Dollar bull market is only going to get worse.

  How bad?

  The US Dollar has broken out of the single BIGGEST falling wedge pattern in history. You are looking at a 40 year chart pattern that has been broken.

  

  This tells us that something absolutely MASSIVE is happening in the financial system right now. That "something" is the beginning of a $9 trillion debt implosion.

  Another Crisis is coming. Smart investors are preparing now.

  We just published a 21-page investment report titled Stock Market Crash Survival Guide.

   

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

   

  We are giving away just 1,000 copies for FREE to the public.

   

  To pick up yours, swing by:

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

   

  Best Regards

   

  Graham Summers

  Chief Market Strategist

  Phoenix Capital Research

   

   

   

   

  

  

  

  

• Is The Bear Market Back? Here Is Google's Answer

  In a word – “Yes”

   

  

  Source: Google Trends

   

  It appears the “herd” was right last time.

  

  

  

  

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• War Party On The Run – The Roots Of The Anti-Trump, Anti-Sanders Camps In Both Parties

  Submitted by Justin Raimondo via AntiWar.com,

  I haven’t had this much fun in years – of course I’m talking about the US presidential election season, with The Donald taking on all comers, and winning (at least so far), and Bernie Sanders burning up the self-satisfied mandarins of the Democratic party Establishment.

  What’s great about this spectacle – and one must view it as a spectacle in order to gain maximum enjoyment from it – is that, as none other than Rush Limbaugh points out:

  “Trump is so far outside the formula that has been established for American politics that people who are inside the formula can’t comprehend it. They don’t understand why somebody would want to venture so far outside it, because it is what it is, and there’s a ladder of success that you have to climb. And somebody challenging it like this in more ways than one, as Trump is doing, has just got everybody experiencing every kind of emotion you can: They’re angry, they are flabbergasted, they’re shocked, they’re stunned – and all of it because he’s leading.”

  As I explained here, and here, one of the ways Trump is upending the rules is that he’s broken with the GOP mandarins on foreign policy. Yes, yes, I know he bloviates about how he’s “the most militaristic person” on God’s green earth, but the fact is there’s plenty of others out there who out-do him in that category. I’ve heard him say he wants to “bomb the s**t out of ISIS,” but aren’t we doing that already – to little effect? When Bill O’Reilly asked him why he didn’t support putting ground troops in Syria, he answered “Do you want to run Syria?” O’Reilly demurred. Trump puffs up his chest and announces he wants us to have “the strongest biggest baddest military on earth” – but you’ll note he invariably adds: “So we’ll never have to use it.”

  Most significantly, he doesn’t want to start World War III with Vladimir Putin’s Russia: he’s actually defied the anti-Russian propaganda blitz and said he’d like to be able to get along with Putin. This alone would’ve been enough for the neocons to start a holy war against him, but he’s even gone further than that and said the Iraq war – the neocons’ handiwork – was “one of the dumbest things ever,” and Limbaugh describes their response to a tee (of course without naming them).

  Oh yes, it’s great fun watching the waterboarding of the neocons, because they count among their enemies the top two contenders for the Republican nomination, not only Trump but also Ted Cruz. The greasy-haired Canadian earned their ire when he attacked them by name, but as Rosie Gray reports in Buzzfeed they may be reconciling themselves to Cruz because he’s the only viable Not-Trump:

  “Some of the hawkish figures who Ted Cruz recently dismissed as ‘crazy neo-con invade-every-country-on-earth and send our kids to die in the Middle East’ … say they’d consider supporting Cruz anyway if he’s the last man between Donald Trump and the Republican presidential nomination.

   

  “Cruz, it turns out, hasn’t fully burned his bridges with that set of advisers and supporters of George W. Bush – figures like Weekly Standard editor Bill Kristol and former National Security Council official Elliott Abrams, who aren’t closed off to Cruz, especially in the case of Abrams. Indeed, despite some lingering resentment and suspicion, there are even glimmers of rapprochement as the Republican primary looks like it could become a two-man race. ‘I would not hesitate to back Cruz as the nominee,’ Abrams – who not long ago told National Review that Cruz’s use of the word neocon invoked ‘warmongering Jewish advisers’ – told BuzzFeed News.”

  Cruz, for his part, is more than willing to smoke a peace pipe with the War Party:

  “In an interview on his campaign bus in Iowa last week, Cruz told BuzzFeed News that, despite his jabs at neocons, he has ‘good relations with a great many foreign policy thinkers.’ Cruz has in the past cited Abrams along with former U.S. Ambassador to the U.N. John Bolton and former CIA director James Woolsey as trusted foreign policy experts.”

  It’s getting pretty cozy in that campaign bus. Rosie, who knows a thing or two about neocons, seems to be the designated ambassador from Kristol-land to the Cruz campaign, and as the Anti-Trump Popular Front – the widest coalition in the history of politics, stretching all the way from the New York Times to Charles Krauthammer – tries to sell us on the idea that the Establishment is now backing Trump against the “insurgent” Cruz, she provides some insightful analysis of just who is the Real Establishment:

  “The neocons’ willingness to consider Cruz stands in sharp contrast with a new line of current conventional wisdom in Washington that Cruz, who is the object of particularly intense personal dislike from establishment Republicans, is actually less acceptable to the establishment than Trump.”

  We know who is the Establishment: it’s those brilliant folks who brought us the Iraq war, who want us to repeat our mistake in Syria, and who pine for a US-led regime-change operation in Russia to get rid of Putin and install a pliable Yeltsin-substitute in power. The Establishment, in short, is the War Party, otherwise known as the neoconservatives, and they are the tireless enemies of peace and liberty. Until and unless they are destroyed as a viable political force, either in the GOP or outside it, there will be no peace in this world. If and when Trump succeeds in sidelining them, that alone will be worth whatever price we have to pay in the – unlikely – event he makes it to the White House.

  As even the usually clueless Ben Domenech, over at The Federalist, observes:

  “On foreign policy, Donald Trump is exploiting American frustration with the elites of both parties. He cites over and over again his opposition to the war in Iraq as a smackdown for the neoconservative views which have ruled the roost in Republican foreign policy circles for 15 years. But he also uses his opposition to engagement in Libya to smack Barack Obama, Hillary Clinton, and Marco Rubio.

   

  “It is very telling that the two leading candidates in the GOP primary today are very critical of intervention in Iraq and Libya and Syria, and this has not only not hurt them, but potentially helped them reach more than 50 percent support in the polls. One would think Republican elites would recognize this and think about what it means about the views of their base. One would think, but one would be wrong.”

  With the triumph of Trumpismo having demolished the GOP foreign policy consensus – and the neocons’ ideological and organizational stranglehold on the conservative movement – the way will be cleared for a libertarian-ish insurgency to arise out of the rubble and make some real headway. I realize it’s hard to see this at the present moment: just like on HGTV, when some clueless couple on “Fixer Upper” or “Property Brothers” just can’t see that the scary dilapidated wreck of a house they’re being shown could become their Dream Home. Yet, in the end, they are bowled over by the luxurious and stunning result.

  (Of course, there are no guarantees in life: a lot depends on if the fractious libertarians, beset as they are by right-wing opportunism and a brainless form of anti-political sectarianism, can finally get their act together.)

  On the other side of the aisle – that is, in the Democratic party – a similar drama, with some significant variations, is being played out in the race pitting Bernie Sanders against Hillary Clinton. The latter is widely considered the presumptive heir, much like Jeb Bush was assumed to be the GOP frontrunner on account of his last name. Yet Bush has been humiliated and sidelined, and Mrs. Clinton may well be in danger of sharing his fate: Sanders is beating her in New Hampshire as well as in Iowa. This has “centrist” Michael Bloomberg, former New York City mayor and professional scold, so upset that he is threatening to launch a third party run if Sanders gets the nod.

  The beleaguered Mrs. Clinton doesn’t have major principled differences with Sanders when it comes to domestic policy: their disagreements are over strategy, not goals. The real split is over foreign policy, with Hillary the hawk pecking at Sanders over his relatively dovish stances on issues from Iran to Libya. And now a posse of “national security” bureaucrats has taken out after Sanders with a joint statement deploring his unwillingness to parrot the War Party’s line:

  “Over the past four debates, the subject of ISIS and Iran have come up a number of times. These are complex and challenging times, and we need a Commander in Chief who knows how to protect America and our allies and advance our interests and values around the world. The stakes are high. And we are concerned that Senator Sanders has not thought through these crucial national security issues that can have profound consequences for our security.

   

  “His lack of a strategy for defeating ISIS – one of the greatest challenges we face today – is troubling. And the limited things he has said on ISIS are also troubling.

   

  “For example, his call for more Iranian troops in Syria is dangerous and misguided and the opposite of what is needed. Supporting Iranian soldiers on Israel’s doorstep is a grave mistake. And while we support de-escalation of Sunni-Shia tensions, his argument that Iran and Saudi Arabia – two intense adversaries – should join together in a military coalition is just puzzling. Indeed, the Iranian government recently failed to stop protesters from ransacking and burning the Saudi embassy in Tehran, after which Saudi Arabia cut off diplomatic ties with Iran.

   

  “We are all strong supporters of the nuclear diplomacy with Iran. Some of us were part of developing the policy that produced the diplomacy over the past several years. And we believe that there are areas for further cooperation under the right circumstances. But Senator Sanders’ call to ‘move aggressively’ to normalize relations with Iran – to develop a ‘warm’ relationship – breaks with President Obama, is out of step with the sober and responsible diplomatic approach that has been working for the United States, and if pursued would fail while causing consternation among our allies and partners.

   

  “Given these concerns, it is important to ask what he would do on other issues – on Russia, China, our allies, nuclear proliferation, and so much else. We look forward to hearing him address these issues.

   

  “We need a Commander in Chief who sees how all of these dynamics fit together – someone who sees the whole chessboard, as Hillary Clinton does.”

  The only time the Clintonistas want to “move aggressively” is when it involves invading a sovereign nation like Iraq, Libya and Syria, and turning it into a cauldron of Islamist terror. Her “strategy” for defeating ISIS is to set up “no fly zones” in Syria, reoccupy Iraq, and fund the very head-chopping Syrian “rebels” from which ISIS and Al-Qaeda have sprung and with whom they are ideologically aligned. Indeed, Mrs. Clinton, who spearheaded the movement inside the US government to arm the Islamists in Syria and Libya, deserves the title “Mother of ISIS.”

  As for all the balderdash about Iran: this is clearly the Israel lobby talking, and if there was any confusion about Mrs. Clinton’s role as their champion in the Democratic party, this should clear it up.

  Yet the Clintonian arguments for an anti-Iranian foreign policy are not very convincing. For just one example: If “supporting Iranian soldiers at Israel’s doorstep is a grave mistake” then is Israel supporting ISIS at their own doorstep an equally grave miscalculation? But of course you won’t be hearing any criticism like that coming from this crowd.

  From a noninterventionist perspective, neither Sanders nor Trump is perfect – both are very far from that. But to nitpick over their deviations is to entirely miss the point, as sectarians of both the left and right are bound to do. These two candidates represent, each in their own way, powerful and growing tendencies on both sides of the ideological spectrum that the movement for peace can utilize to its own advantage. For we cannot change the world until and unless we begin to understand it: only then can we take advantage of such openings as it allows. What is happening in this country is a rebellion against both wings of the War Party – and that is something to be celebrated and encouraged, even as we critique its shortcoming and urge the rebels to take their insurgency further.

  Insofar as this election season is concerned, the watchwords or slogans that give voice to the “correct” position are best expressed in terms of double-negatives. For the conservative Republican readers, that would be: anti-anti-Trump. For the progressive Democrats: anti-anti-Sanders.

  We are hearing the voices of the Mushy Moderate Middle rise up in defense of the status quo: Democrats like the Washington courtier Dana Milbank are warning us against Sanders, while the neocons to a man are railing against the Trumpist Temptation. This should be enough to tell us what is the right road to take and what our answer to the Mushy Middletarians must be: Extremism in defense of peace is no vice – and moderation in the fight against the War Party is no virtue!

  

  

  

  

  

• ISIS Planning To Build Navy, NATO Commander Imagines

  Perhaps the most peculiar thing about Islamic State is that despite continual reports of highly successful airstrikes and proclamations from various governments regarding the extent to which the group’s operational capacity has been severely diminished, they never seem to go away.

  In fact, besides the recent declaration from the group’s leadership that fighters’ salaries will be cut by 50% due to “exceptional circumstances,” we really haven’t seen any concrete evidence to support the contention that “the terrorists” (as Sergei Lavrov matter-of-factly calls them) are on their last legs.

  Ramadi was retaken by the Iraqi army but the real prize is Mosul and ISIS remains just as entrenched there as they ever were. The group recently launched a serious offensive in Libya, where the country’s oil infrastructure is under attack. And no one is any closer to liberating Raqqa, the de facto ISIS capital.

  Sure, Russia has released hundreds of videos depicting what The Kremlin says are airstrikes against training centers, stongholds, and, most notably, oil tankers but at the end of the day, al-Hayat Media Center continues to churn out the propaganda and the group fights on, seemingly no worse for wear.

  One person who isn’t convinced that the group’s capabilities have been curtailed is Vice-Adml Clive Johnstone, a senior NATO Naval officer.

  Clive is especially concerned about Islamic State’s maritime “ambitions.” ISIS, he figures, wants to build a navy. “The march of Islamic State in Iraq and Levant (Isil) along the Libyan coast has cast an ‘uncomfortable shadow’ across shipping,” The Telegraph writes, quoting Johnstone.

  “We know they have had ambitions to go off shore, we know they would like to have a maritime arm,” the Admiral continues.

  Back to that in a moment after a brief trip down hypocrisy lane.

  Johnstone says he’s worried about “sophisticated Chinese and Russian” weapons falling into the hands of militant groups like Hezbollah. Those weapons, he says, create a “horrible opportunity” that a “misdirected, untargeted round of a very high quality weapons system will just happen to target a cruise liner, or an oil platform, or a container ship.”

  Johnstone apparently isn’t concerned that “sophisticated” American weapons might be used for similar attacks.

  After all, the US is arming all sorts of Sunni extremists in Syria and one group (the FSA) has already done exactly what Johnstone claims to be so afraid of: they used a US-supplied TOW to destroy a Russian search and rescue helicopter (see here for more).

  The other hypocritical thing to note about Johnstone’s assessment is that it was NATO itself that put Libya in the position it’s in now. Had NATO not supported the overthrow of Gaddafi, we wouldn’t be in this situation in the first place and ISIS wouldn’t be running amok in the country’s oil crescent. 

  Johnstone goes on to describe what type of attack he imagines might be coming in the Mediterranean.

  “I think it won’t be a planned, horrible mischievous act, I think it will be an act which is almost a mistake, or it will be an act of random terrorism that will suddenly have extraordinary implications for the Western world,” he says.

  Got that? It will either be some kind of unplanned, “almost” accident that isn’t “horrible” or it will be an earth-shattering, murderous, “random” act of terrorism. It seems pretty clear from that convoluted bit of nonsense that Johnstone has no idea what he’s talking about.

  But that’s ok, because the Admiral’s point isn’t to provide any intelligence about a credible threat to a cruise liner. No, his point is to explain why NATO needs to send more ships to the Mediterranean. And because it’s not polite to say “we need to have a stepped up presence because the Russians are there,” he’ll claim extra maritime muscle is necessary because ISIS is building a navy. Here’s The Telegraph again:

  The Nato allies must also not allow themselves to be “hustled out” of the eastern Mediterranean, where the Russian Navy is increasingly active, he said.

   

  He said the growing risks to shipping in the Mediterranean mean he is “quietly worried” there will be an attack or serious incident.

  Got it. So NATO needs more warships in the region because ISIS may be planning a “serious” maritime “incident.” Just like how the US needs to have troops in Syria because of ISIS. And just like Turkish President Recep Tayyip Erdogan needs to consolidate power so he can combat the ISIS threat. And just like Russia needs to support Bashar al-Assad in order to keep ISIS from taking Damascus. 

  Now that you mention it, you can pretty much justify anything these days by claiming you’re fighting ISIS. Maybe that’s why they’ve stuck around so long. If world powers eliminate them, how will everyone explain their warmongering?

  

  

  

  

  

• Chart Of The Day: $17 Trillion In Student Debt By 2030

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

   

  

  Source: DailyInfographic.com

  This industry of education is going backwards, and will one day burst – will that happen soon?

  

  

  

  

  

• China's 3 Trillion Yuan Margin Call Time Bomb Is About To Explode

  Make no mistake, investors didn’t need any more reasons to be bearish on Chinese equities.

  Mainland markets are veritable casinos dominated by retail investors who until last summer, were enthralled with the prospect of easy riches in an environment where shares only seemed to know one direction: up.

  All of that changed last June when a dramatic unwind in the half dozen backdoor margin lending channels that helped to fuel the rally triggered an epic rout that became self-fulfilling once the retail crowd (which accounts for 80% of the market) became rip sellers rather than dip buyers.

  Since then, successive efforts on the part of the CSRC to stabilize the situation by pouring CNY1.5 trillion into A-shares has met with limited success as periods of calm are interrupted by violent bouts of selling like those we saw earlier this month when China tried and failed to implement a circuit breaker.

  Throw in the ongoing yuan deval fiasco and there’s every reason not to be involved in Chinese stocks.

  But when it rains it pours, and now, analysts say margin calls on SCLs are the next landmine that may pose a “systemic risk” for China’s battered markets.

  “Some companies that had pledged shares as collateral for loans are now faced with a stark choice – dump them under pressure from impatient brokers and banks and book a loss, or stump up fresh cash or other assets to make up for the difference in value,” Reuters writes.

  This is a rather large problem. Over half of all listed companies have their shares pledged. As BofA notes, “1,411 A-share companies have had some of their shares been pledged for SCLs by their major shareholders, representing 50.2% of the total number of A-shares. The value of stocks pledged for SCLs has been rising consistently – from Rmb2.36tr on 1 July 2015 to Rmb3.05tr by 1 Jan 2016, i.e., up by 29% in 2H15.”

  

  In short, the steep decline in margin financing paints an incomplete picture when it comes to understanding how much leverage is in the system. 

  On one hand, the headline figure on margin financing suggests quite a bit of deleveraging has taken place since things hit peak absurdity last spring. Here’s a look at how quickly the unwind materialized once things began to get dicey:

  

  But as the SCL chart shown above demonstrates, the decline in headline margin debt only tells part of the story. Indeed, BofA says even the CNY3.05 trillion number for SCLs may be underestimate the amount of leverage in the market. “Our SCL data might have under-estimated the true extent of such activities because 1) only major shareholders, i.e., those who own more than 5% of a company’s stocks, are obliged to disclose their SCL activities; and 2) we have assumed a 12-month duration for the 2,889 deals, 44% of the total, that have no ending date disclosed vs. over 16 months on average for those that have,” the bank writes. 

  Where things get truly frightening is when one looks under the hood on these deals. 

  Have a look at the following table which shows that of companies with pledged shares, an astonishing 82% were trading at a multiple of 50X or more at the time of their pledging:

  

  “The collateral value,” BofA says dryly, “is far from solid.”

  “If the market continues to fall, equity pledging-related selling pressure could increase significantly,” Gao Ting, head of China strategy with UBS warns. 

  To let BofA tell it, fully a third of SCLs will face margin call pressure and some 371 of the 1,411 stocks pledged have already hit their triggers. “Assuming 40% loan-to-asset value at the time of SCL granting, our analysis suggests that by now, 371 stocks, worth Rmb641bn based on their current market values, have seen their share prices reached the stop-loss levels; and additional 281 stocks, worth Rmb310bn, the warning levels.”

  What happens when the margin calls start you ask? Well, nothing good.

  “When a position has to be closed for transactions using floating shares as collateral, the pledger sells on the secondary market, putting further pressure on the stock market,” Ting cautions.

  Right. Which means stocks fall further and trigger more margin calls which means more forced liquidations in a never-ending, self reinforcing loop. Or, as Reuters puts it: “[It’s] a vicious cycle where further share price drops are likely to trigger more margin calls and threaten further forced sales.“

  And this isn’t some hypothetical – it’s already started. “On Jan 18, some stocks of a company used as collaterals for a SCL were liquidated by the lender, which prompted its share price to limit down the next day,” BofA recounts. “The stock had been suspended from trading since then. So far, at least 11 A-shares have been suspended as their prices approached the cut-loss levels.”

  “On Thursday, trading in shares of Maoye Communication and Network Co Ltd was halted after it said it received notice that its controlling shareholder faces margin calls, one of at least eight companies that have made similar announcements so far this year,” Reuters adds.

  Note that if this entire thing were to unwind it would be larger than if every bit of margin debt were squeezed out of the system. BofA figures the  average loan-to-asset value is about 40%. Apply that to the CNY3.05 trillion pile of collateralized stocks and you’ve got the potential for a CNY1.22 trillion unwind.

  And it gets still worse. Remember China’s multi-trillion yuan black swan, the WMP industry? Well the WMPs are involved here too. Here’s an example, again from BofA:

  We cite a recently reported example involving the controlling shareholder of Guangxi Future Technology. According to articles by Securities Times (Jan 19) and 21st Century Business Herald (Jan 20), in December 2015 Pudong Development Bank set up a WMP called Tebon Huijin No.1 Asset Management Plan to fund the shareholder’s purchase of its own company’s shares. Essentially, the WMP buyers, as the senior tranche investors, lent money for the shareholder to buy their own stock. Similar to other structured WMPs, this product has a stop-loss clause, and the company’s share price dropped below the stop-loss level on Jan 18. As the controlling shareholder did not put up additional margin, Pudong Development Bank liquidated all stock in the plan (equivalent to 2.13% of the company’s outstanding shares). This is the first case of forced liquidation by such products but in our view there could be additional cases given how sharply the market has declined in recent weeks.

  In short, this is a house of cards built on a still enormous amount of leverage. At the risk of mixing metaphors, the problem here is that once the dominos start to fall, it will be impossible to stop the downward momentum.

  The takeaway: “we’re going to need a bigger plunge protection team”…

  

  

  

  

  

• Zika Outbreak Epicenter In Same Area Genetically-Modified Mosquitoes Released In 2015

  Submitted by Clare Bernishvia TheAntiMedia.org,

  The World Health Organization announced it will convene an Emergency Committee under International Health Regulations on Monday, February 1, concerning the Zika virus ‘explosive’ spread throughout the Americas. The virus reportedly has the potential to reach pandemic proportions — possibly around the globe. But understandingwhy this outbreak happened is vital to curbing it. As the WHO statement said:

  “A causal relationship between Zika virus infection and birth malformations and neurological syndromes … is strongly suspected. [These links] have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions.

   

  “WHO is deeply concerned about this rapidly evolving situation for 4 main reasons: the possible association of infection with birth malformations and neurological syndromes; the potential for further international spread given the wide geographical distribution of the mosquito vector; the lack of population immunity in newly affected areas; and the absence of vaccines, specific treatments, and rapid diagnostic tests […]

   

  “The level of concern is high, as is the level of uncertainty.”

  Zika seemingly exploded out of nowhere. Though it was first discovered in 1947, cases only sporadically occurred throughout Africa and southern Asia. In 2007, the first case was reported in the Pacific. In 2013, a smattering of small outbreaks and individual cases were officially documented in Africa and the western Pacific. They also began showing up in the Americas. In May 2015, Brazil reported its first case of Zika virus — and the situation changed dramatically.

  Brazil is now considered the epicenter of the Zika outbreak, which coincides with at least 4,000 reports of babies born with microcephaly just since October.

  

  When examining a rapidly expanding potential pandemic, it’s necessary to leave no stone unturned so possible solutions, as well as future prevention, will be as effective as possible. In that vein, there was another significant development in 2015.

  Oxitec first unveiled its large-scale, genetically-modified mosquito farm in Brazil in July 2012, with the goal of reducing “the incidence of dengue fever,” as The Disease Daily reported. Dengue fever is spread by the same Aedes mosquitoes which spread the Zika virus — and though they “cannot fly more than 400 meters,” WHO stated, “it may inadvertently be transported by humans from one place to another.” By July 2015, shortly after the GM mosquitoes were first released into the wild in Juazeiro, Brazil, Oxitec proudly announced they had “successfully controlled the Aedes aegypti mosquito that spreads dengue fever, chikungunya and zika virus, by reducing the target population by more than 90%.”

  Though that might sound like an astounding success — and, arguably, it was — there is an alarming possibility to consider.

  Nature, as one Redditor keenly pointed out, finds a way — and the effort to control dengue, zika, and other viruses, appears to have backfired dramatically.

  

  Juazeiro, Brazil — the location where genetically-modified mosquitoes were first released into the wild.

  

  Map showing the concentration of suspected Zika-related cases of microcephaly in Brazil.

  The particular strain of Oxitec GM mosquitoes, OX513A, are genetically altered so the vast majority of their offspring will die before they mature — though Dr. Ricarda Steinbrecher published concerns in a report in September 2010 that a known survival rate of 3-4 percent warranted further study before the release of the GM insects. Her concerns, which were echoed by several other scientists both at the time and since, appear to have been ignored — though they should not have been.

  Those genetically-modified mosquitoes work to control wild, potentially disease-carrying populations in a very specific manner. Only the male modified Aedes mosquitoes are supposed to be released into the wild — as they will mate with their unaltered female counterparts. Once offspring are produced, the modified, scientific facet is supposed to ‘kick in’ and kill that larvae before it reaches breeding age — if tetracycline is not present during its development. But there is a problem.

  

  Aedes aegypti mosquito. Image credit: Muhammad Mahdi Karim

  According to an unclassified document from the Trade and Agriculture Directorate Committee for Agriculture dated February 2015, Brazil is the third largest in “global antimicrobial consumption in food animal production” — meaning, Brazil is third in the world for its use of tetracycline in its food animals. As a study by the American Society of Agronomy, et. al., explained, “It is estimated that approximately 75% of antibiotics are not absorbed by animals and are excreted in waste.” One of the antibiotics (or antimicrobials) specifically named in that report for its environmental persistence is tetracycline.

  In fact, as a confidential internal Oxitec document divulged in 2012, that survival rate could be as high as 15% — even with low levels of tetracycline present. “Even small amounts of tetracycline can repress” the engineered lethality. Indeed, that 15% survival rate was described by Oxitec:

  “After a lot of testing and comparing experimental design, it was found that [researchers] had used a cat food to feed the [OX513A] larvae and this cat food contained chicken. It is known that tetracycline is routinely used to prevent infections in chickens, especially in the cheap, mass produced, chicken used for animal food. The chicken is heat-treated before being used, but this does not remove all the tetracycline. This meant that a small amount of tetracycline was being added from the food to the larvae and repressing the [designed] lethal system.”

   

  Even absent this tetracycline, as Steinbrecher explained, a “sub-population” of genetically-modified Aedes mosquitoes could theoretically develop and thrive, in theory, “capable of surviving and flourishing despite any further” releases of ‘pure’ GM mosquitoes which still have that gene intact. She added, “the effectiveness of the system also depends on the [genetically-designed] late onset of the lethality. If the time of onset is altered due to environmental conditions … then a 3-4% [survival rate] represents a much bigger problem…”

   

  As the WHO stated in its press release, “conditions associated with this year’s El Nino weather pattern are expected to increase mosquito populations greatly in many areas.”

  Incidentally, President Obama called for a massive research effort to develop a vaccine for the Zika virus, as one does not currently exist. Brazil has now called in 200,000 soldiers to somehow help combat the virus’ spread. Aedes mosquitoes have reportedly been spotted in the U.K. But perhaps the most ironic — or not — proposition was proffered on January 19, by the MIT Technology Review:

  “An outbreak in the Western Hemisphere could give countries including the United States new reasons to try wiping out mosquitoes with genetic engineering.

   

  “Yesterday, the Brazilian city of Piracicaba said it would expand the use of genetically modified mosquitoes …

   

  “The GM mosquitoes were created by Oxitec, a British company recently purchased by Intrexon, a synthetic biology company based in Maryland. The company said it has released bugs in parts of Brazil and the Cayman Islands to battle dengue fever.”

  

  

  

  

• Dallas Fed "Responds" To Zero Hedge FOIA Request

  Two weeks ago, Zero Hedge reported an exclusive story corroborated by at least two independent sources, in which we informed our readers that members of the Dallas Federal Reserve had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.

  The Dallas Fed took the opportunity to respond (on Twitter), when in a tersely worded statement it said the following:

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

  — Dallas Fed (@DallasFed) January 18, 2016

  We thanked the Fed for answering even if its response was in itself a lie, and further since we fully stood by our story, we asked the Federal Reserve chaired by Goldman Sachs veteran, Robert Kaplan, to answer several follow up questions regarding this matter which is of significant public interest.  To wit:

  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, met with U.S. bank and other lender management teams in recent weeks/months and if so what was the purpose of such meetings?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, requested that banks and other lenders present their internal energy loan books and loan marks for Fed inspection in recent weeks/months?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, discussed options facing financial lenders, and other creditors, who have distressed credit exposure including but not limited to:
    • avoiding defaults on distressed debtor counterparties?
    • encouraging asset sales for distressed debtor counterparties?
    • advising banks to avoid the proper marking of loan exposure to market?
    • advising banks to mark loan exposure to a model framework, one created either by the creditors themselves or one presented by members of the Federal Reserve network?
    • avoiding the presentation of public filings with loan exposure marked to market values of counterparty debt?
  • Was the Dallas Fed, or any other members and individuals of the Federal Reserve System, consulted before the January 15, 2016 Citigroup Q4 earnings call during which the bank refused to disclose to the public the full extent of its reserves related to its oil and gas loan exposure, as quoted from CFO John Gerspach:

    “while we are taking what we believe to be the appropriate reserves for that, I’m just not prepared to give you a specific number right now as far as the amount of reserves that we have on that particular book of business. That’s just not something that we’ve traditionally done in the past.”

  • Furthermore, if the Dallas Fed, or any other members and individuals of the Federal Reserve system, were not consulted when Citigroup made the decision to withhold such relevant information on potential energy loan losses, does the Federal Reserve System believe that Citigroup is in compliance with its public disclosure requirements by withholding such information from its shareholders and the public?
  • If the Dallas Fed does not issue “such” guidance to banks, then what precisely guidance does the Dallas Fed issue to banks?

  We assumed (correctly) there would be no Twitter, or any other unofficial response to this list of questions, which is why two weeks ago we, in collaboration with several readers (due to obvious reverse FOIA purposes), also requested an official response from the Fed through a Freedom Of Information Act submission. Surely if the Fed would go so far as to call us liars, it would have no problem either responding or providing the required information.

  This is what we got back.

  

  We appreciate the “response.”

  With regard to [1] and [2], we find it disturbing that the Dallas Fed not only does not keep internal logs of who visits the Fed (or whom the Fed visits), but especially that there is no internal log of whom the President meets with as part of ordinary course of business.

  This is troubling when one considers that as part of its routine disclosures, the NY Fed not only keeps a detailed log of the President’s daily schedules but also makes them publicly available each quarter (link to the most recent one). One wonders how the Board, and the president, holds itself “reasonably” accountable to the public if there is no internal record at all of any in house meetings, which clearly become a relevant topic in issues such as this.

  As for [3], we will gladly readdress the question in the proper semantic protocol, and will follow back with another FOIA requesting the explicit financial records of bank energy loan books which the Fed has collected as part of its recent diligence efforts to uncover which banks are underreserved, the same diligence that prompted the Fed to pursue the procedure that prompted our article in the first place, a procedure which the Dallas Fed alleges “there is no truth” to.

  We look forward to discovering what excuse the Dallas Fed will provide to not supply the requested information in that particular FOIA request.

  

  

  

  

  

• OPEC Production Cut News Dominates the Oil Market, Jan. 29, 2016 (Video)

  By EconMatters

   

  It seems we may have bottomed in the oil market, and a lot of shorts are starting to get nervous considering their large short trading book right now. Can you say “Short Squeeze”?

   

   

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

  

  

  

  

• Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens

  With Citi's chief economist proclaiming "only helicopter money can save the world now," and the Bank of England pre-empting paradropping money concerns, it appears that Australia's largest investment bank's forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a "basic monthly income" for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job.

  The plan, as The Daily Mail reports, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not.  But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5.

  Under the proposed initiative, each adult would receive $2,500 per months, and each child would also receive 625 francs ($750) a month.

   

  The federal government estimates the cost of the proposal at 208 billion francs ($215 billion) a year.

   

  Around 153 billion francs ($155 bn) would have to be levied from taxes, while 55 billion francs ($60 bn) would be transferred from social insurance and social assistance spending.

  That is 30% of GDP!!!

  The action committee pushing the initiative consists of artists, writers and intellectuals, including publicist Daniel Straub, former federal government spokesman Oswald Sigg and Zurich rapper Franziska Schläpfer (known as “Big Zis”), the SDA news agency reported. Personalities supporting the bid include writers Adolf Muschg and Ruth Schweikert, philosopher Hans Saner and communications expert Beatrice Tschanz. The group said a new survey showed that the majority of Swiss residents would continue working if the guaranteed income proposal was approved.

  'The argument of opponents that a guaranteed income would reduce the incentive of people to work is therefore largely contradicted,' it said in a statement quoted by The Local.

   

  However, a third of the 1,076 people interviewed for the survey by the Demoscope Institute believed that 'others would stop working'.

   

  And more than half of those surveyed (56 percent) believe the guaranteed income proposal will never see the light of day.

  The initiative’s backers say it aims to break the link between employment and income, with people entitled to guaranteed income regardless of whether they work.

  Or put another way – break the link between actually having to work for anything ever again… but maybe this "group of itellentuals" should hark Margaret Thatcher's words that "eventually you run out of other people's money!!"

  *  *  *

  As we previously detailed, support is growing around the world for such spending to be funded by “People’s QE.” The idea behind “People’s QE” is that central banks would directly fund government spending… and even inject money directly into household bank accounts, if need be. And the idea is catching on.

  Already the European Central Bank is buying bonds of the European Investment Bank, an E.U. institution that finances infrastructure projects. And the new leader of Britain’s Labor Party, Jeremy Corbyn, is backing a British version of this scheme.

   

  That’s the monster coming to towns and villages near you! Call it “overt monetary financing.” Call it “money from helicopters.” Call it “insane.” 

   

  But it won’t be unpopular. Who will protest when the feds begin handing our money to “mid- and low-income households”?

  Simply put, The Keynesian Endgame is here… as  the only way to avoid secular stagnation (which, for the uninitiated, is just another complicated-sounding, economist buzzword for the more colloquial “everything grinds to a halt”) is for central bankers to call in the Krugman Kraken and go full-Keynes.

  Rather than buying assets, central banks drop money on the street. Or even better, in a more modern and civilised fashion, credit our bank accounts! That, after all, may be more effective than buying assets, and would not imply the same transfer of wealth as previous or current forms of QE. Indeed, ‘helicopter money’ can be seen as permanent QE, where the central bank commits to making the increase in the monetary base permanent.

   

  Again, crediting accounts does not guarantee that money will be spent – in contrast to monetary financing where the newly created cash can be used for fiscal spending. And in many cases, such policy would actually imply fiscal policy, as most central banks cannot conduct helicopter money operations on their own.

   

  …

   

  So again, the thing to realize here is that this has moved well beyond the theoretical and it's not entirely clear that most people understand how completely absurd this has become (and this isn't necessarily a specific critique of SocGen by the way, it's just an honest look at what's going on). At the risk of violating every semblance of capital market analysis decorum, allow us to just say that this is pure, unadulterated insanity. There's not even any humor in it anymore.

   

  You cannot simply print a piece of paper, sell it to yourself, and then use the virtual pieces of paper you just printed to buy your piece of paper to stimulate the economy. There's no credibility in that whatsoever, and we don't mean that in the somewhat academic language that everyone is now employing on the way to criticizing the Fed, the ECB, and the BoJ.

  And it will end only one way…

  The monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds and drops the money into household bank accounts, the central bank buys the new bonds and promptly buries them in the bank's balance sheet as an asset.

   

  The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues.

   

  But the downsides of helicopter money are never mentioned, of course. Like QE (i.e. monetary stimulus), fiscal stimulus (helicopter money) will be sold as a temporary measure that quickly become permanent, as the economy will crater the moment it is withdrawn.

  The temporary relief turns out to be, well, heroin, and the Cold Turkey withdrawal, full-blown depression.

  

  

  

  

  

• Indictment Looms As FBI Declares 22 Clinton Home-Server Emails "Top Secret"

  Just as we warned, and she must have known, it appears at least 22 of the emails found on Hillary Clinton’s private email server have been declared “top secret” by The FBI (but will not be releasing the contents) according to AP.

  Clinton has insisted she never sent or received information on her personal email account that was classified at the time. No emails released so far were stamped “CLASSIFIED” or “TOP SECRET,” but reviewers previously had designated more than 1,000 messages at lower classification levels for public release. Friday’s will be the first at the top secret level.

  And because the administration believes strongly in transparency and accountability, you won’t get any information about just what kind of state secrets were passed on a non-secure server:

  • STATE DEPT WON’T SPEAK ON CONTENT OF TOP SECRET E-MAILS: KIRBY
  • KIRBY: SOME CLINTON-OBAMA E-MAIL EXCHANGES ARE BEING WITHHELD

  As AP reports,

  The Obama administration is confirming for the first time that Hillary Clinton’s unsecured home server contained some closely guarded secrets, including material requiring one of the highest levels of classification.

   

  The revelation comes just three days before the Iowa presidential nominating caucuses in which Clinton is a candidate.

   

  The State Department will release more emails from Clinton’s time as secretary of state later Friday.

   

  But The Associated Press has learned that 7 email chains are being withheld in full for containing “top secret” material.

   

  The 37 pages include messages recently described by a key intelligence official as concerning so-called “special access programs” — a highly restricted subset of classified material that could point to confidential sources or clandestine programs like drone strikes or government eavesdropping.

   

  Department officials wouldn’t describe the substance of the emails, or say if Clinton had sent any herself.

   

  Spokesman John Kirby tells the AP that no judgment on past classification was made. But the department is looking into that, too.

  For those that Clinton only read, and didn’t write or forward, she still would have been required to report classification slippages that she recognized.

  Possible responses for classification infractions include counseling, warnings or other action, State Department officials said, though they declined to say if these applied to Clinton or senior aides who’ve since left the department. The officials weren’t authorized to speak on the matter and spoke on condition of anonymity.

  However, as we previously noted, the implications are tough for The DoJ – if they indict they crush their own candidate’s chances of the Presidency, if they do not – someone will leak the details and the FBI will revolt… The leaking of the Clinton emails has been compared to as the next “Watergate” by former U.S. Attorney Joe DiGenova this week, if current FBI investigations don’t proceed in an appropriate manner. The revelation comes after more emails from Hilary Clinton’s personal email have come to light.

  “[The investigation has reached] a critical mass,” DiGenova told radio host Laura Ingraham when discussing the FBI’s still pending investigation. Though Clinton is still yet to be charged with any crime, DiGenova advised on Tuesday that changes may be on the horizon. The mishandling over the classified intelligence may lead to an imminent indictment, with DiGenova suggesting it may come to a head within 60 days.

  “I believe that the evidence that the FBI is compiling will be so compelling that, unless [Lynch] agrees to the charges, there will be a massive revolt inside the FBI, which she will not be able to survive as an attorney general,” he said.

   

  “The intelligence community will not stand for that. They will fight for indictment and they are already in the process of gearing themselves to basically revolt if she refuses to bring charges.”

  The FBI also is looking into Clinton’s email setup, but has said nothing about the nature of its probe. Independent experts say it is highly unlikely that Clinton will be charged with wrongdoing, based on the limited details that have surfaced up to now and the lack of indications that she intended to break any laws.

  “What I would hope comes out of all of this is a bit of humility” and an acknowledgement from Clinton that “I made some serious mistakes,” said Bradley Moss, a Washington lawyer who regularly handles security clearance matters.

  Legal questions aside, it’s the potential political costs that are probably of more immediate concern for Clinton. She has struggled in surveys measuring her perceived trustworthiness and an active federal investigation, especially one buoyed by evidence that top secret material coursed through her account, could negate one of her main selling points for becoming commander in chief: Her national security resume.

  

  

  

  

  

• Former Citi Trader Exposes How Wall Street Came To Own The Clintons

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Former FX trader at Citigroup, Chris Arnade, just penned a poignant and entertaining Op-ed at The Guardian detailing how Wall Street came to own the Democratic Party via the Clintons over the course of his career. While anyone reading this already knows how completely bought and paid for the Clintons are by the big financial interests, the article provides some interesting anecdotes as well as a classic quote about a young Larry Summers.

  Here are some choice excerpts from the piece:

  I owe almost my entire Wall Street career to the Clintons. I am not alone; most bankers owe their careers, and their wealth, to them. Over the last 25 years they – with the Clintons it is never just Bill or Hillary – implemented policies that placed Wall Street at the center of the Democratic economic agenda, turning it from a party against Wall Street to a party of Wall Street.

   

  That is why when I recently went to see Hillary Clinton campaign for president and speak about reforming Wall Street I was skeptical. What I heard hasn’t changed that skepticism. The policies she offers are mid-course corrections. In the Clintons’ world, Wall Street stays at the center, economically and politically. Given Wall Street’s power and influence, that is a dangerous place to leave them.

   

  The administration’s economic policy took shape as trickle down, Democratic style. They championed free trade, pushing Nafta. They reformed welfare, buying into the conservative view that poverty was about dependency, not about situation. They threw the old left a few bones, repealing prior tax cuts on the rich, but used the increased revenues mostly on Wall Street’s favorite issue: cutting the debt.

   

  Most importantly, when faced with their first financial crisis, they bailed out Wall Street.

   

  That crisis came in January 1995, halfway through the administration’s first term. Mexico, after having boomed from the optimism surrounding Nafta, went bust. It was a huge embarrassment for the administration, given the push they had made for Nafta against a cynical Democratic party.

   

  Money was fleeing Mexico, and much of it was coming back through me and my firm. Selling investors’ Mexican bonds was my first job on Wall Street, and now they were trying to sell them back to us. But we hadn’t just sold Mexican bonds to clients, instead we did it using new derivatives product to get around regulatory issues and take advantages of tax rules, and lend the clients money. Given how aggressive we were, and how profitable it was for us, older traders kept expecting to be stopped by regulators from the new administration, but that didn’t happen.

   

  When Mexico started to collapse, the shudders began. Initially our firm lost only tens of millions, a large loss but not catastrophic. The crisis however was worsening, and Mexico was headed towards a default, or closing its border to money flows. We stood to lose hundreds of millions, something we might not have survived. Other Wall Street firms were in worse shape, having done the trade in a much bigger size. The biggest was rumored to be Lehman, which stood to lose billions, a loss they couldn’t have survived.

   

  As the crisis unfolded, senior management traveled to DC as part of a group of bankers to meet with Treasury officials. They had hoped to meet with Rubin, who was now Treasury secretary. Instead they met with the undersecretary for international affairs who my boss described as: “Some young egghead academic who likes himself a lot and is wide eyed with a taste of power.” That egghead was Larry Summers who would succeed Rubin as Treasury Secretary.

   

  The bailout worked, with Mexico edging away from a crisis, allowing it to repay the loans, at profit. It also worked wonders on Wall Street, which let out a huge sigh of relief.

   

  The success encouraged the administration, which used it as an economic blueprint that emphasized Wall Street. It also emphasized bailouts, believing it was counterproductive to let banks fail, or to punish them with losses, or fines or, God forbid, charge them with crimes, and risk endangering the economy.

   

  The use of bailouts should have also been a reason to heavily regulate Wall Street, to prevent behavior that would require a bailout. But the administration didn’t do that; instead they went the opposite direction and continued to deregulate it, culminating in the repeal of Glass Steagall in 1999.

   

  It changed the trading floor, which started to fill with Democrats. On my trading floor, Robert Rubin, who had joined my firm after leaving the administration, held traders attention by telling long stories and jokes about Bill Clinton to wide-eyed traders.

   

  Wall Street now had both political parties working for them, and really nobody holding them accountable. Now, no trade was too aggressive, no risk too crazy, no behavior to unethical and no loss too painful. It unleashed a boom that produced plenty of smaller crisis (Russia, Dotcom), before culminating in the housing and financial crisis of 2008.

  But hey…

  

  For related articles on Hillary’s long standing Wall Street love affair, see:

  Peak Desperation – Clinton Campaign Deploys Strategist for Wall Street Mega Banks to Attack Bernie Sanders

  A New Low – Hillary Clinton Claims 9/11 is the Reason She’s Owned by Wall Street

  COMPROMISED – How Two of Hillary Clinton’s Top Aides Received Golden Parachutes from Wall Street

  Who’s the Real Progressive? A Side by Side Comparison of Bernie Sanders and Hillary Clinton’s Lifetime Donors

  Here Come the Cronies – Buffett and Blackstone President Launch $33,400 a Plate Hillary Clinton Fundraiser

  

  

  

  

• BofA Presents The 4 "D's" Of Deflationary Doom

  Going into Friday, Japanese monetary policy already stood out as the most egregious example of Keynesian insanity the market has ever witnessed.

  You’ll recall the central bank is monetizing the entirety of gross JGB issuance and is on a lunatic quest to own the entire ETF market.

  But the BoJ still hadn’t gone full-Krugman by taking rates negative. That changed overnight when the bank took the NIRP plunge as Haruhiko Kuroda reminded the world that when it comes to maniacal monetary policy, no one does it like he does.

  Why is NIRP necessary in Japan? The same reason it’s necessary in Europe and the same reason ZIRP had to hang around in the US for eight years: inflation. Or, more specifically, a lack of inflation.

  Japan has been stuck in the deflationary doldrums for as long as some Wall Street rookies have been alive and Europe has bounced around in deflation on several occasions of late although data out today showed eurozone inflation “soaring” 0.4%.

  So what gives? How much damn fiat money do the Kurodas and Yellens and Draghis of the world have to print before inflation picks up? Are central bankers contributing to the problem by destroying creative destruction and thus perpetuating the global deflationary supply glut?

  The problem, BofA’s Michael Hartnett says, can be traced to the “Deflationary D’s”: debt, deleveraging, demographics, disruption. Read on to discover why “the nominal GDP of the industrialized world has grown just 4.1% since the lows of Q1’2009, one of the tiniest, deflationary expansions ever. “

  *  *  *

  From BofA

  The nominal GDP of the industrialized world has grown just 4.1% since the lows of Q1’2009, one of the tiniest, deflationary expansions ever. And while asset prices are up significantly since their 2008/09 lows, the underlying message from Wall Street in recent years (underperformance of bank stocks – see Chart 1, stubbornly low government bond yields, all-time relative highs in “high quality” stocks, and sustained outperformance of “growth” stocks over “value” stocks) has been doggedly deflationary.

  
  

   The Deflationary “D’s”

  Why has an almost manic monetary policy been so ineffective at generating a broad, sustained economic recovery, or at least alleviating the threat of deflation? Secular factors, most obviously the 4 deflationary “D’s” of excess Debt, financial sector Deleveraging, aging Demographics and tech Disruption have played a major role:

  • 1. Debt levels remain very large: according to the BIS, global debt as a share of GDP was 246% in Q4’2000, 269% in Q4’2007 and 286% in Q2’2014.
  • 2. Deleveraging has impeded the housing recovery and its “multiplier” effect: CoreLogic’s Housing Credit Index, which measures mortgage credit availability in the US, has plunged from 100 to 42 in the past seven years; US mortgage credit outstanding has fallen more than $1tn since its peak of $14.8tn in ’08.
  • 3. Demographics reveal a dramatic aging of the developed world’s population: in the next 10 days, 112,000 people in the US, Europe and Japan will reach the retirement age of 65.
  • 4. Disruption via innovation in robotics, AI and so on, which the World Economic Forum forecasts will cause the loss of a net 5.1mn jobs in the next 5 years.

  And while all are secular in nature, the deflationary D’s have also impacted the economic cycle in recent quarters: excess Debt and financial sector Deleveraging have exacerbated problems in China, energy and credit markets; tech Disruption has been a massive factor in the collapse in the oil price; aging Demographics and tech Disruption have played a role in the desire of the Consumer to save rather than spend in the past 18 months.

  Indeed, even in the US, the ease with which debt, deleveraging, demographics and disruption have nullified the strong tailwinds of low mortgage rates, low unemployment rates and collapsing gas prices, thus resulting in higher household savings rates, has surprised many. It certainly goes far in explaining the “deflationary” nature of the economic expansion, the wage inequality and insecurity associated with this decade, as well as the rise in political populism across the western world.

  *  *  *

  We suppose that at some point, policy makers will heed the (loud) calls for helicopter money and once the cash paradropping begins, we’ll see you in the Weimar Republic.

  

  

  

  

  

• Who Can Afford The American Dream? "Rental Rates Have Reached Apocalyptic Levels"

  Submitted by Mac Slavo via SHTFPlan.com,

  Skyrocketing costs and shrinking opportunity are meeting head on with full on economic disaster. The Dude, Where’s My Stuff? generation doesn’t have much motivation to go on for growing up and getting their life together these days.

  Record numbers are out of the work force; record numbers are living with their parents in the basement; record numbers are losing the battle of return on investment with higher education – purchased with burdensome loans – in order to attain better employment and stability. Rising costs are hitting home owners and renters alike, with a real squeeze coming down on those just starting out.

  And all of that is driving the economy to the brink.

  That American Dream thing is a going up in smoke. Upward mobility has stalled, and stagnation is setting in.

  It is becoming apparent that a lost generation is upon us, and the Americans of tomorrow may not even have a meager concept of what this country stood for, because their lives will be so completely desolate and controlled.

  A Forbes columnist asked the question: Can Millennials Afford The American Dream? Forbes’ Kerri Zane writes:

  The local radio news station in Los Angeles recently reported that the rental rates in this city have reached apocalyptic levels. So it stands to reason the next best step is to purchase a home. Easier said than done, particularly for millennials.

   

  At the end of last year my 25-year-old daughter and I were discussing this issue. She and her live-in boyfriend had been exploring the notion, but with the median home price in Los Angeles exceeding $500,000.00, it is completely out of reach for them. Between juggling school loan payoffs and each working in the freelance world of entertainment, saving for a down payment and/or qualifying for a mortgage, in this day and age, is tough.

   

  […]

   

  Over the last 20 plus years I have watched as the cost of living in the U.S., and more specifically Los Angeles, steadily climbed. It became apparent, without a doubt, that if my daughters (I have two) were going to have a home, it would be up to mom to help them.

   

  Before you rush to judgement about my children’s work ethic or my parenting style… look at the stats… home affordability will decline through-out 2016 by 4 to 5%. We all know that at the end of 2015 the feds increased mortgage rates, and real estate pundits predict home prices will continue to appreciate at 3 to 4%… the cost of  in-state tuition and fees at public four-year institutions have increased at an average rate of 3.4% per year beyond inflation.

  These kids are stuck between a rock and a hard place.

  It is a pertinent question for this generation. Will there be security and prosperity for those who are willing to work hard?

  Basically, all the trends are headed in the wrong direction for a healthy society.

  Demographically, people are falling in on themselves.

  The Pew Research Center conducted a study in 2012 on the rising number of millennials living with their parents, and the reasons contributing to the decline:

  In 2012, 36% of the nation’s young adults ages 18 to 31—the so-called Millennial generation—were living in their parents’ home, according to a new Pew Research Center analysis of U.S. Census Bureau data. This is the highest share in at least four decades and represents a slow but steady increase over the 32% of their same-aged counterparts who were living at home prior to the Great Recession in 2007 and the 34% doing so when it officially ended in 2009.

   

  A record total of 21.6 million Millennials lived in their parents’ home in 2012, up from 18.5 million of their same aged counterparts in 2007. Of these, at least a third and perhaps as many as half are college students.

   

  […]

   

  Since the onset of the 2007-2009 recession, both age groups have experienced a rise in this living arrangement.

   

  […]

   

  The steady rise in the share of young adults who live in their parents’ home appears to be driven by a combination of economic, educational and cultural factors. Among them:

   

  Declining employment. … Rising college enrollment. … Declining marriage.

  And that’s just for those who were willing to give things a try.

  The rest are on the dole, and bulging the size and scope of federal government even further, and millions falling to the bottom are looking to the government as a parental figure and savior – who dispenses benefits and can “take care of” them.

  A wave of unemployment, and those who have permanently dropped out of the work force and all appearances of looking for work, is setting in. And things don’t look pretty from there.

  

  

  

  

  

• Negative Interest Rates Show Desperation of Central Banks

  Image: MarketWatch

  Japan has joined the EU, Denmark, Switzerland and Sweden in imposing negative interest rates.

  Indeed, more than a fifth of the world's GDP is now covered by a central bank with negative interest rates.

  The Wall Street Journal notes:

  TOKYO—Japan’s central bank stunned the markets Friday by setting the country’s first negative interest rates, in a desperate attempt to keep the economy from sliding back into the stagnation that has dogged it for much of the last two decades.

  BBC writes:

  The country is desperate to increase spending and investment.

   

  ***

   

  Japan has been desperate to boost consumer spending for years. At one point it even issued shopping vouchers to stimulate demand.

  The New York Times writes:

  Moving to negative rates reflects a measure of desperation on the part of central banks. Their traditional tools have been largely exhausted, as most countries’ interest rates have been pushed to almost nothing.

  MarketWatch’s senior markets writer, William Watts, notes:

  This might not be the sort of capitulation stock-market investors were anticipating.

   

  The Bank of Japan’s surprise decision Friday to start charging depositors for parking excess reserves at the central bank triggered a global equity rally. But several monetary policy watchers and market strategists worried that the move was an acknowledgment that the world’s central banks are running out of ammunition in the battle against deflation.

   

  “This is an interesting move that looks a lot more like desperation or novelty than it looks like a program meant to make a real difference,” said Robert Brusca, chief economist at FAO Economics.

   

  Kit Juckes, global macro strategist at Société Générale, underlined the moment in a note to clients:

   

  “First of all, forget the details, feed on the symbolism. Germany, Switzerland and Japan, the three great current account powers of the post-Bretton Woods era, whose surpluses have financed the frivolity of baby boomer Anglo-Saxons, are being told in no uncertain terms to stop saving.”

   

  Whether the strategy works or not is less important than what the decision says about global disinflationary forces, he said, which have forced the central banks to “set off on this path…following a trail of breadcrumbs as they head for the gingerbread house.”

   

  ***

   

  But others worry that the move underlines a degree of desperation and a sense that the asset purchases at the heart of global quantitative-easing strategies are running up against some important limits.

   

  ***

   

  Daiwa economists and others expect the Bank of Japan to remain under pressure to ease further. And when push comes to shove, the bank will be likely to push rates further into negative territory rather than ramp up asset purchases.

   

  “Ultimately, negative interest rates from a veteran of monetary expansion such as the BOJ mark a capitulation about the effectiveness of QE alone as an inflation-targeting tool in world of lingering growth-debt imbalances and commodity price wars,” said Lena Komileva, economist at G-plus Economics, in emailed comments.

   

  ***

   

  Banks will presumably move their deposit rates below zero in response ….

  Likewise, Bloomberg previously noted of the initiation of negative rates in the EU:

  Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders.

  And negative rates will eventually come to America.

  Central bankers are implementing negative interest rates to force savers to buy assets … so as to artificially stimulate the economy. Specifically:

  A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

  Next up: The war on cash.

  Postscript: Ironically, the Fed has gone to great lengths to DISCOURAGE banks from lending to Main Street.

   

  

  

  

  

• The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates

  As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP…

  

   

  … and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…

  

  … only to be eviscerated by the BOJ’s negative rates announcement.

  So what happened? Reuters has an amusing take, one which we doubt many macro HFs will find quite entertaining:

  Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.

  The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go horizontal and lead to even more pronounced losses, something European banks – such as Deutsche Bank – have discovered the hard way over the past year and a half.

  There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”

  In a note released this morning, Goldman itself warns that it has “concerns” about Kuroda’s act, the key one being that while it crushed many market participants, the BOJ’s action will have no benefit for the actual economy (and in fact it will end up hurting banks whose NIMs are about to pancake):

  … we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years.

   

  Of interest to us was the growth and inflation forecasts in the Outlook for Economic Activity and Prices (Outlook Report) also released on January 29. As we expected, the BOJ cut the FY2016 core CPI outlook to +0.8%, from +1.4% in October, but other growth rate and price outlooks were largely unchanged. The future benefits of changing to this historical policy regime (i.e., introducing a negative interest rate) were hardly factored in by the Policy Board despite the above explanation of the policy transmission channels made by Governor Kuroda.

   

  In our view, this suggests that the BOJ intended to affect the expectations of forex market participants with a bold and surprising announcement. As we mentioned above, Governor Kuroda had continuously rejected the possibility of cutting interest rates in the Diet and other public forums until only recently. Governor Kuroda may have spotted a chance to surprise at the January 29 MPM having seen a substantial decline in market expectations for an interest rate cut as a result of this. He declared that the BOJ is prepared to lower the interest rate further into negative territory if it decided this was necessary, and introduced examples of countries with large negative interest rates such as Switzerland (-0.75%) and Sweden (-1.1%). We believe this was also intended to keep expectations alive in the forex market going forward.

  Translated, this means that just like China’s central bank, which in recent weeks has been panicking over how to scare currency speculators away from shorting its currency too far, and thus unleashing a surge in capital outflows (which as we wrote yesterday are estimated to have hit a near record $185 billion in January), the BOJ is likewise scrambling to prevent aggressive shorting of the JPY, and now that it has unleashed NIRP will use it as the “backstop bazooka” that can be used at any given moment when the USDJPY gets too low, spooking speculators and other hedge funds who have ironically been the biggest beneficiaries from BOJ policies.

  But how did Draghi get the idea to engage in NIRP specifically as the? Reuters writes that it all started precisely a week ago: on Jan. 21, a day before flying out for the annual World Economic Forum in Davos, Kuroda told Japan’s parliament he was not considering negative interest rates. But he quietly told his staff to come up with several options in case the BOJ eased.“

  Of course, our staff knew that several central banks have adopted negative interest rates, so they’ve been analyzing the step for some time,” Kuroda said at a news conference on Friday. “They raised it as one of the options, which we discussed at today’s meeting.”

   

  By the time Kuroda returned from Davos, BOJ staff were ready to propose negative rates, taking a leaf from the European Central Bank’s book. “The ECB showed that combining QE and negative interest rates can work,” one BOJ official said. “It was just a question of overcoming some technical difficulties.”

  Which at least superficially makes sense: one can be wrong, but if the right intentions are good – it can be excused. But the punchline that should leave everyone speechless is that it wasn’t even the right intention. Instead, it was this:

  People close to Kuroda say that Davos – where he mingled with central bankers such as ECB President Mario Draghi and leading company executives – likely prompted him to pull the trigger. “Davos is really important. Many central bank governors change their perception of things there,” said one central bank policymaker who has regular interaction with Kuroda.

  In other words, it was peer pressure by other, just as desperate central bankers, that forced Kuroda to act!

  Actually, it’s even worse than that, because that is just half of the story. Here is the other half, again thanks to Reuters:

  “When stocks are falling this much, it’s hard to justify not acting,” said one of the individuals, who has occasional contact with Kuroda.

  And there you have it: stocks are dropping, so central banks must intervene, just as they have done from day one. Just as Draghi did most recently on December 4 when asked if his speech was meant to talk up markets: recall the exchange: “was today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi’s response was legendary: “Not really… well, of course.“

  This was followed by loud laughter, and why not: Draghi had succeeded in pushing stocks higher, if only for the time being.

  Just like Kuroda has done today. Alas, just like in December, the laughter won’t last. First, as MarketWatch notes, “The move does speak to a certain degree of desperation.”

  Finally, there’s this disturbing bit from Goldman’s take of the BOJ’s decision:

  Regarding the Introduction of Supplementary Measures for Quantitative and Qualitative Monetary Easing announced at the December 2015 MPM, we believe the BOJ thinks that JGB purchases will have reached their technical limit in quantitative terms eventually, and it is highly likely it was a last-ditch measure to somehow maintain the current pace of purchases for some time. If not, we would have expected the BOJ not to introduce a negative interest rate this time either and to have opted instead to further increase JGB purchases.

  And when none other than Goldman Sachs says the Bank of Japan engaged in a “last-ditch measure” it may be time to panic.

  

  

  

  

  

• Bank of Japan Policy Panic Unleashes Stock, Bond Buying Pandemonium

  Some soothing month-end meditation…

   

  So let's start with today's idiocy… US equities driven by fundamentals!!

  • *S&P 500 EXTENDS GAIN TO 2.1%, HEADED FOR BEST DAY SINCE SEPT.8

  

   

  But here is some context for January's moves…

  For China…

  

   

  Worst ever…

  

   

  For US markets – apart from 2009's collapse, this is the worst January ever… Saved by today's total panic!

  

   

  But bonds had a great one!!

  

  This is Gold's 3rd January up in a row (and 8th of the last 11 years)…

  

   

  Across asset-classes, Bonds & Bullion did well, stocks and crude not so much…

  

   

  Small Caps underperformed while the S&P was the least bad performer…

  

   

  FANTAsy stocks are all down aside from FB – with TSLA and NFLX down over 20%…

  

   

  Bond yields are down across the curve… The belly (5Y and 7Y yield) outperformed – down a stunning 40-45bps on the month…

  

   

  So not an awsesome month but hey… what a week right!!

  *  *  *

  On the week…even Nasdaq managed to get green despite AAPL and AMZN collapse…

  

   

  Energy stocks simply exploded higher off Monday's lows…

  

   

  Bonds & Stocks were bid…

  

   

  With Treasury yields down 12-15bps on the week (though 30Y oddly underperformed)

  

   

  The USDollar Index soared back to unchanged on the week after BoJ's idiocy…

  

   

  Commodities all gained on the week with crude and copper best…

  

   

  Finally today…

  Total panic buying…

  

   

  Yeah this really happened!!! 3000 points of swing in Nikkei 225

  

   

  Creating a giant squeeze in US equities…

  

   

  Well it is Friday after all…

  

   

  And when does this ever end well for stocks?

  

   

  Charts: Bloomberg

  Bonus Chart: An awkward reality check…

  A year ago, Q4 Earnings for the Energy Sector were expected to be -1.8%. Today: -74.1%. #LeverageKills

  — Not Jim Cramer (@Not_Jim_Cramer) January 29, 2016

  

  

  

  

• Meanwhile In Canada, A Real Estate Bargain Emerges…

  We’ve long known that Canada, like Sweden and Denmark, is sitting on a giant housing bubble.

  Indeed we took a close look at the issue back in March of last year and have revisited in on several occasions since. Put simply, the divergence between crude prices and the country’s housing market simply isn’t sustainable a you can see from the following chart:

  

  And while the boom is rapidly turning to bust in places like Calgary, things are humming right along in Waterloo, where Napoleon was defeated in 1815. No, wait – wrong Waterloo. This is Waterloo, Ontario, a town of 140,000 that’s being billed as “Canada’s Silicon Valley.”

  As Bloomberg reports, “the town revolves around two universities and a burgeoning technology sector that’s attracted companies such as Google Inc. and dozens of startups.” Here’s a look inside the Kitchener-Waterloo Google office:

  The buzz has created a “land grab” and now, condos are renting for nearly C$2,000 per month while one-bedroom units are selling for more than a quarter of a million dollars.

  Vacancy rates are at 13-year lows and Google’s country manager for Canada calls the city “lightning in a bottle.”

  If that sounds like a bubble to you, you’d be correct but some investors don’t see it that way.

  Take Bill Ring for instance, head of operations for a property management company who Bloomberg notes drove two hours to Toronto to attend a rowdy sales pitch for condos in Waterloo put on by a Bay Street trader turned-tech investor, turned-real estate mogul. “Students are coming in and need a place to live, tech companies are opening. It’ll all drive the value up,” he says. “I don’t want to invest in stocks because they’re crazy and real estate is a solid, safe investment.“

  Yes, Bill wants a “solid, safe investment” that isn’t “crazy.”

  Like Canadian real estate.

  Which definitely isn’t a bubble.

  After all, if the housing market in Canada were overheating, you wouldn’t be able to get “bargains” like the listing shown below from Vancouver.

  

  

  h/t @penultsquire

  Good luck Bill.

  

  

  

  

  

• Weekend Reading: Mental Floss

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Over the last couple of week’s most of the weekend reading list has been attributed to the market’s stumble since the beginning of this year. Importantly, as we rapidly head into January’s close, there seems to be little to reverse the negative tide sweeping through the market.

  As I wrote earlier this week, this isn’t a good thing.

  “It would seem logical that a weak performance in January would lead to some recovery in February. Markets are oversold, sentiment is bearish and February is still within the seasonally strong 6-months of the year. Makes sense.

   

  Unfortunately, the historical data suggests that this will likely not be the case. The chart below is the historical point gain/loss for January and February back to 1957. Since 1957, there have been 20 January months that have posted negative returns or 33% of the time.”

  

  “February has followed those 20 losing January months by posting gains 5-times and declining 14-times. In other words, with January likely to close out the month in negative territory, there is a 70% chance that February will decline also.

   

  The high degree of risk of further declines in February would likely result in a confirmation of the bear market. This is not a market to be trifled with. Caution is advised.”

  In other words, there is a real probability that if the markets don’t get a lift between now and the end of the month, February could be the beginning of a technical bear market decline.

  But were could that lift come from? The first is month-end window dressing by fund managers after a brutal start to the new year. After much liquidation, fund managers will need to rebalance holdings.

  The second is the potential for Central Banks to intervene which could embolden the bulls as further support could temporarily delay the onset of a bear market and recession. Note: I said temporarily. Pulling forward future consumption is not a long-term solution to organic economic growth. 

  Not to be disappointed, the BOJ announced a move into NEGATIVE interest rate territory to try and boost economic growth in Japan. (Interestingly, however, was the lack of increase in QE.) The announcement was a shock to the markets as the BOJ had just stated last week that negative interest rates were not being considered. Here are some early takes on the BOJ’s move:

  • World shares heat up as Bank of Japan goes sub-zero (Reuters)
  • Stocks Rally With Bonds as BOJ Ends Grim January on High Note (BBG)
  • Japan Follows Europe Into Negative Interest Rate Territory (WSJ)
  • BOJ Move Resulting In Currency Wars & Global Slowdown (ZeroHedge)

  That move, on top of the latest FOMC meeting, more market turmoil and bond yields flip-flopping around 2%, has made this a most interesting week. Here are some of the things I am reading this weekend.

  ---

  1) Why Junk Bonds Will Sink Stocks Further by Yves Smith via Naked Capitalism

  “Investment lore is full of sayings as to how the bond markets can send false positives about lousy prospects for the real economy and the stock market. However, as Wolf sets forth below, a new Moody’s article makes a compelling case as to why the high risk spreads in the junk bond market bode ill for the stock market.”

   

  

  But Also Read:  Credit Cycle In Full Collapse Mode by Myrmikan Research

  And Read: We Should Be Terrified By Junk Bonds by Rana Foroohar via Time

  2) If It’s A Bear Market, It Ain’t Over by Joe Calhoun via Alhambra Partners

  “The real enemy of investors is not these fairly routine 10 or 20% downturns. The real enemy is the bear market that is associated with a recession or crisis, the one that knocks your equity block down by 40 or 50%. And actually it isn’t even the depth that is the real enemy. For most investors the enemy is time.”

  But Also Read: El-Erian: Day Of Reckoning Coming by Mohamed El-Erian via CNBC

   

  Opposing View: Don’t Do Anything, Just Stand There by Wade Slome via Investing Caffeine

  And Also: What Investors Shouldn’t Do In A Bear Market by Peter Hodson via Financial Post

  3) 34 Charts: This Time Is Different by Will Ortel via CFA Institute

  “In October, I asked whether the market could have its cake and eat it too. The hope was for persistent low interest rates and consistently appreciating securities.

  Somebody seems to have remembered cake doesn’t work that way.

   

  According to some, this buying opportunity is brought to you by the letter “C”: China, commodities, and the now questionably healthy consumer. Reaching towards risk feels sensible. It’s been nearly 10 years since it wasn’t.

   

  But today, growth, like certainty, is hard to come by. We hear the word “recession” again. There have been more Google searches for the phrase “sell stocks” this month than at any time since October 2008. And January is not over.

   

  To some strategists, the writing is on the wall. I wrote recently that anyone who says they know exactly what will happen is wrong, cheating, or both. I still think that. So before getting into what I see, I want to tell you what to do: your homework. Now is the time to distinguish yourself as an investor. So as you read through everything below, remember: I’ll be disappointed if you wind up agreeing with everything I say.”

  

  Also Read: Why Dip Buyers Will Get Clobbered by David Stockman via Contra Corner

  Watch: Recession Fears Grow Louder by Heather Long via CNN Money

  &lt;br /&gt; &gt;

  4) The Time To Sell Has Passed by Doug Kass via Yahoo Finance

  “The time to sell has likely passed. Those opportunities had been in place since last spring and were the outgrowth of a deteriorating fundamental and technical backdrop that many investors ignored.

   

  But while I have a more-constructive market view for the short term my confidence level isn’t high. In a fragile-growth setting, too much can upset the apple cart.”

  Also Read: Sellers Are Still In Control by Michael Kahn via Barron’s

  Further Read: It Wasn’t Oil, China Or The Fed by James Juliand via RTW

  5) Feldstein: Let Markets Fall, Fed Should Hike Rates by Greg Robb via Market Watch

  “In an interview with MarketWatch, Feldstein said stocks are overvalued. Any signal from the U.S. central bank that it may pause from its plans to continue raising interest rates would only create the impression that there is a “Fed put” on the market. A put is an option that protects an investor from losses.”

  But Also Read: The Fed Doesn’t Understand Liquidity by Louis Woodhill via Real Clear Markets

  And: Did The Fed Make A Huge Mistake? by Matt O’Brien via WaPo

  ---

  MUST READS

  • Myth Of The 10 Best Days by Meb Faber via Faber Research
  • Why The “R” Word? by John Shmuel via Financial Post
  • 15 Things Productive People Do by Kevin Kruse via Forbes
  • Why Does Pessimism Sound So Smart by Morgan Housel via Motley Fool
  • Here’s Why All The Markets Are Falling by Tyler Durden via Zero Hedge
  • Where’s The CapEx Boom? by Buttonwood via The Economist
  • Don’t Say You Weren’t Warned…Again! by Michael Lebowitz via 720 Global
  • Relief Rallies Truncated By Awful Losses by John Hussman via Hussman Funds
  • What Follows The Most Epic Reach For Yield by Jesse Felder via The Felder Report
  • Will January Volatility Wreck The Year by Dana Lyons via Tumblr
  • Peak Profits by Chris Brightman via Research Affiliates

  ---

  “I can calculate the motion of heavenly bodies, but not the madness of people” – Sir Issac Newton

  

  

  

  

  

• WTF Just Happened Here?

  Early in the day, VIX spiked ‘oddly’ and instanly broke the options market…

  

   

  Prompting the start of an epic ramp in stocks:

  

   

  Which was all good and fine, until the last minute of the US day-session today, when, as a follow up question, we have just this to ask: WTF just happened here?

  

   

  Here is Central Bank XYZ’s VIX fat finger, zoomed in.

  

  When Citi warned earlier to “Be Prepared For All Sorts Of Insanity Today“, it wasn’t kidding.

  

  

  

  

  

• The BoJ "Gift" Is A One Day Reprieve – Use It Wisely

  Via Scotiabank's Guy Haselmann,

  By surprising markets with a move to a negative deposit rate, the Bank of Japan gave investors temporary reprieve, providing a much needed opportunity to pare portfolio risk at better prices.  Unfortunately, the improvement in financial asset prices will be short-lived; except, of course, for long-maturity Treasuries.

  • As I wrote on January 4^th, “Investors should be careful not underestimating just how far long-maturity Treasury yields can fall”.  These conditions still exist. 

  The BoJ action to drop its deposit rate from 0% to -0.10% will likely prove to be more symbolic than impactful.  However, it is understandable why the BoJ wanted to take action. In January, the TOPIX was down 10% and the traded-weighted Yen appreciated by 3.5%.  Currency strength and the fall in oil prices conspired to push Japan’s preferred inflation measure back into deflation.  However, if Japan (which only strips out food) stripped out energy from its measure (like other countries do), then its inflation measure would be above 1%.

  The BoJ issued a highly informative and clear 4-page explanation of its action (China could use this clarity as an example of effective communication).  It introduced a three-tiered system for rates, similar to that used in some European countries. The BoJ made it clear that the negative rate is not applied to outstanding balances of current accounts, but rather applied only to marginal increases in current account balances.

  Since the money base is growing at an annual pace of 80 trillion yen, outstanding balances of current accounts will increase on an aggregate basis.  However, in order to limit harm to earnings of financial institutions from the negative deposit rate, the BoJ will increase the tier thresholds accordingly.  In other words, the current balance to which thezero interest rate will be applied will increase, so that the threshold to which a negative interest is applied “will remain at adequate levels”.

  When a central bank hits the 0% lower bound in rates, the impact of any further unconventional easing actions is felt via a weaker currency. Therefore, the diverging policy actions between the hiking Fed and the easing BOJ and ECB, means that the upward pressure on the USD versus the Euro and Yen will continue.  The effect of a stronger dollar iscounter to the perceived and kneejerk market euphoria that arose today; and which seem to arise during easing actions.  A stronger USD will act like a magnet for global deflationary forces.  Investors beware.  

  A strengthening USD has numerous consequences. The Yuan‘s peg to the USD has certainly damaged China’s competitiveness.  The trade-weighted Yuan has dropped by over 25% during the past three years.  Moreover, Chinese wages have risen considerably in the past decade, further lowering their competitiveness.  China is no longer viewed as the world’s low-cost producer.  China is currently trying to find the tricky balance between finding new sources of growth, remaining competitive, stabilizing financial markets, and limiting capital flight.

  The move by the BoJ makes this balance more difficult. It increases the pressure on China to devalue its currency further.  However, with China’s rise as the world’s second largest economy and its acceptance into the IMF SDR basket, its global responsibility has escalated accordingly.   Currency devaluation by China (or by Japan for that matter) steals growth from the rest of the world; such action is clearly non-beneficial to US risk assets.

  • A strengthening US dollar has already damaged US corporate earnings – around 50% of S&P 500 earning comes from overseas (and global trade has dropped ominously).

  China and Emerging economies were growing above 10% in 2010, but are growing at less than 4%.  Clearly, the global economy has lost an important engine of growth.  Moreover, the world has never been more indebted and the developed world demographics are simply terrible. For several years, China’s debt has been growing at the unsustainable rate of over 2 times its GDP.  Enormous indebtedness has borrowed too much from the future. High indebtedness and low rates globally means there is far less fiscal slack or monetary ammunition with which to respond.

  The savings rate in China is 40% to 50%.  This is partially due to a lack of confidence in the future, but mainly due to China’s very poor retirement and health care programs. After several decades of the one-child policy, many Chinese are not just trying to save for their own retirements, and potential future health care costs, but are saving for two sets of grandparents who did not receive the benefits of recent wage hikes.

  Low interest rates initially cause investors to desperately search for yield.  However, eventually risk assets become too mispriced (and thus skewed to the downside).  When this occurs, portfolio preferences switch to cash alternative or ‘return of capital’ strategies.  During such an environment, the pressure on savers to save more to reach retirement goals intensifies.  If, for example, interest rates fall from 4% to 3%, an investor would have to increase savings by more than 20% each year to reach the same goal over 30 years.

  I maintain that central banks are miscalculating the non-linear cost-benefit equation of their policy actions.  Prudent investors should use today’s month-end BoJ gift to pare portfolio risks and to buy long-dated Treasuries.

  “The change, it had to come / We knew it all along / We were liberated from the fold, that’s all…” – The Who

  

  

  

  

  

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• Chaos Ensues After Nikkei Reports Bank Of Japan Discussed Negative Interest Rate Policy

  Just minutes before The BoJ is due to release its statement, USDJPY and Nikkei 225 went haywire around 2220ET as Nikkei news dropped a headline about NIRP discussions taking place at The BoJ. This is not the BoJ statement but has sparked chaos in Japanese (and all carry trade linked markets). We can only assume this was some well-placed strawman for The BoJ statement enabling Kuroda to get a glimpse of what is possible.

  Total chaos broke out ahead of the BoJ Statement…as Nikkei News dropped this headline…

  • *BOJ DISCUSSES NEGATIVE INTEREST RATE POLICY, NIKKEI SAYS

  BOJ discusses introduction of negative interest rates today at policy meeting, Nikkei reports.

  • Negative rates discussed due to growing concern of downward pressure on Japan economy and CPI because of cheap crude oil, China slowdown: Nikkei

  Nikkei 225 is up 500 points on the news, USDJPY +50 pips

  

   

  Some context for that move…

  

   

  Having given up all its gains since the last QQE update…

  

   

   

  G622

  

  

  

  

  

• Americans Really, Really Hate The Government

  Submitted by Michael Snyder via The Economic Collapse blog,

  If there is one thing that Americans can agree on these days, it is the fact that most of us don’t like the government.  CBS News has just released an article entitled “Americans hate the U.S. government more than ever“, and an average of recent surveys calculated by Real Clear Politics found that 63 percent of all Americans believe the country is heading in the wrong direction and only 28 percent of all Americans believe that the country is heading in the right direction.  In just a few days the first real ballots of the 2016 election will be cast in Iowa, and up to this point the big story of this cycle has been the rise of “outsider” candidates that many of the pundits had assumed would never have a legitimate chance.  Donald Trump, Ted Cruz and Bernie Sanders have all been beneficiaries of the overwhelming disgust that the American people feel regarding what has been going on in Washington.

  And it isn’t just Barack Obama or members of Congress that Americans are disgusted with.  According to the CBS News article that I referenced above, our satisfaction with various federal agencies has fallen to an eight year low…

  A handful of industries are those “love to hate” types of businesses, such as cable-television companies and Internet service providers.

   

  The federal government has joined the ranks of the bottom-of-the-barrel industries, according to a new survey from the American Customer Satisfaction Index. Americans’ satisfaction level in dealing with federal agencies –everything from Treasury to Homeland Security — has fallen for a third consecutive year, reaching an eight-year low.

  So if we are all so fed up with the way that things are running, it should be easy to fix right?

  Unfortunately, things are not so simple.

  In America today, we are more divided as a nation than ever.  If you ask 100 different people how we should fix this country, you are going to get 100 very different answers.  We no longer have a single shared set of values or principles that unites us, and therefore it is going to be nearly impossible for us to come together on specific solutions.

  You would think that the principles enshrined in the U.S. Constitution should be able to unite us, but sadly those days are long gone.  In fact, the word “constitutionalist” has become almost synonymous with “terrorist” in our nation.  If you go around calling yourself a “constitutionalist” in America today, there is a good chance that you will be dismissed as a radical right-wing wacko that probably needs to be locked up.

  The increasing division in our nation can be seen very clearly during this election season.

  On the left, an admitted socialist is generating the most enthusiasm of any of the candidates.  Among many Democrats today, Hillary Clinton is simply “not liberal enough” and no longer represents their values.

   

  On the other end of the spectrum, a lot of Republican voters are gravitating toward either Donald Trump or Ted Cruz.  Both of those candidates represent a complete break from how establishment Republicans have been doing things in recent years.

  Now don’t get me wrong – I am certainly not suggesting that we need to meet in the middle.  My point is that there is absolutely no national consensus about what we should do.  On the far left, they want to take us into full-blown socialism.  Those that support Donald Trump or Ted Cruz want to take us in a more conservative direction.  But even among Republicans there are vast disagreements about how to fix this country.  Establishment Republicans greatly dislike both Trump and Cruz, and they are quite determined to do whatever it takes to keep either of them from getting the nomination.  The elite have grown very accustomed to anointing the nominee from each party every four years, and so the popularity of Trump and Cruz is making them quite uneasy this time around.  The following comes from the New York Times…

  The members of the party establishment are growing impatient as they watch Mr. Trump and Mr. Cruz dominate the field heading into the Iowa caucuses next Monday and the New Hampshire primary about a week later.

   

  The party elders had hoped that one of their preferred candidates, such as Senator Marco Rubio of Florida, would be rising above the others by now and becoming a contender to rally around.

  The global elite gathered in Davos, Switzerland are also greatly displeased with Trump.  Just check out some of the words that they are using to describe him…

  “Unbelievable“, “embarrassing” even “dangerous” are some of the words the financial elite gathered at the World Economic Forum conference in the Swiss resort of Davos have been using to describe U.S. Republican presidential frontrunner Donald Trump.

   

  Although some said they still expected his campaign to founder before his party picks its nominee for the November election many said it was no longer unthinkable that he could be the Republican candidate.

  The truth is that the Republican Party represents somewhere less than half the population in the United States, and today it is at war with itself.  Supporters of Trump have a significantly different vision of the future than supporters of Cruz, and the establishment wing wants nothing to do with either candidate.

  A lot of people seem to assume that since Trump is leading in the polls that he will almost certainly get the nomination.

  That is not exactly a safe bet.

  It is my contention that the establishment will pull out every trick in the book to keep either him or Cruz from getting the nomination.  And in order to lock up the nomination before the Republican convention, a candidate will need to have secured slightly more than 60 percent of all of the delegates during the caucuses and the primaries.

  The following is an excerpt from one of my previous articles in which I discussed the difficult delegate math that the Republican candidates are facing this time around…

  It is going to be much more difficult for Donald Trump to win the Republican nomination than most people think.  In order to win the nomination, a candidate must secure at least 1,237 of the 2,472 delegates that are up for grabs.  But not all of them will be won during the state-by-state series of caucuses and primaries that will take place during the first half of 2016.  Of the total of 2,472 Republican delegates, 437 of them are unpledged delegates – and 168 of those are members of the Republican National Committee.  And unless you have been hiding under a rock somewhere, you already know that the Republican National Committee is not a fan of Donald Trump.  In order to win the Republican nomination without any of the unpledged delegates, Trump would need to win 60.78 percent of the delegates that are up for grabs during the caucuses and primaries.  And considering that his poll support is hovering around 30 percent right now, that is a very tall order.

   

  In the past, it was easier for a front-runner to pile up delegates in “winner take all” states, but for this election cycle the Republicans have changed quite a few things.  In 2016, all states that hold caucuses or primaries before March 15th must award their delegates proportionally.  So when Trump wins any of those early states, he won’t receive all of the delegates.  Instead, he will just get a portion of them based on the percentage of the vote that he received.

   

  In 2016, more delegates will be allocated on a proportional basis by the Republicans than ever before, and with such a crowded field that makes it quite likely that no candidate will have secured enough delegates for the nomination by the time the Republican convention rolls around.

  If no candidate has more than 60 percent of the delegates by the end of the process, then it is quite likely that we will see the first true “brokered convention” in decades.

  If we do see a “brokered convention”, that would almost surely result in an establishment candidate coming away with the nomination.  That list of names would include Bush, Rubio, Christie and Kasich.

  And if by some incredible miracle either Trump or Cruz does get the nomination, the elite will move heaven and earth to make sure that Hillary Clinton ends up in the White House.

  For decades, it has seemed like nothing ever really changes no matter which political party is in power, and that is exactly how the elite like it.

  Our two major political parties are really just two sides of the same coin, and they are both leading this nation right down the toilet.

  

  

  

  

  

• Small Arms Sales Skyrocket In Germany In Reaction To Refugee Attacks

  As we’ve documented on a number of occasions over the past three or so months, Germans have a newfound love for pepper spray.

  In November, we noted that frightened Germans fearing a “foreign invasion” from the Mid-East, were rushing to stock up on what amounts to migrant-be-gone aerosol just in case a refugee should get any designs on trying to get too close.

  “There is fear” explains Kai Prase, managing director of DEF-TEC Defense Technology GmbH in Frankfurt, one of the major producers of repellents. “For the past six to seven weeks we have been practically sold out.”

  Yes, “there is fear”, and that fear only grew after New Year’s Eve when dozens of women reported being sexually assaulted by “gangs” of drunken “Arabs” in Cologne, among other cities.

  The New Year’s incidents triggered even more interest in deterrent technology and before you knew it, Germans were Googling “pepper spray” like there was no tomorrow:

  

  Of course, as we noted earlier this month, pepper spray isn’t much good against a Kalashnikov and besides, mace doesn’t sound like nearly as much fun as a “non-lethal gas pistol,” a replica firearm that shoots tear gas cartridges. 

  “People no longer feel safe, otherwise they would not be buying so many products here,” a seller in North-Rhine Westphalia told Deutsche Welle who adds that the seller, like many of his colleagues, has been moving “an average of three times as many alarm, gas, and signal guns as he was prior to the attacks that took place in Cologne on New Year’s Eve.” 

  Although you can’t go out and buy an AK-47 in Germany, you can obtain a so-called “small arms permit”, which gives you the right to own all sorts of fun things like the aforementioned gas pistol. For those who aren’t familiar with the weapon, here’s a helpful video (note the 1:57 mark when we get a look at “a person running with a… a club at a person who draws and fires on them”): 

  There you go. You can shoot someone in the face and not kill them as long as you “have a spotless record ” when you apply for the permit.

  “There has been an increase of at least 1,000 percent or more in Google search queries for gun permits since January,” Felix Beilharz, a social media expert from Cologne told DW.

  Brauchen die Menschen mehr Schutz? #waffenschein #pfefferspray und #selbstverteidigung nach #koelnhbf Google sagt ja pic.twitter.com/gsnzhXHGJM

  — Dejan is Available (@a_placeholder) January 8, 2016

  And that’s not all.

  Germans are also getting more interested in self defense courses. “Currently, those offering self-defense courses are also profiting from the concerns and fears of many German citizens. Many such courses are booked out for the next several weeks – that was not the case a year ago,” DW says.

  “Several social media entries tagged with #Koelnbhf (Cologne train station) were advertising “efficient martial arts training,” RT adds.

  Here’s a tweet that pretty much sums up the mood in Germany:

  Fit und Schlagfertig für den Alltag!
  – #Selbstverteidigung und mehr…
  Zusatztermine: https://t.co/i3g528ofnw pic.twitter.com/XGHFSAkGDf

  — Cosimo My (@cosimo_my) January 25, 2016

  So perhaps Anders Rasmussen – the prevention specialist at the Danish Crime Prevention Council who we mocked earlier today – was correct to say that a move to make non-lethal deterrents legal “may quickly develop into a sort of armed competition between civilians,” as there does indeed appear to be a non-lethal arms race going on in Germany.

  And just like that, Angela Merkel’s move to take in 1.1 million asylum seekers has turned the streets of Germany into the Wild West, where every man, woman, and child is carrying some manner of weapon.

  The fine for pepper spraying a would-be assailant in Denmark is 500 kroner. Given the preponderance of Danes who are sneaking away to Germany to buy non-lethal weapons, we wonder what the penalty is for shooting an attacker in the face with a tear gas cartridge at point blank range.

  

  

  

  

• Why 2,667 Is The Most Important Number In China Tonight

  Barring some miraculous 8% epic melt-up in the afternoon session – go down as the worst ever January for Chinese stocks. While that is a big enough deal, for now the 24%-plus plunge is the worst of any month since Lehman’s fallout in October 2008. However, it is close… if the Shanghai Composite closes below 2667.50 today, January 2016 will become the worst month for Chinese stocks since 1994… quite a feat in a “stable” and manipulated market.

  Worst January ever…

  

   

  “Worse since Lehman” or Worst in 21 years?

  

   

  2667.50 is all that matters…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Trump vs Fox News: Live Webcast From Donald Trump's "Alternative" Event

  If Fox asked Facebook to tabulate the number of viewers at tonight’s GOP republican debate in Des Moines, Iowa, the answer would probably be over 1 billion. The reality is that most potential viewers will likely be hijacked to tonight’s “alternative” event, the one taking place just a few miles away at Drake University where Donald Trump – why is boycotting the Fox News debate – will address Wounded Warriors & Veterans but what he will really do is school the rest of the republican field how to control the media narrative and to remain constantly in the spotlight especially when he is nowhere near it.

  As WSJ writes, Donald Trump‘s attempt to steal some of the limelight from the Fox News debate drew thousands to the campus of Drake University, a few miles away from where the official debate is being held. The line included hundreds of Drake students, many of whom said they were just curious to see Mr. Trump up close, but also some students who plan to caucus for the Republican front-runner on Monday night. However, many of the young people outside won’t get the chance to see him because the building only holds 700 or so people, leaving many standing outside in the cold.

  Meanwhile, as Trump does his event, seven candidates are set to debate, starting at 9 p.m. ET. Here is what the lineup looks like (including Trump).

  

  Few will watch this particular event.

  Live webcast below from the event spearheaded by the republican who is now leaps and bounds ahead of the competition in Iowa, New Hampshire and South Carolina.

  

  

  

  

  

• F(r)actions Of Gold

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The simple fact of the matter is that gold is no longer money and hasn’t been treated that way in decades. It is a frustrating and often woeful outcome, but deference isn’t a reason to color judgement. As an investment, which is more like what gold has become, it isn’t all that straight, either. Gold behaves in many circumstances erratically; often violently so. In 2008, gold crashed three times; but it also came back (and then some) three times. The metal remains stuck in some orthodox limbo of duality, sometimes acting an investment while at others, more rarely, as almost reclaiming its former status.

  The junction of that dyad format is wholesale collateral. It is a difficult and dense topic because it plumbs the very depths of the wholesale arrangement – factors like leasing, swaps and collateralized lending through binary bespoke arrangements. It is there that I think it helps to form the narrative, however, starting by reviewing what the BIS was up to in late 2009 and early 2010. I am going to borrow heavily from an article I wrote in April 2013 that describes the events in question but this is one of those times when you should read the whole thing.

  Back in July 2010, the Wall Street Journal caused some commotion when it happened to notice in the annual report for the Bank for International Settlements the sudden appearance of gold swap operations to the tune of 346 tons. Subsequent investigation by media outlets, including the Financial Times, reported that the BIS had indeed swapped in 346 tons of gold holdings from ten European commercial banks. That was highly unusual in that gold swaps are typically conducted between and among central banks.

   

  Included in that list of commercial banks were, according to the Financial Times, HSBC, BNP Paribas and Société Générale. The timing of the swaps was pinned down to sometime between December 2009 and January 2010 – just as the world was getting reacquainted with the Greek Republic.

  In other words, “dollar” problems had been reborn despite QE1 and ZIRP (and the follow-on programs at the ECB, SNB and elsewhere) because European banks, in particular, had swapped “toxic” MBS collateral for “toxic” PIIGS sovereigns. Now, like MBS before it, even government bonds were becoming non-negotiable in repo (haircuts) and derivative collateral. Stuck not long after the last crisis, banks were in a tight spot since no central bank appeared ready to commit to another great effort so soon risking what they found a fragile but fruitful early revival. Banks then turned to the BIS in what only can be interpreted as great desperation for survivorship.

  The amount of physical bullion purchased by private investors in the decade of the 2000’s had ended at custodial accounts in various commercial banks. Some of these investors were discerning and suspicious enough to demand allocated accounts. Some were not. Unallocated gold can get pooled into a house custodial account with rights over custody being retained by the bank, not the investor. In this case, said investor owns not gold, but rather a bank liability payable in gold.

   

  Unallocated gold in pooled accounts residing in a bank with growing funding stress makes for a rather easy liquidity target. The gold market offers depth in a broad range of currencies. Gold markets are also very well interconnected, between the physical market in London and various paper markets, particularly the CME in Chicago.

   

  In the case of the large gold swap in 2010, the commercial banks accessed dollar liquidity “off-market” since the BIS simply held the bullion in its custody. Being accustomed to holding physical gold, it did have $23 billion, about 1,200 tons already on account, meant no additional hassle. The BIS surely incurred storage and administrative costs, but they would easily be absorbed by the interest rate the banks would pay on this collateralized loan (essentially the gold swap in this case amounted to a dollar denominated loan with gold bullion held as collateral by the BIS).

  The reason that customers’ unallocated gold was such an “easy liquidity target” for banks in tight spots was that gold in that position had become a liability of the bank rather than being construed, as it should have under purely monetary terms, in constructive bailment. Unallocated gold was nothing more than another kind of deposit account; you didn’t actually own gold but possessed instead a financial claim on gold through the bank. Under bank liability, the bank may do what it wishes so long as it presumes meaningful care in being able to deliver any physical gold (not specific bars) upon convertibility.

  On December 7, 2011, the Financial Times reported that:

  Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week

  There were rumors (admittedly unsubstantiated to this day) that a large bank (or two) in France was to be declared insolvent on December 8; only a week earlier, on November 30, 2011, the Fed had announced a sudden alteration to its dollar swap lines with five reciprocating central banks, both reducing the cost (OIS +50 instead of OIS +100) but more intriguingly mentioning “temporary bilateral swap agreements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.” Then on December 8, the ECB announced their trillion, the LTRO’s.

  On November 30, 2011, the Fed finally relented to unlimited dollar swaps at a low premium (OIS + 50). But still banks were looking to gold leases. So much so that we have no idea at what rates these transactions were occurring. The same Financial Times article cited above quoted “traders” as indicating:

   

  “…few, if any, banks were likely to receive the published rates since they have been skewed in recent months by a widespread reluctance among bullion banks to take gold for dollars.”

   

  The implication here is that “markets” had no reasonable idea how desperate for dollars some banks had become. It is no surprise in that context that the very day after the Financial Times published that article the ECB announced its massive lending facilities through the LTRO’s. In conjunction with the Fed’s swap lines, the two central banks, coordinating with other central banks, aimed to end the liquidity crisis through massive money stock means.

  The relevance of this particularly unnoticed angle in the 2011 re-crisis is the behavior of gold since that point. As noted a few days ago, gold has only come lower as if to signal the “deflationary” impulse of the imploding eurodollar; and that makes sense as that particular time and flow of circumstances was in many ways convincing that there was never going to be a possible pathway to recreating or revisiting the pre-crisis financial system – as every central bank intended and still intends to this day.

  What we don’t know, probably can’t know, is how much gold was traded and where it all ended up during that time. In the more traditional setup of gold swaps, the practical effect was for producers to dislodge stored gold sitting in central bank vaults around the world. It was win-win for central banks because they got to both actualize gold into an interest-earning investment while also, through quite dubious accounting rules, never admitting that gold was gone (all activity contained under a single line item: gold and gold receivables; and you never knew how much was the latter and how little the former).

  The 2011 episode with the BIS reversed in many ways the causal flows of physical, assuming it was physical at all. Commercial banks that had been receiving customer deposits of the metal were now turning it over the central bank of central banks out of “dollar” (and euro, likely even euroeuro) desperation. While we can’t figure out where the physical gold ends up, we can at least recognize the fingerprints of the gold collateral/liquidity arrangement in various forms such as the stretching of claims on gold in “physical” markets such as COMEX; the more gold swaps churn physical or its approximates, the more opportunity there was to create “paper supply.”

  This is the hard part for those who appreciate real money, as money is itself an asset without liability. But here are banks and central banks abusing gold to turn it into just another agent of rehypothecation – further distorting capitalism’s foundational respect for property rights into more financial terms that obey no such constraint (MF Global being the institution caught at it). I wrote about this in May 2013, explaining why, in general, gold leasing in these kinds of situations is negative on gold price:

  The accounting rules are such that the central bank continues to hold “gold” on its books despite the leasing arrangement that moved that actual physical metal into the marketplace. Thus the market has actual gold sold into it while central banks report no loss of supply (under the accounting line “gold and gold receivables”). Since these are opaque transactions, nobody really knows what has been leased out and what actually remains.

   

  Gold lending takes a similar form. Banks typically hold client gold in unallocated accounts – this is intentional since unallocated accounts have smaller fees and clients have not been educated as to the legal distinctions. Unallocated gold is a liability of the bank; the client continues to hold title to physical bullion, but that is in the form of a “paper” promise by the bank to deliver future gold. Often, the agreement that creates the unallocated arrangement even allows for the bank custodian to settle the client claim in cash under certain circumstances.

   

  Therefore, the bank can use the unallocated metal toward its own purposes, in exactly the same way that prime brokers rehypothecate hedge fund credit holdings in margin accounts. In a gold lending relationship, the bank uses the unallocated gold as collateral for cash (in whichever currency is needed, which is one of the appeals of using bullion for collateral). Now, the gold is in the hands of an intermediary that, apart from any haircut set with the borrowing bank, is at price risk. The cash lending bank will either sell the gold outright, since it only has to replace metal at the end of the agreement, or hedge its collateral position (based on the cost of selling futures).

  That would also hold for central bank claims in the prevailing leg of an earlier swap arrangement. Like rehypothecated treasury securities in repo, all that matters is balance sheet ledgers between counterparties agree on balance at the end of the day; each and every day. So long as that happens, there are no cascading triggers that reveal the fractioning.

  While my intent in revisiting the gold crash in 2013 was to add to the weight of financial warnings that have occurred almost regularly since then about the fate of the global “dollar” system, it was a ZeroHedge article from yesterday that brought it further into focus – particularly the current unknown (out)flow of physical metal that “somehow” left undisturbed the futures volume (the paper gold). From that article:

  This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the “coverage ratio” that shows the total number of gold claims relative to the physical gold that “backs” such potential delivery requests, – or simply said physical-to-paper gold dilution – just exploded.

   

  As the chart below shows – which is disturbing without any further context – the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday’s close there was a whopping 542 ounces in potential paper claims to every ounces [sic] of physical gold. Call it a 0.2% dilution factor.

  Is that the anguishing end of years of “dollar” liquidity being literally swapped for physical and paper gold? Much more so the latter? It is, of course, impossible to determine but there are so many corroborating factors that the suggestion is at the very least compelling; and thus why gold has been warning about the eurodollar system since 2013 and really 2011. The fact that gold had so much collateral appeal at that time speaks to that very notion; the artificial MBS “toxic waste” that stood for it during the ravenous runup to 2007 was no sustainable substitute for a small monetary system, let alone the global predicate for global finance and trade.

  Pre-2011 (Gold and Comex Cover were highly correlated)

  

   

  Post-2011 (Gold and Comex Cover were almost perfectly anti-correlated)

  

  [ZH: Something 'broke' in the gold complex when China devalued]

  To that fact, banks were forced throughout 2007-09 and again in 2011 (2013 too? How about 2015?) to alternate funding means no matter how distasteful (to the eurodollar practitioner, gold stands against all of it). Wholesale banking in its purest distillation is a system that seeks to fraction every kind of liability no matter original intent or even customer intent (banks are the central focus, where their balance sheet and financial resources stand as “money”) – to the point of fractions upon fractions; rehypothecations of rehypothecations. It went so badly that the system seems to have repurposed gold once more, the only asset where fractioning is still sensitive enough to signal the desperation. In other words, if the eurodollar and wholesale banking system had been sliced to such a thin margin again by 2011 so as to so heavily depend on the modern duality of gold, it not only would not survive it literally could not survive. The paper dilution we see now may just be that judgement finally seeking open admission.

  

  

  

  

  

• Goldman Banker Who Set Up Slush Fund For Malaysian PM Takes "Personal Leave"

  On Tuesday we learned that Malaysian PM Najib Razak won’t have too much explaining to do domestically when it comes to why Saudi Arabia decided in 2013 to make a $681 million “donation” to his personal bank account.

  Najib’s political opponents have accused the PM of deliberately undermining an investigation into where the money came from. The public has also angrily asked for transparency and in August, street protests led by former PM Mahathir Mohamad were held in Kuala Lumpur. “I don’t believe it is a donation,” Mahathir said at the time. “I don’t believe anybody would give [that much], whether an Arab, or anybody.”

  No, probably not.

  In short, no one is buying Najib’s story except, apparently, Malaysia’s top prosecutor Attorney General Mohamed Apandi who ordered the probe into the transfer closed earlier this week.

  Like many other Malaysians, Mahathir has some questions for Apandi and Najib. Here are a few:

  • “It seems there was a letter by a Saudi stating that a sum of US$681 million or RM2.08 billion was a donation for the PM’s contribution to the fight against Islamic terrorists. Who is this Arab?”
  • “How does he have the huge sum of money to give away?”
  • “What is his business?”
  • “What is his bank?”
  • “How was the money transferred?”
  • “What documents prove these?”
  • “Just a letter from a deceased person or some non-entity is enough for the A-G?“

  And some more:

  • “How and when was this done?”
  • “We are told the balance is frozen by Singapore. Can Singapore explain the unfreezing and the delivery back to the Saudis?”
  • “Or does Singapore also believe in the free gift story, the letter and the Saudi admission?”

  All great questions. Questions which will likely never be answered. 

  As those who have followed the 1MDB story will recall, the fund has strong ties to Goldman and more specifically to Tim Leissner, chairman of the bank’s Southeast Asia ops. 

  1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman and orchestrated by Leissner, who is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

  

  What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit.

  Now, just as Najib is cleared by Malaysia’s top prosecutor and amid multiple 1MDB investigations unfolding in other countries, Tim Leissner is taking a leave of absence from Goldman and is leaving Singapore for Los Angeles. 

  “Leissner, who has been with Goldman Sachs for almost 18 years and was most recently Singapore-based chairman of its Southeast Asia operations, remains an employee,” Bloomberg reports. “The bank’s dealings with the country’s state-owned investment company, 1Malaysia Development Bhd., drew public scrutiny because of the high fees Goldman was paid.”

  “His departure comes as Najib Razak, Malaysia’s prime minister, fights to extricate himself from a donations scandal alleged to be linked to the investment fund, known as 1MDB,” FT adds. “[Leissner’s] close relationships with top officials in Kuala Lumpur produced what one executive described as a ‘golden period’ for the bank.”

  The ubiquitous “people familiar with the matter” say Goldman was unhappy with the amount of time Leissner spent in Los Angeles where his wife is busy building a fashion business.

  Whether or not Leissner’s leave and decision to high tail it out of Singapore has anything to do with the 1MDB scandal is an open question, but the timing certainly looks curious. 

  Incidentally, Leissner will have plenty of places to stay in L.A.

  Najib’s stepson and Jho Low (described as a “close family friend”) own a $39 million mansion on Oriole Drive in the Hollywood Hills in Los Angeles, the L’Ermitage Hotel in Beverly Hills, a home in Beverly Hills known as the pyramid house for a gold pyramid in its garden, as well as other properties in the Los Angeles area.

  

  

  

  

  

• George Soros Finally Suspends His Lifelong War Against Russia

  Submitted by Eric Zuesse via Strategic-Culture.org,

  On January 21st, George Soros, who has throughout his life been passionately opposed not just to communism but also to Russia, has finally stated in a Bloomberg News interview at the World Economic Forum, that the United States (and possibly the EU, but he says that the EU is in terrible economic shape itself) must now fund a new Marshall Plan for all of Europe, including, this time, even his bête noire: Russia.

  However, is he ending, or merely suspending, his lifelong war against Russia? Let’s look at the evidence, including the background for his comments here – the crucial background in order to understand his statement is provided in the links here:

  Previously, he had been urging both the United States and the EU to pump variously $20 billion (in some of his articles) to $50 billion (in others) more into Ukraine’s war to seize back control over Ukraine’s former regions of Crimea and of Donbass, both of which had voted overwhelmingly (75 % in Crimea and over 90 % in Donbass) for the democratically elected Ukrainian President, Viktor Yanukovych, whom Obama overthrew on 20 February 2014 in a bloody staged coup whose gunmen were mainly from Ukraine’s two racist-fascist or ideologically Nazi parties and were all paid by the US via laundered funds through the CIA. Those two regions of Ukraine are strongly pro-Russian and anti-Nazi – they were anti-Nazi in World War II, and are anti-Nazi today.

  However, now that the US-led effort to re-arm the Ukrainian government that it had installed, and to enable them to go to war yet a second time, attempting to seize (or reabsorb) Crimea and Donbass, has failed, and US President Barack Obama has thus at least temporarily given up in all but rhetoric his determination to enable Ukraine to crush those regions, George Soros is stepping back in.

  Soros had, himself, via his International Renaissance Fund, helped to finance the overthrow of Yanukovych. He is now urging that the US (and maybe Europe) help Europe including Russia, to recover from the damages that the US had imposed upon that broader Europe – imposed by means of Obama’s invasions and coups in not only Ukraine but also in the Middle East. (After all, most of the refugees into Europe come from America’s invasions of Iraq, Libya, and Syria, and from the support of jihadists there by America’s Saudi, Qatari, and UAE allies. The refugee-crisis is generated by America and its allies.) Soros says that the fleeing refugees from the Middle East into Europe will break the EU unless stopped, and that US taxpayers (and maybe EU taxpayers) thus now need to fund the salvation of all of those countries which the US – largely at Soros’s own urging and with his help – has all but destroyed. Perhaps he just wants Western taxpayers to bail him out.

  His comment attributes, as being the precedent for his current support of a taxpayer-bailout for Europe including Russia, his prior, 1989, support of a bailout of Eastern Europe including Russia. However, at that time, he was looking for public funds to create debts that those then-communist nations would have toward Western taxpayers. His proposal was rejected, because democracy was, at that time, strong enough in the West, so that the public’s rejection of it caused his proposal to be politically impossible to achieve. The situation is drastically different now, after the Harvard Economics Department and George Soros guided the Russian government into a ‘capitalism’ that’s crony-capitalism or «fascism», from which Harvard University and George Soros extracted billions in giveaways of state property from formerly communist countries that were insider-dealt to not only Russia’s and Ukraine’s (etc.) insiders, but also to America’s, including especially Soros himself (and that link is also here). That link presents the great Janine Wedel reporting that, as a result of one particular insider-rigged auction, «H.M.C. [Harvard Management Company] and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil».

  Ukraine is one of the countries that was stripped this way, and it more recently was taken over by the United States, with Soros’s help, and stripped even more.

  

  The post-Soros, post-Obama, coup-government of Ukraine is essentially bankrupt after all of their ‘anti-corruption’ verbiage has collided with their total-corruption policies in Ukraine, just as had happened under Yeltsin in Russia, so that, notwithstanding Soros’s urgings for $20B+ of Western taxpayer funds to be contributed to that government, it simply won’t happen. Soros therefore now is urging his new proposal for a «Marshall Plan», not only to get Eastern Europe deeper into debt to Western governments, but, perhaps, also to enable Soros’ own investments in Eastern Europe (including Russia) to turn profits for him. Only with taxpayer assistance can such investments now be made profitable.

  That’s the problem with private-investor meddling in foreign policies: governments become controlled by international aristocrats.

  *  *  *

  Here is the transcript of this brief interview-segment, from a Bloomberg, which cannot be accurately understood without reference to the links that were provided in that restatement here of his statement – those links document the reality behind what he is here asserting:

  SOROS: The European Union is in an existential crisis, and it needs to get out of that because of the migration problem [which] is effectively distressing the European Union – it’s falling apart, and that’s a time when you need to have a major initiative, a Marshall Plan. It’s absolutely appropriate. It’s amazing that it comes from Schaivo, who has been one of the proponents of Bundesbank orthodoxy, but I have been in favor of it all along. I was propose[ing] a Marshall Plan for Eastern Europe more than twenty-five years ago [before the end of the USSR], in 1989 in Potsdam, when Potsdam was still in Eastern Germany, and I said this would be a Marshall Plan for Eastern Europe including Russia, and it should be financed by the Europeans for a change, and actually led by the – representative, who started laughing, and the front of the Algemeine [Zeitung] reported that my proposal was greeted with amusement. Now I think this proposal should not be treated with amusement. This should be taken very seriously. It’s going to have a very difficult time passing, because there’s a lot of dissension now, part of the disintegration, but I think it needs public and enthusiastic support. But I think that most people know that something has gone catastrophically wrong and it has to be put right.

   

  INTERVIEWER: Is there a danger of break-up. Last year we were worried about Greece, what should we be worried about this year?

   

  SOROS: I think Greece is still a problem. It’s the one problem that has no solution, because it has been so messed-up that you can only muddle along. But there is no solution, and actually that problem is now coming to the boiling point again. You can see it on the face of the press, but [it] is not a major problem in the scheme of things.

  

  

  

  

  

• Here Is The Reason For January's Selloff: China's January Outflows Soar To Second Highest Ever

  While China’s currency devaluation has, alongside the price of commodities, become one of the two key drivers of market volatility and tubulence around the globe, when it comes to risk, one far more important Chinese metric is the actual amount of capital that leaves the nation.

  The reason for this is that as explained over the weekend, in a world where Quantitative Tightening by EMs and SWFs has emerged as a powerful counterforce to Quantitative Easing – or liquidity injections – by developed central banks, what matters for global risk levels is the net effect of these two opposing money flows.

  

  Of all the global “quantitative tighteners”, the biggest culprit is China, which has seen over $1 trillion in reserve selling since the summer of 2014, the direct result of a virtually identical amount in capital outflows.

  Furthermore in for a “closed’ Capital Account system like is China, the selling of FX reserves is a direct function of capital outflows, so the only real data needed to extrapolate not only the matched reserve selling and thus Quantitative Tightening, but also the direct impact onglobal risk assets, is how much capital outflow has taken place.

  This takes place in one of two ways: by relying on official Chinese historical data, or by estimating how much outflows take place on a concurrent basis, thus allowing one to estimate how much capital is flowing out in real time. Indicatively, China’s SAFE released onshore FX settlement data for the whole banking system (PBoC+banks), suggesting some $97bn of FX outflows in Dec, which is broadly in line with the fall in official reserves.

  But much more important is the question what is taking place right now, the answer to which can either wait until SAFE releases January data in several weeks… or rely on day to day estimates of outflows in the form of central bank FX intervention. 

  Luckily, we have just that.

  According to a Goldman report, so far in January “there has been around $USD 185bn of intervention (with the recent intervention predominantly taking place in the onshore market)” split roughly $143 billion on the domestic side and $42 billion on the offshore Yuan side.

  

  This would make January the month with the second largest amount of intervention since August 2015, and thus the second highest month of capital outflows, and would explain the ongoing deterioration across global asset classes as China’s various FX reserve managers have been forced to sell not just government bonds but equities as well. 

  Goldman also calculates that “total intervention over the last 6 months, using our estimates, sums to USD 775bn.” Run-rating this amount would suggest that nearly $1.6 trillion in Quantiative Tightening is taking place just due to China’s attempts to stem capital flight. This number excludes the hundreds of billions in reserves that all other petrodollar and EM nations have to liquidate as well to prevent the rapid devaluation of their own currencies as the world remains caught in the global dollar margin call we first explained in early 2015.

  The implications from this are two-fold:

  • For the selling culprit, responsible for the recent market weakness look no further than China, whose reverse “flow” has been responsible for the terrible start to 2016 capital markets.
  • For the Beijing politburo, halting capital outflows is becoming a matter of life or death, because there are only so many liquid reserves China can liquidate before it enters dangerous territory; worse, the less the reserves, the greater the desire will be on behalf of the local population to take their money and run.

  Of course, China’s rabid defense of further capital outflows means that its original intent, to devalue the Yuan to a degree that boosts its economy via exports, has been put on hiatus, or in other words China is trapped, and instead of an external rebalancing it is forced to boost its economy in the one way it knows best: by issuing ever more debt. However, with China’s total debt now estimated at 350% of GDP, it only has a finite amount of time before the debt bubble finally pops as well.

  In other words, for China there is, as of this moment, quite literally no way out, and what’s worse the longer it delay the decision of how it will reset its economy, the worse it will be for global risk markets.

  

  

  

  

  

• What If Obama Believed In Individual Liberty & Free Markets?

  Submitted by Richard Ebeling via EpicTimes.com,

  President Barack Obama delivered his final State of the Union address on January 12, 2016, and devoted most of the time to defending his “legacy” of bigger and more intrusive government, with an emphasis on the other aspects of personal and social life he wished could come under the blanket of more political paternalism, if only there was enough time before he leaves office on January 20, 2017.

  But suppose that, instead, Obama had had an epiphany shortly before he spoke before the Congress on January 12^th. Imagine that he had had a realization that the Progressive and political paternalistic ideas that he has believed in, espoused and implemented during his first seven years in the office of the presidency had been wrong and misguided.

  What if he had discovered the ideas, say, of Ayn Rand, Henry Hazlitt, Milton Friedman, and F. A. Hayek, for example? Suppose that he realized that the true principles of a free society were to be found in the ideas and ideals of individual rights and liberty, free markets and competitive enterprise?

  What if the president offered, instead, an agenda for freedom rather than one of paternalism? What would the State of the Union address be like if he had such an epiphany for defending individual liberty rather than more unrestricted government license over our lives?

  Let us imagine what he might have said, instead of the words he actually spoke:

  “My fellow Americans, I come before you tonight to deliver my seventh and last State of the Union address at a time of continuing economic uncertainty and social tensions across our great nation.

   

  “I have spoken to you more than once about the country’s need for ‘hope and change.’ But I now realize that we must look for that hope and change in a far different direction that the one I’ve talked about and argued for in previous years.

   

  

   

  The Free Individual and His Creative Mind

   

  “I was wrong a couple of years ago when I said that the man who owns a business did not ‘make it.’ I assumed that improvements in the human condition only result from the actions of the ‘collective,’ as if the ‘collective’ was a living, breathing, thinking being, separate from the individuals who make up the society.

   

  “I now understand and appreciate from reading Ayn Rand that ‘society’ is merely a sometimes convenient, but often confusing, shorthand for the resulting outcomes of the interactions and associative actions and activities of individual human beings. There is no ‘society’ independent from the thinking, valuing and acting individuals in the world.

   

  “And, furthermore, if anything is built its possibility can and only does begin as a creative thought and idea in the mind of a real, distinct individual man or woman. The ‘idea’ must precede the ‘deed,’ and the idea only can come from an individual human mind. There is no collective brain.”

   

  “My fellow Americans, you do not exist to live and work for ‘society.’ You have a right to your own life, to live it as you think right and best for yourself, through peaceful, honest and productive work. The achievements of ‘society’ are the outcome of voluntary and mutually beneficial exchanges and associations among free men.

   

  “Our Founding Fathers understood this when they signed the Declaration of Independence and promulgated the U.S. Constitution. Man and his rights precede government, and government’s role in society is not to control or direct the actions of men, but to secure and protect their individual rights to life, liberty and honestly acquired property.

   

  Freedom and Knowledge

   

  “Starting tomorrow, I am instructing Treasury Secretary Jack Lew to prepare a set of budget proposals, the goal of which will be a balanced budget before the end of the current fiscal year. And not through raising taxes, but through across-the-board cuts in government spending.

   

  “If we are to restore a thriving and fully employed economy in America it will require getting resources out of the wasteful hands of government, and back under the control and guidance of the private and productive citizens whose work, saving, investment and creativity are the only basis and source of our improving standard of living.

   

  “I now understand that economic growth and opportunity only come from freeing the minds of every American so all may benefit from what others may know. I have learned from F. A. Hayek that it has been a great arrogance on my part and practically everyone else in government for a very long time to believe that we can know enough to direct and plan the actions of multitudes of people in an ever-more complex society.

   

  “All the knowledge of how, where and when to do things that make ‘society’ work and creatively improve cannot be known by any one person or group of people in Washington, D.C. The ‘knowledge of the world’ is dispersed and decentralized among all the minds of all the people in society. We must appreciate that the free market is not only a market place of goods, but of ideas that result in the producing of those goods.

   

  “Government regulations, restrictions, prohibitions, subsidies and plans get in the way of the competitive process that is a great vehicle of ‘discovery’ to find out who, in fact, can creatively imagine and bring to market the new and better products, in greater quantities and lower prices that benefit all in society – especially the poor and less well-off who, year after year, gain from more and less expensive goods available and within their modest economic reach.

   

  “It has been a great ‘pretense of knowledge’ on my part to presume that I, as president of the United States, can know who might ‘win’ the market ‘race’ of competitive improvement and excellence before allowing the process of market competition to serve as the motive and incentive for people to discover within themselves what they are capable of doing and producing.

   

  

   

  Unintended Consequences and the Minimum Wage

   

  “I know that many who have supported me over the years will be wondering how I could turn my back on all those who have looked to me as the great hope for ‘social justice’ and ‘fairness’ in society. Do I no longer care about the poor, the underprivileged, and the needy?

   

  “I now understand after reading Henry Hazlitt that much that seems to be helpful government policy in the short-run can have longer run negative consequences for many of the very people we sincerely wish to help. We must look beyond what is immediately ‘seen’ to what is ‘unseen': the impact of these policies when we look past today to see the effects they will have tomorrow.

   

  “For that reason, rather than calling for an increase in the government-mandated minimum wage, I will be proposing to the Congress the abolition of the federal minimum wage law. I will also be highly recommending that the various state governments should abolish their minimum wage statutes, as well.

   

  “None of us pays more for anything than we think it is worth, in terms of its value to us and what we can afford to spend. And if something goes up in price, we often think twice before we continue to buy as much of it as we have in the past. We ask ourselves, ‘Is it really worth that higher price, and is it worth buying less of other things to keep buying as much of it as we’ve bought before, because the extra expense to purchase the same amount will have to come out of buying less of something else, since our limited financial means only go so far?’

   

  “The only source of an employer’s financial means to pay his workers their wages is the revenues he receives from the customers who buy his product. If the government mandates that he must pay his workers a minimum wage above the market wage, he will have to decide if the value of what some of those workers contribute to make those products that help him earn that consumer revenue is now less than what the government says he must pay them. If he finds that some of them are not worth the minimum wage he will let them go, and other new jobs that he might have offered will not be financially worth opening up.

   

  “Thus, many of the very people – the poor and low-skilled – who can most benefit from an entry level job that offers them on-the-job training, experience and a chance to have their feet on the first rung of the ladder to a better life, will be denied that opportunity because the government minimum wage law prices them out of the market.

   

  “I sincerely care too much about those people to leave them possibly permanently behind due to such a misguided and counterproductive policy as our minimum wage law.”

   

  Free Markets and Real Opportunity

   

  “We must appreciate, as reading Milton Friedman has taught me, that the free competitive market is the ‘great leveler’ that frees people from the artificial barriers to entry and opportunity that only government controls and regulations can place in the way of the poor and less well off from rising out of poverty and low standards of living.

   

  “A free society of free people will always be a society of unequal outcomes. Each of us is a unique and distinct individual from the rest of humanity. That is the reason we should respect each individual’s right to his own life and liberty, since he or she is ‘one of a kind,’ never to be seen again on the face of this planet. We should respect and value them, and not presume to tell them how they should live their only sojourn on this earth. Their life is too precious, if indeed we value ‘the person,’ as we say we do, to make them a slave to how we think they should live.

   

  “But because we all possess degrees of uniqueness in our inborn differences, our inclinations and desires, and our drive and determinations to set and try to achieve goals in our life, the resulting outcomes will be different in various ways from that of others.

   

  “It is also the case that how we find ways and decide to earn a living is valued differently by our fellow men. Thus, how much we may earn in the market place is to a great extent a result of by how much our fellow human beings value the services we can offer them in exchange for what we wish to buy from them in the arena of free, competitive trade.”

   

  

   

  Freedom and Benevolence

   

  “Does that mean that those who are less well off than ourselves may not need and deserve a ‘helping hand’? All people of good will and benevolence might rightly have a sense of assisting those who they think deserve and may benefit from such support.

   

  “But such good will and benevolence cannot be forced or made either ‘moral’ or ‘right’ by compelling a false philanthropy through government coerced redistribution of wealth. It not only undermines a proper and rightly human sense of concern for one’s fellow men, but leads to many wasteful and misdirected uses and abuses of the taxpayer’s hard-earned money.

   

  “For this reason, I will be proposing over the last year of my presidency the repeal of the Department of Health and Human Resources, as well as the Departments of Education, Housing and Urban Development, Labor, Commerce, Transportation, Energy and Agriculture.”

   

  Free Markets for Better Health Care

   

  “This now gets me, my fellow Americans, to the hardest policy decision I am going to propose to Congress in the current session. I came into office with the hope and dream of assuring affordable health care to each and every American. I even took pride when my opponents began to call the Affordable Care Act, ‘ObamaCare.’

   

  “I call upon the Congress to immediately repeal the Affordable Care Act. Everything that I have now learned from reading Hayek, Hazlitt, Friedman and Rand has taught me that turning over the health care industry and medical service to the regulatory and planning control of the government will lead to nothing but disaster for the nation.

   

  “We do need better health care, at more affordable rates and prices, with improved coverage. But that can only come by freeing those creative minds of the market place in a setting of the most open competition as is possible. We must set loose the same competitive discovery process that has given all those other innovative miracles of more, better and less expensive goods and services over the years and decades.

   

  “Deregulation of the medical profession and deregulation of the health insurance industry must be our new policy. Individuals should be free to decide and choose their own health plans and trade-offs, and the unrestrained profit motive must be taken advantage of to incentivize the offering of health insurance coverage and medical care quality improvements.

   

  The Right to Ignore the State

   

  “My fellow Americans, in closing let me just say that I also read the nineteenth century social philosopher of freedom, Herbert Spencer, and he has taught me is that as long as any one of you lives your life peacefully and honestly in your own affairs and in your social and market dealings with others, the government has no moral right to make any claim upon you.

   

  “In other words, you have a ‘right to ignore the state,’ other than when it goes about its proper and limited business in securing and protecting the rights of each and every citizen from the violent and plundering acts of others.

   

  “This is the real and only reasonable agenda for ‘hope and change’ that can bring our country freedom, prosperity and goodwill among all of our people.

   

  “There is, of course, much more that we should do and can do to bring about that change for the better. That is why between now and when I leave office next year on January 20, 2017, I will be putting together proposals to repeal the powers of the NSA, bring all our troops home from around the world and call upon the Congress to abolishthe Federal Reserve System so we can move to a private, competitive banking system with a honest, market-based money such as gold.

   

  “I think that the agenda for freedom, based on individual liberty, free markets and limited government that I have presented this evening can serve as a good beginning to return to the wonderful vision that our Founding Fathers hoped for when they established our great nation.

   

  “Thank you, my fellow Americans, and may God Bless a reborn, truly free America.”

  Barack Obama, of course, did not give such a speech to the country in his State of the Union address. But one can hope that some day there will be a president who will have been elected precisely to articulate and initiate such an agenda for individualism, liberty, and limited government in the United States.

  

  

  

  

  

• BoJ Preview: "The Need For A Kuroda Bazooka Is Growing"

  With The Fed definitely off the table, China promising nothing but daily liquidity drips, and Europe unable to do anything but jawbone, the world's bullish equity market investors are anxiously trawling for a central bank to save the world. Tonight's BoJ meeting could well be it – though judging by their past epic failures – it will be anything but successful as QE23 looms in Japan. “The need for a Kuroda bazooka is increasing,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “This is decision time for Kuroda” as additional stimulus can stop the trend of yen gains and falling stocks.

  Market participants’ views on the BOJ are mixed, but leaning increasingly toward more stimulus as Japan’s growth is sputtering and inflation, at 0.3% year on year as of November, is way below the BOJ’s 2% target.

  

  Weak exports, production and stagnant consumption weighed on growth in the fourth quarter. Despite a negative month-on-month reading for Japan’s industrial output in November, production still may have expanded in the fourth quarter, though likely not enough to offset a 1.2% drop in the third quarter. Companies’ production plans signal that the outlook for a stronger first quarter remain.

  However, just as wih The Fed, despite uninspiring growth data, positive dynamics in the labor market — the basis for the BOJ’s optimism on the price outlook — remain in place.

  

   

  Given Kuroda’s history of surprising observers, the spectrum of potential outcomes is very broad. As Bloomberg reports,

  While only six of 42 economists surveyed by Bloomberg are predicting that Kuroda’s board will expand already-record stimulus this time, others didn’t rule that out. Twenty-nine expect further easing by mid-year. Citigroup Inc., JPMorgan Chase & Co. and UBS Group AG economists are among those giving additional stimulus at this meeting a more than 30 percent chance.

   

  Since the BOJ’s last meeting in December, oil prices fell to a 13-year low, the yen touched a one-year high, stocks have tumbled about 10 percent this year and the outlook for faster wage growth has waned.

   

  All of these things are obstacles to the BOJ hitting the 2 percent inflation target by its goal of around the six months through March 2017. The bank could announce a change to the timing of the target Friday.

   

  And one possible wild card: If stimulus isn’t expanded, look for language that hints at the potential for an unscheduled policy move ahead of the next meeting, which won’t be until March 14-15. The BOJ has a new schedule for 2016, and no longer has a February meeting.

   

  Friday’s meeting is the first at which the board will release the outlook report at the same time as the policy decision, which could delay the release past the typical window of between noon and 12:30 p.m. in Tokyo. Later decisions in the past were often associated with policy shifts, but that may not be the case this time.

  If the board stands pat, observers would expect the yen to climb and Japanese stocks to tumble in the immediate reaction.

  

  But that could shift, if the BOJ signals it will be watching financial markets continuously for signs of damage to the domestic outlook and will be ready to act at any time. Kuroda could emphasize that message in his 3:30 p.m. press conference — though that would be after the close of stock trading in Tokyo.

  “The need for a Kuroda bazooka is increasing,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “This is decision time for Kuroda” as additional stimulus can stop the trend of yen gains and falling stocks.

  Whether the BOJ pushes back the timing of reaching the 2 percent price target and if so by how much will be a key gauge to assess BOJ’s optimism or pessimism.

  The BOJ now forecasts hitting the inflation target around the six months through March 2017. People familiar with discussions at the BOJ told Bloomberg last week that they are considering a delay in the schedule for a third time in less than a year.

   

  If the target is postponed to some time in fiscal 2017, that points to an increasing risk for not achieving it by the end of Kuroda’s term in April 2018, according to Hideo Hayakawa, a former BOJ chief economist. If the inflation target holds firm without further stimulus, that will be an indication that Kuroda remains more optimistic than most.

   

  The key is how Kuroda views the impact of the recent moves in the yen and Japanese stocks, along with concerns about China’s slowdown on Japan’s inflation expectations and corporate investment and wage plans. The economy is growing at about its potential, so it comes down to assessing confidence and whether he thinks a move Friday would strengthen sentiment.

   

  The BOJ also will update its forecasts for economic growth and prices for the first time since October. Hayakawa forecast that the bank will cut the inflation projection to about 1 percent for the year starting in April from 1.4 percent.

  The big question though, as Bloomberg notes, is Will Kuroda Adopt Draghi-Style Communication?

  Masaaki Kanno, the chief Japan economist at JPMorgan, and UBS’s Daiju Aoki say Kuroda may indicate further easing is coming soon as European Central Bank President Mario Draghi did last week. Also, the Fed added a line in its statement this week to say it’s closely monitoring global economic and financial developments.

   

  By adopting the Draghi style, Kuroda could avoid disappointing the markets and buy some time as he examines the impact of stock and yen turbulence on Japan’s economy.

  However, given the market's lackluster response to Draghi's promise, it appears markets are demanding action not words.

  But even actions have not helped, as Alhambra's Jeff Snider previously noted, there is scarcely a block of the calendar since the “impossible” global panic in 2008 that hasn’t seen any of them doing something to expand their balance sheet or impress the “time-axis.”

   By my more conservative count, qualified as the BoJ doing something different rather than purely expanding or extending something already in progress, there have been 10 QE’s in Japan but using the numerical standard which has been applied to the Federal Reserve there may have been as many as 22 or more.

   

   

  

   

   

  This is not so much investing or even finance as it is a cult (calling it a religion or even ideology is unjustifiably too charitable). That is the usefulness of “deflationary mindset” not so much as a matter of actual economic pathology but as a built-in, squishy appeal to “we’ll get it right next time.” And there is always, always a next time which doesn’t seem to count for much inside the cult when, in fact, it is everything.

  *  *  *

  But still investors await tonight's BoJ statement for any buying opportunity because this is the farce that the new normal has become.

  

  

  

  

  

• Saudi Arabia Conducted 119 Airstrikes Against Civilian Targets In Yemen, UN Panel Finds

  In March, Saudi Arabia’s air campaign in Yemen will enter its second year.

  Riyadh began flying combat missions last year in an effort to rollback the Iran-backed militiamen who drove Yemeni President Abd Rabbuh Mansur Hadi into exile. The results of the strikes have been mixed. The Houthis were driven from Aden but the fight for Sana’a is far from over.

  And while the Saudis and the Houthis battle it out, ISIS and al-Qaeda are doing what they do best: finding opportunities amid the chaos. Just today for instance, ISIS claimed responsibility for a car bomb that exploded outside of Hadi’s residence in Aden. Hadi was unharmed but six people were killed in the attack.

  As you might recall, the Saudis have a rather checkered human rights record. Earlier this month, the kingdom carried out its largest mass execution in 25 years, killing 47 in what Riyadh pitched as a crackdown on “terrorists.”

  That rather blatant disregard for human life has carried over into the air campaign in Yemen.

  As we’ve documented extensively, Riyadh’s warplanes have “accidentally” hit everything from MSF hospitals to wedding parties and just last week, we brought you the following footage of what Yemen Health Ministry spokesman Dr. Nashwan Attab called a “heinous massacre” involving an ambulance and rescue workers.

  Now, a 51-page report from a UN panel of experts on Yemen has revealed “widespread and systematic” attacks on civilian targets by Saudi planes.

  The report (which was obtained by The Guardian) says the following: 

  “The panel documented that the coalition had conducted airstrikes targeting civilians and civilian objects, in violation of international humanitarian law, including camps for internally displaced persons and refugees; civilian gatherings, including weddings; civilian vehicles, including buses; civilian residential areas; medical facilities; schools; mosques; markets, factories and food storage warehouses; and other essential civilian infrastructure, such as the airport in Sana’a, the port in Hudaydah and domestic transit routes.”

   

  “The panel documented 119 coalition sorties relating to violations of international humanitarian law.”

  And it gets worse:

  “Many attacks involved multiple airstrikes on multiple civilian objects. Of the 119 sorties, the panel identified 146 targeted objects. The panel also documented three alleged cases of civilians fleeing residential bombings and being chased and shot at by helicopters.”

  And worse:

  The coalition’s targeting of civilians through airstrikes, either by bombing residential neighbourhoods or by treating the entire cities of Sa’dah and Maran as military targets, is a grave violation of the principles of distinction, proportionality and precaution. In certain cases, the panel found such violations to have been conducted in a widespread and systematic manner.”

  And worse:

  “Alongside ground-led obstructions to humanitarian distribution, the panel documented 10 coalition airstrikes on transportation routes (both sea and air routes), four road supply routes and five storage facilities for holding food aid (including two vehicles carrying aid and three warehouses and facilities storing food), along with airstrikes on an Oxfam warehouse storing equipment for a water project funded by the European Union in Sana’a. The panel also documented three coalition attacks on local food and agricultural production sites.”

  So let’s see if we’ve got this straight. Over the course of 119 discrete sorties, Saudi Arabi bombed refugee camps, weddings, civilian cars, buses, people’s homes, hospitals, schools, mosques, residential neighborhoods, an Oxfam warehouse, treated “entire cities as military targets,” and chased after fleeing civilians with attack helicopters.

  Not to put too fine a point on it, but that’s laughably bad – it’s just about the most egregious account of human rights abuses one could possibly imagine. 

  “Human rights groups and the Labour leader, Jeremy Corbyn – who described the leaked report as disturbing – called for an immediate inquiry and a suspension of arms sales to Saudi pending its outcome,” The Guardian notes, adding that “UK arms sales to Saudi Arabia totalled £2.95bn for the first nine months of 2015, and about £7bn since Cameron took office, including a contract for 72 Eurofighter Typhoon jets.”

  

  Of course it’s not just Britain arming the Saudis. 

  In December, the US State Department approved $1.29 billion in arms sals to Riyadh including 13,000 precision guided weapons. 

  According to the kingdom, those weapons will help the Saudis avoid collateral damage. “We used precision bombs in the beginning, but the stocks dwindled and we got no resupply,” NPR quotes a Saudi businessman with links to the royal family as saying. “We know we have a problem, but we must prosecute the war.”

  “You can imagine them saying to everybody that is criticizing them, ‘Look, if we have better weapons, there will be less casualties,’ ” Ford M. Fraker, president of the Middle East Policy Council and a former U.S. ambassador to Saudi Arabia, said last month. “I think that is probably correct, but I think the whole issue of [collateral damage] is not one you are going to eradicate.”

  No it isn’t. Especially not when the Saudis are shooting at civilians.

  

  

  

  

  

• Deutsche Bank Eliminates Management Bonuses After "Horrible," "Grim" Results

  “These are extremely poor results,” Citi’s Andrew Coombs wrote last week after Deutsche Bank CEO John Cryan announced a “sobering” set of numbers for 2015.

  By “sobering,” Cryan meant a net loss of more than $7 billion. It was the first annual loss since the crisis and was capped off by a Q4 loss of €2.1 billion which included €1.2 billion in litigation fees.

  Revenues missed estimates by 11% and fell 16% Y/Y but that in and of itself “fails to explain €0.7bn of the underlying miss,” Citi’s Coombs continued.”It would appear that the bank has also been forced to book elevated credit losses during the quarter.”

  Citi is also looking for some €3.6 billion in additional litigation charges this year.

  On Thursday we got a look at the full results for Q4 and the picture is, well, quite ugly.

  Investment banking was a nightmare, as revenues plunged 30% in corporate banking and securities where provisions for credit losses jumped from just $9 million in Q4 2014 to $115 million. For the year, provisions rose to $265 million versus $103 million for 2014. Deutsche blamed “valuation adjustments in Debt Sales & Trading, a challenging trading environment, and lower client activity” for the decline in revenues. Fixed income and equities revenue fell 16% and 28% during the period, respectively.

  

  “Another pressing question is if the Deutsche investment bank model is in structural decline,” Citi’s Coombs wrote today, after parsing the results. “FICC was down -8% yoy in 4Q15 (vs US peers +4% yoy) [and while] management argues there is no structural deterioration, this remains to be seen.”

  BofAML’s Richard Thomas called the trading numbers “horrible” and the overall results “grim.” “We think that the bank is in for another difficult year in that guidance is that ‘2016 peak restructuring year’,” Thomas said, adding that “it looks like revenues are under a lot of pressure, yet adjusted costs are guided to be flat with another €1bn of restructuring costs.”

  
  

  “In fairness to John Cryan, he signaled that re-orientating the investment bank will have a revenue impact so we shouldn’t be too surprised about that,” Neil Smith, an analyst at Bankhaus Lampe with a buy recommendation on the stock told Bloomberg.

  For his part, John Cryan is sorry both for the performance and for himself because as it turns out, he won’t be getting a bonus and neither will the rest of the firm’s top management. 

  “It would be inappropriate vis-à-vis society to post €5.2bn in legal provisions in one year and not reflect that in compensation, particularly when the share price has fallen, and shareholders have suffered,” he said, explaining why members of the management team will not receive bonuses for 2015. “By and large, I think we are underpaying against our international peer group this year and I hope that many staff understand why.”

  We’re sure they understand why. The results are terrible. How long the staff will stay if they aren’t getting paid is another matter entirely. 

  “Although no one wants to contribute to leading a company when the cost of joining the management board is a diminution in possible compensation, in the context of the overall performance of the bank last year . . . that’s a decision which I respect,” Cryan added.

  Deutsche said litigation costs would be “less than 2015,” which isn’t saying much given that the bank shelled out some €5.2 billion last year paying for the shenanigans of years past. 

  As for whether the bank will ultimately have to raise capital, Citi says that’s a distinct possibility. Here’s why:

  We view the leverage ratio as the binding capital constraint for Deutsche. The current 3.5% is well below peers and the company’s own 4.5% target. Post restructuring & litigation charges and a Postbank divestment at 0.6x P/TB, we estimate a pro-forma leverage ratio of c3.3%. This implies a c€15bn shortfall, of which we expect part to be met by underlying retained earnings and part via AT1 issuance. However this still leaves an equity shortfall – we see a c4% leverage ratio by end-2017 – which is likely to necessitate a capital increase of up to €7bn in our view. In addition we note the target CET1 ratio of >12.5% only allows for a 0.25% management buffer above the fully-loaded SREP requirement. This provides the company with limited flexibility especially if BaFin were to introduce a counter-cyclical buffer (max 2.5% add-on).

  So as it turns out, it’s much harder to turn a profit when you stop cheating as much and when you are forced to fork over billions for all of the cheating you used to do.

  It certainly looks as though Cryan’s bid to overhaul the investment banking side may be far too little far too late, so don’t be surprised to see the equity trading in the single digits by year end.

  Oh, and about that dividend; Cryan says it’s not coming back until 2017 “at the earliest.”

  

  

  

  

  

• For Amazon, The Only Chart That Matters

  For all the traders and hedge fund managers who are under 30, Amazon has been here before, and not just once: a place where the company’s growth prospects – perceived as virtually boundless – were put into question, leading to a collapse in the soaring stock price.

  Indicatively, putting the company’s “valuation” in context, AMZN is now trading at a PE of roughly 460x, which compares to 87x during the last peak in the summer of 2008.

  But what matters for Amazon has never been earnings: it was always top line growth (the company generated $107 billion in sales in 2015 and less than a billion in net income) and multiple expansion (or contraction).

  Putting all that together we get the following chart courtesy of IceFarm Capital: 16 years of sales growth since the first dot com bubble superimposed on top of AMZN’s multiple expansion (or contraction). In the latest quarter, worldwide net sales growth once again took a leg lower despite AMZN now employing over a quarter million workers!

  But the real question is what will the market do: will it continue giving AMZN’s multiple the benefit of the doubt, and let it grow at its recent torrid pace – a pace we have seen many times before – or will the market sniff out that as a result of the global growth slowdown the time to exit has arrived, and lead to an outcome we have also seen many times before, when AMZN’s multiple growth suddenly went into reverse sending the stock price plunging as a result.

  If the answer is yes, watch out below.

  

  

  

  

  

  

• Gold, Political Instability, & Why QE Was The Worst Thing In The World

  Submitted by Jared Dillian via The 10th Man, MauldinEconomics.com,

  Long before I started writing for Mauldin Economics, I was a gold bull.

  A mega-gold bull.

  This started in 2005. I was making markets in ETFs at the time, and as head of the ETF desk at Lehman Brothers, I signed the firm up to be one of the early authorized participants in the SPDR Gold Shares fund (GLD). I was pretty excited.

  It may seem quaint now, but at the time, there really wasn’t an easy way to invest in gold outside of coins or bars (high transaction costs, cumbersome) or futures (high barriers to entry). Physical gold, of course, is preferable, but you can’t really trade it, per se.

  So I bought some GLD in 2005, bought more, bought more, bought more in 2008 with veins popping out of my neck, and was caught massively long in 2011.

  I figured, oh well, it’s just a correction, I’ll ride it out. Except I didn’t know that it was going to be a 40+% drawdown and last five years. If I’d had that knowledge, I probably would have sold.

  But my investment thesis on gold hadn’t changed.

  Let me explain.

  Why Gold

  When the financial system was melting down in 2008, I predicted (possibly before anyone else) that Ben Bernanke would conduct unconventional monetary policy: quantitative easing. In retrospect, it wasn’t a hard call. He basically said he was going to do it in a 2002 speech.

  I remember the day. The long bond rallied nine handles.

  Anyway, that’s when the veins popped out of my neck, because I said all this printed money was going to slosh around the financial system and cause hyperinflation. Of course, I wasn’t the only one saying this, but I was saying it pretty loudly.

  Never happened. All that money never ended up sloshing around—it ended up deposited as excess reserves back at the Fed. Years later, people theorized that quantitative easing actually caused the opposite to happen: deflation.

  Anyhow, in finance, it is okay to be right for the wrong reasons. Gold went up for three more years, the best-performing asset class, even though the underlying thesis was totally wrong. There was no inflation whatsoever. Eventually, gold got the joke as sentiment turned, and you know what the last five years have been like.

  The Weimar Experience

  When the gold bugs start talking about hyperinflation, they usually start talking about Weimar Germany, probably the best-documented example of a situation where inflationary psychology took hold.

  I don’t want to rehash the whole story here, but basically, post WWI, the League of Nations saddled Germany with a bunch of war reparations it could not possibly ever repay. In the end, though, Germany did repay—with printed money.

  The funny thing about inflation is that it is always fun at first. Weimar Germany boomed for a couple of years, before the inflation began to get out of control. Ultimately, the deutsche mark collapsed, replaced by the rentenmark, which was actually backed by something of tangible value: land.

  The ensuing financial collapse brought about political instability, which led to the rise of Hitler, and you know the story from there.

  Now, clearly that hasn’t happened in the US, and it isn’t likely to happen. We did not get inflation… of goods and services. Interestingly, though, we got inflation of financial asset prices. Stocks and bonds went up, as well as real estate—even art. Great, but as you know, not everybody owns stocks, usually only people with some money to invest.

  So as all the research shows, the rich have gotten richer, and the poor have gotten poorer. Inequality has increased massively, which has brought about political instability, which will lead to… who, as president, exactly?

  Perish the thought.

  Anyway, whether gold goes up or down, I continue to assert that printing money is absolutely the worst thing a central bank can do. Even under the best of circumstances, the unintended consequences are colossally bad. Even now, the Fed is just getting around to acknowledging the fact that QE might have actually caused wealth inequality.

  There are those who will always say, “What, was the Fed supposed to do nothing? What do you think would have happened?”

  An unimaginably bad depression. Then, the best recovery ever. And nobody would be mad at each other.

  Gold Is Bouncing

  You can’t deny the price action. Over the last few weeks, it is positively buoyant. If I were short, my butt cheeks would be tightening up.

  I’m starting to develop a theory, which is crazy, but then again… it might not be entirely crazy. You can help me decide.

  Maybe gold is starting to price in some of this political instability. Maybe it is starting to price in a Sanders or Trump presidency.

  After all, if Bernie Sanders were to become president, he would double the debt overnight

   

  If it were Trump, probably the same thing—we are talking about a guy who has spent his entire career screwing creditors.

  This increases the possibility, however remote, of debt monetization. Also, populists are great for gold prices.

  Like I said, maybe not so crazy. Regardless of whether gold goes up or down, or if you think gold bugs are total idiots, it makes sense (for a lot of portfolio theory reasons) to have it as part of your portfolio.

  Sometimes a bigger part than others.

  

  

  

  

  

• Saudi Arabia Hemorrhages $19.4 Billion In Reserves During December

  Saudi Arabia – which was busy playing headline hockey with Russia this morning over a rumored 5% production cut proposal – is running out of money.

  Yes, we know, that sounds absurd. But believe it or not, the country whose monarch recently rented the entire Four Seasons hotel for a 48 hour stay in Washington DC, is in fact going broke. And at a fairly rapid clip.

  The problem: slumping crude. As we first discussed in November of 2014, Riyadh’s move to kill the fabled petrodollar in an effort to bankrupt the US shale complex was a risky proposition. If ZIRP kept US producers in the game longer than the Saudis anticipated, crashing crude could end up blowing a hole in the kingdom’s budget – especially if Iranian supply came back on line and added to the supply glut.

  Fast forward a 14 months and that’s exactly what’s happened. US production is down but not wholly out (yet) and the Iranians are adding 500,000 barrels per day in output in Q1 and 100,000,000 per day by the end of the year.

  Compounding the problem is the war in Yemen (which will enter its second year this March) and the cost of providing subsidies for everyday Saudis.

  All of this has conspired to leave Riyadh with a budget deficit of 16%. That’s expected to narrow in 2016 but at 13%, will still be quite large. Make no mistake, if crude continues to sell for between $30 and $35 per barrel, 13% will probably prove to be a rather conservative estimate.

  “This is a quantum leap in all aspects,” Abdullatif al-Othman, governor of the Saudi Arabian General Investment Authority, told a conference convened this week to study ways for the kingdom to cut spending and shore up the budget. Here’s Reuters:

  Stakes in the operations of big state companies, including national oil giant Saudi Aramco, would be sold off; underused assets owned by the government, such as vast land holdings and mineral deposits, would be made available for development.

   

  Parts of the government itself, including some areas of the national health care system, would be converted into independent commercial companies to improve efficiency and reduce the financial burden on the state. The number of privately run schools would rise to around 25 percent from 14 percent.

   

  Meanwhile, the government would use its massive financial resources to help diversify the economy beyond oil into sectors such as shipbuilding, information technology and tourism, by awarding contracts to new firms and providing finance.

   

  Fadl al-Boainain, a prominent Saudi private-sector economist who attended the conference, said he welcomed officials’ emphasis on developing parts of the economy that had long been neglected because of the focus on oil.

   

  But he added: “The overall economic situation does not support the great optimism that ministers expressed, and it does not support the indicators they referred to.

  Meanwhile, the market is betting that the pressure will ultimately force the Saudis to abandon the riyal peg. Keeping the currency tethered to the dollar is yet another drag on the country’s finances and all in all, the kingdom saw its FX reserve war chest dwindle by more than $100 billion through November.

  That’s what we mean when we say the monarchy is going broke.

  In December, the bleeding continued unabated. Data out today from SAMA shows the Saudis blew through some $19.4 billion last month, as the war chest shrank to $608 billion. 

  

  Thanks to the fact that the composition of the SAMA piggybank is a state secret, we don’t know how much of the drawdown was USTs, but it’s safe to say some US paper was sold.

  As a reminder, the IMF estimates that if current market conditions persist, the kingdom will have burned through the entirety of their rainy day fund within just five years. 

  Here’s BofAML’s analysis of the SAMA stash and how long Riyadh can hold out under various assumptions for crude prices and borrowing.

  

  So even as the Saudis swear the headlines surrounding a proposed 5% production cut are bogus and even if Riyadh managed to weather the storm slightly better in 2015 than some predicted, the kingdom effectively has two choices: 1) cut production, or 2) drop the riyal peg. 

  Otherwise, King Salman won’t be able to tap SAMA for the money he needs to rent Mercedes S600 fleets – and we can’t have that…

  

  

  

  

  

  

• Moronic Mimicking Minds

  A picture story in four parts from the Slope of Hope:  

   

   

  

   

  

  

  

  

  

  

• Red Ponzi Ticking

  Submitted by David Stockman via Contra Corner blog,

  There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula——even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations.

  In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.

  The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington presumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition. That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption.

  Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel.

  So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything.  It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.

  And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century.

  In fact, China is the rotten epicenter of the world’s two decade long plunge into an immense central bank fostered monetary fraud and credit explosion that has deformed and destabilized the very warp and woof of the global economy.

  But in China the financial madness has gone to a unfathomable extreme because in the early 1990s a desperate oligarchy of despots who ruled with machine guns discovered a better means to stay in power. That is, the printing press in the basement of the PBOC—-and just in the nick of time (for them).

  Print they did. Buying in dollars, euros and other currencies hand-over-fist in order to peg their own money and lubricate Mr. Deng’s export factories, the PBOC expanded its balance sheet from $40 billion to $4 trillion during the course of a mere two decades. There is nothing like that in the history of central banking—–nor even in economists’ most febrile imagings about its possibilities.

  

  The PBOC’s red hot printing press, in turn, emitted high-powered credit fuel. In the mid-1990s China had about $500 billion of public and private credit outstanding—hardly 1.0X its rickety GDP. Today that number is $30 trillion or even more.

  Yet nothing in this economic world, or the next, can grow at 60X in only 20 years and live to tell about it. Most especially, not in a system built on a tissue of top-down edicts, illusions, lies and impossibilities, and which sports not even a semblance of financial discipline, political accountability or free public speech.

  To wit, China is a witches brew of Keynes and Lenin. It’s the financial tempest which will slam the world’s great bloated edifice of central bank fostered faux prosperity.

  So the right approach to the horrible danger at hand is not to dissect the pronouncements of Beijing in the manner of the old kremlinologists. The occupants of the latter were destined to fail in the long run, but they at least knew what they were doing tactically in the here and now; it was worth the time to parse their word clouds and seating arrangements at state parades.

  By contrast, and not to mix a metaphor, the Red Suzerains of Beijing have built a Potemkin Village. But they actually believe its real because they do not have even a passing acquaintanceship with the requisites and routines of a real capitalist economy.

  Ever since the aging oligarch(s) who run China were delivered from Mao’s hideous dystopia by Mr. Deng’s chance discovery of printing press prosperity, they have lived in an ever expanding bubble that is so economically unreal that it would make the Truman Show envious. Any rulers with even a modicum of economic literacy would have recognized long ago that the Chinese economy is booby-trapped everywhere with waste, excess and unsustainability.

  Here is but one example. Somewhere near Shanghai some credit-crazed developers built a replica of the Pentagon on 100 acres of land. This was not intended as a build-to-lease deal with the  PLA (People’s Liberation Army); its a shopping mall that apparently has no tenants and no customers!

  

  One of the more accurate things I have ever said is that the USA’s Pentagon was built on a swampland of waste. That is, I do take my anti-statist viewpoint seriously and therefore firmly believe that the Warfare State is every bit as prone to mission creep and the prodigious waste of societal resources as is the Welfare State and the bailout breeding backrooms of Washington.

  But our Pentagon at least has a public purpose and would return some benefit to society were its mission to be shrunk to honestly defending the homeland. By contrast, China’s “Pentagon” gives waste an altogether new definition.

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

  Accordingly, the outward forms of capitalism are belied by the substance of statist control and central planning. For example, there is no legitimate banking system in China—just giant state bureaus which are effectively run by party operatives.

  Their modus operandi amounts to parceling out quotas for national GDP and credit growth from the top, and then water-falling them down a vast chain of command to the counties, townships and villages below. There have never been any legitimate financial prices in China—all interest rates and FX rates have been pegged and regulated to the decimal point; nor has there ever been any honest financial accounting either—-loans have been perpetual options to extend and pretend.

  And, needless to say, there is no system of financial discipline based on contract law. China’s GDP has grown by $10 trillion dollars during this century alone——-that is, there has been a boom across the land that makes the California gold rush appear pastoral by comparison.

  Yet in all that frenzied prospecting there have been almost no mistakes, busted camps, empty pans or even personal bankruptcies.  When something has occasionally gone wrong with an “investment” the prospectors have gathered in noisy crowds on the streets and pounded their pans for relief—-a courtesy that the regime has invariably granted.

  Indeed, the Red Ponzi makes Wall Street look like an ethical improvement society. Developers there built an entire $50 billion replica of Manhattan Island near the port city of Tianjin—– complete with its own Rockefeller Center and Twin Towers—– but have neglected to tell investors that no one lives there. Not even bankers!

   

  

  

  Stated differently, even at the peak of recent financial bubbles in London, NYC, Miami or Houston  they did not build such monuments to sheer economic waste and capital destruction. But just consider the case of China’s mammoth steel industry.

  It grew from about 70 million tons of production in the early 1990s to 825 million tons in 2014. Beyond that, it is the capacity build-out behind the chart below which tells the full story.

  To wit, Beijing’s tsunami of cheap credit enabled China’s state-owned steel companies to build new capacity at an even more fevered pace than the breakneck growth of annual production. Consequently, annual crude steel capacity now stands at nearly 1.2 billion tons, and nearly all of that capacity—-about 65% of the world total—— was built in the last ten years.

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

  

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

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

  The fact is, China will be lucky to have 500 million tons of true sell-through demand—-that is, on-going domestic demand for sheet steel to go into cars and appliances and for rebar and structural steel to be used in replacement construction once the current one-time building binge finally expires. That’s just 40% of its massive capacity investment.

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

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

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

   

  

   

  Total orders at Chinese shipyards tumbled 59 percent during  2015, according to data released by the China Association of the National Shipbuilding, meaning that demand for plate steel from China’s mills will plunge in the years ahead.

  That’s why on Sunday the Beijing State Council made a rather remarkable announcement. To wit, it will close 100 million to 150 million tons of steel-making capacity. That would mean cutting capacity by an amount similar to the total annual steel output of Japan, the world’s No. 2 steel maker, and nearly double that of the US.

  These are not simply gee whiz comparisons. It took the fastidious Japanese nearly five decades to erect the world’s leading steel industry on the back of tens of thousands of step-by-step engineering and operational improvements. China created the same tonnage each and every year after the financial crisis, but it was all based just on a great field of dreams exercise in pell mell expansion. Efficiency. longevity and steel-making technique were hardly an afterthought.

  Nor is its own tail the only loss of market. Even more  fantastic than steel has been the growth of China’s auto production capacity. In 1994, China produced about 1.4 million units of what were bare bones communist era cars and trucks. Last year it produced more than 23 million mostly western style vehicles or 16X more.

  And, yes, that wasn’t the half of it. China has gone nuts building auto plants and distribution infrastructure. It is currently estimated to have upwards of 33 million units of vehicle production capacity. But  demand has actually rolled over this year and will continue heading lower after temporary government tax gimmicks—– that are simply pulling forward future sales—–expire.

  The more important point, however, is that as the China credit Ponzi grinds to a halt, it will not be building new auto capacity for years to come. It is now drowning in excess capacity, and as prices and profits plunge in the years ahead the auto industry CapEx spigot will be slammed shut, too.

  Needless to say, this not only means that consumption of structural steel and rebar for new auto plants will plunge. It also will result in a drastic reduction in demand for the sophisticated German machine tools and automation equipment needed to actually build cars.

  Stated differently, the CapEx depression already underway in China, Australia, Brazil and much of the EM will ricochet across the global economy. Cheap credit and mispriced capital are truly the father of a thousand economic sins.

  China’s construction infrastructure, for example, is grotesquely overbuilt—— from cement kilns, to construction equipment manufacturers and distributors, to sand and gravel movers, to construction site vendors of every stripe. For crying out loud, in three recent year China used more cement than did the United States during the entire 20th century!

  That is not indicative of a just a giddy boom; its evidence of a system that has gone mad digging, hauling, staging and constructing because there was unlimited credit available to finance the outpouring of China’s runaway construction machine.

   

  

  The same is true for its machinery, solar and aluminum industries—to say nothing of 70 million empty luxury apartments and vast stretches of over-built highways, fast rail, airports, shopping mails and new cities.

  In short, the flip-side of the China’s giant credit bubble is the most massive malinvesment of real economic resources—-labor, raw materials and capital goods—ever known. Effectively, the country-side pig sties have been piled high with copper inventories and the urban neighborhoods with glass, cement and rebar erections that can’t possibly earn an economic return, but all of which has become “collateral” for even more “loans” under the Chinese Ponzi.

  China has been on a wild tear heading straight for the economic edge of the planet—-that is, monetary Terra Incognito— based on the circular principle of borrowing, building and borrowing. In essence, it is a giant re-hypothecation scheme where every man’s “debt” become the next man’s “asset”.

  Thus, local government’s have meager incomes, but vastly bloated debts based on the collateral of stupendously over-valued inventories of land—-valuations which were established by earlier debt financed sales to developers.

  Likewise, coal mine entrepreneurs face not only collapsing prices and revenues, but also soaring double digit interest rates on shadow banking loans collateralized by over-valued coal reserves. Shipyards have empty order books, but vast debts collateralized by soon to be idle construction bays. Speculators have collateralized massive stock piles of copper and iron ore at prices that are already becoming ancient history.

  So China is on the cusp of the greatest margin call in history. Once asset values start falling, its pyramids of debt will stand exposed to withering performance failures and melt-downs. Undoubtedly the regime will struggle to keep its printing press prosperity alive for another month or quarter, but the fractures are now gathering everywhere because the credit rampage has been too extreme and hideous.

  It is downright foolish, therefore, to claim that the US economy is decoupled from China and the rest of the world. In fact, it is inextricably bound to the global financial bubble and its leading edge in the form of red capitalism.

  Bubblevision’s endlessly repeated mantra that China doesn’t matter because it only accounts for only 1% of US exports is a non sequitir. It does not require astute observation to recognize that Caterpillar did not export its giant mining equipment just to China; massive amounts of it went there indirectly by way of Australia’s booming iron ore provinces.

  That is, until the global CapEx bust was triggered by two years of crumbling commodity prices. CAT’s monthly retail sales reports are a slow motion record of this unprecedented crash.

  Thus, December US retail sales tumbled 10% over last year, following a 5% drop in November. But that was the optimistic part of its global results. Elsewhere December sales by its dealers were a complete debacle: The Asia/Pacific/China region was down by 21%; EAME dropped by 12%; and Latin America (i.e. Brazil) continued its free fall, dropping by 36% versus prior year.

  

  Overall, CAT’s global retail sales posted a massive 16% drop in December compared to prior year—–a result tied for the worst annual decline since the financial crisis. And that comes on top of the 12% decline a year ago, another 9% in 2013, and -1% in 2012.

  Moreover, four consecutive years of declines is not simply a CAT market share or product cycle matter. Its major Asian rivals have experienced even larger sales declines. Komatsu is down, for example, by 80% from its peak sales levels.

  In the heavy machinery sector, therefore, the global CapEx depression is already well underway. There has been nothing comparable to this persisting plunge since the 1930s.

  Likewise, the US did not export oil to China, but China’s vast, credit-inflated demand on the world market did artificially lift world oil prices above $100 per barrel, thereby touching off the US shale boom that is now crashing in Texas, North Dakota, Oklahoma and three other states. And the fact is, every net new job created in the US since 2008 is actually in these same six shale states.

  Indeed, the rot that was introduced into the global economy by the world’s convoy of money printing central banks extends into nearly unimaginable places, owing to the false bubble prices for crude oil and other raw materials that were temporarily inflated by the global credit boom. Thus, the 5.6X explosion of global credit shown below had everything to do with the aberration of $100 per barrel oil and all the malinvestments and whacky distortions it spawned in places which harvested the windfall rents.

  

  To wit, Iraq is now so broke——–notwithstanding a 33% increase in oil exports last year——that it is petitioning the IMF for a bailout. Yet as recently as a year ago plans were proceeding apace to build the world tallest building at its oil country center at Basra.

  That right. The “Pride of the Gulf” now has tin cup in hand and is heading for an IMF rescue. The monstrosity below will likely never be built, but it does succinctly symbolize the trillions that have been wasted around the world by lucky reserve owning companies and countries during the false boom that emanated from the Red Ponzi.

  

  The planned “Bride of the Gulf” building in Basra. At a height of 1,152 meters, it would outdistance even the Jeddah Tower being built in Saudi Arabia.

  Similarly, US exports to Europe have tripled to nearly $1 trillion annually since 1998, while European exports to China have more than quintupled. Might there possibly be some linkages?

  In short, there is an economic and financial trainwreck rumbling through the world economy called the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles.

  Forget the orderly transition myth. What happens when the iron ore ports go quiet, the massive copper stock piles on the pig farms are liquidated, the coal country turns desolate, the cement trucks are parked in endless rows, the giant steel furnaces are banked, huge car plants are idled and tens of billions of bribes emitted by the building boom dry up?

  What happens is that giant economic cavities open up throughout the length and breadth of the Red Ponzi.

  Industrial profits as a whole are already down 5% on a year over year basis, but in the leading sectors have already turned into read ink. In a few quarters China’s business sector, in fact, will be in the throes of a massive profits contraction and crisis.

  Likewise, tens of millions of high paying jobs, and the consumer spending power they financed, will vanish. Also, the value of 70 million empty apartment units that had been preposterously kept vacant as a distorted form of investment speculation will plunge in value, wiping out a huge chunk of the so-called savings of China’s newly emergent affluent classes.

  So where are all the consumers of services supposed to come from? After peak debt and the crash of China’s vast malinvestments, there will be no surplus income to recycle.

  Most importantly, as the post-boom economic cavities spread in cancer like fashion and the crescendo of financial turmoil intensifies, the credibility of the regime will be thoroughly undermined. Capital flight will become an unstoppable tidal wave as the people watch Beijing  lurch from one make-do fix and gimmick to the next, as they have during the stock market fiasco of the past two years.

  In short, China will eventually crash into economic and civil disorder when the Red Suzerains go full retard with governance by paddy wagons, show trials, brutal suppression of public dissent and a return to Chairman Mao’s gun barrel as the ultimate source of communist party power.

  Self-evidently, the Maoist form of rule did not work. But what is now becoming evident is that Mr.. Deng’s printing press has a “sell by” date, too.

  

  

  

  

  

• This $250,000 Caterpillar Bulldozer Can Be Yours For The Low, Low Price Of $55

  After today’s CAT earnings, in which the company not only announced a steep drop in revenues, profits and cash flow but also obliterated its guidance, cutting the midpoint of the 2016 revenue range (set just three months ago) from $45.5 billion to $42 bilion, it should have become clear to everyone just how bad the company’s income statement is.

  But what about its balance sheet and specifically that $10 billion in inventory? We got a glimpse back in November when we showed how at an auction in Australia, CAT loaders, excavators and tractors, with MSRPs in the millions, were selling for sub-pennies on the dollar, or as low as $15,000 for a machine that was originally sold for $2.9 million.

  The post quickly went viral and while many readers were impressed by the collapse in demand (as reflected by the auction prices) for CAT equipment, some wished they too could participate in the bidding process: after all, what better way to make an impression on one’s neighbors than to take a leisurely stroll down the street in a bulldozer, especially if its costs virtually nothing.

  To all readers who wrote us complaining about this, you are in luck.

  Below we present a Caterpillar D6T Bulldozer, a machine which has a “new” MSRP of over a million dollars, and which with over 5,000 hours of use, sells through reputable dealer channels, for around $250,000 each.

  

   

  Or, as the case may be, does not sell because while $250,000 is well below the MSRP, it is clearly still too high for that occasional leisurely drive around the neighborhood. Or for any other purpose for that matter.

  But what about $50?

  Because that is what the bid is on the exact same dozer (one which has even less total use, or just 3680 hours) currently offered for sale on Proxibid, where with 20 hours left until the end of the auction, $50 is all someone is willing to spend for this heavy machinery marvel.

  

   

  Here are some more photos of the gorgeous, barely used machine you could be the proud owner of for the low, low price of $55.00

  

  

  

  

  

  

  

  

  

   

  Cherry on top: the high-end audio system comes included in the price.

  

   

  What are the terms of the auction? Well, what you buy is pretty much what you get “as is.” But surely there is a catch, like $249,950 shipping? Well no – you just have to go to Louisiana and pick it up.

  But what if $50 feels too rich for this bulldozer? There is always this $10 Komatsu may be more up your alley.

  

  Perhaps a bulldozer is not what you need: then how about this $110 Volvo excavator?

  

  Or maybe neither a bulldozer nor an excavator is your cup of tea? That’s fine: judging by these (lack of) bids, nobody else has an urge to splurge either.

  Which brings us to our original question: if a bulldozer which retails new for over $1 million, can not sell via official channels For 250,000 and has a true price discovery in the hundreds if not tens of dollars, what does that suggest about i) the true mark on Caterpillar’s $10 billion in Inventory, and ii) the losses that CAT’s banks are starting at if they ever are forced to liquidate the “collateral” that backs their loans?

  Source: Proxibid

  

  

  

  

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• Circus Politics: Will Our Freedoms Survive Another Presidential Election?

  Submitted by John Whitehead via The Rutherford Institute,

  “Never has our future been more unpredictable, never have we depended so much on political forces that cannot be trusted to follow the rules of common sense and self-interest—forces that look like sheer insanity, if judged by the standards of other centuries.” ? Hannah Arendt, The Origins of Totalitarianism

  Adding yet another layer of farce to an already comical spectacle, the 2016 presidential election has been given its own reality show. Presented by Showtime, The Circus: Inside the Greatest Political Show on Earth will follow the various presidential candidates from now until Election Day.

  As if we need any more proof that politics in America has been reduced to a three-ring circus complete with carnival barkers, acrobats, contortionists, jugglers, lion tamers, animal trainers, tight rope walkers, freaks, strong men, magicians, snake charmers, fire eaters, sword swallowers, knife throwers, ringmasters and clowns.

  Truly, who needs bread and circuses when you have the assortment of clowns and contortionists that are running for the White House?

  No matter who wins the presidential election come November, it’s a sure bet that the losers will be the American people.

  Despite what is taught in school and the propaganda that is peddled by the media, the 2016 presidential election is not a populist election for a representative. Rather, it’s a gathering of shareholders to select the next CEO, a fact reinforced by the nation’s archaic electoral college system.

  Anyone who believes that this election will bring about any real change in how the American government does business is either incredibly naïve, woefully out-of-touch, or oblivious to the fact that as an in-depth Princeton University study shows, we now live in an oligarchy that is “of the rich, by the rich and for the rich.”

  When a country spends close to $5 billion to select what is, for all intents and purposes, a glorified homecoming king or queen to occupy the White House, while 46 million of its people live in poverty, nearly 300,000 Americans are out of work, and more than 500,000 Americans are homeless, that’s a country whose priorities are out of step with the needs of its people.

  As author Noam Chomsky rightly observed, “It is important to bear in mind that political campaigns are designed by the same people who sell toothpaste and cars.”

  In other words, we’re being sold a carefully crafted product by a monied elite who are masters in the art of making the public believe that they need exactly what is being sold to them, whether it’s the latest high-tech gadget, the hottest toy, or the most charismatic politician.

  As political science professor Gene Sharp notes in starker terms, “Dictators are not in the business of allowing elections that could remove them from their thrones.”

  To put it another way, the Establishment—the shadow government and its corporate partners that really run the show, pull the strings and dictate the policies, no matter who occupies the Oval Office—are not going to allow anyone to take office who will unravel their power structures. Those who have attempted to do so in the past have been effectively put out of commission.

  So what is the solution to this blatant display of imperial elitism disguising itself as a populist exercise in representative government?

  Stop playing the game. Stop supporting the system. Stop defending the insanity. Just stop.

  Washington thrives on money, so stop giving them your money. Stop throwing your hard-earned dollars away on politicians and Super PACs who view you as nothing more than a means to an end. There are countless worthy grassroots organizations and nonprofits working in your community to address real needs like injustice, poverty, homelessness, etc. Support them and you’ll see change you really can believe in in your own backyard.

  Politicians depend on votes, so stop giving them your vote unless they have a proven track record of listening to their constituents, abiding by their wishes and working hard to earn and keep their trust.

  Stop buying into the lie that your vote matters. Your vote doesn’t elect a president. Despite the fact that there are 218 million eligible voters in this country (only half of whom actually vote), it is the electoral college, made up of 538 individuals handpicked by the candidates’ respective parties, that actually selects the next president.

  The only thing you’re accomplishing by taking part in the “reassurance ritual” of voting is sustaining the illusion that we have a democratic republic. What we have is a dictatorship, or as political scientists Martin Gilens and Benjamin Page more accurately term it, we are suffering from an “economic élite domination.”

  Of course, we’ve done it to ourselves.

  The American people have a history of choosing bread-and-circus distractions over the tedious work involved in self-government.

  As a result, we have created an environment in which the economic elite (lobbyists, corporations, monied special interest groups) could dominate, rather than insisting that the views and opinions of the masses—“we the people”—dictate national policy. As the Princeton University oligarchy study indicates, our elected officials, especially those in the nation’s capital, represent the interests of the rich and powerful rather than the average citizen. As such, the citizenry has little if any impact on the policies of government.

  We allowed our so-called representatives to distance themselves from us, so much so that we are prohibited from approaching them in public, all the while they enjoy intimate relationships with those who can pay for access—primarily the Wall Street financiers. There are 131 lobbyists to every Senator, reinforcing concerns that the government represents the corporate elite rather than the citizenry.

  We said nothing while our elections were turned into popularity contests populated by individuals better suited to be talk-show hosts rather than intelligent, reasoned debates on issues of domestic and foreign policy by individuals with solid experience, proven track records and tested integrity.

  We turned our backs on things like wisdom, sound judgment, morality and truth, shrugging them off as old-fashioned, only to find ourselves saddled with lying politicians incapable of making fair and impartial decisions.

  We let ourselves be persuaded that those yokels in Washington could do a better job of running this country than we could. It’s not a new problem. As former Senator Joseph S. Clark Jr. acknowledged in a 1955 article titled, “Wanted: Better Politicians”: “[W]e have too much mediocrity in the business of running the government of the country, and it troubles me that this should be so at a time of such complexity and crisis… Government by amateurs, semi-pros, and minor-leaguers will not meet the challenge of our times. We must realize that it takes great competence to run a country which, in spite of itself, has succeeded to world leadership in a time of deadly peril.”

  We indulged our craving for entertainment news at the expense of our need for balanced reporting by a news media committed to asking the hard questions of government officials. The result, as former congressman Jim Leach points out, leaves us at a grave disadvantage: “At a time when in-depth analysis of the issues of the day has never been more important, quality journalism has been jeopardized by financial considerations and undercut by purveyors of ideology who facilely design news, like clothes, to appeal to a market segment.”

  We bought into the fairytale that politicians are saviors, capable of fixing what’s wrong with our communities and our lives, when in fact, most politicians lead such sheltered lives that they have no clue about what their constituents must do to make ends meet. As political scientists Morris Fiorina and Samuel Abrams conclude, “In America today, there is a disconnect between an unrepresentative political class and the citizenry it purports to represent. The political process today not only is less representative than it was a generation ago and less supported by the citizenry, but the outcomes of that process are at a minimum no better.”

  We let ourselves be saddled with a two-party system and fooled into believing that there’s a difference between the Republicans and Democrats, when in fact, the two parties are exactly the same. As one commentator noted, both parties support endless war, engage in out-of-control spending, ignore the citizenry’s basic rights, have no respect for the rule of law, are bought and paid for by Big Business, care most about their own power, and have a long record of expanding government and shrinking liberty.

  Then, when faced with the prospect of voting for the lesser of two evils, many simply compromise their principles and overlook the fact that the lesser of two evils is still evil.

  Perhaps worst of all, we allowed the cynicism of our age and the cronyism and corruption of Beltway politics to discourage us from believing that there was any hope for the American experiment in liberty.

  Granted, it’s easy to become discouraged about the state of our nation. We’re drowning under the weight of too much debt, too many wars, too much power in the hands of a centralized government, too many militarized police, too many laws, too many lobbyists, and generally too much bad news.

  It’s harder to believe that change is possible, that the system can be reformed, that politicians can be principled, that courts can be just, that good can overcome evil, and that freedom will prevail.

  So where does that leave us?

  Benjamin Franklin provided the answer. As the delegates to the Constitutional Convention trudged out of Independence Hall on September 17, 1787, an anxious woman in the crowd waiting at the entrance inquired of Franklin, “Well, Doctor, what have we got, a republic or a monarchy?” “A republic,” Franklin replied, “if you can keep it.”

  What Franklin meant, of course, is that when all is said and done, we get the government we deserve.

  A healthy, representative government is hard work. It takes a citizenry that is informed about the issues, educated about how the government operates, and willing to make the sacrifices necessary to stay involved, whether that means forgoing Monday night football in order to attend a city council meeting or risking arrest by picketing in front of a politician’s office.

  Most of all, it takes a citizenry willing to do more than grouse and complain.

  We must act—and act responsibly—keeping in mind that the duties of citizenship extend beyond the act of voting.

  The powers-that-be want us to believe that our job as citizens begins and ends on Election Day. They want us to believe that we have no right to complain about the state of the nation unless we’ve cast our vote one way or the other. They want us to remain divided over politics, hostile to those with whom we disagree politically, and intolerant of anyone or anything whose solutions to what ails this country differ from our own.

  What they don’t want us talking about is the fact that the government is corrupt, the system is rigged, the politicians don’t represent us, the electoral college is a joke, most of the candidates are frauds, and, as I point out in my book Battlefield America: The War on the American People, we as a nation are repeating the mistakes of history—namely, allowing a totalitarian state to reign over us.

  Former concentration camp inmate Hannah Arendt warned against this when she wrote, “No matter what the specifically national tradition or the particular spiritual source of its ideology, totalitarian government always transformed classes into masses, supplanted the party system, not by one-party dictatorships, but by mass movement, shifted the center of power from the army to the police, and established a foreign policy openly directed toward world domination.”

  Clearly, “we the people” have a decision to make.

  Do we simply participate in the collapse of the American republic as it degenerates toward a totalitarian regime, or do we take a stand at this moment in history and reject the pathetic excuse for government that is being fobbed off on us?

  

  

  

  

  

• These Stunning Images Depict The Destruction Of Homs, Syria's Third Largest City

  Last week we brought you drone footage from Homs, Syria’s third-largest city.

  The clip was just the latest bit of evidence to support the contention that when the US and its allies seek to bring about regime change in the Mid-East, the results are very often far worse than whatever the political “problem” was in the first place.

  What began a decade ago as a covert effort to usurp the Alawite government by playing on the sectarian divide, mushroomed over the years into an overt effort to overthrow Bashar al-Assad. Now, much like Libya, Syria is a lawless wasteland. Its infrastructure is destroyed. Its people have fled (the ones who are still alive). Its resources have been commandeered by extremists. Its cultural heritage lays in ruin.

  And it’s not over yet.

  With the stakes now higher than ever as the US inserts SpecOps and Russia continues to bombard rebel positions, we wonder if they’ll be anything left of the country by the end of the year. Underscoring the extent of the destruction are the following images, also from Homs.

  Somehow we doubt the city would bear any resemblance to these indelible visuals were it not for Washington’s support of the “peaceful, democratic resistance.”

  

  

  

  

  

  

  

  
  

  
  

  

  

  

  

• Germany Has Repatriated Over 366 Tonnes Of Gold From New York And Paris

  Submitted by Ronan Manly of BullionStar

  Update on Bundesbank Gold Repatriation 2015

  Deutsche Bundesbank has just released a progress report on its gold bar repatriation programme for 2015 – “Frankfurt becomes Bundesbank’s largest gold storage location“.

  During the calendar year to December 2015, the Bundesbank claims to
  have transported 210 tonnes of gold back to Frankfurt, moving circa 110
  tonnes from Paris to Frankfurt, and just under 100 tonnes from New York
  to Frankfurt.

  As a reminder, the Bundesbank is engaged in an unusual multi-year
  repatriation programme to transport 300 tonnes of gold back to Frankfurt
  from the vaults of the Federal Reserve Bank of New York (FRBNY), and
  simultaneously to bring back 374 tonnes of gold back to Frankfurt from
  the vaults of the Banque de France in Paris. This programme began in
  2013 and is scheduled to complete by 2020. I use the word ‘unusual’
  because the Bundesbank could technically transport all 674 tonnes of
  this gold back to Frankfurt in a few weeks or less if it really wanted
  to, so there are undoubtedly some unpublished limitations as to why the
  German central bank has not yet done so.

  

  Given the latest update from the German central bank today, the
  geographic distribution of the Bundesbank gold reserves is now as
  follows, with the largest share of the German gold now being stored
  domestically:

  • 1,347.4 tonnes, or 39.9%, stored in New York;
  • 196.4 tonnes, or 5.8%, stored in Paris;
  • 434.7 tonnes or 12.9% stored at the Bank of England vaults in London;
  • 1402.5 tonnes, or 41.5% now stored domestically by the Bundesbank at its storage vaults in Frankfurt, Germany

  In January 2013, prior to the commencement of the programme, the
  geographical distribution of the Bundesbank gold reserves was 1,536
  tonnes or 45% at the FRBNY, 374 tonnes or 11%, at the Banque de France,
  445 tonnes or 13% at the Bank of England, and 1036 tonnes or 31% in
  Frankfurt.

  The latest moves now mean that over 3 years from January 2013 to
  December 2015, the Bundesbank has retrieved 366 tonnes of gold back to
  home soil (189 tonnes from New York (5 tonnes in 2013, 85 tonnes in
  2014, and between 99-100 tonnes in 2015), as well as 177 tonnes from
  Paris (32 tonnes in 2013, 35 tonnes in 2014, and 110 tonnes in 2015).
  The latest transfers still leave 110 tonnes of gold to shift out of New
  York in the future and 196.4 tonnes to move the short distance from
  Paris to Frankfurt.

  In the first year of operation of the repatriation scheme during
  2013, the Bundesbank transferred a meagre 37 tonnes of gold in total to
  Frankfurt, of which a tiny 5 tonnes came from the FRBNY and only 32
  tonnes from Paris. Whatever those excessive limitations were in 2013,
  they don’t appear to be so constraining now. In 2014, 85 tonnes were let
  out of the FRBNY and 35 tonnes made the trip from Paris. See Koos
  Jansen’s January 2015 blog titled “Germany Repatriated 120 Tonnes Of Gold In 2014” for more details on the 2014 repatriation.

  Those who track the “Federal Reserve Board Foreign Official Assets Held at Federal Reserve Banks” foreign earmarked gold table
  may notice that between January 2015 and November 2015 , circa 4
  million ounces, or 124 tonnes of gold, were withdrawn from FRB gold
  vaults. Given that the Bundesbank claims to have moved 110 tonnes from
  New York during 2015, this implies that there were also other
  non-Bundesbank withdrawals from the FRB during 2015. Unless of course
  other gold was withdrawn from the FRB, shipped to Paris, and then became
  part of the Paris withdrawals for the account of the Bundesbank. The
  FRB will again update its foreign earmarked gold holdings table this
  week with December 2015 withdrawals (if any) which may show an even
  larger non-Bundesbank gold delta for year-end 2015.

  Notably, the latest press release today does not mention whether any
  of the gold withdrawn from the FRBNY was melted down / recast into Good
  Delivery bars. Some readers will recall that the Bundesbank’s updates
  for 2013 and 2014 did refer to such remelting/recasting events.

  Today’s press release does however include some ‘assurances’ from the
  Bundesbank about the authenticity and quality of the returned bars:

  “The Bundesbank assures the identity
  and authenticity of German gold reserves throughout the transfer process
  – from when they are removed from the storage locations abroad until
  they are stored in Frankfurt am Main. Once they arrive in Frankfurt am
  Main, all the transferred gold bars are thoroughly and exhaustively
  inspected and verified by the Bundesbank. When all the inspections of
  transfers to date had been concluded, no irregularities came to light
  with regard to the authenticity, fineness and weight of the bars.”

  But why the need to for such a general comment on the quality of the
  bars while not providing any real details of the bars transferred, their
  serial numbers, their refiner brands, or their years of manufacture?
  Perhaps remelting/recasting of bars was undertaken during 2015 and the
  Bundesbank is now opting for the cautious approach after getting some
  awkward questions last year about these topics – i.e. the Bundesbank’s
  approach may well be “don’t mention recasting / remelting and maybe no
  one will ask”.

   

  Source: Bundesbank

  Limited Hangout

  This bring us to an important point. Beyond the Bundesbank’s
  hype, its important to note that the repatriation information in all of
  the press releases and updates from the Bundesbank since 2013  has
  excluded most of the critical information about the actual gold bars
  being moved. So, for example, in this latest update concerning the 2015
  transport operations, there is no complete bar list (weight list) of the
  bars repatriated, no explanation of the quality of gold transferred and
  whether bars of various purities were involved, no comment on whether
  any bars had to be re-melted and recast, no indication of which
  refineries, if any, were used, and no explanation of why it takes a
  projected 7 years to bring back 300 tonnes of gold that could be flown
  from New York to Frankfurt in a week using a few C-130 US transporter
  carriers.

  There is also no explanation from the Bundesbank as to why these 100
  tonnes of gold were available from New York in 2015 but not available
  during 2014 or 2013, nor why 110 tonnes of gold somehow became available
  in Paris during 2015 when these bars were not available in 2014 or
  2013.

  The crucial questions to ask in my view are where the repatriated
  gold that has so far been supplied to the Bundesbank from New York and
  Paris has been sourced from, what were the refiner brands and years of
  manufacture for the bars, what was the quality (fineness) of the gold,
  and are these bars the same bars that the Bundesbank purchased when it
  accumulated its large stock of gold bars during the 1950s and especially
  the 1960s.

  In essence, all of these updates from Frankfurt could be termed
  ‘limited hangouts’, a term used in the intelligence community, whereby
  the real behind the scenes details are left unmentioned, and questions
  about the real information is invariably left unasked by the mainstream
  media. Overall,  it’s important to realise that the Bundesbank’s
  repatriation updates, press releases, and interviews since 2013 are
  carefully stage-managed, and that the German central bank continually
  dodges genuine but simple questions about its gold reserves and the
  physical gold that is being transported back to Frankfurt.

  For example, in October 2015, the Bundesbank released a partial
  inventory bar list/weight list of it gold holdings. At that time, on 8
  October 2015, I asked the Bundesbank:

  Hello Bundesbank Press Office, 

  Regarding the gold bar list published by the Bundesbank yesterday (07 October https://www.bundesbank.de/Redaktion/EN/Topics/2015/2015_10_07_gold.html), could
  the Bundesbank clarify why the published bar list does not include,for
  each bar, the refiner brand, the bar refinery serial number, and the
  year of manufacture, as per the normal convention for gold bar weight
  lists, and as per the requirements of London Good Delivery (LGD) gold
  bars? 

  Bundesbank bar list:https://www.bundesbank.de/Redaktion/EN/Downloads/Topics/2015_10_07_gold.pdf?__blob=publicationFile 

  From the London Good Delivery Rules, the following attributes are required on LGD bars http://www.lbma.org.uk/good-delivery-rules

  “Marks:   

  Serial number (see additional comments in section 7 of the GDL Rules)    

  Assay stamp of refiner    

  Fineness (to four significant figures)    

  Year of manufacture (see additional comments in section 7 of the GDL Rules)”

   “The marks should include
  the stamp of the refiner (which, if necessary for clear identification,
  should include its location), the assay mark (where used), the fineness,
  the serial number (which must not comprise of more than eleven
  digits or characters) and the year of manufacture as a four digit
  number unless incorporated as the first four digits in the bar number.
  If bar numbers are to be reused each year, then it is strongly
  recommended that the year of production is shown as the first four
  digits of the bar number although a separate four digit year stamp may
  be used in addition. If bar numbers are not to be recycled each year
  then the year of production must be shown as a separate four digit number.”http://www.lbma.org.uk/assets/market/gdl/GD_Rules_15_Final.pdf

  Best Regards, Ronan Manly

   

  The Bundesbank actually sent back two similar replies t the above email:

  Answer 1:

  “Dear Mr Manly, 

  Thank you for your query. Information
  on the refiner and year of production are not relevant for storage or
  accounting purposes, which require the weight data, the fineness and a
  unique number identifying each bar or melt. The Bundesbank has all of this information for each of its gold bars. By contrast, particulars relating to the refiner and year of production merely provide supplementary information. They tell us part of the gold bar’s history but do not describe its entire ‘life cycle’.”

  Yours sincerely,

  DEUTSCHE BUNDESBANK Communication

   

  Answer 2:

  “Dear Mr Manly,

  The crucial data for storage and
  accounting purposes are the weight, the fineness and a unique number
  identifying each bar or melt. The Bundesbank has all of this information
  for each of its gold bars, which it records electronically and also
  makes available to the public. In addition to the data on weight and
  fineness, the Bundesbank, the Bank of England and the Banque de France
  identify gold bars exclusively on the basis of internally assigned
  inventory numbers and not using the serial numbers provided by the
  refiners. These custodians do not classify the bar numbers stamped onto
  the gold bars by the refiner as individual inventory criteria. They do
  not use the refiner’s bar numbers as these are not based on a unique
  numbering system that can be used for identification purposes. Stating
  the refiner and the year of production is not required for storage or
  accounting purposes.”
  

  Yours sincerely, 

  DEUTSCHE BUNDESBANK Communication

   

  Even the large gold ETFs produce detailed weight lists of their bar
  holdings, so you can see from the above answers that the Bundesbank is
  resorting to flimsy excuses in its inability to explain why it is not
  following standard practice across the gold industry.

  For additional Bundesbank’s prevarications on its gold bars, please see my blog “The Keys to the Gold Vaults at the New York Fed – Part 3: ‘Coin Bars’, ‘Melts’ and the Bundesbank” in a section titled “The Curious Case of the German Bundesbank”.

  Finally, see BullionStar guest post from 8 October 2015 by Peter Boehringer, founder of the ‘Repatriate our Gold’ campaign – “Guest Post: 47 years after 1968, Bundesbank STILL fails to deliver a gold bar number list“.
  This guest post adeptly takes apart the Deutsche Bundesbank’s
  stage-managed communication strategy in and around its gold repatriation
  exercise, and asks the serious questions that the mainstream media fear
  to ask.

  

  

  

  

  

• Ammon Bundy Admits Defeat, Calls On Remaining Oregon Occupiers To "Stand Down, Go Home"

  The story of Ammon Bundy and his not so merry band of Federal Wildlife Refuge occupiers is about to come to its end.

  Following the overnight arrest of the Oregon militia leader and six of his associates by the FBI, as well as deadly shooting during a confrontation with federal authorities of Robert “LaVoy” Finicum, spokesperson for the militiamen occupying the Malheur National Wildlife Refuge, moments ago Portland’s KATU reported that Ammon Bundy, through his attorney, asked the remaining armed occupiers at the Malheur National Wildlife Refuge to stand down and go home.

  Bundy and the others were taken to Portland and booked into the Multnomah County Jail and made their first appearance in federal court on felony charges.

  It was here that Bundy decided to stand down.

  “I’m asking the federal government to allow the people at the refuge to go home without being prosecuted,” Bundy said through his attorney Mike Arnold, who stood outside court to read Bundy’s statement. “To those remaining at the refuge, I love you. Let us take this fight from here. Please stand down. Please stand down. Go home and hug your families. This fight is ours for now in the courts. Please go home.”

  Earlier, the handful of remaining armed occupiers tried to convince more people to join them via a YouTube livestream and told any would-be occupiers that if the federal authorities “stop you from getting here, KILL THEM!”

  The occupiers took over the refuge Jan. 2.

  In addition to Bundy, those arrested were Ryan Bundy, Brian Cavalier, Shawna Cox and Ryan W. Payne. They were taken into custody during a traffic stop. Joseph Donald O’Shaughnessy and online talk-show radio host Peter Santilli were arrested in Burns. Jon Ritzheimer was arrested after surrendering to authorities in his home state of Arizona.

  

  Top row from left are Ammon Bundy, Ryan Bundy, Brian Cavalier and Shawna Cox. Bottom row from left are Joseph Donald O’Shaughnessy, Ryan Payne, Jon Eric Ritzheimer and Peter Santilli. (Multnomah County Sheriff’s Office/Maricopa County Sheriff’s Office via AP)

  KATU adds that a federal judge ordered the seven defendants in Portland to stay in federal custody. The judge ruled there’s a risk they wouldn’t show up in court, and those under arrest pose a danger to the community because the occupation at the wildlife refuge continues.

  Defense attorneys argued that none of those under arrest have significant criminal records, but the judge agreed with prosecutors that all should remain in custody until a detention hearing scheduled for Friday.

  None of the seven defendants entered any plea on the charge of impeding federal wildlife officers from doing their job, although the outcome of the legal process at this point is virtually assured: prison, of the Federal kind.

  

  

  

  

• How The Rothschilds Made America Into Their Private Tax Fraud Backyard

  Back in September 2012 we first presented “the world’s biggest hedge fund nobody had ever heard of”: a small, previously unknown company called Braeburn Capital which, however, managed more cash than even Ray Dalio’s Bridgewater, the world’s largest hedge fund.

  

  How had the little firm operating out of a non-descript office building in Nevada achieved this claim to fame? By managing the cash hoard (now well over $200 billion) of the world’s biggest and most valuable company: Apple.

  But what was perhaps more notable is where Braeburn was physically located: Reno, Nevada.

  We explained the company’s choice for location with one simple word: “taxes”, or rather the full, and very much legal, avoidance thereof.

  Three and a half years later we encounter this quiet Nevada town once again, and once again it is Reno’s aura of tax evasion that brings is to the world’s attention courtesy of a Bloomberg report discussing “The World’s Favorite New Tax Haven.”

  Only instead of Apple this time, the focus falls on a far more notorious company: the Rotschilds.

  As Bloomberg writes, “last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how the world’s wealthy elite can avoid paying taxes.  His message was clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments. Some are calling it the new Switzerland.”

  Ah, the rich irony: years after Obama single-handedly destroyed the secrecy-based Swiss banking model, the U.S. itself has taken over the role of the world’s biggest, if no longer very secret, tax haven, and the epicenter is this modest Nevada city located next to lake Tahoe, which has become the favorite city, if only for tax purposes, for such names as Apple and the Rothschild family.

  The Swiss are not amused:

  After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

   

  “How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Peter A. Cotorceanu, a lawyer at Anaford AG, a Zurich law firm, in a recent legal journal. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”

  It will probably come as no surprise, that the firm at the center of it all is the (in)famous financial institution: Rotschild & Company.

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

   

  The firm says its Reno operation caters to international families attracted to the stability of the U.S. and that customers must prove they comply with their home countries’ tax laws. Its trusts, moreover, have “not been set up with a view to exploiting that the U.S. has not signed up” for international reporting standards, said Rothschild spokeswoman Emma Rees.

  And where the Rothschilds are to be found, everyone else quickly arrives: “Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.”

  Trident Trust Co., one of the world’s biggest providers of offshore trusts, moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline.

   

  “Cayman was slammed in December, closing things that people were withdrawing,” said Alice Rokahr, the president of Trident in South Dakota, one of several states promoting low taxes and confidentiality in their trust laws. “I was surprised at how many were coming across that were formerly Swiss bank accounts, but they want out of Switzerland.”

  Next comes the need to legitimize US hypocrisy and to justify how America, in demanding everyone else opens their books, is ignored when not only does it keep its own books closed but is openly welcoming all those millionaires and billionaires whose offshore accounts were closed as a result of US intervention!

  Rokahr and other advisers said there is a legitimate need for secrecy. Confidential accounts that hide wealth, whether in the U.S., Switzerland, or elsewhere, protect against kidnappings or extortion in their owners’ home countries. The rich also often feel safer parking their money in the U.S. rather than some other location perceived as less-sure.

   

  “I do not hear anybody saying, ‘I want to avoid taxes,’ ” Rokahr said. “These are people who are legitimately concerned with their own health and welfare.”

  Picture that: nobody wants to admit they are intent on evading taxes to their financial advisor. How quaint.  But the greatest thing about US-based tax evasion is that it is taking place right under the nose of the world’s allegedly biggest tax-fraud chaser. It also happens to be perfectly legal.

  There’s nothing illegal about banks luring foreigners to put money in the U.S. with promises of confidentiality as long as they are not intentionally helping to evade taxes abroad. Still, the U.S. is one of the few places left where advisers are actively promoting accounts that will remain secret from overseas authorities.

  Put all that together, and one company has realized there are billions in “fees” to be made by taking advantage of what is now officially the biggest hypocrite in the world: the United States of America. And adding insult to irony is that the “not easy to find” Rothschild Reno office is located just 6 floors away from the U.S. attorney’s office!

  Rothschild’s Reno office is at the forefront of that effort. “The Biggest Little City in the World” is not an obvious choice for a global center of capital flight. If you were going to shoot a film set in Las Vegas circa 1971, you would film it in Reno. Its casino hotels tower above the bail bondsmen across the street, available 24/7, as well as pawnshops stocked with an array of firearms. The pink neon lights at casinos like Harrah’s and the Eldorado still burn bright. But these days, their floors are often empty, with travelers preferring to gamble in Las Vegas, an hour’s flight away.

   

  The offices of Rothschild Trust North America LLC aren’t easy to find. They’re on the 12th floor of Porsche’s former North American headquarters building, a few blocks from the casinos. (The U.S. attorney’s office is on the sixth floor.) Yet the lobby directory does not list Rothschild. Instead, visitors must go to the 10th floor, the offices of McDonald Carano Wilson LLP, a politically connected law firm. Several former high-ranking Nevada state officials work there, as well as the owner of some of Reno’s biggest casinos and numerous registered lobbyists. One of the firm’s tax lobbyists is Robert Armstrong, viewed as the state’s top trusts and estates attorney, and a manager of Rothschild Trust North America.

  A little history: the trust company was set up in 2013 to cater to international families, particularly those with a mix of assets and relatives in the U.S. and abroad, according to Rothschild. It caters to customers attracted to the “stable, regulated environment” of the U.S., said Rees, the Rothschild spokeswoman.

  “We do not offer legal structures to clients unless we are absolutely certain that their tax affairs are in order; both clients themselves and independent tax lawyers must actively confirm to us that this is the case,” Rees said.

  Reread that sentence again, and this time try not to laugh: imagine a world in which both clients and tax lawyers, who are both conflicted and incentivized monetarily to lie, affirmatively confirm that they are not tax cheats? This is almost as good as Wall Street policing itself.

  The managing director of the Nevada trust company is Scott Cripps, an amiable California tax attorney who used to run the trust services for Bank of the West, now part of French financial-services giant BNP Paribas SA. Cripps explained that moving money out of traditional offshore secrecy jurisdictions and into Nevada is a brisk new line of business for Rothschild.

   

  “There’s a lot of people that are going to do it,” said Cripps. “This added layer of privacy is kicking them over the hurdle” to move their assets into the U.S. For wealthy overseas clients, “privacy is huge, especially in countries where there is corruption.”

  Here are some examples of families whose affairs are in order (after active self-confirmation of just that):

  One wealthy Turkish family is using Rothschild’s trust company to move assets from the Bahamas into the U.S., he said. Another Rothschild client, a family from Asia, is moving assets from Bermuda into Nevada. He said customers are often international families with offspring in the U.S.

  America’s gain is Switzerland’s, that centuries-old tax haven’s, loss: Switzerland has been the global capital of secret bank accounts. That may be changing. In 2007, UBS Group AG banker Bradley Birkenfeld blew the whistle on his firm helping U.S. clients evade taxes with undeclared accounts offshore. Swiss banks eventually paid a price. More than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay about $5 billion to the U.S. in penalties and fines.

  Guess who was among them? why yes, Rothschild Bank AG last June entered into a nonprosecution agreement with the U.S. Department of Justice. The bank admitted helping U.S. clients hide income offshore from the Internal Revenue Service and agreed to pay an $11.5 million penalty and shut down nearly 300 accounts belonging to U.S. taxpayers, totaling $794 million in assets.

  Well, Rothschild is doing it all over again, only this time in Uncle Sam’s back yard. Wait, you mean paying a $11.5 million penalty didn’t teach it a lesson? No way.

  But even more tragicomic is the US push for tax transparency, known as the FATCA. Well, a push everywhere except in the US itself.

  The U.S. was determined to put an end to such practices. That led to a 2010 law, the Foreign Account Tax Compliance Act, or Fatca, that requires financial firms to disclose foreign accounts held by U.S. citizens and report them to the IRS or face steep penalties. Inspired by Fatca, the OECD drew up even stiffer standards to help other countries ferret out tax dodgers. Since 2014, 97 jurisdictions have agreed to impose new disclosure requirements for bank accounts, trusts, and some other investments held by international customers. Of the nations the OECD asked to sign on, only a handful have declined: Bahrain, Nauru, Vanuatu—and the United States.

   

  “I have a lot of respect for the Obama administration because without their first moves we would not have gotten these reporting standards,” said Sven Giegold, a member of the European Parliament from Germany’s Green Party. “On the other hand, now it’s time for the U.S. to deliver what Europeans are willing to deliver to the U.S.”

  As it turns out the US had no qualms about implementing global tax disclosure standards… as long as it itself would be exempt and benefit from the entire world parking its criminal money on US territory:

  The Treasury Department makes no apologies for not agreeing to the OECD standards. “The U.S. has led the charge in combating international tax evasion using offshore financial accounts,” said Treasury spokesman Ryan Daniels. He said the OECD initiative “builds directly” on the Fatca law.

   

  “To the extent non-U.S. persons are encouraged to come to the U.S. for what may be our own ‘tax haven’ characteristics, the U.S. government would likely take a dim view of any marketing suggesting that evading home country tax is a legal objective,” he said.

  And since the US now openly welcome all forms of hot, laundered, embezzled, or otherwise misappropriated money, there are countless banks willing to provide the service of parking that money in the US… for a commission. What amounts are we talking about?

  Well, trillions.

  At issue is not just non-U.S. citizens skirting their home countries’ taxes. Treasury also is concerned that massive inflows of capital into secret accounts could become a new channel for criminal money laundering. At least $1.6 trillion in illicit funds are laundered through the global financial system each year, according to a United Nations estimate.

  And most of those funds are now being parked in the US, where a key portal is Rothshild’s Reno, NV office.

  But what makes this particular case of tax evasion particularly abominable is that it is nothing less than a symbiosis between proven and charged tax evaders and a U.S. government which has once again proven it can be bought for pennies on the dollar by banks like Rothschild, and legislate to make sure the bank continues pocketing billions in fees for the foreseeable future.

  We dare readers to read the following several concluding sections without sending their blood pressure to dangerously homicidal levels:

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

   

  Rothschild says it takes “significant care” to ensure account holders’ assets are fully declared. The bank “adheres to the legal, regulatory, and tax rules wherever we operate,” said Rees, the Rothschild spokeswoman.

  Except in cases like Switzerland where it didn’t exactly “adhere to the legal, regulatory, and tax rules.” This time will be different though.

  Penney, who oversees the Reno business, is a longtime Rothschild lawyer who worked his way up from the firm’s trust operations in the tiny British isle of Guernsey. Penney, 56, is now a managing director based in London for Rothschild Wealth Management & Trust, which handles about $23 billion for 7,000 clients from offices including Milan, Zurich, and Hong Kong. A few years ago he was voted “Trustee of the Year” by an elite group of U.K. wealth advisers.

   

  In his September San Francisco talk, called “Using U.S. Trusts in International Planning: 10 Amazing Feats to Impress Clients and Colleagues,” Penney laid out legal ways to avoid both U.S. taxes and disclosures to clients’ home countries.

   

  In a section originally titled “U.S. Trusts to Preserve Privacy,” he included the hypothetical example of an Internet investor named “Wang, a Hong Kong resident,” originally from the People’s Republic of China, concerned that information about his wealth could be shared with Chinese authorities.

  Instead Wang will buy, sight unseen a Manhattan duplex for call it $50 million or whatever amount the seller demands, using a Nevada LLC with which to shield his purchase. In the process Wang’s purchase, under the sage advice of Rothschild’s Mr. Penney, assures that the luxury US housing bubble grows so big, and real estate prices rise so high, not a single law-abiding US citizen can afford to buy any form of luxury real estate.

  Putting his assets into a Nevada LLC, in turn owned by a Nevada trust, would generate no U.S. tax returns, Penney wrote. Any forms the IRS would receive would result in “no meaningful information to exchange under” agreements between Hong Kong and the U.S., according to Penney’s PowerPoint presentation reviewed by Bloomberg.

  Keep in mind: all of this is legal, and with the express permission of a US government, which one can rightly say is as criminal as any of the advisors who are merely explaining to their wealthy clients how to cheat the system best.

  There was a catch: not all western governments are muppets for the Rothschilds of the world:

  “Penney offered a disclaimer: At least one government, the U.K., intends to make it a criminal offense for any U.K. firm to facilitate tax evasion.”

  Of course not the US, even though with that line it makes it very clear that what the US is doing is encouraing the criminal offense of facilitating tax evasion. Or maybe not.

  Rothschild said the PowerPoint was subsequently revised before Penney delivered his presentation. The firm provided what it said was the final version of the talk, which this time excluded several potentially controversial passages. Among them: the U.S. being the “biggest tax haven in the world,” the U.S.’s low appetite for enforcing other countries’ tax laws, and two references to “privacy” offered by the U.S.

   

  “The presentation was drafted in response to a request by the organizers to be controversial and create a lively debate among the experienced, professional audience,” Rees said. “On reviewing the initial draft, these lines were not deemed to represent either Rothschild’s or Mr. Penney’s view. They were therefore removed.”

  And that was that.

  * * *

  While none of the above should come as a surprise to anyone who has been following our series since 2012 showing how US real estate has been used by foreign oligarchs to park illegal cash, what we would find very interesting in the next and final expose in this series, is for Bloomberg’s Jesse Drucker to find how many billions (or maybe only millions – the US government is a very cheap whore) were paid under the table by Rothschild et al to bribe the US government to enable this kind of circular, incestuous legalized tax fraud on US soil, one for which Rothschild will collect billions in financial advisory fees for the indefinite future, and which blatantly steals from those who do pay their taxes: the middle class.

  

  

  

  

  

• China Injects Another $50 Billion Liquidity As Mysterious Panic Buyer Reappears In Offshore Yuan

  The PBOC FX intervention team continue to be busy in offshore Yuan this week as for the 4th time in 3 days, a mysterious panic-buyer lifted CNH between 5 and 10 handles higher for no good reason other than to show George Soros (and Bill Ackman) who is boss (i.e. drive away the shorts). In keeping with the recent "stability" the Yuan fix was flat but another 340bn Yuan was injected – except China CDS pushes to Aug 2015 wides indicating severe stress and suggesting devaluation looms.

   

  Offshore Yuan in all its manipulated glory…It would appear 6.61 is the number to bet against!!

  

  Mystery solved – USD/CNH sold near 6.6160 by large-sized Chinese banks, according to North Asia-based FX traders.

  PBOC to the rescue.

  Stability… or is it artificial (as CDS signals anything but)

  

  But more liquidity…

  • *PBOC TO INJECT 340B YUAN WITH REVERSE REPOS: TRADERS
  • *PBOC TO INJECT 260B YUAN WITH 28-DAY REVERSE REPOS: TRADER
  • *PBOC TO INJECT 80B YUAN WITH 7-DAY REVERSE REPOS: TRADER

  This week’s two auction windows were used to add a net 590 billion yuan, the most since February 2013, data compiled by Bloomberg show.

  We look forward to the post China New Year unwind of all that liquidity.

  You can only hold the big balloon under water for so long…

  

   

  Stocks are not loving the FX intervention. It appears that the PBOC cannot figure out to manipulate both at the same time…

  • *SHANGHAI COMPOSITE INDEX DECLINES 1.3% AT OPEN
  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 0.7% TO 2,909.33

   

  Charts: Bloomberg

  

  

  

  

  

• The Empire Has No Clothes

  Via EconomicNoise.com,

  Hans Christian Andersen told the story of “The Emperor’s New Clothes” as part of his  Fairy Tales Told for Children collection. The tale is almost two hundred years old. Most know how a little boy was the first to announce that the emperor had no clothes. Andersen’s tale is being re-written today and should be entitled “The Empire Has No Clothes.” This story is one occurring around the world.

  Governments are in disrepair and disrepute everywhere. They are increasingly viewed as exploitive, ineffective and catering to privilege. Public interest, the idealistic goal of government, never was real in the sense that it overrode the private needs and wants of officeholders. “Public servants” were never better stewards of public interest than private citizens pursuing their own self-interest. Indeed, once the returns to power increased, self-selection made most politicians inferior in morality and public interest than the typical citizen.

  The discomfort and turn against government occurs not because any of its behavior is new. Government has always been dishonest and a scam. What changed over time is the magnitude of government and its burden on citizens. The pain of tolerating it has apparently reached that threshold where people are no longer willing to ignore it.

  Governments around the world have become leviathans, meddling in the most minute and personal decisions of its citizens. Supporting government in its infancy required no taxation. Today the average citizen pays more than 40% of his production as tribute and support to the empire. Few believe they get much of value in return.

  Even with such confiscatory theft, governments are spending themselves and their citizens into bankruptcy. Capital that entrepreneurs need to start and grow businesses is now consumed by government vote-buying schemes and stupidity. As a result, economic growth cannot occur, jobs are lost and the standard of living declines.

  The current political contest in the United States reflects the attitude of citizens against government. Outsiders are either winning or gaining popularity in the primaries. The public is fed up with government as shown by polls such as this one. The political establishment still has not grasped the real reasons for their unpopularity.

  The Empire

  

  The phrase “limited government” is used to differentiate a so-called government “of, by and for the people” from government that is not limited or “of, by and for the people.” Arguably Abraham Lincoln’s description was the best piece of Statist propaganda ever delivered to the public. It was not true when he said it and it is implausible to even utter such a sentiment today without being ridiculed.

  “Limited government” is a clever phrase that is both untrue and impossible. It is akin to describing cancer as “limited cancer.” Left alone, cancer grows and kills. So too does government. A more accurate but less flattering description of government is “limited tyranny.” Limited government is merely a euphemism for limited tyranny. Unfortunately neither government nor tyranny can be limited.

   

  Power is like cancer. It grows and eventually destroys whatever it preys upon. The only way to constrain power is with greater power. But therein lays the insoluble problem. Government was an attempt to provide order to society. It was granted power over others to keep order. But granting such power and controlling it was not possible. Who was to constrain the power? No entity with power willingly limits its power. Setting up another layer of government or power to do so only worsens the situation. Ultimately all power succumbs to Lord Acton’s undeniable truth:

  Power corrupts and absolute power corrupts absolutely.

  Power granted is always limited yet it always grows and is abused. Power, even in small doses, qualifies as tyranny. Idealists may not recognize it as such until it becomes so great that the tyranny can no longer be denied or ignored. The notion of limited government is fantastical. It is the belief in unicorns, tooth fairies and Santa Claus! Only the young or naive believe in such things.

  History provides no examples of government staying within the bounds granted. All governments grow and become increasingly oppressive. The passage of time and human nature ensure such outcomes.

  Is Civilization At An Inflection Point?

  The current disgust with government is palpable. It is the reason why a braggart like Donald Trump can challenge for and likely win the Republican nomination for president. It is also the reason why a septuagenarian Socialist can challenge an anointed Democrat candidate. Both political contests reflect  hatred toward the political class. The voters are saying STOP! They turn to outsiders out of desperation.

  Is this merely a political phase that can be remedied? Is it merely a normal ebb and flow of the political process? It is easy to answer in the affirmative to both of these questions. History shows few exceptions and the few are usually bloody and violent. It is easy to be influenced by a form of confirmation bias when assessing such conditions. However, my personal judgment is that this dissatisfaction is not something temporary that will self-repair.

  Regardless of who is nominated and elected in the next presidential race, it is my opinion that this outcome is meaningless. This country and likely other so-called advanced democracies seem to be at an inflection or turning point. History is typically not useful in identifying such times.

  If my guess is correct, none of us alive today will see its occurrence. The process will likely be lengthy and contested. It will take decades before a final determination can be made.

  Donald Trump is not a politician although he is likely to be elected. Voting for Donald Trump (or Bernie Sanders) is a protest vote against government. It is the nation’s Howard Beale moment:

  I don’t have to tell you things are bad. Everybody knows things are bad. It’s a depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth, banks are going bust, shopkeepers keep a gun under the counter.

   

  

   

  Punks are running wild in the street and there’s nobody anywhere who seems to know what to do, and there’s no end to it. We know the air is unfit to breathe and our food is unfit to eat, and we sit watching our TV’s while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that’s the way it’s supposed to be. We know things are bad – worse than bad. They’re crazy. It’s like everything everywhere is going crazy, so we don’t go out anymore.

   

  We sit in the house, and slowly the world we are living in is getting smaller, and all we say is, ‘Please, at least leave us alone in our living rooms. Let me have my toaster and my TV and my steel-belted radials and I won’t say anything. Just leave us alone.’ Well, I’m not gonna leave you alone. I want you to get mad! I don’t want you to protest. I don’t want you to riot – I don’t want you to write to your congressman because I wouldn’t know what to tell you to write. I don’t know what to do about the depression and the inflation and the Russians and the crime in the street. All I know is that first you’ve got to get mad. You’ve got to say, ‘I’m a HUMAN BEING, God damn it! My life has VALUE!’ So I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window. Open it, and stick your head out, and yell, ‘I’M AS MAD AS HELL, AND I’M NOT GOING TO TAKE THIS ANYMORE!’ I want you to get up right now, sit up, go to your windows, open them and stick your head out and yell – ‘I’m as mad as hell and I’m not going to take this anymore!’ Things have got to change. But first, you’ve gotta get mad!… You’ve got to say, ‘I’m as mad as hell, and I’m not going to take this anymore!’ Then we’ll figure out what to do about the depression and the inflation and the oil crisis. But first get up out of your chairs, open the window, stick your head out, and yell, and say it: “I’M AS MAD AS HELL, AND I’M NOT GOING TO TAKE THIS ANYMORE!”

  It will be the first shot fired against the Empire. It will be ineffective but will be the first signal that the process of citizens taking back their country has begun.

  Donald Trump (or Bernie) is a sign of how frustrated the electorate has become. Voters don’t know how to stop what is happening to them and their country but they are mad as hell and are not going to take this anymore. The upcoming election will change nothing. The best that the public can hope for is to elect a wrecking ball that will dent or damage some of the government apparatus. That is probably a foolish hope, almost certainly one that will not be fulfilled.

  The ballot box will be ineffective in satisfying the public. Other means will be tried. The Empire will not stand idly by while its power is threatened. It will strike back at any attempt to slow its growth or rate of plunder. It will become truly vicious, not unlike a wounded and cornered animal. Power is never relinquished willingly.

  Government, more properly called The State, has always been dependent on a myth. That myth is that society cannot be orderly without government and that all perceived ills can be solved by it. The reality is that society preceded government and that the State is little more than an Al Capone with better PR and no Eliot Ness.

  

  Our founders did their best with The Constitution. Few believed it could be preserved easily. Thomas Jefferson knew as much when he stated:

  Every generation needs a new revolution.

  I suspect he thinks less of us for not honoring his solution — yet!

  

  

  

  

  

• Former House Majority Leader Claims FBI Is "Ready To Indict" Hillary Clinton

  Submitted by Rachel Blevins via TheAntiMedia.org,

  Democratic presidential candidate Hillary Clinton has been under investigation by the FBI for several months, and former U.S. House Majority leader Tom DeLay said Monday that the FBI is “ready to indict” her for using a private email server to conduct government business.

  During an interview on “The Steve Malzberg Show,” DeLay, a Republican from Texas, said he has friends in the FBI who tell him “they’re ready to indict” the former Secretary of State.

  “They’re ready to recommend an indictment and they also say that if the attorney general does not indict, they’re going public,” DeLay said.

  Clinton’s use of personal email on a private server during her tenure as Secretary of State was revealed in March 2015, and while she has maintained that she never sent or received any classified information on the server, her claims have been contradicted by the Intelligence Community.

  Intelligence Community Inspector General I. Charles McCullough III sent a letter to Congress on Jan. 14, revealing that not only did “several dozen” of Clinton’s emails contain classified information, but some of the information was classified as SAP or “special access programs,” which is beyond top secret.

  “To date, I have received two sworn declarations from one [intelligence community] element,” McCullough wrote. “These declarations cover several dozen emails containing classified information determined by the IC element to be at the confidential, secret, and top secret/sap levels. According to the declarant, these documents contain information derived from classified IC element sources.”

  DeLay said he believes Clinton is “going to have to face these charges” eventually, whether it’s through an FBI indictment or through the “public eye.”

  “One way or another either she’s going to be indicted and that process begins, or we try her in the public eye with her campaign,” DeLay said. “One way or another she’s going to have to face these charges.”

  

  

  

  

  

• DeVry Plunges As FTC Says School Lied About How Many Of Its Students Become Waiters And Bartenders

  “The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged.”

  That’s what we said last May when disgruntled students from the now defunct Corinthian Colleges began to press the Department of Education for debt relief after the government accused the for-profit institution of using fraudulent recruiting practices.

  Long story short, students are entitled to have their debt expunged if they can prove that they’ve been defrauded. When the government forces a school to close its doors, it’s obviously quite difficult to deny students’ claims, which means that if Congress is serious about going after the for-profit college space, they’re effectively setting the stage for a massive taxpayer bailout of the schools’ students.

  At issue are claims the schools make about things like graduation rates and job placements. As WSJ wrote last week, “thousands” of students are now “flooding the government” with appeals to have their loans discharged on the grounds they’ve been the victims of fraud.

  The problem for the government is that the obscure law which allows students to apply for loan relief is short on specifics. That is, it doesn’t spell out what qualifies as “fraud” which means that while there are some clear-cut cases, there’s also quite a bit of ambiguity – especially when it comes to the for-profits.

  “They promised us to get jobs in the field, and most of us ended up at Office Depot,” one former Art Institutes student told the Journal, describing his less than satisfactory experience at the school, where he studied to be a video game designer.

  “In short, it’s just a matter of time before the ‘thousands’ of appeals flooding the Department of Education turn into tens and hundreds of thousands as recent graduates suddenly discover the harsh realities of America’s waiter and bartender economy,” we said.

  Well you can add DeVry students to the list of those who will very shortly be sending the Education Department a mountain of discharge requests because the FTC has now accused the school of deceiving prospective students about the employment success of graduates.

  “The Federal Trade Commission—one of several federal agencies investigating the for-profit school industry—took aim at DeVry advertisements claiming 90% of its graduates who sought jobs found them in their field of study within six months of graduation,” WSJ reports. “In a suit filed in a California federal court, the FTC is asking a judge to provide monetary remedies to allegedly deceived students, including refunds and restitution.”

  Needless to say, shares of DeVry had a rough session:

  

  For its part, the school says the FTC has no legal basis to file the complaint. “DeVry Education Group intends to vigorously contest a complaint filed by the Federal Trade Commission, challenging the employment and earnings outcomes of DeVry University graduates,” a statement from the company reads.

  But again, someone will end up having to pay these students restitution (i.e. their debt will be expunged one way or the other whether it’s through a refund from DeVry or federal debt relief). As a reminder, most students at for-profit schools receive federal aid, which means that if DeVry ends up successfully contesting the idea that it’s responsible for refunding students’ tuition, the students can just appeal to the government for debt relief. After all, it’s not exactly like the Department of Education could refuse after the FTC sued the school for fraud. 

  But the reall punchline is this, again from WSJ: “[The FTC] accuses the school of including workers in low-paying retail jobs as finding work in their field of study, such as a business administration major working as a restaurant server.“

  And there you have it America. The “waiter and bartender recovery” is confirmed … by none other than the US government.

  

  

  

  

  

  

• A Whole New Level Of Moral Hazard: China Will Use Public Funds To Cover Venture Capital Losses

  It should surprise nobody that when it comes to perpetuating the global central bank “put”, China – which is at daily danger of having its house of trillions in non-performing loan card collapse at any moment – has perfected moral hazard better than any western central banker. However, even the staunchest cynics will be stunned by the latest development out of the Shanghai government where starting next month, venture capital firms which invested in high-tech startups since the beginning of 2015 can apply for government compensation if their investment loses money.

  In other words, while until now the government had bailed out corporate bond and bank loan investors, and was actively micromanaging the burst stock bubble (unsuccessfully), it will now enter the venture capital and private equity arena in what may be the grossest misallocation of capital unleashed by China to date.

  The policy is laid out in a regulation dated December 29 that the city’s Science and Technology Commission put on its website on January 21. Under the regulation, if the sale of a VC’s stake in a startup fails to cover its original investment, it can ask the government for a payout amounting to 30 or 60 percent of the shortfall depending on the size and revenue of the firm it backed. 

  The most any VC firm can receive in one year is 6 million yuan. The limit on individual investment projects is 3 million yuan although we are confident both these limitations will be breached grossly and repeatedly.

  Shanghai is not the first Chinese city to implement this lunacy: an investor with a financial institution in Shanghai said the city did not invent the idea of subsidizing high-risk private financial investment. Other local governments in China have implemented similar rules but none of them offer quite as much compensation, he said.

  With other local governments it was more of an ad hoc arrangement, he said. “You go to the government’s public finance bureau, asking for money, and they will tell you to wait as they go over their budget. Usually they’ll return and say there are no funds left, so you’ll have to wait until the next year and see.”

  According to Caixin, the payout offer is intended to encourage private VC investment to support innovation and the development of Shanghai as a global high-tech center, the document says. The policy is to last for two years. 

  Of course, what it will encourage instead is another round of massive fraud, and investing in idiotic projects that have zero hope of recovery let alone return, because when one is spending with a full government backstop – like during episodes of QE – the last thing one cares about is trivial concepts like “risk.” There is only the guarantee of return and as Allan Meltzer put it best, “Capitalism without failure is like religion without sin. It doesn’t work.”

  What it does do is assure that an even greater bust will take place once this particular bubble bursts, however in the process billions in taxpayer funds will be “allocated” to a handful of individuals who will promptly abuse China’s capital controls and end up purchasing luxury apartments in Manhattan.

  Surprisingly, instead of keeping their mouth shut and just accepting the government’s risk-free money, some have dared to speak out against this idea which can only be classified as sheer idiocy:

  The idea will have a “disastrous” impact on the principles of the capital market, said Andrew Y. Yan, managing partner of private equity investment firm SAIF Partners.

   

  “A fundamental principle of the market economy is the match between risk and return,” he said. “VC investments are extremely risky and limited to only a very few people and institutions. The negative consequences of using public money to compensate investment losses will be unimaginable.”

   

  Xie Zuoqiang, vice president of the PE firm Prosperity Investment, said the new policy provides no clear standards and procedures on calculating losses, leaving loopholes that can be abused to cheat tax payers’ money. He also said the two-year life of the regulation creates uncertainties because VC investments often last longer than that. “The policy may be well-intentioned,” he said, “but supporting an industry is a long-term initiative.”

  Actually the policy is beyond idiotic, however it is clearly designed to enrich a handful of “venture capitalists” who like U.S. bankers have purchased local government puppets to do their bidding for them.

  That said, there may be a silver lining: very soon the infamous “zero-corn” Theranos may liquidate in the US only to be reconsistuted in Shanghai, where its fraud will guarantee massive taxpayer funds are spent to boost the bank accounts of every criminal involved.

  

  

  

  

  

• Brazil's Easy-Money Problem

  Submitted by Lukas Vez via The Mises Institute,

  Brazil is undergoing what is considered its worst economic crisis in seventy years, and there is usually no agreement when it comes to the causes of this situation. President Rousseff and the Labor Party say that it was the corollary of the “International Crisis,” a ghost of the 2008 depression created in their minds. The reality, however, is different. Since ex-president Lula Da Silva of the Labor Party entered office in 2003, the government has clung to the typical Keynesian project of growth-by-government-spending. Interest rates were lowered constantly, the amount of loans grew to an unprecedented level, savings per capita dropped, and government spending continued to grow.

  For the advocates of government intervention, the country’s economy was heaven on earth. It should be of no surprise that Paul Krugman, the defender of America’s Quantitative Easing, said that Brazil was not a vulnerable country. However, those policies so strongly defended by some economists and by bureaucrats led the country toward the terrible situation in which it is now.

  From the Brazilian government’s point of view, it could hardly get any worse: the country is facing an economic depression that is likely to last at least two more years, the country’s rating was downgraded to junk by Standard & Poor’s, and a corruption scandal may lead to the impeachment of the country’s president, Dilma Rousseff. We must recognize, however, that even though this was the result of the government’s action, it simply put in practice the most prevalent ideologies of the country, which is a mixture of Marxism in politics and in the universities with Keynesianism in economics. This national ideology praises, in general, a complete dependence of the people on the government. The fact that “Brazil’s tax burden already amounts to 36 per cent of GDP” is held with pride by professors and economists throughout the country, who spread the word that public policies will create jobs and contribute to people’s welfare.

  Brazil and the Austrian Business Cycle Theory

  In order to grasp what is happening to Brazil, and to understand why some economists have long ago predicted the current disaster, it is crucial to understand Austrian business cycle theory, since it yields a concrete critique of government’s involvement with currency and credit expansion — two factors that the Brazilian government used as tools for economic growth — and its misuse is what generated the crisis.

  As Mises pointed out, “the cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business.”

  Indeed, those “boom-bust” cycles, as the one that happened in Brazil, are generated by monetary intervention in the market in the form of bank credit expansion. Thus, they are an outcome of central planning and government intervention, the very opposite of a free market.

  It is, however, important to make the distinction between bank credit expansion in the form of loans to business and other forms of credit expansion. The former is usually a method that government uses to boost the economy of the country, lowering the interest rates “below the height at which the free market would have fixed it,” and this is why it is so important in our analysis.

  On the graph below we can see the absurd rise in the amount of loans (given in millions of reais, the Brazilian currency) made to businesses, especially since 2006 (and reinforced from 2008 on, as a way to “fight” the international crisis) when the government tried to generate an unsustainable boom. (The red line represents the loans given by public banks and the blue line the loans given by private banks.)

  

  Figure 1. Amount of Credit Lent to Business in Brazil Over Time

  This new type of credit that would not be available without the interference of the government generating the so-called “boom.” This boom caused businessmen to, as described by Rothbard in America’s Great Depression, “take their newly acquired funds and bid up the prices of capital and other producers’ goods, and this stimulate[d] a shift of investment from the ‘lower’ (near the consumer) to the ‘higher’ orders of production (furthest from the consumer) — from consumer goods to capital goods industries.”

  This shift of investment from consumer to capital goods is a characteristic mark of the boom and explains, as opposed to other theories, why capital goods’ industries are affected first in the beginning of the depression. We can see on the next graph how those industries were affected in the Brazilian scenario. The green line represents the capital goods industries, and the slump that we see happened during the very early stages of the depression, in the end of 2013.

  

  Figure 2. Index of Industrial Production and Key Components

  It is also worth noticing that this slump happened right after the government started to raise the interest rates again, which occurred after a period of an all-time low in the interest rates of the country. As we can see below the Brazilian government lowered the interest rates to an unprecedented low level, and when the government tried to raise interest rates to curb the inflation generated by its “easy money” policies, the boom came to an end. 

  

  Figure 3. Brazil’s Interest Rates Over Time (Source: Financial Times.)

  As Murray Rothbard observed (again from America’s Great Depression),

  businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption — investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful. Businessmen were led to this error by the credit expansion and its tampering with the free-market rate of interest.

  As observed by Mises in his essay “Middle-of-the-Road Policy Leads to Socialism,” we must pay attention to the fact that “the attempts to lower interest rates by credit expansion generate, it is true, a period of booming business,” which in Brazil’s case occurred mostly between 2006 and 2013. “But the prosperity thus created is only an artificial hot-house product and must inexorably lead to the slump and to the depression. People must pay heavily for the easy-money orgy of a few years of credit expansion and inflation.” The depression that is currently happening in the country is, therefore, not an evil that should be fought against with more and more government policies. The depression is the cure.

  As we have seen, most of what the Austrian business cycle theory described can be well applied to Brazil. It is important to admit that other factors also played important roles, such as the price of the dollar relative to the real and the slowdown of China’s demand on Brazilian commodities, but most of them were usually, and to some extent, only a consequence of the policies that we have already analyzed. The bottom line is that the country went through a major credit and money supply expansion, together with years of low interest rates. It is crucial to note that, contrary to other explanations, “Mises’s theory of the trade cycle … meshes closely with a general theory of the economic system. The Mises theory is, in fact, the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion.”

  Consequently, we can see how Brazil’s current crisis is nothing but an outcome of government’s meddling with the market. The scenario of the country’s economy is indeed scary, but we have reason to believe that Brazil’s intellectual situation is going through a new and promising change. It may be true, as Lord Keynes said, that “in the long run we are all dead,” but if we are to get out of this terrible crisis, to prosper and to enjoy a constant improvement in our standard of living, “it is high time to transform the country’s state capitalism into a free market system.”

  

  

  

  

  

• "Let Them Eat CaQE": Yellen Abandons Markets; Stocks Plunge

  "F'ed Up"

  Fed vs the markets today:

  This A hole. pic.twitter.com/3VtIp9uf6Z

  — People Are Jerks (@Peepsarejerks) January 26, 2016

   

  Let's start with the obvious – The Fed f##ked up… as September is now the next meeting when rates are evenb "maybe" expected to hike.

  

   

  Post-Fed – things did not go well…

  

   

  Nasdaq was the worst today, crushed by AAPL but The Dow was double-whammied by Boeing also… Dow lost 121 points from BA (-77) and AAPL (-44)

  

   

  All those dead cat bubble gains gone from yesterday…

  

   

  Absolute chaos in the volatility complex as The Fed statement hit…

  

   

  It's not over yet…

  

   

  Apple was a de-brainer disaster… biggest single day drop sicne Jan 2014 and lowest close since July 2014… AAPL lost over 3 TWTRs today

  

   

  And Boeing was battered – we're gonna need more Ex-Im Bank…

  

   

  FANGs are FUBAR – NFLX and TSLA are now down 20% year-to-date… FANGs are now down 12.6% from their highs in December

  

   

  Seriously! – once again stocks followed crude… until The fed broke it… Good news – fundamentals matter again, oh wait!

  

   

  Treasury yields collapsed after The Fed statement…

  

   

  The USD Index dropped on The FOMC Statement, extending losses on the week

  

   

  Commodities all rose on the USD weakness but crude and copper slipped after The Fed and PMs rallied…

  

   

  Russia-OPEC discussion pumped oil higher to run stops above yesterday's highs – despite surging inventories…

  

   

  Gold jumped once again, nearing its 200DMA…

  

   

  So in summary – if you have any questions about buying the dip or what to do next…

  Is anyone else confused why the Fed hiked in December when as it admits "economic growth slowed"

  — zerohedge (@zerohedge) January 27, 2016

  Charts: Bloomberg

  Bonus Chart: #DamnItJanet!

  Speaking of Policy Errors pic.twitter.com/vlmAMKnFgt

  — Not Jim Cramer (@Not_Jim_Cramer) January 27, 2016

  

  

  

  

• China Says Soros "Hasn't Done His Homework," May Be "Partially Blind"

  On Tuesday, the People’s Daily laughed at George Soros.

  Literally.

  On the heels of comments Soros made in Davos last week about China’s “hard landing,” the Party mouthpiece ran an “op-ed” that carried the title “Declaring War On China’s Currency? Ha, Ha.”

  It’s not clear that George Soros intends to “declare war” on the RMB. However, he did say he was betting against Asian currencies and because his reputation precedes him when it comes to breaking central banks, the Chinese apparently wanted to get out ahead of what the PBoC assumes will be an attack on the yuan. “Given how people know Soros and what he did in 1992 and during the 1997-1998 Asian crisis, he’s too important to ignore, so China felt that they had to counter any negative comments,” Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking told Bloomberg.“They have to reassure local savers and show them a willingness that the government is looking after them and their savings.”

  “Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt,” the People’s Daily continued, before calling the aging billionaire a “crocodile” and a “predator.”

  As we noted yesterday, “China won’t be able to arrest Soros and beat a confession out of him like Beijing is fond of doing to others suspected of launching ‘malicious’ short attacks, but the brash commentary does indicate that Chinese authorities are becoming increasingly sensitive to suggestions that a steeper RMB devaluation is a foregone conclusion.”

  Of course a steeper RMB depreciation is a foregone conclusion because as we’ve outlined on several occasions, the days of China sitting idly by while the dollar peg saps the country’s export competitiveness are long gone and Beijing now seems determined not only to participate in the ongoing global currency wars, but in fact to win.

  But China is keen on orchestrating a controlled depreciation (despite the fact that getting it over with at once might be the better option if Beijing wants to limit capital flight) which means keeping hold of the narrative and using the captive Chinese media to fight back against those who, like the “crocodile” Soros, would seek to employ “malicious” tactics to spark a panic.

  Against this backdrop we get another hilarious “commentary” piece out of the Politburo on Wednesday, this time via Xinhua. The piece, presented in its entirety below, explains why Soros and the ubiquitous “short-sellers” “make claims that run counter to reality.”

  *  *  *

  From Xinhua

  China has ample reasons to stay confident in face of speculators. Far from some speculators’ claims, China is not a source of trouble but an important engine of global economic growth with its growing demand and investment.

  Here are the numbers. China registered a growth rate of 6.9 percent last year amid a sluggish global economy, contributing more than 25 percent of global economic growth.

  Chinese tourists spent 1.2 trillion yuan (182.4 billion U.S. dollars) overseas, while the country’s investors pumped 735 billion yuan (111.7 billion dollars) into other economies.

  Speculators claimed they see a hard landing for China. It is true that the growth of the world’s second largest economy is experiencing a relative slowdown compared with the blistering growth of the past decade. But as we know, decision makers have now opted for a slower pace in order to make the country’s growth more sustainable in the future.

  Moreover, a growth rate of 6.9 percent is the envy of most other economies. China’s added economic output last year was more than the GDP of Sweden or Argentina.

  George Soros, who recently claimed he saw a hard landing for China at the World Economic Forum in Davos, Switzerland, has made the same prediction several times in the past.

  It’s an exaggeration to say that China increases global deflationary risks. Imagine the world without the demand and growth from China, global economic growth would have been much worse, possibly at higher risk of deflation.

  The world economy is having trouble because of the sluggish growth and slow recovery of many economies. International investor Jim Rogers said recently that the monetary policies of the U.S. Federal Reserve and the expansion of government debt are the original sources of the problems.

  Meanwhile, China’s economic transformation is currently underway.

  Figures show that foreign investment in China’s service sector saw robust growth in 2016, and the country attracted 136 billion U.S. dollars of foreign direct investment.

  Thanks to government policies encouraging innovation and the streamlining of procedures, entrepreneurship is flourishing and bringing fundamental change to Chinese society. In the first half of 2015, the number of newly registered businesses exceeded 10,000 on a daily basis.

  Employment creation is strong too, which, coupled with a sound growth rate and strong capital formation and innovation, means that the world’s second largest economy is unlikely to experience a hard landing.

  So why do speculators make claims that run counter to reality? Analysts said it is because either the short-sellers haven’t done their homework or that they are intentionally trying to create panic to snap profits.

  *  *  *

  Yes, “analysts” say Soros hasn’t done his “homework” and just wants to “create panic” on the way to “snapping profits.” Xinhua also says Soros’ views may indicate he’s “partially” blind.

  Unfortunately for the Chinese, Soros probably has “done his homework” and his claims do not “run counter to reality.” The “reality” here is that China’s economy is decelerating and in all likelihood, the yuan will continue to move lower as the currency shoulders the burden of the hard landing.

  This won’t be the first time Soros squares off against Asian officials over flagging currencies. As Bloomberg also points out, former Malaysian PM Mahathir Mohamad (known as the founding father of modern Malaysia) once called the billionaire a “moron” for helping to trigger the ringgit’s collapse.

  So strap in, because the PBoC is in for a bumpy ride in 2016 as everyone from domestic depositors to nefarious, predatory, “speculators” bets on continued yuan weakness. 

  We close with a quote from Michael Every, head of financial markets research at Rabobank in Hong Kong:  

  “They can write as many op-eds as they want, but two plus two doesn’t make five.”

  

  

  

  

  

• How Do You Know When Your Society Is In The Midst Of Collapse?

  Submitted by Brandon Smith via Alt-Market.com,

  As economic turmoil worldwide becomes increasingly apparent, I have been receiving messages from readers expressing some concerns on the public “perception” of collapse. That is to say, there are questions on the average person’s concept of collapse versus the reality of collapse. This is a vital issue that I have discussed briefly in the past, but it deserves a more in-depth analysis.

  What is collapse? How do we define it? And, are some of the notions of collapse in the public consciousness completely wrong?

  It’s funny, because skeptics opposed to the idea of a U.S. collapse in particular will most often retort with a question they think I cannot or will not answer – “So, Mr. Smith, when specifically is this supposed collapse going to take place? What day and time?”

  My response has always been – “We’re in the middle of a collapse right now; you really can’t see it right in front of your sneering face?”

  The reason these people are incapable of grasping this kind of answer is in large part due to the popular mainstream conceptions of systemic collapse. These are conceptions that are for the most part delusional and not in line with the facts. The public idea of collapse comes predominantly from Hollywood, and not from personal experience. For the masses (and some preppers, unfortunately), a collapse is an “event” that happens visibly and usually swiftly. You wake up one morning and behold; the television and phones don’t work anymore and zombies are at your doorstep! Yes, it’s childish and cartoonish, but anything less than a Walking Dead/Mad Max scenario and many people act as if all other threats are benign.

  This is the driving reason why many Americans are absolutely oblivious to the economic instability that is rampant and blatant within our system the past few months. They might see the same signals that alternative analysts see, but these signals do not register in their brains as dangers.

  Look at it this way; say you told a person their whole life that a tiger is a 10-foot tall behemoth with four heads that breath fire while urinating flesh-rending acid. Say you make movies and TV shows about it and they never have any experience to the contrary. When they finally come across a real tiger, they might try to pet the damn thing instead of running in terror or searching for a means of defense.

  To use another vicious animal analogy, when I encounter skeptics with false assumptions of what a collapse actually is, I am often reminded of that woman in Anchorage, Alaska who jumped an enclosure fence at the zoo to get a closer picture of Binky the polar bear. These people have been made so inept when it comes to identifying threats that they will continue arguing with you as the animal takes a football-sized bite out of their meaty thigh.

  So what is the root of the problem beyond Hollywood fantasies? Well, the problem is that social and economic collapse is not a singular event, it is a PROCESS. Collapse is a series of events that sometimes span years. Each event increases in volatility over the last event, but as time goes on these events tend to condition the masses. The public develops a normalcy bias towards crisis (like the old “frog in a boiling pot” analogy). They lose all sense of what a healthy system looks like.

  It is not uncommon for a society to wade through almost a decade or more of violent decline before finally acknowledging the system is imploding on a fundamental level. It is also not uncommon for societies to endure years of abuse by corrupt governments before either organizing effectively to rebel, or caving in and submitting to totalitarianism.

  But how does one recognize a failing system? How does a person know if they are in the middle of a collapse rather than on the “verge” of collapse? Here are some signals I have derived from research of various breakdowns in modern nations and why they indicate we are experiencing collapse right now…

  The Criminals Openly Admit To Their Crimes

  The surest way to know if your society is in the midst of disintegration is to see if the criminals who created the instability in the first place are openly discussing a collapse scenario or warning that one is imminent.

  A year ago, central bankers presented little more than a chorus of recovery propaganda. Today, not so much. The Royal Bank of Scotland is now warning investors to “sell everything” ahead of a “cataclysmic” year in markets.

  The Federal Reserve’s Richard Fisher has admitted that the Fed “frontloaded” (manipulated) stock markets into a bubble and that payment is about to come due in the form of severe economic volatility (up to 20% crash in equities).

  The Bank for International Settlements, the central bank of central banks, has a track record of warning the public about collapse conditions – right before they happen, leaving little or no time for people to prepare. They have followed their habit by warning in September and December that a Fed rate hike would “shatter” the uneasy calm in markets.

  The former Chief Economist of the BIS now says the economy is in worse shape than it was in 2008 and is headed for a larger fall.

  What happened between last year and this year and why are these internationalists suddenly so forthcoming about our economic reality? The fact that central bankers are the cause of our current collapse leads me to believe that such admissions are designed to deflect guilt. If they put out a few warnings now, they can then later claim they are prognosticators rather than culprits, and that they were trying to “help us.” Beyond that, the reality is that our situation was just as dire in 2014/2015 as it is today; the difference is that now we are about to enter a new phase in the ongoing collapse, a much more detrimental phase, but still a phase of a breakdown that has been progressing since at least 2008.

  The Fundamentals Break Through The Manipulation Barrier

  Governments and central banks do not have the capacity to artificially create demand for goods or a supply of well-paying jobs in a crashing economy. What they can do, though, is hide the visible problems in supply and demand with false numbers.

  I examined such false economic statistics in great detail last year in a six-part series titled “One Last Look At The Real Economy Before It Implodes.” I will not cover them all again here. I would only point out that recently the fundamentals of supply and demand have begun to break through the deceit of manipulated numbers, and this is a sign that the collapse is about to move from one stage to the next.

  With global shipping and trucking freight in steep decline, with retail inventories in stasis and current oil consumption falling to levels not seen since 1997 despite a larger population, the mainstream can no longer deny that consumer demand is crumbling. If demand is falling dramatically, then the financial system is in the middle of falling dramatically; there is simply no way around this truth.

  Stocks And Commodities Become Violently Erratic

  Let's be clear, if stock markets represent anything at all, they are merely lagging indicators of economic instability.  Stock markets are NOT predictive indicators of anything useful.  Therefore, any person who does nothing but track equities each day is going to be completely oblivious to the bigger picture behind the economy until it is too late.  They will be so mesmerized by the green numbers and red numbers and lines on minute-to-minute graphs that they will lose all sense of reality.

  Violent swings in stocks are a sign of a financial system that is at the middle or end of the collapse process, not the beginning.

  It is also important to note that extreme shifts in stocks and commodity values to the upside are just as much a signal of instability as shifts to the downside.  For instance, if you witnessed the recent 9% explosion in oil markets and thought to yourself "Ah, the markets are being stabilized again and nothing is different this time…", then you are an idiot.

  Of course, the next day oil markets lost almost all of the gains they made the day before.  And this is how markets behave when they are about to die; they expand and implode chaotically each day on nothing more that meaningless news headlines rather than hard data.  This heart attack in equities inevitably trends downwards as the weeks and months pass.  Keep in mind, equities are down nearly 10% from their recent highs, and oil is down approximately 50% in the past six months.  Every time there is a dead cat bounce in stocks skeptics come out of the woodwork to call alternative analysts "doomers", yet they are nowhere to be found when markets come crashing back down.  They are not looking at the overall trend because their short attention spans hinder them.  Again, extreme swings in markets, whether up or down, are a sign of progressing collapse.

  Deterioration Of Cultural Values, Heritage And Identity

  I have written extensively over the years about the Cloward-Piven strategy; a strategy used by collectivists to destabilize social systems by dumping overt numbers of foreign immigrants into the population without demand for integration. This process has been obvious in the U.S. and Europe for quite some time, but only now is it peaking to the point that collapse is seen as an inevitable result by the public. Europe is worse off than the U.S. in this regard as millions upon millions of Muslim immigrants are injected into the EU’s already dying body; immigrants that intend to transplant their culture from their own failed societies rather than adopting the values and principles of the societies that have invited them in.

  Natural-born Americans and legal immigrants with aspiration of integration appear to be fighting back against the Cloward-Piven strategy with some success by holding onto traditional American values despite being labeled “barbarians” and “racists.” Illegal immigration, though, is still completely unchecked.

  In the EU, the long campaign of cultural Marxism has made natural-born Europeans perhaps the most self-hating people on the planet as well as the most passive and weak. Organized opposition to massive immigration programs in the EU should have taken place years ago. Now it is far too late, and the European system is finishing a social implosion which should have already been obvious to average citizens.

  Open Discussion Of Totalitarian Measures

  When corrupt leadership moves from quiet totalitarianism to more open totalitarianism, your society is in the FINAL stages of collapse, not the beginning of a collapse. The U.S. in particular has been slowly strangled with subversive legal directives and political policies ever since the so called “War on Terror” began. However, there are now multiple signals of a much deeper and open tyranny in the works.

  A few recent examples stand out, including Barack Obama’s insistence that the office of the president has the legal authority to issues executive orders that affect constitutional protections such as the 2^nd Amendment. As many liberty movement activists are aware, there is absolutely no constitutional precedent for the use of executive orders and such powers are not mentioned anywhere in the document. They were simply created out of thin air to be used by the federal government and sometimes state governments to supersede normal checks and balances.

  While numerous presidents have issued executive orders, including some that were outright tyrannical, like Franklin Delano Roosevelt’s unconstitutional internment of Japanese Americans into concentration camps, George W. Bush and Barack Obama have been the most subversive in their bypassing of the Constitution. Obama, in particular, has tried to hide the number of executive actions he has taken by issuing hundreds of “presidential memorandums,” which are basically the same dirty play by another name.

  These actions have been progressively setting the stage for the removal of checks and balances entirely in the name of crisis management. They are so broad in their nature and vague in their definitions and applications that they could be interpreted by federal authorities to mean just about anything in any given situation.

  If executive actions are not scary enough, corrupt politicians are now becoming blunt in their demands for dominance. Two Republican Senators, Mitch McConnel and Lindsay Graham, are calling for unlimited AUMF-style (authorization of use of military force) war powers to be given to the president. Such powers would allow the president to project U.S. military forces anywhere in the world for any reason without review or time limits. This includes the use of military forces on U.S. soil.

  The rationale for this is, of course, the threat of ISIS. The same group of terrorists the U.S. government helped to create.

  And finally, if you want perhaps the most nonchalant admission of future tyranny in recent days, check out former General Wesley Clark’s call for “disloyal” Americans to be placed in internment camps through the duration of the war on terror, a war that could ostensibly go on forever.

   

  One could argue that all of these measures are meant only to deter “Islamic extremism.” I would point out that government officials could have stemmed that tide at any time by enforcing existing immigration laws, or, by stopping all immigration for a period of years until the problem is handled. Instead, they have allowed open borders to remain, and have even imported potential terrorists while focusing Department of Homeland Security efforts more on evil white guys with guns.

  If we accept the violation of the constitutional rights of any group of citizens, if we allow the concept of "thought crime" to become commonplace, then we leave the door open to the violation of our own rights someday. And that is how tyrants trick populations through incremental collapse; by applying despotism to a claimed dangerous minority, then expanding it to everyone else.

  America is sitting near the end of the spectrum in terms of economic collapse and in the middle of the spectrum in terms of social collapse.  While more violent events are certainly gestating and are likely to be triggered in the near term, we should not overlook the reality that collapse is happening in stages all around us.  This process gives us at least some time.  All is not lost yet, and the steps we take to organize and prepare today will affect how the collapse process unfolds tomorrow. People who continue to ignore the outright evidence of collapse based on false assumptions of what collapse should look like are only preventing themselves from taking proper action until it is too late. Make no mistake, our system is dying. We cannot allow our false perceptions of this death to cloud the reality of it, or our response to it.

   

  

  

  

  

  

• These Two Commodity "Experts" May Not Have Long To Live

  There is reason for the saying “never say never”, as demonstrated vividly by these two energy experts:

  Mark Fisher:

  

   

  And Dennis Gartman:

  

   

  Perhaps it is not too late to buy life insurance on behalf of one – or both – of these world-renowned commodity gurus? If so, hurry because according to the oil strip, Gartman’s expiration date is Summer 2018.

  

  h/t @GreekFire23

  

  

  

  

  

• Refugee Murders 22-Year-Old Swedish Woman In Knife Attack

  As you might have heard, the European Union is on the brink of collapse.

  The bloc has been inundated with asylum seekers from the war-torn Mid-East and the influx of refugees now threatens to shatter the Schengen dream. Some European officials (most notably Angela Merkel) are fighting to preserve Europe’s open borders but others have reached their breaking point with what they see as a hostile foreign invasion.

  Far-right Dutch politician Geert Wilders even went so far as to call Arab migrants “Islamic testosterone bombs” who need to be “locked” in asylum centers to prevent them from waging a “sexual jihad” on Dutch women.

  Wilders was referencing widespread reports of sexual assaults allegedly perpetrated by men and male teenagers “of Arab origin.” These attacks began to make international headlines after eyewitnesses in Cologne, Germany went public with accounts of an apparent sexual melee that unfolded in the city center on New Year’s Eve. Women, the reports indicated, were assaulted by “gangs” of refugees who groped them and in some cases robbed them.

  Once the Cologne attacks became big news, Nyheter Idag released an investigative report alleging prominent Swedish daily Dagens Nyheter sought to conceal from the public a wave of sexual assaults at a youth festival and concert in central Stockholm’s Kungsträdgården last August. Dagens Nyheter denied the allegations, saying it was in fact Swedish police that were responsible for the coverup.

  Swedish politicians promised a thorough investigation into the matter and voiced their disgust for the alleged attacks.

  “This is a very big problem for those affected and for the whole of our country,” Prime Minister Stefan Löfven said. “We will not budge an inch, and we should not look away.”

  Well if Löfven thought roving gangs of teenage refugees groping girls at concerts was a “big problem,” he has an even bigger issue now because on Monday, 22-year-old Alexandra Mezher was stabbed to death by a 15-year-old migrant at an asylum center.

  “Mezher began working at an asylum center in the city of Molndal, helping unaccompanied minor migrants adapt to life in their adopted home,” The Washington Post writes. “She was killed by one of those young migrants.”

  

  “It is so terrible. She was a person who wanted to do good,” Mezher’s cousin said “And then he murdered her when she was doing her job.”

  She had only worked at the center for “a few months” according to Expressen, who adds that “the company that runs [the Molndal house] has many similar places throughout western Sweden.” Here’s more the Daily Mail:

  Alexandra, of Lebanese Christian origin, lived with her parents Boutros, 46, and Chiméne Mezher, and her two younger brothers in Borås, some 40 miles from Molndal. 

   

  Her father came to Sweden from Beirut, Lebanon, in 1989 and her mother moved there three years later. 

   

  It has now emerged that Miss Mezher had been working alone at the housing in Mölndal, which is home to ten unaccompanied minors.

   

  Despite rules that the staff should work in pairs, Miss Mezher had been working a night shift all by herself and was attacked just half an hour before daytime staff were due to take over, it is claimed. 

   

  
  

   

  A colleague speaking on condition of anonymity said that staff had previously complained about having to work alone overnight.

   

  ‘Everyone cried and someone said that this was something we had brought up before, that no one should work alone.’

   

  The teenage migrant accused of murdering a young Swedish social worker at a refugee centre will stand trial as an adult, MailOnline has learnt.

   

  Authorities in Sweden have taken the unusual step of keeping the 15-year-old suspect in police custody due to the serious nature of the crime. 

   

  Youngsters are normally sent to a secure children’s home following arrest, but the teenager is being held behind bars due to public outrage follow the brutal knife killing of Alexandra Mezher.

   

  And he will be held in an adult prison until he goes on trial.

   

  ‘A person is criminally responsible when they reach 15-years-old in Sweden,’ a Gothanburg Police spokesman told MailOnline.

   

  ‘The boy is being held at the police station.

   

  ‘But it is very unusual that children to be kept in custody by the police.

   

  ‘However the public prosecutor has deemed this as a special case due to the nature of the crime and will ask for the boy to be held in prison until he goes to trial.’

  
  This is a “terrible crime” PM Löfven said, after visiting the scene. “It was messy, of course, a crime scene with blood,” police spokesman Thomas Fuxborg recalled. 

  

  

  

  “The symbolism of Mezher’s slaying was not lost on the country’s politicians,” WaPo continues, noting that Löfven took to the air waves following the young woman’s death to acknowledge the country’s growing disaffection with the refugee situation. “I believe that there are quite many people in Sweden who feel a lot of concern that there can be more cases of this kind,” he told Radio Sweden.

  Yes Mr. Löfven, we “believe” that you are correct and make no mistake, if European politicans do not find an effective way to get the situation under control, the public will remove them – either with the ballot or with the torches and pitchforks. 

  On that note we close with one more quote from Mezher’s relatives:

  “It is the Swedish politicians’ fault that she is dead.”

  

  

  

  

  

• Is China About To Drop A Devaluation Bomb?

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  Though she had no intention of being funny, we laughed out loud, as undoubtedly many did with us, when incumbent and wannabe IMF head Christine Lagarde said last week in Davos that China has a communication issue. Of course, Lagarde knows full well that Beijing has much bigger problems than communication ‘with the market’. Or, to put it differently, if Xi and Li et al would ‘improve’ their communication by telling the truth about their economy, nobody would be talking about communication anymore.

  Mixed signals from China, which is attempting to shift its economy away from exports and investment to a consumer-driven model, have deepened concerns about the outlook for world growth, she said. Uncertainty is “something that markets do not like”, Ms Lagarde told a panel of business leaders and economic regulators in the snow-blanketed Swiss ski resort. Investors have struggled with “not knowing exactly what the policy is, not knowing exactly against what the renminbi is going to be valued”, she said, referring to China’s currency. “I think better and more communication will certainly serve that transition better.”

   

  The world’s second-largest economy this week announced its 2015 GDP growth as 6.9%, its slowest in a quarter of a century. The figure cast a shadow over the summit, where IHS chief economist Nariman Behravesh told AFP that Chinese policymakers had “fumbled” and had “added to the uncertainty and the volatility by their behaviour”. Mr Fang Xinghai, the vice-chairman of China’s securities regulator, said at the same panel that “in terms of communication, we should do a better job”. “We have to be patient because our system is not structured in a way that is able to communicate seamlessly with the market,” he added.

  The real issue is what people would think if Beijing announced a more realistic 2% or less GDP growth number. The thought alone scares Lagarde as much as anyone, including the Politburo. The sole option seems to be to keep lying as long as you can get away with it. But how and where the yuan will be valued by China itself has become entirely inconsequential compared to how markets value the currency.

  The PBoC spent a fortune trying to straighten the offshore and onshore yuan(s), only to see the two diverge sharply again, as Shanghai stocks posted the biggest loss on Tuesday, at 6.4%, since the ‘unfortunate’ circuit breaker incident. That puts additional pressure on the Hong Kong dollar peg, and ultimately on the mainland China peg to whatever it is they’re trying to peg to.

  Beijing might solve some of these problems by devaluing the yuan by 30%, or even 50%, but it would invite a large amount of other problems in the door if it did. Like a full-blown currency war. Still, it’s just a matter of time till Xi and Li either do it voluntarily or are forced to by ‘the market’.

  What they are trying very hard NOT to communicate is how much pain their Ponzi debt burden has put them in. It’s not even fully clear to what extent Xi himself is aware of this, but he knows at least enough to keep his mouth shut on the topic. It’s quite possible that some of his top aides dare not reveal the real tally to their boss for fear of their jobs and heads.

  In concert with denial and obfuscation, pride and hubris may be clouding the image the Chinese have of themselves and their economy. The rest of the world has followed them in that to a large degree, but it’s got to wake up at some point. If what the WSJ quotes a Beijing-based investor as saying is halfway true, and Xi realizes the opportunity it provides him, a huge devaluation may be imminent after all, if Shanghai shares keep falling the way they are.

  Yuan’s Fall Is Just ‘Noise’ Amid Deeper China Woes

  The country is already littered with “zombie” factories, empty apartment blocks that form ghostly suburbs, mothballed power stations and other infrastructure that nobody needs. But yet more wasteful projects are in the pipeline, even as the government talks about cutting industrial overcapacity. “That’s the misalignment—everything else is noise,” says Rodney Jones, the Beijing-based principal of Wigram Capital Advisors, who was a partner at Soros Fund Management during the 1990s. If debt keeps piling up at the current rate, China faces an eventual financial crisis, perhaps leading to years of subpar growth, mirroring the fate of Japan after its bubble burst in the early 1990s.

   

  Mr. Jones argues that global equity markets haven’t property adjusted to this risk, even after a 16% decline in U.S. dollar terms from their May peak. “The world will have to learn to live without demand from China,” he says. “It’ll come as a shock.” A sharp devaluation won’t fix these distortions, and might even make matters worse if, as likely, it were to trigger financial mayhem in China’s trading partners. An alternative—further clamping cross-border currency controls—would be a humiliating retreat from Beijing’s policy of making the yuan more international.

  If China imports continue to fall the way they have recently, a development that has already relentlessly hammered global commodities markets and exporting emerging nations, the advantages of a large devaluation could become irresistible even for a proud president. With capital flight in 2015 estimated at $1 trillion, and a roughly equal chunk of foreign reserves thrown at attempts to ‘stabilize’ the yuan, that pride is getting costly.

  

  ..

  

  But it occureed to me today that perhaps I simply haven’t been cynical enough yet when pondering the matter. The support for a strong yuan, the one thing that is constantly ‘communicated’ to the world, may be just another facade. Beijing may have long decided to go for the jugular. China will have to adjust to the popping of its growth fairy tale and Ponzi economy no matter what it tries to do to prevent it.

  Might as well swallow the bitter pill in one go then and get it over with?! It would make exports much more attractive at a time when more expensive imports are much less of an issue. As nice example is the very disappointing sales of iPhones in the country, prompting this comment from Apple CEO Tim Cook today: “We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look.” I think he might want to consider that what happened before was extreme, not what is now.

  Beijing did a few things recently that triggered my cynicism radar. First, they targeted George Soros.

  China Accuses George Soros Of ‘Declaring War’ On Yuan

  Chinese state media has stepped up a salvo of biting commentaries against George Soros and other currency traders as the yuan comes under pressure, with the billionaire investor accused of “declaring war” on the unit. At the annual World Economic Forum in Davos last week, Soros told Bloomberg TV that the world’s second-largest economy was heading for more troubles. “A hard landing is practically unavoidable,” he said. Soros [..] pointed to deflation and excessive debt as reasons for China’s slowdown.

   

  [..] Soros “publicly ‘declared war’ on China”, the paper said, citing the 85-year-old as saying that he had taken positions against Asian currencies. But some readers questioned whether the official rhetoric could fuel Chinese investors’ fears. “They say a lot of loud slogans, but do official media even know that Chinese investors are in hell?” said one poster on social media network Weibo. “I’m afraid that Chinese investors will die in a stampede before Soros even shows his hand.”

  And I’m thinking: why should you go after Soros in a very public way when you know the whole world will take note and there’s nothing you can do other than stomp your feet and thump your chest? “Look, everyone, the world’s most notorious and successful short seller is after us, but we’re so much smarter!” Maybe they think Chinese mom and pop investor juggernauts will fall for their ‘whatever it takes’ tale, but they have to deal with the entire planet here.

  Could this be simple stupidity? At a certain point that gets hard to believe. An even better example, and one that is really brow-raising, was the announcement of an inquiry into China’s statistics chief:

  Head Of China’s Statistics Bureau Investigated For Corruption

  The head of China’s statistics bureau is being investigated for corruption, the country’s watchdog said on Tuesday. “Wang Baoan is suspected of severe disciplinary violations, he is currently under investigation,” the Central Commission for Discipline Inspection said in a one-line statement on its website, using a phrase that is usually used to refer to corruption. The announcement came just hours after Wang appeared at a media briefing in Beijing on China’s economy in 2015. Last week the National Bureau of Statistics released data that showed China’s economy grew at the slowest pace in 25 years. Wang reiterated on Tuesday that the country’s GDP calculations were reliable, Chinese media reported, despite widespread criticism of the data.

  Here’s a guy seeking to soothe his audience, which in present circumstances includes the whole globe, and you cut him off at the knees just hours after? He says all’s fine, and then you sent a message to the world that he can’t be trusted?

  The timing seems crucial here. They could have waited a week, or two, so the connection between the two events (Wang’s statement and the inquiry announcement) would have been much less obvious. They could also, of course, have had the inquiry but kept it hush-hush. Instead, as in the Soros case, there’s a big public declaration.

  Wang is head of a statistics bureau that, says the NYT, is tasked with:

  Inquiry in China Adds to Doubt Over Reliability of Economic Data

  The statistics bureau has a variety of responsibilities that are hard to balance even in the best of times. The bureau is supposed to provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses, even while reassuring the public about growth and maintaining consumer confidence. It is also supposed to release enough detailed and accurate information for investors and corporate leaders to make sound decisions about economic and financial prospects.

  That leads us right back to the start of this article. Wang must provide “enough detailed and accurate information” for investors”, but how can he do that if the real numbers are as bad as I strongly think they are? In that case, accurate information would drive most investors away and drive others towards shorting the yuan.

  He must also “provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses”, and perhaps he screwed up there (too much varnish). Xi may have found out something real bad that Wang didn’t tell him about. But even then, the fact stands that Xi risks triggering exactly what he pretends to want to prevent, by taking this to the press.

  To summarize: yes, it’s possible that Beijing has a communication problem. I’ve never had the idea that Xi understands that now his power dream has come true, he finds that power is not absolute, if and when he wishes to have a financial market that allows for China to get richer through trade. That he realizes the price to pay for that is having much less than total control.

  Still, after glancing through this stuff, I wouldn’t be at all surprised if the decision for a very substantial devaluation of the yuan has already been taken. It would be a panic move, with largely unpredictable consequences, but then Beijing has plenty to panic about.

  And I can’t wait to see what Lagarde has to say when she figures out her new currency basket baby turns around to bite her in the ass.

  PS: Something I scribbled last week: Time and again, I see ‘experts’ claim that the fact that the Chinese services sector now makes up half of GDP, is a positive. But, even if we forget for now that much of its growth is due to financial services, the real meaning is the opposite. The services sector has been able to become so important simply because the manufacturing sector is plunging as badly as it is.

  

  

  

  

  

• Beating A Dead Unicorn: Theranos Lab Poses "Immediate Jeopardy To Patient Safety" CMS Warns

  Confirming what we detailed earlier this week, queen of the unicorns Elizabath Holmes is in big trouble…

  

  • *THERANOS 'NOT IN COMPLIANCE' WITH GOVERNMENT RULES, AGENCY SAYS
  • *CENTERS FOR MEDICARE AND MEDICAID SERVICES COMMENTS IN LETTER
  • *THERANOS HAD 'DEFICIENT PRACTICES' AT LABORATORY, CMS SAYS
  • *PRACTICES POSED 'JEOPARDY TO PATIENT HEALTH AND SAFETY'

  As Bloomberg reports,

  Deficiencies at a laboratory run by medical testing startup Theranos Inc. “pose immediate jeopardy to patient health and safety,” U.S. government regulators said in a letter to the company released Wednesday.

   

  Theranos violated at least five regulations governing clinical laboratories that operate medical diagnostics used to do things like test blood levels or assess disease, the U.S. said in the letter, which is dated Jan. 25.

   

  Theranos has 10 days to show the Centers for Medicare and Medicaid Services it is taking action to immediately fix the issues.

  Full CMS statement below:

  *  *  *

  This deficiency report is critical to Theranos future relationship with its main retail partner Walgreens Boots Alliance,

  The drugstore operator has 41 blood-drawing “wellness centers” in stores in Arizona and California, which are Theranos’s primary access to consumers. Walgreens had aimed to expand the sites nationwide but has suspended those plans until Theranos answers questions about its technology, said the people familiar with the matter.

   

  In recent weeks, Walgreens has debated whether to close the wellness centers, and the results of the latest inspection by CMS could lead the retailer to take an even harder look at what remains of its partnership with Theranos, these people said.

   

  Since October, Walgreens representatives have met a number of times with Theranos Chief Executive Elizabeth Holmes and her executive team but were dissatisfied with their responses, the people added.

   

  An earlier review of the contract led Walgreens officials to conclude that it would be difficult to exit the agreement, but the inspection findings could alter that conclusion, according to people familiar with the matter.

  Just what does this say about the following 12 members of the Theranos board?

  

   

  Or perhaps that was the idea…

  This is a board that may have made sense (twenty years ago) for a defense contractor, but not for a company whose primary task is working through the FDA approval process and getting customers in the health care business. (Theranos does some work for the US Military, though like almost everything else about the company, the work is so secret that no one seems to know what it involves.)

   

  The only two outside members that may have had the remotest link to the health care business were Bill Frist, a doctor and lead stockholder in Hospital Corporation of America, and William Foege, worthy for honor because of his role in eradicating small pox. My cynical reaction is that if you were Ms. Holmes and wanted to create a board of directors that had little idea what you were doing as a business and had no interest in asking, you could not have done much better than this group of septuagenarians.

   

  

  

  

  

• Mainstream Media, Economists Mock "Cash Hoarding" Canadian 'Savers'

  With grocery prices surging, amid the collapsing currency, the powers that be appear to have turned to their mainstream media puppets to initiate the 'mocking' propaganda of the banks against an increasingly fearful Canadian citizenry (especialy those under 35) who are hoarding cash.

   

  With the Canadian people losing faith in their government's ability to save their corner of the world as their currency loses value by the day, it is perhaps unsurprising that the always supportive of the status quo media comes out with a somewhat mocking "cash hoaring on the sidelines is foolish" puff piece… (via Financial Post)

  

   

  Cash positions have been rising since the 2008 recessions, so the recent increase comes on top of what Canadians were already sitting on in their portfolios.

  The result is the largest hoarding of cash in Canadian history.

  

   

  So, FinancialPost explains, if you are holding on to that cash out of fear rather than need, you should consider jumping back in and benefiting from what is essentially a 20 per cent discount on stock prices.

  But what if you need cash right now, because you’ve just hit your retirement years, or you need to liquidate some of your registered education savings plans because your child will soon be starting a university or college program?

  The short answer is that you should have planned ahead: You want to have a certain amount of cash in your portfolio to meet more immediate needs so you’re not cashing out your investments at the bottom of the market.

  It appears Canadians are ignoring the "sage" advice of CIBC World Markets: "While holding cash can guard against short-term spikes in volatility, it’s certainly a long-term drag on portfolio returns," and moving to cash rather than have their capital destroyed by unwinding carry trades and deflating bubbles blown by their central bank overlords…

  

   

  CIBC World Markets economists Benjamin Tal and Royce Mendes note that while they don't have a crystal ball for when markets will recover, but says that by the time they do,  “it will be way too late” for Canadians on the sidelines to take advantage, because most recoveries happen in the early stages.

  *  *  *

  There – do you get the message Canadians – pile all that cash into the stock market – fear is for losers.