• Making Sense of Cents

  Forex remains to be the largest market in the world and the least understood.  Central banks have more influence on global markets than any other force.  In other words, monetary policy is the ONLY economic indicator(s) investors should be watching, because let’s face it, if the Fed raised rates to 10% like they should do and called in all that QE money, stocks would collapse.

  But yet Forex remains a mystery, something that someone may have mentioned or you heard about.. wait FX is a TV channel?  or graphics?  a movie?

  One has to wonder who is more stupid, is it the clowns that worked for the big FX banks getting fined, jailed, or fired for misbehavior – or PBOC who seems intent to destroy not only any hope of becoming a ‘real’ currency (let alone a world reserve currency) but killing their trade markets as well:

  In September last year, Chinese regulators stepped on the throat of a ‘fair’ market in equity futures trading and for all intent and purpose killed the Chinese equity market. Tonight – after 2 days of Yuan weakness – having warned everyon from Soros to Kyle Bass that “betting against the Yuan can’t possibly work,” The PBOC just unleashed plans for so-called “Tobin Tax” on FX transactions (which implicitly taxes each transaction, reducing liquidity, raising margins and reducing leverage).

  Meanwhile, there is a real world demand for Forex, and the CME group is reporting record volumes, even 6% more than the previous record:

  CME Group (NASDAQ:CME), one of world’s leading derivatives marketplaces, announced that on March 10 it reached record trading volumes for forex futures and options. The record 2 517 334 contracts were traded on the Chicago Mercantile Exchange (CME). The number is 6% higher than the previous record of March 6, 2010. Also on March 10, were traded the record 2 350 478 forex futures contracts, exceeding by 142 061 the previous record of 2 208 417 contracts from May 6, 2010. 

  The record volumes were driven by the Euro FX Futures (EUR/USD) trade: $127.13 billion in notional value in futures and $18.5 billion in options.

  As central banks become more and more like big hedge funds, and Forex markets become more volatile, there will be a growing need for Forex for any investment portfolio.

  More and more public companies report ‘currency headwinds’ – the most notable recent report comes from Toys R Us:

  Toys “R” Us Inc. said revenue slipped 2.6% in the latest quarter as the retailer faced currency headwinds over the holiday period.

  The foreign exchange volatility was partially offset by the rise of same store sales of 2.3% in the fourth quarter. Currency woes, however, had a negative $169 million impact.

  For the year, the toy store’s same store sales increased a modest 0.9%.

  “Throughout the year, and especially during the holiday season, we focused on improving our execution to deliver a positive and memorable shopping experience to our customers,” said Dave Brandon, chief executive officer. “We significantly improved our performance, but we can and will make further progress on our quest to achieve flawless execution in every aspect of our operations.”

  It must take a multi-million dollar salary to make such a bombastic statement… losing millions because of a lack of internal financial controls (i.e. no Forex hedging) and at the same time, state that we are on a ‘quest to achieve flawless execution in every aspect of our operations.’  Or maybe ‘flawless’ is executive-speak for misplacing a few million in the Forex market.  This guy should run for political office!

  But it shouldn’t be alarming, in the meetings leading to the “Nixon Shock” and the modern free floating Forex system, genius statesman Henry Kissinger admitted honestly “Economics is not my Forte.”

  Secretary Kissinger: But if they ask what they’re doing—let me just say economics is not my forte. But my understanding of this proposal would be that they—by opening it up to other countries, they’re in effect putting gold back into the system at a higher price.

  Mr. Enders: Correct.

  Secretary Kissinger: Now, that’s what we have consistently opposed.

  Mr. Enders: Yes, we have. You have convertibility if they—

  Secretary Kissinger: Yes.

  Mr. Enders: Both parties have to agree to this. But it slides towards and would result, within two or three years, in putting gold back into the centerpiece of the system—one. Two—at a much higher price. Three—at a price that could be determined by a few central bankers in deals among themselves.

  So, in effect, I think what you’ve got here is you’ve got a small group of bankers getting together to obtain a money printing machine for themselves. They would determine the value of their reserves in a very small group.

  There are two things wrong with this.

  Secretary Kissinger: And we would be on the outside.

  We want money printing machine! We want money printing machine! (childish dancing and yelling)  

  If The Fed had any sense, they would immediately raise rates to 10%, the US Dollar would soar.  Prices of imports would plummet.  Money would flow to USA like a river.  Exports, would need to be managed – but anyway the USA is a net-importer and it costs us nothing to print money and buy from foreigners.  

  It’s amazing, the lack of understanding out there for the most important market in the world – the global money markets; FOREX.  On the one hand, our money is worth less and less every year (most economic actors are Forex losers).  On the other hand, Forex hedging is simple to use; and it’s possible to even make money by trading Forex.  

  Elite E Services, Inc. published a book for those who want to know more about Forex “Splitting Pennies” on sale on kindle and in print from Lulu.  

  

  

  

  

  

• Peter Pan(demonium) Erupts As BoJ "Disappoints", Signals Early End Of NIRP

  USDJPY was in full chaos mode ahead of tonight's BOJ statement. With only 5 of 40 economists expecting further actions by Kuroda (and close Abe advisor Hamada suggesting "I think the BOJ wouldn't take further action right now… probably it will be a wise decision," The BoJ decide to stay put – holding rates flat at -10bps, holding QQE buying flat, and maintaining its ETF buying program at expected levels. The biggest surprise though was a language change suggesting the end of NIRP. After 'mixed' results following its NIRP bomb in January, perhaps it is wise to give the 'economy' time to absorb the craziness as Japan's Peter-Pan-ic continues. The initial reaction was weaker Nikkei and stronger JPY.

  USDJPY algos were utterly confused by every headline before the release:

  

   

  And then the chaos erupted:

  • *BOJ MAINTAINS MONETARY BASE TARGET AT 80T YEN
  • *BOJ MAINTAINS POLICY BALANCE RATE AT MINUS 0.100%
  • *BOJ:FROM APRIL, ETFS TO INCREASE AT 3.3T YEN ANUALLY AS PLANNED
  • *BOJ SAYS IT NEEDS TO BE MINDFUL OF RISK TO PRICE TREND
  • *BOJ'S BOARD VOTES 7-2 TO KEEP NEGATIVE RATE UNCHANGED
  • *BOJ CITES RISKS TO DELAY IN CHANGING DEFLATIONARY MINDSET

  So nothing for now – more is always possible – and the board is split. Of course while expectations were for no change (from economists) the market seems disappointed…

  

   

  The bigggest surprise, however, was:

  • BOJ REMOVES LANGUAGE FROM ITS STATEMENT THAT IT WILL CUT INTEREST RATES FURTHER INTO NEGATIVE TERRITORY IF JUDGED NECESSARY
  • KIUCHI SAID NEGATIVE RATES IMPAIR FUNCTION OF FINANCIAL MARKETS
  • BOJ'S KIUCHI SAID NEGATIVE RATES IMPAIR JGB MARKET STABILITY

  which sparked more chaos…

  

  *  *  *

  Since Kuroda unleashed NIRP, things have been mixed…

  Stocks are 'just' unchanged, JPY is stronger…

  

   

  But the good news is yields have collapsed…

  

   

  Bear in mind, this is the central bank that conjured the concept of Peter Pan to represent its efforts:

  I trust that many of you are familiar with the story of Peter Pan, in which it says, "the moment you doubt whether you can fly, you cease forever to be able to do it." Yes, what we need is a positive attitude and conviction.

  In other words – you have to believe to receive – or the entire ponzi collapses.

  Perhaps alternative forms of stimulation are required:

  

   

  Charts: Bloomberg

  

  

  

  

  

• Having Killed Their Equity Market, China Unleashes "Tobin Tax" For FX Market

  In September last year, Chinese regulators stepped on the throat of a 'fair' market in equity futures trading and for all intent and purpose killed the Chinese equity market. Tonight – after 2 days of Yuan weakness – having warned everyon from Soros to Kyle Bass that "betting against the Yuan can't possibly work," The PBOC just unleashed plans for so-called "Tobin Tax" on FX transactions (which implicitly taxes each transaction, reducing liquidity, raising margins and reducing leverage).

  Deputy central bank governor Yi Gang raised the possibility of implementing a Tobin tax late last year in an article written for China Finance magazine, and now, as Bloomberg reports, it is on!

  China’s central bank has drafted rules for a Tobin tax on currency trading, according to people with knowledge of the matter.

   

  Rules are aimed at curbing speculative trading, say the people, who asked not to be identified as the discussions are private

   

  An initial tax rate may be set at zero so as to allow authorities time to set up rules without immediately implementing the levy, people say

   

  Tax is not designed to disrupt hedging and other FX transactions undertaken by companies, people say

   

  Rules still need final approval by central government and it’s not clear how quickly they may be implemented, people say

   

  People’s Bank of China doesn’t immediately respond to faxed request seeking comment

  What happens next? Well that's easy… This!~

  

  NOTE: Yes that is real… and Yes there is 'some' volume there

  Good luck unwinding those levered shorts… and even if the hedgies are profitable, we suspect the tax will be tiered to enable the maximum pain to be extracted from so-called speculators.

  “The Tobin tax can be considered as a form of capital control,” says Andy Ji, a foreign-exchange strategist and economist at CBA in Singapore.

   

  “The levy will hurt market sentiment and cause investors more panic, as this shows that the existing capital controls are not enough to curb outflows,” Ji says; “Now is not a good time to roll out Tobin tax as the market is already concerned about whether China will be able to increase capital account convertibility in the coming years, and this is another step backward to achieve that goal”

  Simply put this imposition of a Tobin Tax suggests PBOC is expecting a lot of volatility and is trying to minimize any possibility of momentum ignition and speculation as much as possible.

  Charts: Bloomberg

  

  

  

  

  

• America's Gestapo: The FBI's Reign Of Terror

  Submitted by John Whitehead via The Rutherford Institute,

  “We want no Gestapo or secret police. The FBI is tending in that direction. They are dabbling in sex-life scandals and plain blackmail. J. Edgar Hoover would give his right eye to take over, and all congressmen and senators are afraid of him.”—President Harry S. Truman

  “Don’t Be a Puppet” is the message the FBI is sending young Americans.

  As part of the government’s so-called ongoing war on terror, the nation’s de facto secret police force is now recruiting students and teachers to spy on each other and report anyone who appears to have the potential to be “anti-government” or “extremist.”

  Using the terms “anti-government,” “extremist” and “terrorist” interchangeably, the government continues to add to its growing list of characteristics that could distinguish an individual as a potential domestic terrorist.

  For instance, you might be a domestic terrorist in the eyes of the FBI (and its network of snitches) if you:

  • express libertarian philosophies (statements, bumper stickers)
  • exhibit Second Amendment-oriented views (NRA or gun club membership)
  • read survivalist literature, including apocalyptic fictional books
  • show signs of self-sufficiency (stockpiling food, ammo, hand tools, medical supplies)
  • fear an economic collapse
  • buy gold and barter items
  • subscribe to religious views concerning the book of Revelation
  • voice fears about Big Brother or big government
  • expound about constitutional rights and civil liberties
  • believe in a New World Order conspiracy

  Despite its well-publicized efforts to train students, teachers, police officers, hairdressers, store clerks, etc., into government eyes and ears, the FBI isn’t relying on a nation of snitches to carry out its domestic spying.

  There’s no need.

  The nation’s largest law enforcement agency rivals the NSA in resources, technology, intelligence, and power. Yet while the NSA has repeatedly come under fire for its domestic spying programs, the FBI has continued to operate its subversive and clearly unconstitutional programs with little significant oversight or push-back from the public, Congress or the courts. Just recently, for example, a secret court gave the agency the green light to quietly change its privacy rules for accessing NSA data on Americans’ international communications.

  Indeed, as I point out in my book Battlefield America: The War on the American People, the FBI has become the embodiment of how power, once acquired, can be easily corrupted and abused.

  When and if a true history of the FBI is ever written, it will not only track the rise of the American police state but it will also chart the decline of freedom in America.

  Owing largely to the influence and power of the FBI, the United States—once a nation that abided by the rule of law and held the government accountable for its actions—has steadily devolved into a police state where justice is one-sided, a corporate elite runs the show, representative government is a mockery, police are extensions of the military, surveillance is rampant, privacy is extinct, and the law is little more than a tool for the government to browbeat the people into compliance.

  The FBI’s laundry list of crimes against the American people includes surveillance, disinformation, blackmail, entrapment, intimidation tactics, harassment and indoctrination, governmental overreach, abuse, misconduct, trespassing, enabling criminal activity, and damaging private property.

  And that’s just based on what we know.

  Whether the FBI is planting undercover agents in churches, synagogues and mosques; issuing fake emergency letters to gain access to Americans’ phone records; using intimidation tactics to silence Americans who are critical of the government; recruiting high school students to spy on and report fellow students who show signs of being future terrorists; or persuading impressionable individuals to plot acts of terror and then entrapping them, the overall impression of the nation’s secret police force is that of a well-dressed thug, flexing its muscles and doing the boss’ dirty work of ensuring compliance, keeping tabs on potential dissidents, and punishing those who dare to challenge the status quo.

  The FBI was established in 1908 as a small task force assigned to deal with specific domestic crimes. Initially quite limited in its abilities to investigate so-called domestic crimes, the FBI has been transformed into a mammoth federal policing and surveillance agency. Unfortunately, whatever minimal restrictions kept the FBI’s surveillance activities within the bounds of the law all but disappeared in the wake of the 9/11 attacks. The USA Patriot Act gave the FBI and other intelligence agencies carte blanche authority in investigating Americans suspected of being anti-government.

  As the FBI’s powers have grown, its abuses have mounted.

  The FBI continues to monitor Americans engaged in lawful First Amendment activities.

   

  COINTELPRO, the FBI program created to “disrupt, misdirect, discredit, and neutralize” groups and individuals the government considers politically objectionable, was aimed not so much at the criminal element but at those who challenged the status quo—namely, those expressing anti-government sentiments such as Martin Luther King Jr. and John Lennon. It continues to this day, albeit in other guises.

   

  The FBI has become a master in the art of entrapment.

   

  In the wake of the 9/11 terrorist attacks the FBI has not only targeted vulnerable individuals but has also lured them into fake terror plots while actually equipping them with the organization, money, weapons and motivation to carry out the plots—entrapment—and then jailing them for their so-called terrorist plotting. This is what the FBI characterizes as “forward leaning—preventative—prosecutions.”

   

  FBI agents are among the nation’s most notorious lawbreakers.

   

  In addition to creating certain crimes in order to then “solve” them, the FBI also gives certain informants permission to break the law, “including everything from buying and selling illegal drugs to bribing government officials and plotting robberies,” in exchange for their cooperation on other fronts. USA Today estimates that agents have authorized criminals to engage in as many as 15 crimes a day. Some of these informants are getting paid astronomical sums: one particularly unsavory fellow, later arrested for attempting to run over a police officer, was actually paid $85,000 for his help laying the trap for an entrapment scheme.

   

  The FBI’s powers, expanded after 9/11, have given its agents carte blanche access to Americans’ most personal information.

   

  The agency’s National Security Letters, one of the many illicit powers authorized by the USA Patriot Act, allows the FBI to secretly demand that banks, phone companies, and other businesses provide them with customer information and not disclose the demands. An internal audit of the agency found that the FBI practice of issuing tens of thousands of NSLs every year for sensitive information such as phone and financial records, often in non-emergency cases, is riddled with widespread violations.

   

  The FBI’s spying capabilities are on a par with the NSA.

   

  The FBI’s surveillance technology boasts an invasive collection of spy tools ranging from Stingray devices that can track the location of cell phones to Triggerfish devices which allow agents to eavesdrop on phone calls.  In one case, the FBI actually managed to remotely reprogram a “suspect’s” wireless internet card so that it would send “real-time cell-site location data to Verizon, which forwarded the data to the FBI.”

   

  The FBI’s hacking powers have gotten downright devious.

   

  FBI agents not only have the ability to hack into any computer, anywhere in the world, but they can also control that computer and all its stored information, download its digital contents, switch its camera or microphone on or off and even control other computers in its network. Given the breadth of the agency’s powers, the showdown between Apple and the FBI over customer privacy appears to be more spectacle than substance.

   

  James Comey, current director of the FBI, knows enough to say all the right things about the need to abide by the Constitution, all the while his agency routinely discards it. Comey argues that the government’s powers shouldn’t be limited, especially when it comes to carrying out surveillance on American citizens. Comey continues to lobby Congress and the White House to force technology companies such as Apple and Google to keep providing the government with backdoor access to Americans’ cell phones.

   

  The FBI’s reach is more invasive than ever.

   

  This is largely due to the agency’s nearly unlimited resources (its minimum budget alone in fiscal year 2015 was $8.3 billion), the government's vast arsenal of technology, the interconnectedness of government intelligence agencies, and information sharing through fusion centers—data collecting intelligence agencies spread throughout the country that constantly monitor communications (including those of American citizens), everything from internet activity and web searches to text messages, phone calls and emails.

   

  Today, the FBI employs more than 35,000 individuals and operates more than 56 field offices in major cities across the U.S., as well as 400 resident agencies in smaller towns, and more than 50 international offices. In addition to their “data campus,” which houses more than 96 million sets of fingerprints from across the United States and elsewhere, the FBI is also, according to The Washington Post, “building a vast repository controlled by people who work in a top-secret vault on the fourth floor of the J. Edgar Hoover FBI Building in Washington. This one stores the profiles of tens of thousands of Americans and legal residents who are not accused of any crime. What they have done is appear to be acting suspiciously to a town sheriff, a traffic cop or even a neighbor.”

   

  If there’s one word to describe the FBI’s covert tactics, it’s creepy.

   

  The agency’s biometric database has grown to massive proportions, the largest in the world, encompassing everything from fingerprints, palm, face and iris scans to DNA, and is being increasingly shared between federal, state and local law enforcement agencies in an effort to target potential criminals long before they ever commit a crime.

   

  This is what’s known as pre-crime.

  If it were just about fighting the “bad guys,” that would be one thing. But as countless documents make clear, the FBI has no qualms about using its extensive powers in order to blackmail politicians, spy on celebrities and high-ranking government officials, and intimidate dissidents of all stripes.

  It’s an old tactic, used effectively by former authoritarian regimes.

  In fact, as historian Robert Gellately documents, the Nazi police state was repeatedly touted as a model for other nations to follow, so much so that Hoover actually sent one of his right-hand men, Edmund Patrick Coffey, to Berlin in January 1938 at the invitation of Germany’s secret police. As Gellately noted, “[A]fter five years of Hitler’s dictatorship, the Nazi police had won the FBI’s seal of approval.”

  Indeed, so impressed was the FBI with the Nazi order that, as the New York Times revealed, in the decades after World War II, the FBI, along with other government agencies, aggressively recruited at least a thousand Nazis, including some of Hitler’s highest henchmen, brought them to America, hired them on as spies and informants, and then carried out a massive cover-up campaign to ensure that their true identities and ties to Hitler’s holocaust machine would remain unknown. Moreover, anyone who dared to blow the whistle on the FBI’s illicit Nazi ties found himself spied upon, intimidated, harassed and labeled a threat to national security.

  So not only have American taxpayers been paying to keep ex-Nazis on the government payroll for decades but we’ve been subjected to the very same tactics used by the Third Reich: surveillance, militarized police, overcriminalization, and a government mindset that views itself as operating outside the bounds of the law.

  This is how freedom falls, and tyrants come to power.

  The similarities between the American police state and past totalitarian regimes such as Nazi Germany grow more pronounced with each passing day.

  Secret police. Secret courts. Secret government agencies. Surveillance. Intimidation. Harassment. Torture. Brutality. Widespread corruption. Entrapment. Indoctrination. These are the hallmarks of every authoritarian regime from the Roman Empire to modern-day America.

  Yet it’s the secret police—tasked with silencing dissidents, ensuring compliance, and maintaining a climate of fear—who sound the death knell for freedom in every age.

  

  

  

  

  

• Central Banks – The New Nukes?

  You know something is strange when "the riskiest" country in the world is the nation whose central bank everyone is relying on to 'save the world' and "the safest" stock market in the world is from a nation whose neighbor is actively test-firing nuclear missiles? It appears activist central banks – following Draghi's "kitchen sink" – have become the new normal's 'nukes'.

  As Goldman notes,  Brazil & Japan vol is highest and Korea lowest on %-ile basis

  

  Mises' Ryan McMaken warns,

  The obsession with deflation among central banks is leading them to try the same thing over and over again with nothing to show for it, but continued economic stagnation.

   

  On the other hand, an interesting thing is happening. As the ECB and the Bank of Japan have loosened the easy-money spigot even more, their respective currencies have actually gained on other currencies. The reasoning is apparently that the latest moves represent the bottom to how low the central banks are willing to go. That is, investors are betting that after this, the central banks will start to tighten.

   

  Maybe. But we’ll see. Right now, we’re only talking about “bazookas” and “kitchen sinks.” We haven’t even started talking about “heavy artillery” or “going nuclear.”

   

  It ain’t over ’til it’s over, and as George Magnus wrote today, “helicopter money” may be next: “If today’s kitchen sink episode ends with a whimper, as seems likely, and governments continue to stand aside from the economic fray, Europeans may demand still more of their central bank.”

  How does this end well?

  

  

  

  

  

• 343,916 Reasons Why The Fed Is Anything But Independent

  Just a week ago we were surprised to find that current Federal Reserve Governor Lael Brainard gave $750 in three contributions to Clinton’s campaign between November and January, according to Federal Election Commission records.

  And while Fed officials sometimes identify with either major political party, as Bloomberg correctly notes, "donations to a presidential candidate by a senior policy maker are unusual, particularly at a time when the central bank is trying to guard its independence from politics. The Fed’s authority has been criticized during the campaign, and both Democratic and Republican lawmakers have questioned decisions about regulation and monetary policy."

   

  And here is the Republican soundbite for when the Trump campaign shifts to important things like the Fed:

  At a time when Federal Reserve officials are making the case that monetary policy needs to be non-partisan and independent, a sitting governor has given money to Hillary Clinton.

   

  Hardly a glowing endorsement for the apoliticalness, or for that matter intelligence, of the Fed and as Bloomberg's Craig Torres writes, Brainard’s donations "could provide fuel for Republican narratives about the proximity of the Fed and the board to the Obama administration," said Sarah Binder, a senior fellow at the Brookings Institution who is writing a book about politics and the central bank.

  But it is not a "one-off" – very far from it…

  Since the 2004 Presidential election, Bloomberg reports that individuals listing the Fed as their employer have made legally capped donations totaling $436,555 to federal candidates, parties and partisan political action committees. Of that, $343,916, or 79 percent, went to Democrats.

  And Zero went to Donald Trump…

  

   

  The partisan preference has grown stronger since the 2012 presidential election. Through January, Fed employees in this cycle have contributed $54,235, with 88 percent going to Democrats.

  The falling Republican support comes at a time when the central bank is trying to protect its independence from critics in Congress and the top Republican candidates are calling for more scrutiny of the institution.

   

  Trump, Rubio and Cruz have all backed legislation that would subject monetary-policy decisions to increased congressional scrutiny. Fed officials have said that would politicize deliberations that should focus purely on economics.

   

  “I always felt that sustaining the institution against the political arena was the important thing,” said Robert Smith, who retired in 2011 after working for 43 years at the Dallas Fed.

  Another former Fed employee mostly agreed, but added that political outlook can sway economic research.

  “If a person leans to being on the liberal side of the political spectrum they’re more likely to favor intervention,” said Daniel Thornton, a former economist at the St. Louis Fed and now an adjunct scholar at the conservative Cato Institute. “You’d like to say it’s all based on facts, but when you talk about macro-economics, the facts are pretty fungible.”

  An Un-independent Fed and "fungible facts" – just what we need to centrally-plan an economy!

  

  

  

  

• The Liquidity Endgame Begins: Whiting's Revolver Cut By $1.2 Billion As Banks Start Slashing Credit Lines

  Earlier today we reminded readers about the circular (and why note fraudulent conveyance) scheme hatched by JPMorgan to reduce its secured loan exposure to Weatherford, when just two weeks ago none other than JPM underwrote an WFT equity offering in which it sold equity in the company, and which proceeds were promptly used by the company to repay the JPMorgan revolver.

  We then showed that it wasn’t just Weatherford: most of the “uses of funds” from the recent record surge in oil and gas equity offerings, have been used to repay the secured debt/revolver facilities, thereby eliminating funded and unfunded balance sheet exposure of major US banks.

  

  But while lender banks are all too eager to take advantage of the brief surge in equity prices just so they can “help” their clients dilute their shareholder base so to repay the very same lender banks, they know quite well that the equity offering window is rapidly closing; in fact it will slam shut as soon as the price of oil resumes its downward trajectory.

  That does not mean they are out of options to reduce their exposure to US shale, however. Quite the contrary, and in fact the “exposure reduction” is about to begin in earnest. We hinted at what it would look like in early January when we reported that already some 25 of the most distressed shale companies have seen their revolving bases slashed by as much as 50%.

  

   

  These were just the beginning. As Bloomberg wrote earlier, U.S. exploration and production companies must brace for further cuts to their borrowing-base credit lines this spring, as part of the spring 2016 borrowing base redeterminations.

  According to Bloomberg, Royal Bank of Canada estimated that cuts to U.S. borrowing-base credit lines last fall averaged only 6%, while – ironically enough – JPMorgan predicts that the average cut may reach 20% over the next several months. JPMorgan expects some credit lines to be chopped by as much as 50%.

  What is ironic is that the credit lines with the biggest cuts will be those issued by JPMorgan.

  At least 10 E&P companies had fully utilized their credit lines by the end of February, either because their capacities were cut or because they borrowed the remaining amount available to build liquidity. Bloomberg adds that companies nearing current borrowing base limits may be most affected by any further reductions. Those include Vanguard Natural Resources (95 percent), Legacy Resources and Atlas Resource Partners (both at 85 percent), Memorial Production and Breitburn Energy.

  

  “The cuts we saw in 2015 were less than what the market expected, which may imply that the banks were trying to give these companies time to find other ways to address their balance sheet problems,” Bloomberg analyst Spencer Cutter said in a telephone interview on March 12.

  One company that expects significant borrowing base cuts is Memorial Production whose treasurer, Martyn Willsher, said in an e-mail on March 12 that his company expects its borrowing base to be reduced. Memorial is generating $70 million to $80 million of positive cash flow this year and has “other liquidity measures that will ensure we do not have to change our strategy due to a lack of liquidity,” Willsher said.

  Despite its recent rebound above $35 a barrel, oil is still below where it was when borrowing bases were reset in the fall. It has averaged $32 a barrel in 2016, versus $45 in September.

  When oil fell below $30 a barrel in January, “that fundamentally altered the mindset for everyone in the industry, including the banks,” Cutter said.

  Furthermore, with banks facing increasing scrutiny about their exposure to the industry, “they may not be as patient this time,” he said. After all, it was the Dallas Fed which made it very clear to banks to do everything in their power to reduce their exposure to energy companies without unleashing a default tsunami in the process. Most banks are confident they have held up to their end of the bargain, and now the revolver slashing will begin.

  Nowhere is this reduction in bank exposure more evident than in shale giant Whiting Petroleum. Jim Volker, the CEO of Whiting, which recently announced a halt to all fracking in the Bakken shale, said last Thursday that he expects his company’s credit line to be cut by more than $1 billion in an early May loan review, in a move which Reuters dubbed “the latest industry fallout from low oil prices crimping margins and fueling massive spending cuts.”

  For those unfamiliar, the semi-annual review of credit access for small- and medium-sized oil companies is critical in determining not only the market value of their working capital but more importantly their accessible liquidity as a result; because loans tends to be backed by the value of oil reserves, falling crude prices erode the underlying collateral and force a redetermination.

  Whiting is the canary in the coalmine: the company’s massive credit line cut  would prove to be one of the biggest of this price downturn and be larger than executives themselves expected as recently as last month.

  Whiting, the largest oil producer in North Dakota’s Bakken shale formation, had $2.7 billion left on a loan revolver at the end of 2015. Its CEO Volcker said on Thursday he expects Whiting will have “at least $1.5 billion” left on the loan after the redetermination, implying a cut of $1.2 billion.

  What is most troubling is that as recently as late February, or just a few weeks ago, Volker said he expected a cut of no more than 30 percent, which would have been roughly $800 million.

  What this suggests is that even as the price of oil has surged since the February lows, the banks have suddenly gotten far more aggressive about trimming their unfunded (and funded in the case of Weatherford) exposure.

  To be sure, Whiting is trying to put a favorable spin on it: “I’m sure we’ll still have lots of liquidity after our next borrowing base redetermination,” Volker said at the DUG Rockies conference in Denver. In Whiting’s case, its strong position in North Dakota as well as Colorado, combined with hedges for nearly half of its 2016 production, likely worked in its favor as it met with lenders earlier this month.

  As we reported previously, aware that it would lose billions in liquidity, Whiting entered cash hibernation mode: last month the company slashed its 2016 capital budget by 80 percent and suspended fracking; as part of that, Whiting plans to build a backlog of 168 wells this year that are drilled but not brought online, a step should help Whiting save $530 million this year, Volker said.

  “Delaying these completions will afford us optionality to resume growth as oil prices begin to rebound,” Volker said.

  Unfortunately, if only judging by the lenders’ sudden hardball, the price of oil is not going to rebound; quite the contrary and banks are taking every opportunity of the current bounce to reduce or outright eliminate all secured exposure.

  And while Whiting may be big enough to get funding even when the next leg lower in crude hits, others won’t be nearly as lucky and in a few short weeks, once redetermination season is over, we will have the full list of companies whose liquidity is collapsing alongside the plunging price of oil in what will be the most toxic feedback loop of 2016.

  * * *

  But what is most ironic in this whole situation is who is on the other side of Whiting revolver cut. The bank which is rapidly slashing its oil and gas exposure, first to Weatherford and now to Whiting is shown below.

  

  

  

  

  

  

• Jean-Claude Van Damme On The Rockefellers, The Rothschilds, & Ted Cruz

  You know The Deep State has over-stepped its boundaries when none other than "the god of cloud karate" knows there is something wrong. While speaking about US elections and Ted Cruz, on the French TV show Le Grand Journal, Jean-Claude Van Damme hijacked the narrative and explained how the Rothschild and Rockefeller families control the politicians and run the world from behind the scenes.

  Speaking about Ted Cruz and Donald Trump, Van Damme asserted, “Well, they are not going to win”.

   

  “You still have the Rockefeller, people like the Rothschild, those big families that dominate continents….these are families that rise in 1827, a family with five sons that expands, it’s above everything we’re talking (about) tonight,” stated the actor.

   

  He went on to make a distinction between “lobbyists” that control the other candidates and “people like Donald Trump,” who is self-funded.

   

  Finally, JCVD warns that “globalists” were the problem and that “to get out of globalism is to leave the world alone”.

  JCVD unleashes his inner conspiracy fears…

   

  Of course, the mainstream will shrug, and brush off JCVD's comments…

  

   

  But who would doubt a man that could do this…

  

  

  

  

  

• Fight For Freedom Or Humbly Accept Submission

  Submitted by Jeff Thomas via InternationalMan.com,

  Submission to the state is a time-honoured tradition, a concept supported by governing bodies since time immemorial.

  In days of yore, men submitted to whichever member of the tribe was the mightiest in battle. By doing so, they stood a better chance of succeeding in battle, thereby diminishing the likelihood of their own death or enslavement.

  Later on, as tribes became more tied to the land and communities sprang up, the idea of a strong leader still made sense. Not only might he do the best job of leading the protection of the town or village, he might also travel outside the community to attack other communities, bringing back spoils for all to benefit from. (Not too civilised, maybe, but still, the reasoning behind submission to the leader made sense.)

  Later, settlements grew larger and, increasingly, many villages and towns would find themselves joined together collectively, under a national banner, with a single army to protect them. And, again, the leader would most likely be a fierce and formidable warrior. But a significant change was taking place. Whilst the warrior leader was away (sometimes for years), invading other communities, it was necessary to have leadership at home – administrative leadership. Predictably, this leadership also sought the loyalty and submission of the people.

  There was a new wrinkle at this juncture as the administrative leadership did not have to prove itself repeatedly in battle to gain submission. It was expected merely due to the fact that the leaders held power over the people. 

  The expectation of loyalty and submission to a government simply because it is the government is an unnatural and invalid one.

  Today, most leaders are primarily political rather than military, and even those who wear a military uniform almost never take part in actual battle, let alone lead the charge. For this reason, the original reason for loyalty and submission should be outmoded.

  Why, then, does it persist? Well, in fact, it generally persists as long as there is prosperity and a people are prepared to tolerate dominance. However, should prosperity diminish dramatically, obeisance tends to diminish accordingly. At some point, the leaders conclude that they may be losing the submission of the people and need to reinforce it. This is done by one of two methods and, on occasion, both at the same time.

  The first is force. An increased police state can create a greater assurance of submission through fear of those in uniform.

   

  The second is inspiration. A condition of warfare often succeeds as a method of inspiring people to give up some of their rights and fall in behind a leader. Although, in the modern world, we never see a national leader actually suiting up for battle, the mere fact that he’s in charge of the fight from a safe distance often works to inspire people to be more submissive to an administrative government.

  Following the English Revolution of 1688, we Britons found that our political leaders made the decision for us as to what our relationship should be to our new leaders at the time. They declared to the new joint monarchs, William and Mary, “We do most humbly and faithfully submit ourselves, our heirs and posterities, forever.”

  Quite a mouthful. It certainly left no doubt as to the intent of Parliament – that the people of England were never again to question their rulers and, further, that regardless of any possible changes in policies, laws, and edicts by future kings, the people swore submission … permanently.

  This did not sit well with all Englishmen – not surprisingly since they hadn’t been asked whether they wished to make such a declaration of submission. In 1774, an Englishman named Thomas Paine (on the advice of his American friend Benjamin Franklin) immigrated to the Pennsylvania colony and began writing pamphlets that dealt directly with the concept of “unquestioned loyalty and submission”, a concept with which he heartedly disagreed. Perhaps he stated it best in his book, The Rights of Man, first published in 1791:

  “Submission is wholly a vassalage term, repugnant to the dignity of freedom.”

  Mister Paine’s pamphleteering in the late eighteenth century did not actually create the consciousness that brought on the American Revolution, but his phrasings did provide focus for the colonists in stating their grievances against King and Parliament.

  Although Mister Paine’s pamphlets served as guidebooks to liberty and his input contributed to the framing of the US Constitution, he’s not remembered today as one of the seven founders of the United States. But one of those who is recognised today as a founder, Thomas Jefferson, took a very similar view to that of Thomas Paine:

  “When the Government fears the people, there is liberty. When the people fear the government, there is tyranny.”

  Both men believed that it was (and is) essential to assure that any government be reminded continually that it exists to represent the people who pay for its existence. They each echoed a view taken 2,100 years earlier by Aristotle, who commented,

  “[G]overnment should govern for the good of the people, not for the good of those in power.”

  Although these words were not quoted in either the Declaration of Independence or the Constitution, Aristotle’s principles were well-known to all of the Founding Fathers and were frequently the basis of clauses written in each of the US’s founding documents.

  Another quote from Jefferson suggests that it’s entirely predictable that any government is likely to continually work toward increasing its own power over a people. That being the case, from time to time, any government needs to be slapped down and reminded that its task is to serve the people, not to subjugate them:

  “Whenever any form of government becomes destructive of these ends, life, liberty, and the pursuit of happiness, it is the right of the people to alter or abolish it, and to institute new government.”  

  Here’s a final thought to consider:

  The concept of government is that the people grant to a small group of individuals the ability to establish and maintain controls over them. The inherent flaw in such a concept is that any government will invariably and continually expand upon its controls, resulting in the ever-diminishing freedom of those who granted them the power.   

  In reviewing all of the above, it should be clear that it’s the nature of all governments to seek to increase their power over those that they are sworn to represent. It should also be understood that they will not give up this power willingly. At some point, they become successful enough in establishing submission that the populace must either toss out the people in the government, toss out the governmental system, or take exit from the system. The last of these may be chosen in order to more peacefully regain liberty.

  Each of these possible choices requires dramatic change, although the last of these entails less upheaval or danger to the individual.

  The alternative to making such a choice, and the one that the great majority of people in any culture, in any era, choose, is to humbly accept submission. Only a very small minority will actually take positive action to attain freedom over tyranny through internationalisation.

  

  

  

  

  

• Sheriff Refuses To Charge Trump With Inciting "Riot-Like" Conditions At Rally

  Update: Despite the stern protests of such legal luminaries as Cruz and Rubio, Clinton and Sanders, Romney and MSNBC, that “clearly” trump was guilty of inciting violence at his rallies, moments ago BuzzFeed reported that Sheriff’s officials in North Carolina said that Donald Trump will not face charges for possibly inciting riot-like conditions at a rally where one of his supporters punched a protester.

  The Cumberland County Sheriff’s Office had been looking into “the potential of whether there was conduct on the part of Mr. Trump or the Trump campaign which rose to the level of inciting a riot” in Fayetteville, a statement said. But later in the day, investigators determined there wasn’t enough evidence to pursue the case.

   

  In a statement, the sheriff’s office said “legal counsel advised, and the sheriff concurred, that the evidence does not meet the requisites of the law as established under the relevant North Carolina statute and case law to support a conviction of the crime of inciting a riot.”

   

  The lead attorney for the Cumberland County Sheriff’s Office, Ronnie Mitchell, had earlier said charges were unlikely.

  And now, we expect more provocations and more attacks and assaults, until finally a sympathetic enough sheriff is found, one who will charge Trump with something, even if that something is a “panicking” establishment which these days means virtually every other candidate.

  * * *

  Previously

  Over the past week, all anyone wants to talk about in the political arena is who’s to blame for escalating violence at Donald Trump rallies.

  Trump blames protesters. Once upon a time the GOP frontrunner relished the jeers from the back of the arenas he packed, saying getting the cameras on them was the only way that the media would show how large his crowds are. 

  More recently, he’s gotten frustrated after being nearly attacked on stage and after having to cancel a rally in Chicago. He now says he may press charges against protesters and have them jailed so they can explain to their “moms and dads” why they can’t get a job.

  In last night’s Democratic town hall event, both Hillary Clinton and Bernie Sanders decried Trump for intentionally getting both his supporters and his detractors riled up to the point that both sides resort to physical confrontation. He even suggested he would pay the legal bills of a supporter that punched a protester. 

  On Monday, WRAL – a local North Carolina station – reports that Cumberland County Sheriff’s Office investigators are now considering filing a charge of inciting a riot against Trump.

  Here are the excerpts from the story: 

  Last week, Trump visited Concord and Fayetteville in rallies that attracted thousands of attendees. During the rally in Fayetteville, a protester was assaulted as he was escorted from Crown Coliseum by police. A Linden man was later charged in the incident, and Cumberland County Sheriff’s Office investigators said Monday that they are considering filing a charge of inciting a riot against Trump.

   

  
  

   

  The Fayetteville incident preceded an even uglier scene at a Trump rally in Chicago. He canceled an event planned for Saturday evening after supporters and protesters who packed a hall at the University of Illinois at Chicago clashed

   

  The protests weren’t as vocal Monday, and Trump supporters quickly drowned out demonstrators with shouts of “USA” and “Trump.”

   

  Trump addressed the issue by denying suggestions that he incites or even condones violence at his rallies, calling the events “love fests.”

  And so, if this wasn’t already a circus, it certainly is now, with Trump threatening to press charges against protesters for essentially inciting riots at his rallies and a North Carolina Sherriff’s Office prepared to possibly file charges against Trump for doing the exact same thing.

  Aparently, however, there are conflicting reports. Here’s The Daily Beast: 

  WRAL first reported Monday that the department is reviewing whether to nail the Republican frontrunner after a protester was beaten by the candidate’s supporters during a rally last week. According to department spokesman Sgt. Sean Swain, the sheriff appeared on a local radio show earlier in the dayand was asked whether the department had looked into applying the state’s riot laws against Trump—it was something “they had looked at,” Joyce reportedly said. However, Swain told The Daily Beast on the record, Trump’s actions ultimately did not fit the statute. “We would have made the charges by now” if that were the case, the spokesman added.

   

  One hour later, the department issued a statement, under Swain’s name, saying that “We are continuing to look at the totality of these circumstances… including the potential of whether there was conduct on the part of Mr. Trump or the Trump campaign which rose to the level of enciting a riot.”

  Cumberland County Sheriff Office just confirmed it’s looking at possible charges against Trump for inciting a riot

  — Rhys Blakely (@rhysblakely) March 14, 2016

  Cumberland County Sheriff’s statement on Trump (McGraw = Trump supporter who punched a protestor in the head) pic.twitter.com/55v8gzo6el

  — Rhys Blakely (@rhysblakely) March 14, 2016

  If anyone thinks they’ve seen Trump incite a riot thus far, just wait until you see what will happen at the GOP convention if they try to rob him of the nomination in front of a crowd in broad daylight.

  As Bloomberg put it earlier today, describing the hypothetical scene: “Trump supporters within the arena who see the vise closing on his chances to be nominated could respond in rage. Trump himself will likely be egging on an insurrection, from within the hall and amplified by his running commentary on Twitter and in broadcast interviews.”

  

  

  

  

  

• BeWaRe THe IDeS OF TRuMP…

  

  

  

  

  

• Al-Qaeda Robs US-Armed Syrian Rebels (Again), Takes TOWs, Ammo, Tank

  In September, a funny thing happened.

  Gen. Lloyd Austin, head of the U.S. Central Command and Undersecretary of Defense for Policy Christine Wormuth ended up in front of Congress to discuss how the now infamous “train and equip” program for Syrian rebels was going. Specifically, they were asked how many of the fighters that had participated in the program were still operating on the ground.

  Austin’s answer: “four or five.”

  That was just slightly lower than the 5,400 that The Pentagon had hoped to field by the end of 2015, but hey, at least both figures have a four and a five in them.

  “Let’s not kid ourselves, that’s a joke. This is just a total failure,” Sen. Kelly Ayotte (R-N.H.) and Sen. Jeff Sessions (R-Ala.) said.

  Well, a few days after Austin and Wormuth’s embarrassing testimony, whatever remained of the US-trained rebels reportedly got robbed (or we suppose “extorted” is the better term) by al-Nusra when, according to a statement by Colonel Patrick Ryder, a spokesman for U.S. Central Command, the fighters surrendered a quarter of their issued equipment including six pickup trucks and some ammunition to the al-Qaeda affiliate in exchange for “safe passage” from Turkey into Syria. 

  After that revelation, the train and equip program was mothballed.

  Before that, in July, al-Nusra kidnapped the commander of US-trained Division 30, and several of his compatriots. “We warn soldiers of (Division 30) against proceeding in the American project,” Nusra said in a statement distributed online. “We, and the Sunni people in Syria, will not allow their sacrifices to be offered on a golden platter to the American side.”

  Well on Sunday, US-backed rebels suffered another humiliating setback when al-Nusra effectively took over Maarat Numan where Division 13 – one of the first “vetted” groups to be given access to American-made TOWs – maintains a presence.

  “Al-Qaida militants swept through a rebel-held town in northern Syria in a display of dominance Sunday, arresting U.S.-backed fighters and looting weapons stores belonging to the Free Syrian Army,” AP reports. “The FSA’s 13th Division said on Twitter Sunday that Nusra fighters were going door to door in the town of Maarat Numan and arresting its cadres after Nusra, alongside fighters from the Jund al-Aqsa faction, seized Division 13 posts the night before.”

  Lost in the fighting, according to sources: “anti-tank missiles, armored vehicles, a tank, and other arms.”

  Apparently, al-Nusra has sought to suppress demonstrations in Idlib province since the ceasefire (which the group is not a party to) took hold late last month. “Nusra supporters stormed a demonstration in Maarat Numan Friday, carrying black banners, but were drowned out by the protesters,” AP goes on to report. When Division 13 tried to drive them out of the city, Nusra simply took it over. Or at least that’s certainly how it sounds.

  “In tweets posted in the morning on March 13, Division 13 said it had failed to push back an attack by al-Qaeda’s Syrian affiliate, al-Nusra Front, and allied faction Jund al-Aqsa,” AFP said on Sunday.

  “They raided all our bases and looted our weapons and equipment,” the group said, flatly.

  “We congratulate [al-Nusra chief Mohammad] al-Jolani on this conquest!” the group exclaimed, sarcastically on Twitter.  

  Of course the tweets are far more amusing after Bing tries to translate them in their entirety. The following tweet (presumably the full version of the last one mentioned above) translates as: “All our offices raided and looted weaponry wish not this weapon in a prostitute to another faction and blessed llgolani this conquest!”

  ????? #????_?????? ???? ??????? ????? ?????? ???????
  ????? ?? ???????? ??? ?????? ?? ????? ??? ???? ???
  ?????? ???????? ??? ????? !

  — ?????? 13 (@13alferqa13) March 13, 2016

  And here’s another, in which Division 13 appears to call Jolani a “punk.” 

  ????? #??????_13 ????? ?????? ?????? ?? ?????? ?? ??? ????? ????????
  ??? ???? ?????
  ??? ???? ??????
  ???? ?????
  ???? ????
  ????? ????

  — ?????? 13 (@13alferqa13) March 13, 2016

  But the only “punks” on Sunday were the FSA fighters. Around 40 members of Division 13 were reportedly kidnapped.

  Meanwhile, Gen. Austin wants to restart the train and equip program in order to “fight ISIS”. He now says Cent Command would focus on fewer soldiers and train them on “specific skills.” 

  “I think the train and equip program was so fundamentally broken that it likely can’t be salvaged,” Sen. Chris Murphy (D-Conn.) told The Hill. “We, with an enormous amount of oversight and lots of U.S. personnel on the ground, still couldn’t stop the weapons from getting into the hands of the wrong people. I just don’t think anything has changed on that front.” 

  No, probably not. 

  You’re also reminded that back in November, Nusra released a video literally thanking the FSA commanders for supplying them with TOWs. So apparently, al-Jolani’s forces are going to get their hands on American-made anti-tank weapons supplied to the FSA whether the FSA just gives them up, or whether Nusra simply has to take them by force.

  “If it’s going to be the same conditions that were available last time, no,” Sen. Lindsey Graham(R-S.C.) added. “I’d like to know, what — are we going to limit their fighting just to ISIL?” 

  Graham and John McCain don’t want to limit the rebels to just attacking ISIS – they want to give them the leeway to fight Assad as well. “Oh, we’re telling them their first priority is ISIS or something like that. I know what they’re doing,” McCain said, in a thinly veiled swipe at The Pentagon and Obama for trying avoid angering the Russians.

  Of course with Russia pulling out and with the ceasefire in place, it’s not clear there’d be any need to shoot at Assad. Despite his skepticism, McCain said he wouldn’t block a proposal to restart the program. “I am extremely skeptical, because I’ve seen the movie before,” he said. “But for me to say no, you can’t do any arm and train? That’s not right.”

  Are you sure John? Perhaps you should ask yourself who trained Omar the Chechen in Georgia and then rethink your position.

  

  

  

  

  

• The Cashless Society – Keynesian "Stability" Vs Trumpian Turmoil

  Submitted by Thomas DiLorenzo via The Mises Institute,

  In this article, Claudio Grass, Managing Director at Global Gold Switzerland, talks to economist and Mises Institute Senior Fellow Thomas DiLorenzo. This exclusive interview covers central bank monetary policies, Keynesian economics, the economic“recovery,“ political correctness, and much more.

  Claudio Grass: Thomas, it is an honor to have this opportunity to talk to you. I am also pleased to announce that you will be delivering the keynote speech at the BFI Inner Circle Wealth Forum in Florida on April the 18th and 19th. Let’s get started! Given the limited impact of loose monetary policy thus far, where do you think we are headed on the central bank front? Do you think it is likely that the Fed moves interest rates into negative territory, like many central banks across the globe have already done? What would the implications of such a step be?

  Tom DiLorenzo: On the central bank front, we are headed where Japan has been over the past twenty years or so: more and more easy money in a quixotic quest to push interest rates into negative territory, a truly crazy idea. The craziness of this stems from the fact that the entire academic economics profession abandoned Keynesianism in the 1970s. Its failure to explain stagflation was considered to be the final nail in the Keynesian coffin. Franco Modigliani’s presidential address to the American Economic Association in the late '70s was a remarkable white-flag-of-surrender speech by one of the prominent Keynesians. He confessed that Keynesian “stabilization policy” had been a failure. Then, like a bad horror movie, Keynesianism reared its ugly head fifteen or twenty years later as though it had never been discredited. Thus we now have the crazed policy of negative interest rates based on the thoroughly-discredited idea that only “aggregate demand” matters, and if we can just have the central bank push interest rates low enough, people will spend more and businesses will invest more, and all will be good. After the crash of 2008, caused by these same Fed policies, I recall the old Keynesian propagandist/economist Alice Rivlin on TV advising everyone to go out and spend wildly on anything. “It doesn't matter what you spend it on,” she said, “just spend it.”

  In reality, what this new policy — which is the same as the old policy — does is induce businesses to invest more on durable goods like cars and houses, which is why there are new bubbles in these markets, at least in some regions. The price-per-square-foot of Las Vegas real estate, for example, is now higher than it was just before the crash of 2008. There’s also a student debt bubble and a stock market bubble, in my opinion, thanks to the Fed’s single-minded and very simple policy of print, print, and print some more. Rather than reducing some of the wild and reckless speculation on Wall Street, the government bailouts of the speculators created a “moral hazard problem” that will encourage even more reckless speculation. If the speculative investments pay off, they keep the profits; when they go bust, they can count on another round of “too-big-to-fail” bailouts.

  CG: The only way it seems feasible to move interest rates substantially into negative territory would be to either ban or at least massively restrict the use of cash. In our view, there is a clear “war on cash” being promoted in the media. Do you have any thoughts on the issue and are we headed toward a cashless society?

  TD: Yes, there is a war on cash being promoted by the Fed, in particular, and the government, in general (and its lapdog supporters in the media). The main reason for this is that if people can hold cash, it makes it more difficult for the Fed to centrally plan the economy. Also, Keynesianism has always been at war with savings since its principle tenet is that savings are bad, consumption is good (there you have all of Keynesianism in a nutshell). This began with the silly theory of the “paradox of thrift” that said that savings is harmful to the economy; therefore, the more we save now, the poorer we will all become, and the less able we will be to save (and consume) in the future. The Keynesian central planning authorities at the Fed and elsewhere would like to see a cashless society because keeping cash can be a form of savings instead of consumption. I think we are headed toward a cashless society unless the public wakes up and begins to protest this.

  CG: What do you think the implications of a cashless society are when we combine this with other legislation like the PATRIOT Act? Do you think we are headed toward a totalitarian state in the US, where private property rights will no longer be protected?

  TD: An important reason why the state would like to see a cashless society is that it would make it easier to seize our wealth electronically. It would be a modern-day version of FDR’s confiscation of privately-held gold in the 1930s. The state will make more and more use of “threats of terrorism” to seize financial assets. It is already talking about expanding the definition of “terrorist threat” to include critics of government like myself. The American state already confiscates financial assets under the protection of various guises such as the PATRIOT Act. I first realized this years ago when I paid for a new car with a personal check that bounced. The car dealer informed me that the IRS had, without my knowledge, taken 20 percent of the funds that I had transferred from a mutual fund to my bank account in order to buy the car. The IRS told me that it was doing this to deter terrorism, and that I could count it toward next year’s tax bill.

  Property rights in the US have been under assault for a very long time and the assault is proceeding at an accelerated rate with such monstrosities as “Obamacare,” which forces Americans to buy government-prescribed “health insurance,” and all the Soviet-style regulation and regimentation of financial markets in the wake of the government-created Great Recession of 2008.

  CG: We believe that history doesn’t repeat itself, but rather rhymes (Mark Twain). Do you think there are historical parallels to be found in US history to the current situation (economic socialism, restrictions on private gun ownership, etc.)?

  TD: I don't know if history rhymes, but there are some things that are true of all governments at all times. One thing is a deep distrust, resentment, or even hatred of Adam Smith’s “invisible hand”: the idea that individuals, in pursuing their self-interest in the free market, coincidentally benefit the rest of society in most instances without any “czar” or central planning authority involved. Peaceful, voluntary trade leaves little room for politicians to plan everyone’s life and make themselves rich and famous through plunder. Thus, they are eternal enemies of free enterprise in particular, and freedom in general, with very few modern-day exceptions, such as former Congressman Ron Paul. So despite hundreds of years of miserable failures of socialism and government “planning” of every other kind, governments ignore this history because it is in their self-interest to do so.

  With regard to gun ownership, all governments have promoted, to some degree, the idea that only the government’s police and military should have guns. This policy has been less successful in America than in any other country, thank God. The main reason for the Second Amendment’s right to bear arms in the US Constitution, according to the “father of the Constitution” James Madison, was so that an armed population could defend itself from a future government that wanted to enslave them.

  CG: Why do you believe the economic recovery has been so weak? What impact do you think this will have on precious metals and other assets with real value?

  TD: The recovery has been so weak because of (1) Fed policy and (2) most other government policies. The bright side to any recession is that businesses are finally forced to liquidate bad investments and do everything they can to become more profitable. The Fed delayed and interfered with this process by continuing the same easy-money policies that caused the recession in the first place. This resulted in significantly more bad investments and the creation of another bubble economy. Much of the rest of government policy has created tremendous uncertainty, what economist Robert Higgs calls “regime uncertainty.” Businesses still have only a vague idea of what Obamacare will cost them, for example. A high degree of uncertainty makes it difficult, if not impossible, to plan for the future so many businesses simply stay where they are until the government steps back. This is what happened after FDR’s death. There were no longer constant threats of new taxes, regulations, or confiscations of gold and other assets, and so capital investment finally began to increase after being negative throughout the 1930s. In this atmosphere, which I don’t see as changing very significantly, the smart investors will include more gold and precious metals in their portfolios.

  CG: You often talk about the dangers of political correctness (PC) in your articles. We believe that under the guise of PC, free speech as we know it is being limited and PC is being used to try to implement a sort of “thought control.” Would you share your views on the topic?

  TD: Most Americans do not realize that the academic elite at most universities are what are known as “cultural Marxists.” After the worldwide collapse of socialism in the late ‘80s and early ‘90s, the academic Marxists redefined themselves. They largely abandoned the old “class struggle” rhetoric involving the capitalist and worker “classes” and replaced them with an oppressor and an oppressed class. The oppressed includes women, minorities, LGBT, and several other mascot categories. The oppressor class consists of white heterosexual males who are not ideological Marxists like them. Another branch of the Marxist Left decided to continue promoting socialism under the guise of “saving the planet.” I call these people “watermelons” — green on the outside, red on the inside.

  The cultural Marxists have adopted the advice of the philosopher Herbert Marcuse, who is really the “godfather” of cultural Marxism. He preached that free speech is really a tool of oppression because it leads to critiques of “utopia,” by which he meant communism. This is where all the vicious crackdowns on campus free speech come from: the cultural Marxists will say that they are doing the morally-correct thing to censor speech by conservatives or libertarians, for such speech may be critical of their ideology. They are totalitarian-minded, fascist thought control police and dominate almost all university administrations in the US. It is creating a real dumbing down of American youth, for much of their university education is now indoctrinated in left-wing platitudes rather than the development of critical thinking. The big exceptions, however, are the students who stick to studying business, economics, engineering, math, etc., and largely ignore the PC circus.

  CG: Now to the presidential election in the US. Who do you think will be the likely winner of this race? It is believed that if Trump wins the election that the US will move toward a more isolationist foreign and economic policy. What are your thoughts on Trump?

  TD: Right now my money is on Donald Trump being the next president. If that happens, there will be a less “isolationist” foreign policy, for Trump does not want to risk starting World War III, unlike all of the “neoconservatives” who run both of the main political parties. That is why he is so hated and despised by the Republican Party establishment. He would like to do more business with countries like Russia rather than start a nuclear war with the Russians. They, on the other hand, want to see endless military aggression in the Middle East and elsewhere. This is why they will do everything possible to defeat Trump, including putting all of their Big Money behind Hillary Clinton or whomever the Democrat Party nominee is. If I were Donald Trump I would also double or triple my personal security detail.

  As for economic policy, Trump could hardly be worse than Obama or his predecessor. He has said that he hates taxes and does everything in his power to minimize his own tax burden, which is certainly a good instinct. Since he’s a billionaire, he can’t be bought off on any policy, which is really the main reason why the GOP oligarchs hate him with a red-hot passion. But if he wins and becomes a politician, there is always the chance that he will succumb to a more interventionist economic policy so that the media will say nicer things about him. Vanity seems to be one of the man’s hallmarks.

  

  

  

  

  

• The "Surprising" Answer What Energy Companies Have Spent Their Newly Issued Equity Proceeds On

  One week ago, as confirmation that the recent oil rally is merely being used by banks to force debtor companies to sell equity and to repay as much secured loans as possible, we showed the case study of Weatherford International and its primary banker, JPMorgan.

  As we laid out, Weatherford had been in talks with JP Morgan Chase, its key lender, to re-negotiate its revolving credit facility – the only thing keeping the company afloat. “However, in a move that shocked the financial markets, JP Morgan led an equity offering that raised $565 million for Weatherford. Based on liquidation value Weatherford is insolvent. The question remains, why would JP Morgan risk its reputation by selling shares in an insolvent company?“

  “According to the prospectus, at Q4 2015 Weatherford had cash of $467 million debt of $7.5 billion. It debt was broken down as follows: [i] revolving credit facility ($967 million), [ii] other short-term loans ($214 million), [iii] current portion of long-term debt of $401 million and [iv] long-term debt of $5.9 billion.”

  But the biggest surprise was that JP Morgan is also head of a banking syndicate that has the revolving credit facility.

  It was a surprise because JP Morgan also happened to be the lead underwriter on Weatherford’s equity offering.

  The punchline: the proceeds from the offering are expected to be used to repay JP Morgan’s revolving credit facility.

  Our friends from the New York Shock Exchange summarized this circular cash flow best:

  “in effect, JP Morgan is raising equity in a company with questionable prospects and using the funds to repay debt the company owes JP Morgan. The arrangement allows JP Morgan to get its money out prior to lenders subordinated to it get their $401 million payment. That’s smart in a way. What’s the point of having a priority position if you can’t use that leverage to get cashed out first before the ship sinks?”

  We explained the market implications from this as follows: “as a result of this coordinated lender collusion to prop up the energy sector long enough for the affected companies to sell equity and repay secured debt, the squeeze may last a while; as for the bad news: the only reason the squeeze is taking place is because banks are looking to get as far from the shale patch and the companies on it, as possible.“

  * * *

  But while the Weatherford example was indeed grotesque and extreme in its inherent conflicts of interest, some readers wondered if this was perhaps an isolated case. The answer: a resounding no.

  Here is Credit Suisse’ James Wicklund with the detail:

  We have been paying close attention to E&P equity raises over the past few weeks, looking specifically at the size and proceeds of the deals. So far in 2016, NAM E&Ps have raised $9.3B in equity, down from $16.0B for full-year 2015. Proceeds are similar to 2015 as E&Ps proceeds are going to pay down debt and, in some cases, fund capex.

  … but mostly to pay down debt, and almost exclusively secured, revolver debt as the following table shows.

  

  Which goes back to what MatlinPatterson’s Michael Lipsky said some time ago: “we always assume that secured lenders would roll into the bankruptcy become the DIP lenders, emerge from bankruptcy as the new secured debt of the company. But they don’t want to be there, so you are buying the debt behind them and you could find yourself in a situation where you could lose 100% of your money.“

  For the answer why banks are scrambling to get out, ask the Dallas Fed.

  And since the Dallas Fed won’t answer, the question remains: if the secured banks “don’t want to be there”, why are new unsecured equity investors so desperately eager to take their place, and just what do the banks know that these new equity buyers clearly don’t?

  

  

  

  

  

• The 19-Year-Old Who Outperformed 99% Of Hedge Funds In 2012 Shares Her "Trading Secrets"

  Remember Rachel Fox? For those who do not, here is a reminder courtesy of this blast from the February 2013 past interview of the then-16 year old Desperate Housewives “TV star” who became a “star trader” using her acting money, and after returning 30% in 2012 and outperforming 99% of hedge funds, was promptly interviewed by CNBC, unleashing the whole “17 year old hedge fund manager” meme:

  Forget Ackman, Einhorn, Bass, And Hendry. There is only one name in the world of equity market performance in 2012 – Rachel Fox, of ‘Desperate Housewives’ fame.

   

  With a 30%-plus performance, the day-trading debutante has turned from actress to activist as she day-trades her way through the day. The 16-year-old actress who made 338 trades last year, based mostly on technicals, “…fell in love with the idea and the concept of being able to just buy something, have it go up, or have it go down, depending on which way you bet it and have it make you money. I thought, oh, my, gosh, that’s amazing, and so easy, I have to do this.”

   

  If ever there was a sign of the extreme bubble that central planning has re-created for us – it has to be this.

   

  Her advice: “you have to really just trade on your own instincts and not just be like, oh, this person says this is great, let me just go for it.”

   

  Our advice: next time readers are discussing stock tips with a random employee of Hustler Club, Scores or Spearmint Rhino – don’t just stare, listen! Said ‘random employee’ is almost certainly outpeforming the “smart money”, and the broader market, by a wide margin. Thank you Ben.

   

   

  Three years later Rachel is back, all grown up at the ripe old age of 19, and still a star trader according to her latest interview this time not with CNBC but with ABC’s Good Morning America.

  

   

  In it she “shares her financial secrets“, such as the following.

  “When I was 16 I was like, I understand a lot about, you know, companies,” the “Desperate Housewives” actress told “Good Morning America” co-anchor Amy Robach. “And … how they IPO on the stock exchange. I had this understanding and know-how. I had the skill of managing money….”

  Armed with this skillset she not only generated a 30% return in 2012, nearly double the return on the S&P’s paltry 16%, but put to shame virtually all hedge funds.

  How did she do it?

  “I have a couple different strategies,” she said. “… With other investments, I will definitely pay attention to what’s going on in pop culture a lot … you can often take that information and kind of, arbitrage it before Wall Street knows about it. So, being a young investor, actually, has huge advantages and nobody even knows about that, because pop culture and, you know, all the things that influences certain companies to do very well, is right at your fingertips.”

  So for all those worried about fundamentals, technicals, and which central bank will buy junk bonds next, here is what you’ve been looking for: be young, ideally between the ages of 16 and 19; failing that, just keep an eye on the “pop culture” that fascinates young people and you are guaranteed to outperform the market.

  “… If you’re curious about something, just let that drive you and just go with it,” Fox said. “Just let the enthusiasm take you ’cause that’s what I did and I was like … ‘There’s no females in this industry or this world, but I’m gonna do it anyway.'”

  The last thing we would like to do is temper the young star trader’s enthusiasm, but we would like to advise young Ms. Fox that the most prominent hedge fund manager (in the U.S. and the world) just happens to be female, and her name is Janet Yellen.

  Her full array of “trading secrets” are revealed in the interview below.

  

  

  

  

  

• The Chart Every 25-Year-Old Should Ignore

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  There are two primary reasons Millennials aren’t saving like they should. The first is the lack of money to save, the second is the lack of trust in Wall Street. A recent post from JP Morgan, via Andy Kiersz, got me to thinking on this issue.

  “JPMorgan shows outcomes for four hypothetical investors who invest $10,000 a year at a 6.5% annual rate of return over different periods of their lives:

  • Chloe invests for her entire working life, from 25 to 65.
  • Lyla starts 10 years later, investing from 35 to 65.
  • Quincy puts money away for only 10 years at the start of his career, from ages 25 to 35.
  • Noah saves from 25 to 65 like Chloe, but instead of being moderately aggressive with his investments he simply holds cash at a 2.25% annual return.”

  

  There are two main problems with this entire bit of analysis.

  Saving Is Problem

  First, while saving $10,000 a year sounds great, the real problem is that median incomes in the U.S. for 80% of wage earners is $42,564 (via the Census Bureau, 2014 most recent data).

  

  The problem, of course, is JP Morgan assumes that these young individuals are able to save an astounding 25% of their annual incomes. This is not a realistic assumption given that many of the Millennial age group are struggling with student loan and credit card debts, car notes, apartment rent, etc.

  But it really isn’t just the Millennial age group that are struggling to save money but the entirety of the population in the bottom 80% of income earners. According to a Bankrate.com survey, 63% of American’s do not have enough savings to pay for a $500 car repair or a $1000 emergency room bill. However, as noted, it even covers a large number of higher income individuals as well.

  “While savings predictably increase with income and education, even 46% of the highest-income households ($75,000+ per year) and 52% of college graduates lack enough savings to cover a $500 car repair or $1,000 emergency room visit.”

  How are Chloe, Lyla, Noah and Quincy to save $10,000 a year when Chole works as a nursing assistant, Lyla waits tables, Noah is a bartender and Quincy works retail? (These are the jobs that have made up a bulk of the employment increases since 2009. They are also in the lower wage paying scales which makes the problem of savings for difficult.)  This is also why Millennials are setting new records for living with their parents.

  “Young people started moving out mid-century as they became more economically independent, and by 1960 only 24% of young adults total—men and women—were living with mom and dad. But that number has been rising ever since, and in 2014, the number of young women living with their parents eclipsed 1940s—albeit by less than a percentage point. And last year 43% of young men were living at home, which is the highest rate since 1940.”

  

  “But Lance, wages have been rising recently. That helps, right?”

  While we have, at long last, seen an uptick in wages recently, the growth rate of wages remains well behind levels seen prior to the financial crisis. Wage growth remains woefully behind levels of rising healthcare, food and other related living costs that eat up a substantial portion of incomes reducing the ability to save.

  

  Stocks Do Not Deliver Compound Rates Of Return

  The second major problem with JPM’s analysis is the assumption that stocks deliver compounded returns over the long-term. This is one of the biggest fallacies perpetrated by Wall Street on individuals in the effort to entice them to sink their money in “fee-based” investment strategies and forget about them.

  Compound returns ONLY occur in investments that have a return of principal function and an interest rate such as CD’s or Bonds (not bond funds.)  This is not the case with stocks as I have explained previously:

  “First, while over the long-term (1900-Present) the average rate of return may have been 10% (total return), the markets did not deliver 10% every single year.  As I discussed just recently, a loss in any given year destroys the ‘compounding effect:’

   

  Let’s assume an investor wants to compound their investments by 10% a year over a 5-year period.”

  

  “The ‘power of compounding’ ONLY WORKS when you do not lose money. As shown, after three straight years of 10% returns, a drawdown of just 10% cuts the average annual compound growth rate by 50%.

   

  Furthermore, it then requires a 30% return to regain the average rate of return required. In reality, chasing returns is much less important to your long-term investment success than most believe.”

  Secondly, while JPM’s assessment shows a nice smooth acceleration of wealth for the four individuals, there is a huge difference that occurs when accounting for the variability of returns during a long-term investment period.  To wit:

  “Here is another way to view the difference between what was ‘promised,’ versus what ‘actually’ happened. The chart below takes the average rate of return, and price volatility, of the markets from the 1960’s to present and extrapolates those returns into the future.”

  

  “When imputing volatility into returns, the differential between what investors were promised (and this is a huge flaw in financial planning) and what actually happened to their money is substantial over the long-term.”

  Lastly, and probably the most critical point, is valuation level of the market when these individuals began the saving and investing program.

  The problem for Chloe and her friends is that valuation levels are currently at some of the highest levels recorded in market history. The chart below shows REAL rolling returns for stock-based investments over 20-year time frames at various valuation levels throughout history.

  

  Of course, none of this even includes the negative impacts to individuals and their savings due to the emotional and psychological impact of market volatility over time. As I discussed previously in “Dalbar: Why Investors Suck:” 

  “In 2014, the average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19%. The broader market return was more than double the average equity mutual fund investor’s return. (13.69% vs. 5.50%).”

  

  Why is this? Well, according to Dalbar, there are three primary reasons:

  • 25% Lack of capital to invest (Chloe can’t save $10,000 a year)
  • 25% Capital needed for something else. (Noah is paying off student loan debt.)
  • 50% Were directly related to psychological and emotional factors.

  Of course, after years of watching their parents slaughtered by two massive bear markets, which Wall Street never warned of and were directly responsible for, is it any wonder that “trust” is a major issue? 

  

  See the problem here for Wall Street?

  What Millennial’s, and everyone else, is starting to figure out is that Wall Street is not there to help you, but only to help themselves. “Long-term” and “buy-and-hold” investment strategies are good for Wall Street’s bottom lines as the annuitized revenue stream accrues each year. Unfortunately, for individuals, the results between what is promised and what actually occurs continues to be two entirely different things and generally not for the better. 

  Don’t misunderstand me. Should individuals invest in the financial markets? Absolutely. However, it should be done with a solid investment discipline that takes into account the importance of managing volatility and psychological investment risks. There are many great advisors that do exactly that, unfortunately, they generally aren’t found on the front pages of investment publications or in the financial media.

  Of course, the problem to solve first is getting Millennial’s out of their parents basements and back into the work force. Having a job makes it easier to start investing to begin with.

  

  

  

  

  

• JPM Looks At Draghi's "Package," Calls It "Solid," But Underwhelming

  Earlier this month, JPMorgan’s Jan Loeys revealed that the bank is underweight equities “for the first time this cycle.”

  Why? Well, allow Jan to explain it to you:

  The fundamentals of growth, earnings and recession risk have not improved, and if anything have worsened. We remain wary of the near-empty ammo box of policy makers. Our 12-month-out US recession odds have risen to 1/3. But even with no recession this year or next, we see US earnings rising only slowly by low single digits and see little to boost multiples. The eventual recession should bring US stocks down some 30%, creating a strong downward risk skew to returns over the next few years.

  That came just a day after Mislav Matejka suggested one reason to avoid buying this market: namely that even as equities were down 3% on the year going into March, multiples were actually higher than they were on January 1.

  On Monday, we get the latest from Matejka. His advice: fade the ECB. To wit:

  Having advocated for a tradeable rebound since 15th February, we called last week to start fading the bounce, looking for the rally to peter out. We reiterate the view that one should be using the latest announcement of additional ECB stimulus as an opportunity to cut exposure, a case of “travel and arrive”.

  While Draghi made every effort to atone for disappointing markets in early December by throwing the Keynesian kitchen sink at things last week, JPM thinks the outlook for inflation (which is of course still abysmal) and less focus on the currency wars makes Draghi’s “package” “solid” but ultimately underwhelming:

  ECB clearly tried to put last December’s disappointment behind it by moving deeper into negative rates territory, offering four additional TLTROs and increasing the pace and scope of asset purchases. On the negative side, the forward inflation targets were downgraded substantially, ECB didn’t address the issue of capacity constraints, and the shift in focus away from facilitating further currency depreciation will, in our view, end up being a negative for region’s equity market. Overall, we believe the latest package is far from a game changer.

   

  
  

  And besides, the bank goes on to point out, so far NIRP has done… well… not much of anything:

  Looking at past examples of negative interest rates, in Switzerland, Japan, Sweden and Denmark, the impact on economic activity was muted, with no boost to consumer confidence or IP. Credit growth also failed to strengthen once negative interest rates were introduced. Equity markets typically struggled to perform in the backdrop of negative interest rates. Inflation metrics remained subdued, the direction of bond yields was down and the shape of the yield curve flattened. At the sector level, Banks unsurprisingly showed a consistently poor performance in the NIRP backdrop in every region that implemented it.

  There’s nothing good about any of that if you’re central banks experimenting in NIRPdom. Here’s a look at how “effective” NIRP has been across countries:

  

  As JPM goes on to note, “both IP and consumer confidence are weaker today than they were when NIRP was announced, in most cases, PMIs have also weakened in most places since NIRPs started, [and] only Danish stocks have moved up since the deposit rate was cut to negative territory.”

  So how should you play Draghi’s new “package,” you ask? European insurers. Why? Simple. They have quite a bit of corporate debt on their books and Draghi is about to drive a rally in IG: 

  ECB purchases are likely to lead to tighter spreads, which should help asset values and reduce default potential through cheaper refinancing. Insurance is the sector displaying the largest inverse correlation to IG spreads.

  
  

  

  So don’t expect the ECB’s kitchen sink to do much for equities at the index level. Or for the economy. Or for inflation. And on balance it’s likely to be bad for banks given the observed propensity for flatter yield curves under NIRP. 

  But if you’re so inclined, you can play the insurers in hopes Draghi can drive significant spread compression. Then again, maybe by buying corporate debt, the ECB can unleash a buyback bonanza in Europe. Perhaps that would help index returns under NIRP.

  Of course it still won’t do much for the real economy or inflation. Just ask Janet Yellen.

  

  

  

  

  

• Loretta Lynch And The Government War On Free Speech

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

  During her appearance before the Senate Judiciary Committee last week, Attorney General Loretta Lynch admitted that she asked the FBI to examine whether the federal government should take legal action against so-called climate change deniers. Attorney General Lynch is not responding to any criminal acts committed by climate change skeptics. Instead, she is responding to requests from those frustrated that dissenters from the alleged climate change consensuses have successfully blocked attempts to create new government programs to fight climate change.

  These climate change censors claim that the argument over climate change is settled and the deniers’ success in blocking congressional action is harming the public. Therefore, the government must disregard the First Amendment and silence anyone who dares question the reigning climate change dogma. This argument ignores the many reputable scientists who have questioned the magnitude, effects, and role of human action in causing climate change.

  If successful, the climate change censors could set a precedent that could silence numerous other views. For example, many people believe the argument over whether we should audit, and then end, the Federal Reserve is settled. Therefore, the deniers of Austrian economics are harming the public by making it more difficult for Congress to restore a free-market monetary policy. So why shouldn’t the government silence Paul Krugman?

  The climate change censorship movement is part of a larger effort to silence political speech. Other recent examples include the IRS’s harassment of tea party groups as well as that agency’s (fortunately thwarted) attempt to impose new rules on advocacy organizations that would have limited their ability to criticize a politician’s record in the months before an election.

  The IRS and many state legislators and officials are also trying to force public policy groups to hand over the names of their donors. This type of disclosure can make individuals fearful that, if they support a pro-liberty group, they will face retaliation from the government.

  Efforts to silence government critics may have increased in recent years; however, the sad fact is the US Government has a long and shameful history of censoring speech. It is not surprising that war and national security have served as convenient excuses to limit political speech. So-called liberal presidents Woodrow Wilson and Franklin Roosevelt both supported wartime crackdowns on free speech.

  Today, many neoconservatives are using the war on terror to justify crackdowns on free speech, increased surveillance of unpopular religious groups like Muslims, and increased government control of social media platforms like Facebook and Twitter. Some critics of US foreign policy have even been forbidden to enter the country.

  Many opponents of government restrictions on the First Amendment and other rights of Muslims support government actions targeting so-called “right-wing extremists.” These fair-weather civil liberties defenders are the mirror image of conservatives who support restricting the free speech rights of Muslims in the name of national security, yet clam to oppose authoritarian government. Defending speech we do not agree with is necessary to effectively protect the speech we support.

  A government that believes it can run our lives, run the economy, and run the world will inevitably come to believe it can, and should, have the power to silence its critics. Eliminating the welfare-warfare state is the key to protecting our free speech, and other liberties, from an authoritarian government.

  

  

  

  

  

• Wedbush Warns "A Trump Victory Will Send Stocks Down 50%"

  "The Fed has consistently missed every recession and every depression" says Wedbush's Ian Winer, as he explains to BNN why watching the bond market and not this week's FOMC "dot plot" is more insightful, "expecting the economy to be mired in modest growth with at most 2 rate hikes this year."

  But then Winer goes full bear-tard as he opines on tomorrow's super-super-super-Tuesday noting that "people are very concerned about any outcome other than Hillary Clinton," ominously warning that "if Trump wins Florida and Ohio then the market will get very nervous."

  "If Trump or Bernie Sanders wins, I would pretty much go live anywhere but here [in the US]… if either of these two become President, buy canadian real estate… and be nervous of Florida and Arizona real estate."

   

  "If [Trump] sticks to his word and his 3rd grade economics, then we would be in trouble…"

   

  "If Trump becomes President of this country, The S&P will go to 1,000… people are brushing it off but there is absolutely no way that this market and this economy does not get pounded."

  Full interview (via BNN)…

  

  

  

  

  

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• Hybrid Wars Part 1: Disrupting Multipolarism Through Provoked Conflict

  Submitted by Andrew Korybko via OrientalReview.org,

  The Law Of Hybrid Warfare

  Hybrid War is one of the most significant strategic developments that the US has ever spearheaded, and the transitioning of Color Revolutions to Unconventional Wars is expected to dominate the destabilizing trends of the coming decades. Those unaccustomed to approaching geopolitics from the Hybrid War perspective might struggle to understand where the next ones might occur, but it’s actually not that difficult to identify the regions and countries most at risk of falling victim to this new form of aggression. The key to the forecast is in accepting that Hybrid Wars are externally provoked asymmetrical conflicts predicated on sabotaging concrete geo-economic interests, and proceeding from this starting point, it’s relatively easy to pinpoint where they might strike next.

  The series begins by explaining the patterns behind Hybrid War and deepening the reader’s comprehension of its strategic contours. Afterwards, we will prove how the previously elaborated framework has indeed been at play during the US’ Wars on Syria and Ukraine, its first two Hybrid War victims. Next part reviews all of the lessons that have been learned thus far and applies them in forecasting the next theaters of Hybrid War and the most vulnerable geopolitical triggers within them. Subsequent additions to the series will thenceforth focus on those regions and convey why they’re so strategically and socio-politically vulnerable to becoming the next victims of the US’ post-modern warfare.

  Patterning The Hybrid War

  

  The first thing that one needs to know about Hybrid Wars is that they’re never unleashed against an American ally or anywhere that the US has premier preexisting infrastructural interests. The chaotic processes that are unleashed during the post-modern regime change ploy are impossible to fully control and could potentially engender the same type of geopolitical blowback against the US that Washington is trying to directly or indirectly channel towards its multipolar rivals. Correspondingly, this is why the US won’t ever attempt Hybrid War anywhere that it has interests which are “too big to fail”, although such an assessment is of course contemporaneously relative and could quickly change depending on the geopolitical circumstances. Nevertheless, it remains a general rule of thumb that the US won’t ever intentionally sabotage its own interests unless there’s a scorched-earth benefit in doing so during a theater-wide retreat, in this context conceivably in Saudi Arabia if the US is ever pushed out of the Mideast.

  Geostrategic-Economic Determinants:

  Before addressing the geo-economic underpinnings of Hybrid War, it’s important to state out that the US also has geostrategic ones as well, such as entrapping Russia in a predetermined quagmire. The “Reverse Brzezinski”, as the author has taken to calling it, is simultaneously applicable to Eastern Europe through Donbass, the Caucasus through Nagorno-Karabakh, and Central Asia through the Fergana Valley, and if synchronized through timed provocations, then this triad of traps could prove lethally efficient in permanently ensnaring the Russian bear. This Machiavellian scheme will always remain a risk because it’s premised on an irrefutable geopolitical reality, and the best that Moscow can do is try to preempt the concurrent conflagration of its post-Soviet periphery, or promptly and properly respond to American-provoked crises the moment they emerge. The geostrategic elements of Hybrid War are thus somewhat inexplicable from the geo-economic ones, especially in the case of Russia, but in making the examined pattern more broadly pertinent to other targets such as China and Iran, it’s necessary to omit the “Reverse Brzezinski” stratagem as a prerequisite and instead focus more on the economic motivations that the US has in each instance.

  The grand objective behind every Hybrid War is to disrupt multipolar transnational connective projects through externally provoked identity conflicts (ethnic, religious, regional, political, etc.) within a targeted transit state.

  This template can clearly be seen in Syria and Ukraine and is the Law of Hybrid Warfare. The specific tactics and political technologies utilized in each destabilization may differ, but the strategic concept remains true to this basic tenet. Taking this end goal into account, it’s now possible to move from the theoretical into the practical and begin tracing the geographic routes of various projects that the US wants to target. To qualify, the multipolar transnational connective projects being referred to could be either energy-based, institutional, or economic, and the more overlap that there is among these three categories, the more likely it is that a Hybrid War scenario is being planned for a given country.

  Socio-Political Structural Vulnerabilities:

  Once the US has identified its target, it begins searching for the structural vulnerabilities that it will exploit in the coming Hybrid War. Contextually, these aren’t physical objects to be sabotaged such as power plants and roads (although they too are noted, albeit by different destabilization teams), but socio-political characteristics that are meant to be manipulated in order to attractively emphasize a certain demographic’s “separateness” from the existing national fabric and thus ‘legitimize’ their forthcoming foreign-managed revolt against the authorities.

  

   

  The following are the most common socio-political structural vulnerabilities as they relate to the preparation for Hybrid War, and if each of them can be tied to a specific geographic location, then they become much more likely to be used as galvanizing magnets in the run-up to the Color Revolution and as preliminary territorial demarcations for the Unconventional Warfare aspect afterwards:

  * ethnicity

  * religion

  * history

  * administrative boundaries

  * socio-economic disparity

  * physical geography

  The greater the overlap that can be achieved among each of these factors, the stronger the Hybrid War’s potential energy becomes, with each overlapping variable exponentially multiplying the coming campaign’s overall viability and ‘staying power’.

  Preconditioning:

  Hybrid Wars are always preceded by a period of societal and structural preconditioning. The first type deals with the informational and soft power aspects that maximize key demographics’ acceptance of the oncoming destabilization and guide them into believing that some type of action (or passive acceptance of others’ thereof) is required in order to change the present state of affairs. The second type concerns the various tricks that the US resorts to in order to have the target government unintentionally aggravate the various socio-political differences that have already been identified, with the goal of creating cleavages of identity resentment that are then more susceptible to societal preconditioning and subsequent NGO-directed political organizing (linked in most cases to the Soros Foundation and/or National Endowment for Democracy).

  To expand on the tactics of structural preconditioning, the most commonly employed and globally recognized one is sanctions, the implicit goal of which (although not always successful) has always been to “make life more difficult” for the average citizen so that he or she becomes more amenable to the idea of regime change and is thus more easily shepherded into acting upon these externally instilled impulses. Less known, however, are the more oblique, yet presently and almost ubiquitously implemented, methods of achieving this goal, and this surrounds the power that the US has to affect certain budgetary functions of targeted states, namely the amount of revenue that they receive and what precisely they spend it on.

  The global slump in energy and overall commodity prices has hit exporting states extraordinarily hard, many of which are disproportionately dependent on such selling such resources in order to satisfy their fiscal ends, and the decrease in revenue almost always leads to eventual cuts in social spending. Parallel with this, some states are facing American-manufactured security threats that they’re forced to urgently respond to, thus necessitating them to unexpectedly budget more money to their defense programs that could have otherwise been invested in social ones. On their own, each of these ‘tracks’ is designed to decrease the government’s social expenditure so as to incubate the medium-term conditions necessary for enhancing the prospects of a Color Revolution, the first stage of Hybrid Warfare. In the event that a state experiences both limited revenue intake and an unexpected need to hike its defense budget, then this would have a compound effect on cutting social services and might even push the Color Revolution timeframe forward from the medium- to short-term, depending on the severity of the resultant domestic crisis and the success that the American-influenced NGOs have in politically organizing the previously examined identity blocs against the government.

  *  *  *

  Andrew Korybko's book: "Hybrid Wars: The Indirect Approach To Regime Change" can be downloaded here.

  

  

  

  

  

• Mystery HFT "Dude" Is Crushing The Turkey Stock Market

  "There’s a giant bull in the [Turkey stock market] china shop," exclaims one trader, but (unsually for Turkey), "nobody knows anything for sure" about who he, she, or it is. As Bloomberg reports, a mystery investor who first appeared a year and a half ago with $450 million of bets on a single day, almost double the market average, is now executing major transactions with increasing frequency, scaring away competitors who can’t figure out when he or she will strike next, traders and bankers said.

  Turgay Ozaner and his partners at Istanbul Portfolio have been scouring the official daily trading recap for months for signs of the shadowy figure’s identity, but it’s a code they’ve yet to crack. As Bloomberg reports,

  “Nobody knows anything for sure,” Ozaner said in his office in a picturesque neighborhood on the shores of the Bosporus. “And this is Turkey, where usually we all know what’s going on.”

   

  At least one European bank’s clients have stopped taking short-term positions in Turkish stocks after concluding the investor is using an algorithmic system in which complex formulas decide trades, while others are avoiding the market until they have more information, a person familiar with the matter said.

   

  “Herif,” or “the dude,” has helped lift the average daily trading volume on the Borsa Istanbul almost 8 percent this year, compared with a 15 percent decline on the main exchange in Warsaw and a 27 percent plunge in Moscow, data compiled by Bloomberg show.

   

  

   

  The Borsa Istanbul 100 Index has advanced 13 percent in the period, outpacing Russia’s Micex and Poland’s WIG20.

  It’s not rare in emerging markets for a single player to move an index via short-term trades, especially in countries like Turkey that depend on foreign inflows. But nobody in Istanbul has seen anything like what is happening now.

  “There’s a giant bull in the china shop,” said Kerem Baykal, a fund manager who oversees about $610 million at Ak Portfoy. “He’s got deeper pockets than anyone else in the game and can move the market in any direction.”

  Whoever it is seems to have skipped from one local brokerage to the next honing his system and turning the latest, Yatirim Finansman, into the biggest net buyer on the market by far.

  Closely held Yatirim Finansman, which handled less than 2 percent of all trades two years ago, now accounts for the majority on some days.

   

  On Feb. 22, for example, the brokerage placed buy orders for 486 million liras ($167 million) of shares, about 15 times more than Merrill Lynch, the second-biggest dealer that day, according to official data. And in the 16 trading days to March 8, it registered almost 1 billion liras of buy orders for Turkey’s six largest banks and Turkish Airlines — helping push the Borsa index to consecutive three-month highs.

   

  

   

  In all of January and February, Yatirim Finansman bought a net 1.23 billion liras of stock, almost 70 percent more than the next largest buyer, UBS Menkul Degerler AS. This is why Istanbul Portfolio’s Ozaner said the secretive buyer is now “making the market.”

  However, as Bloomberg concludes, the bigger issue may not be who "the dude" is, but what it is, according to Isik Okte, an investment strategist at TEB Invest/BNP Paribas.

  One thing the three brokerages have in common is an ability to accommodate high-frequency traders — firms that rely on algorithms rather than humans to execute their trading ideas.

   

  Borsa Istanbul moved its servers to a new data center late last year in the hope of attracting business from automated traders before it restarts its long-delayed initial public offering. HFT firms often place their servers in the same center to get the fastest possible connection to an exchange’s computers.

   

  Okte said he’s convinced the unknown investor is doing just that.

   

  “This algo guy just discovered a new market and he’s running his own show because there’s not enough competition, but it will come,” Okte said. “We are in the very early stages, but we know from developed markets that machines always win this game.”

  Making us wonder if that is the new 'game' – seek smaller, younger algo-friendly markets to exploit… but we thought these were liquidity-providers? We assume – until Borsa istanbul has a flash-crash – Erdogan's totalitarian administration will allow (and encourage) "the dude" to lift the stock market, after all, a higher stock market proves he is doing everything right.

  

  

  

  

  

• Energy Wars Of Attrition – The Irony Of Oil Abundance

  Authored by Michael Klare via TomDispatch.com,

  Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.

  The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity.  The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations.

  Understandably enough, the stunning increase in North American oil production in the past few years simply wasn’t on their radar. According to the Energy Information Administration (EIA) of the Department of Energy, U.S. crude output rose from 5.5 million barrels per day in 2010 to 9.2 million barrels as 2016 began, an increase of 3.7 million barrels per day in what can only be considered the relative blink of an eye. Similarly unexpected was the success of Canadian producers in extracting oil (in the form of bitumen, a semi-solid petroleum substance) from the tar sands of Alberta. Today, the notion that oil is becoming scarce has all but vanished, and so have the benefits of a new era of petroleum plenty being touted, until recently, by energy analysts and oil company executives.

  “The picture in terms of resources in the ground is a good one,” Bob Dudley, the chief executive officer of oil giant BP, typically exclaimed in January 2014.  “It’s very different [from] past concerns about supply peaking.  The theory of peak oil seems to have, well, peaked.”

  The Arrival of a New Energy Triumphalism

  With the advent of North American energy abundance in 2012, petroleum enthusiasts began to promote the idea of a “new American industrial renaissance” based on accelerated shale oil and gas production and the development of related petrochemical enterprises.  Combine such a vision with diminished fears about reliance on imported oil, especially from the Middle East, and the United States suddenly had — so the enthusiasts of the moment asserted — a host of geopolitical advantages and fresh life as the planet’s sole superpower.

  “The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere,” oil industry adviser Daniel Yergin proclaimed in the Washington Post.  “The new energy axis runs from Alberta, Canada, down through [the shale fields of] North Dakota and South Texas… to huge offshore oil deposits found near Brazil.”  All of this, he asserted, “points to a major geopolitical shift,” leaving the United States advantageously positioned in relation to any of its international rivals.

  If the blindness of so much of this is beginning to sound a little familiar, the reason is simple enough.  Just as the peak oil theorists failed to foresee crucial technological breakthroughs in the energy world and how they would affect fossil fuel production, the industry and its boosters failed to anticipate the impact of a gusher of additional oil and gas on energy prices.  And just as the introduction of fracking made peak oil theory irrelevant, so oil and gas abundance — and the accompanying plunge of prices to rock-bottom levels — shattered the prospects for a U.S. industrial renaissance based on accelerated energy production.

  As recently as June 2014, Brent crude, the international benchmark blend, was selling at $114 per barrel.  As 2015 began, it had plunged to $55 per barrel.  By 2016, it was at $36 and still heading down.  The fallout from this precipitous descent has been nothing short of disastrous for the global oil industry: many smaller companies have already filed for bankruptcy; larger firms have watched their profits plummet; whole countries like Venezuela, deeply dependent on oil sales, seem to be heading for receivership; and an estimated 250,000 oil workers have lost their jobs globally (50,000 in Texas alone).

  In addition, some major oil-producing areas are being shut down or ruled out as likely future prospects for exploration and exploitation.  The British section of the North Sea, for example, is projected to lose as many as 150 of its approximately 300 oil and gas drilling platforms over the next decade, including those in the Brent field, the once-prolific reservoir that gave its name to the benchmark blend.  Meanwhile, virtually all plans for drilling in the increasingly ice-free waters of the Arctic have been put on hold.

  Many reasons have been given for the plunge in oil prices and various “conspiracy theories” have arisen to explain the seemingly inexplicable.  In the past, when prices fell, the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would curtail production to push them higher.  This time, they actually increased output, leading some analysts to suggest that Riyadh was trying to punish oil producers Iran and Russia for supporting the Assad regime in Syria.  New York Times columnist Thomas Friedman, for instance, claimed that the Saudis were trying to “bankrupt” those countries “by bringing down the price of oil to levels below what both Moscow and Tehran need to finance their budgets.” Variations on this theme have been advanced by other pundits.

  The reality of the matter has turned out to be significantly more straightforward: U.S. and Canadian producers were adding millions of barrels a day in new production to world markets at a time when global demand was incapable of absorbing so much extra crude oil.  An unexpected surge in Iraqi production added additional crude to the growing glut.  Meanwhile, economic malaise in China and Europe kept global oil consumption from climbing at the heady pace of earlier years and so the market became oversaturated with crude.  It was, in other words, a classic case of too much supply, too little demand, and falling prices.  “We are still seeing a lot of supply,” said BP’s Dudley last June.  “There is demand growth, there’s just a lot more supply.”

  A War of Attrition

  Threatened by this new reality, the Saudis and their allies faced a painful choice.  Accounting for about 40% of world oil output, the OPEC producers exercise substantial but not unlimited power over the global marketplace.  They could have chosen to rein in their own production and so force prices up.  There was, however, little likelihood of non-OPEC producers like Brazil, Canada, Russia, and the United States following suit, so any price increases would have benefitted the energy industries of those countries most, while undoubtedly taking market share from OPEC. However counterintuitive it might have seemed, the Saudis, unwilling to face such a loss, decided to pump more oil.  Their hope was that a steep decline in prices would drive some of their rivals, especially American oil frackers with their far higher production expenses, out of business.  “It is not in the interest of OPEC producers to cut their production, whatever the price is,” the Saudi oil minister Ali al-Naimi explained.  “If I reduce [my price], what happens to my market share?  The price will go up and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

  In adopting this strategy, the Saudis knew they were taking big risks.  About 85% of the country’s export income and a staggeringly large share of government revenues come from petroleum sales.  Any sustained drop in prices would threaten the royal family’s ability to maintain public stability through the generous payments, subsidies, and job programs it offers to so many of its citizens.  However, when oil prices were high, the Saudis socked away hundreds of billions of dollars in various investment accounts around the world and are now drawing on those massive cash reserves to keep public discontent to a minimum (even while belt-tightening begins).  “If prices continue to be low, we will be able to withstand it for a long, long time,” Khalid al-Falih, the chairman of Saudi Aramco, the kingdom’s national oil company, insisted in January at the World Economic Forum in Davos, Switzerland.

  The result of all this has been an “oil war of attrition” — a struggle among the major oil producers for maximum exposure in an overcrowded energy bazaar. Eventually, the current low prices will drive some producers out of business and so global oversupply will assumedly dissipate, pushing prices back up. But how long that might take no one knows. If Saudi Arabia can indeed hold out for the duration without stirring significant domestic unrest, it will, of course, be in a strong position to profit when the price rebound finally occurs.

  It is not yet certain, however, that the Saudis will succeed in their drive to crush shale producers in the United States or other competitors elsewhere before they drain their overseas investment accounts and the foundations of their world begin to crumble. In recent weeks, in fact, there have been signs that they are beginning to get nervous.  These include moves to reduce government subsidies and talks initiated with Russia and Venezuela about freezing, if not reducing, output.

  An Oil Glut Unleashes “World-Class Havoc”

  In the meantime, there can be no question that the war of attrition is beginning to take its toll.  In addition to hard-hit Arctic and North Sea producers, companies exploiting Alberta’s Athabasca tar sands are exhibiting all the signs of an oncoming crisis.  While most tar sands outfits continue to operate (often at a loss), they are now postponing or cancelling future projects, while the space between the future and the present shrinks ominously.

  Just about every firm in the oil business is being hurt by the new price norms, but hardest struck have been those that rely on “unconventional” means of extraction like Brazilian deep-sea drilling, U.S. hydro-fracking, and Canadian tar sands exploitation.  Such techniques were developed by the major companies to compensate for an expected long-term decline in conventional oil fields (those close to the surface, close to shore, and in permeable rock formations).  By definition, unconventional or “tough oil” requires more effort to pry out of the ground and so costs more to exploit.  The break-even point for tar sands production, for example, sometimes reaches $80 per barrel, for shale oil typically $50 to $60 a barrel.  What isn’t a serious problem when oil is selling at $100 a barrel or more becomes catastrophic when it languishes in the $30 to $40 range, as it has over much of the past half-year.

  And keep in mind that, in such an environment, as oil companies contract or fail, they take with them hundreds of smaller companies — field services providers, pipeline builders, transportation handlers, caterers, and so on — that benefitted from the all-too-brief “energy renaissance” in North America.  Many have already laid off a large share of their workforce or simply been driven out of business.  As a result, once-booming oil towns like Williston, North Dakota, and Fort McMurray, Alberta, have fallen into hard times, leaving their “man camps” (temporary housing for male oil workers) abandoned and storefronts shuttered.

  In Williston — once the epicenter of the shale oil boom — many families now line up for free food at local churches and rely on the Salvation Army for clothes and other necessities, according to Tim Marcin of the International Business Times.  Real estate has also been hard hit.  “As jobs dried up and families fled, some residential neighborhoods became ghost towns,” Marcin reports. “City officials estimated hotels and apartments, many of which were built during the boom, were at about 50-60% occupancy in November.”

  Add to this another lurking crisis: the failure or impending implosion of many shale producers is threatening the financial health of American banks which lent heavily to the industry during the boom years from 2010 to 2014.  Over the past five years, according to financial data provider Dealogic, oil and gas companies in the United States and Canada issued bonds and took out loans worth more than $1.3 trillion.  Much of this is now at risk as companies default on loans or declare bankruptcy.  Citibank, for example, reports that 32% of its loans in the energy sector were given to companies with low credit ratings, which are considered at greater risk of default.  Wells Fargo says that 17% of its energy exposure was to such firms.  As the number of defaults has increased, banks have seen their stock values decline, and this — combined with the falling value of oil company shares — has been rattling the stock market.

  The irony, of course, is that the technological breakthroughs so lauded in 2012 for their success in enhancing America’s energy prowess are now responsible for the market oversupply that is bringing so much misery to people, companies, and communities in North America’s oil patches.  “At the beginning of 2014, [the U.S.] was pumping so much oil and gas that experts foresaw a new American industrial renaissance, with trillions of dollars in investments and millions of new jobs,” commented energy expert Steve LeVine in February.   Two years later, he points out, “faces are aghast as the same oil instead has unleashed world-class havoc.”

  The Geopolitical Scorecard From Hell

  If that promised new industrial renaissance has failed to materialize, what about the geopolitical advantages that new oil and gas production was to give an emboldened Washington? Yergin and others asserted that the surge in North American output would shift the center of gravity of world production to the Western Hemisphere, allowing, among other things, the export of U.S. liquefied natural gas, or LNG, to Europe.  That, in turn, would diminish the reliance of allies like Germany on Russian gas and so increase American influence and power.  We were, in other words, to be in a new triumphalist world in which the planet’s sole superpower would benefit greatly from, as energy analysts Amy Myers Jaffe and Ed Morse put it in 2013, a “counterrevolution against the energy world created by OPEC.”

  So far, there is little evidence of such a geopolitical bonanza.  In Saudi attrition-war fashion, for instance, Russia’s natural gas giant Gazprom has begun lowering the price at which it sells gas to Europe, rendering American LNG potentially uncompetitive in markets there.  True, on February 25th, the first cargo of that LNG was shipped to foreign markets, but it was destined for Brazil, not Europe.

  Meanwhile, Brazil and Canada — two anchors of the “new world oil map” predicted by Yergin in 2011 — have been devastated by the oil price decline.  Production in the United States has not yet suffered as greatly, thanks largely to increased efficiency in the producing regions.  However, pillars of the new industry are starting to go out of business or are facing possible bankruptcy, while in the global war of attrition, the Saudis have so far retained their share of the market and are undoubtedly going to play a commanding role in global oil deals for decades to come (assuming, of course, that the country doesn’t come apart at the seams under the strains of the present oil glut).  So much for the “counterrevolution” against OPEC.  Meanwhile, the landscapes of Texas, Pennsylvania, North Dakota, and Alberta are increasingly littered with the rusting detritus of a brand-new industry already in decline, and American power is no more robust than before.

  In the end, the oil attrition wars may lead us not into a future of North American triumphalism, nor even to a more modest Saudi version of the same, but into a strange new world in which an unlimited capacity to produce oil meets an increasingly crippled capitalist system without the capacity to absorb it.

  Think of it this way: in the conflagration of the take-no-prisoners war the Saudis let loose, a centuries-old world based on oil may be ending in both a glut and a hollowing out on an increasingly overheated planet. A war of attrition indeed.

  

  

  

  

  

• "There Won't Be A Wave Of Layoffs," "No Stimulus Is Needed": China Insists That No One Panic

  It would funny to watch as Chinese policymakers attempt to pull off the impossible if it weren’t so downright frightening.

  Beijing, long the global engine for growth and trade, finds itself at a rather vexing crossroads. NBS protestations to the contrary, the Chinese economy is decelerating rapidly in the face of a massive rebalancing towards consumption and services-led growth. The country’s move away from a smokestack economy has for all intents and purposes reset assumptions regarding how we think about global trade.

  When the perpetual commodities bid from China disappeared, it became quickly apparent that sluggish growth may simply be something the world has to live with for the foreseeable future – especially considering the malaise gripping Brazil and Russia and uncertainties around whether or not India will be able to carry the entirety of the BRICS’ burden.

  The problem for the Chinese is that although they have far greater counter-cyclical policy room than does the US or Europe, they’re effectively hamstrung by a massive debt burden that amounts to more than 250% of GDP. You don’t necessarily want to go adding more leverage at a time when an acute overcapacity problem and the attendant slump in commodities has created a situation wherein entire swaths of the industrial sector aren’t able to service their existing debt.

  

  But without more leverage, the economic deceleration becomes even more acute. Which leads us to the conclusion we drew long ago: China is attempting to deleverage and re-leverage at the same time – and that’s obviously impossible. You can see examples of this policy schizophrenia everywhere. For instance, in January, TSF grew by a massive $500 billion and yet meanwhile, Beijing is busy discussing how to kill off unprofitable, highly indebted “zombie companies.”

  The proverbial cherry on top is the yuan devaluation debacle which makes it difficult for the PBoC to ease further if they want to avoid exacerbating expectations of a much weaker currency – expectations that led directly to massive capital outflows last year.

  It’s with all of that in mind that we bring you comments from two prominent Chinese officials, People’s Bank of China Governor Zhou Xiaochuan and Xiao Yaqing, who oversees the government commission that looks after state assets.

  Speaking on the state of the Chinese economy and whether the PBoC will ultimately be forced to do more if things continue on the trajectory they’re on, Zhou did his best to put on a brave face. “Excessive monetary policy stimulus isn’t necessary to achieve the target,” he said, referring to the country’s 6.5% growth goal over five years. “If there isn’t any big economic or financial turmoil, we’ll keep prudent monetary policy,” he added.

  Someone apparently forgot to tell Zhou that there indeed is quite a bit of “big economic and financial” turmoil and it emanates from China in the form of the collapsing economy and the carnage wrought in global markets by the bank’s bungled attempt to devalue the RMB.

  In any event, he had other soothing words for a market that increasingly looks at China more as a source of turmoil than as the bedrock of the global economy. “There’s no need,” he said, “for anyone to buy dollars in a rush” even though the PBoC is “unable to forecast if the yuan’s volatility will end.” Further, “China won’t rely on exports for GDP growth, [but will instead] depend on domestic demand.” Good luck with that. It’s going swimmingly so far.

  

  (Zhou)

  If all of that doesn’t make you feel better about China’s prospects, then just ask the abovementioned Mr. Xiao how things are going with the effort to avoid bankruptcies and thus massive layoffs at SOEs.“The results have been quite good,” he told reporters on Saturday. “Over the past year, the government engineered the merging of 12 big state firms into six entities, mostly in energy and transportation,” WSJ writes, adding that “Mr. Xiao said his agency would press ahead with ‘more mergers and acquisitions’ in the state sector while de-emphasizing bankruptcies.”

  China definitely “won’t experience a wave of layoffs,” Xiao promised.

  Over the past several weeks, China has been keen to play down the extent to which eliminating excess capacity would trigger sweeping job losses after Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute told Xinhua that solving the overcapacity problem would likely cost 400,000 jobs and could plunge the country into social unrest. 

  As WSJ goes on to note, reforming and restructuring won’t be easy: “In years past, Beijing has sought to improve state companies’ efficiency through consolidation, with little success. For example, the government of Hebei province, which rings Beijing, merged two major steelmakers to create Hebei Iron and Steel Group. That firm went on to scoop up more companies but is now mired in losses and debt.”

  

  (Xiao)

  “[There are] unprecedented difficulties and challenges,” Zhang Xiwu, one of Xiao’s deputies admits.

  Amusingly, an Op-Ed by Joe Zhang that appeared in FT this week argues that SOEs may be a better answer than QE, ZIRP, and NIRP when it comes to shoring up the economy. “But there are other ways of stimulating demand. Why, for instance, do western governments refuse to set up state-owned enterprises that will create jobs?,” Zhang asks. “Are they really so much worse than QE and low or negative interest rates?” 

  Well, maybe not – except when they become massively indebted, fail, and everyone gets fired. When that happens then yes, yes they probably are “so much worse” despite the many perils of unconventional monetary policy.

  As we wrote when discussing Li Xinchuang’s comments regarding employment in the steel industry, “just how disconnected from reality China’s official unemployment rate is, both now and one year from today, will ultimately determine how violent the social upheaval will be when – as part of its hard-landing – China proceeds to lay off (tens of) millions of low-skilled workers leading to the inevitable violent response.”

  It would be a small (actually scratch that, a “very large”) miracle if Beijing is able to restructure the economy’s collection of elephantine SOEs without creating an employment crisis. And if, as Zhou says, China intends to depend on domestic consumption rather than exports to fuel growth, then the PBoC had better get to explaining how exactly it is that hundreds of thousands of recently jobless factory workers are going to be able to be power the hoped-for but still nascent transformation.

  

  

  

  

  

• Japan Is "Fixed" – Machine Orders Suddenly Spike By Most In Over 13 Years

  The Aussies did it with their employment data (and then admitted it), and now we see Japan’s Economic and Social reserch Institute post the most ridiculous macro print ever. Over 4 standard deviations from expectations and almost double the highest expectations, Japan Machinery Orders spiked 15.0% MoM – the biggest since Jan 2003.

  Up 15% MoM versus expectations for a 1.9% rise… the biggest beat since Feb 2009 (oddly coincidental given everything that is going on)
  

   

   

  Core machine orders Rise 8.4% y/y; est. -3.8%, Cabinet Office announces figures in Tokyo.

  Some context…

  

   

  We presume this means that Japan is “fixed” and there will be no need for additional extraordinarily idiotically experimental monetary policy this week?

  

  

  

  

  

• BeeR HaLL PuTZ…

  

  

  

  

  

• Much More Than Just Trump

  Authored by StraightLineLogic's Robert Gore via The Burning Platform blog,

  It started in Vietnam. The men who chose to fight for America on Vietnam’s front lines did so for honorable reasons. While there was no immediate threat to the US, some were concerned about falling dominoes and the march of communism. Some were animated by an idealistic desire to secure democracy and liberty in a land that had never known those blessings. Perhaps some went believing that if the leaders of the country said this war was in America’s best interests, it must be so. For those who were drafted, they did, perhaps reluctantly, what they perceived to be their duty.

  Whatever their motivations, those who fought found their idealism shattered. Many of the South Vietnamese they thought they were fighting “for” despised the US as the latest in a succession of imperial powers using a corrupt, puppet government as the cat’s paw for its domination. Short of total immolation of both friend and foe—it was often impossible to differentiate the two—there was no effective strategy against guerrilla warfare waged by the enemy fighting on its home turf. The Vietcong proved as difficult to vanquish as hordes of ants and mosquitos at a picnic. The victory the generals and politicians insisted was just another few months and troop deployments down the road never came, and the soldiers knew it never would, long before reality was acknowledged and the troops brought home.

  Brutal disillusionment gave way to abject disgust when they returned stateside. They cynically, but understandably, concluded that the antiwar protests had more to do with fear of the draft (there were no major protests after Nixon ended it), and readily available sex and drugs than heartfelt opposition to the war. That conclusion was buttressed by their reception from the antiwar crowd. If they were expecting support and understanding, they didn’t get it. The US victims of the war, those who fought it—the wounded, the physically and psychologically maimed, the dead—were branded as subhuman thugs and baby killers. It was the first time in the history of the US that a substantial swath of the population turned on those who had fought its wars. Those who fought regarded (or, in the case of the dead, would have regarded) those doing the branding as preening, posturing, spoiled children. A subterranean fault line split into a gaping fissure, since widened to a yawning chasm.

  The idea that the elite—by dint of their education, intelligence, rarified social circle, and moral sensibility— should rule had reached full florescence during the New Deal, when FDR and his so-called brain trust promised change that most Americans could believe in. Although the elite failed, prolonging the Great Depression, it seemingly redeemed itself directing World War II, leaving the US at an unprecedented pinnacle of global power. Forgetting the failures of the Depression and basking in the hubristic glow, a bipartisan coterie from Washington, Wall Street, industry, the military, and the Ivy League set out to order the world according to their dictates. The US would lead a confederated empire opposing the Soviet alliance. The epochal nature of the struggle justified, in their minds, whatever means were necessary to wage it, including propaganda, espionage, subversion, regime change, and war.

  While the Kennedy assassination offered the American public a glimpse into the heart of darkness, only a few independent-minded skeptics challenged the Warren Commission whitewash. Vietnam was different; hundreds of thousands returned knowing not just that the so-called best and brightest couldn’t win the war, but that for years they had lied to the American public. In the following decades, it had to have been especially galling for the Vietnam veterans that the hippies, draft-deferred campus protesters, the “fortunate sons” (google Credence Clearwater) whose numbers never came up, and the mockers of the values they held dear ended up among the elite. The Clintons, of course, became the prime example.

  Disaffected veterans were the core of a group that would grow to millions, their “faith” in government and the people who ran it obliterated by its repeated failures and lies. Revolutions dawn when an appreciable number of the ruled realize their rulers are intellectual and moral inferiors. The mainstream media is filled with vituperative, patronizing, and insulting explanations of what’s “behind” the Trump phenomenon. It all boils down to revulsion with the self-anointed, incompetent, pretentious hypocritical, corrupt, prevaricating elite that presumes to rule this country. It is, in a word, inferior to the populace on the other side of the yawning chasm, the ones they have patronized and insulted for decades, and the other side knows it.

  Peggy Noonan is one of the few mainstream writers who has tried to understand, rather than insult or condemn, the Trump phenomenon. In a widely cited article, she ascribed it to the split between the “protected,” those who run the government and its allied institutions, and the “unprotected,” the government’s and its allies’ victims (“Trump and the Rise of the Unprotected, The Wall Street Journal, 2/25/16). It was a nice try, but Ms. Noonan is trying to straddle a chasm that cannot be straddled. She writes for the Journal, an establishment organ, some of whose writers have been either so clueless or disingenuous that they have denied the existence of an establishment. And ultimately, the protected-unprotected differentiation doesn’t fly.

  Most Trump supporters don’t want the government to do something for them; they want the government to quit doing things to them. They viscerally revile the elite—it’s personal—and they want no part of that class or its government. They know how to take care of themselves, and many know the government hurts the most those whom it ostensibly protects.

  Elite sons and daughters have not been in the ranks of front line military that have fought the elite’s disastrous wars. The top and bottom of the service economy swell—lobbyists, political operatives, debt merchants, Internet wizards, lawyers, bureaucrats, waiters, bartenders, nurses, orderlies, sales clerks—while what used to be the heart of the economy—manufacturing—shrinks. The bailouts from the last financial crisis went to Wall Street, not the homeowners with underwater mortgages facing foreclosure. Whose pockets were picked to fund those bailouts? And whose pockets were picked to pay the higher insurance premiums necessary to fund the Obamacare disaster?

  It doesn’t take an Ivy League degree to know that the national debt, $19 trillion and counting, is a big, scary number, and that the unfunded Social Security and medical care liabilities coming due are even bigger, scarier numbers. It does, apparently, take an Ivy League degree to believe that more debt is the answer to our economic problems, or that microscopic or negative interest rates will do anything but fund carry-trade speculators and screw those trying to fund their own postponed retirements, or that the limping economy since the financial crisis has “recovered.” Idiotic blather fills the elite, mainstream media, while much truth is suppressed and debate stifled in the name of political correctness.

  Not much has changed since Vietnam. The decent besieged are taking fire from all sides, valiantly fighting their way through it, while preening, posturing, spoiled idiots congratulate themselves for running a once great country into the ground. It is a mark of the decent besieged’s decency that they are turning to the ballot box, the politically correct way to change a democratic government. The idiot class should be grateful for their forbearance. Instead, it resorts to means fair and foul to subvert them and maintain its power. Whether Trump does or does not make it all the way to the White House, the wave he’s riding will only grow stronger, tsunami-strength when the economy collapses and the world descends into war. If the idiot class and its rabble subvert him, a quote from John F. Kennedy, recently featured on SLL, will surely come back to haunt them.

  Those who make peaceful revolution impossible will make violent revolution inevitable.

  

  

  

  

  

• Throwing Off The Industrial Age Shackles

  By Chris at www.CapitalistExploits.at

  It was my daughter’s 10^th birthday on the weekend and, aside from a raft of giggling girls high on sugar, there was a standout gift from Mum and Dad that featured.

  A pair of soccer boots? Yeah, I know. She’s a girl and soccer is a boys’ sport, but this girl loves soccer and I’m all for it. Anything that gets her kicking something other than her brother features strongly on my list.

  Problem with these boots is that they’re actually a teensy bit small. She loves them to bits and insists they’re perfect but truth is they’re not really. A size up would probably be better but not perfect either as they’d be a wee bit big. Then there is the fact that her foot shape isn’t exactly shaped for the boot, a problem solved by wearing them in.

  All of this is understandable since they’re produced in some Chinese factory on a production run and we can’t expect the Chinese factory to be able to tweak the machine to make my daughters’ pair just a little bit wider than usual and a teensy bit longer.

  Industrial manufacturing was never designed for this. And as much as I love my daughter I’m not getting tailor made soccer boots made for her either. That would cost a fortune and I’d be forced to sell one of my children for medical experiments to pay for it.

  Complexity in the industrial age was an issue. For every complex product produced a complex manufacturing machine or set of machines is required for only one or two products to be manufactured.

  All of this is changing thanks to Chuck Hull, the original inventor of 3D printing.

  A couple of years ago Nike began 3D printing football cleats for soccer boots and this is of course the tip of the proverbial iceberg.

  

  Complexity with 3D printing is free. The computer doesn’t care about how complex any design is. This is turning design and manufacturing on its head.

  In the not too distant future shoes along with other garments are going to be tailor-made based on your foot shape, arch, posture, stance, and any other variables which make your foot unique.

  Making Sense of It All

  Now anytime the human mind encounters some concept which it hasn’t seen before the reference points are difficult to find. And it is those reference points which help us to understand our world.

  Let me therefore provide a reference point.

  Dial back the clock to, say, 1990.

  Your mates are telling you all about something called a “Game Boy” which sounds amazing; you’ve just watched the latest episode of Seinfeld; Kirsty Alley hasn’t turned into a ball of lard yet; and flicking through a newspaper you find a photograph of Princess Diana in a bikini. You love it and want it. You’ll get it blown up and framed above your new bar.

  You hunt down the photographer and thankfully you can actually buy a print. This is then packaged and sent to you and two weeks later you are excitedly opening your package to reveal your prized photograph.

  Quaint!

  Of course, today we have Flickr, Instagram, Pickit and a dozen other sites where you will simply download any photo and have it printed. And if it’s not quite right you’ll Photoshop it till it is.

  Digital Distribution World

  Just as we no longer pick up a physical CD to play music (or a DVD from a video store), but instead stream or download what we want so, too, will go the way of manufactured goods. When a part for your car snaps, manufacturers will be sending you a digital file to download and print a new part. Digital distribution of physical items to be printed is no leap of the imagination.

  Sitting on our collective horizon is printing of mixed material products. So for example, today you can print a toy car complete with the rubber tyres, a plastic see-through windshield, and a metal chassis.

  Where this gets really interesting is when electronics can be included with circuits and sensors and logic. Couple this with the advances made in robotics and you’ll see why we’re on the brink of some of the most amazing disruptive and exciting changes the world’s seen.

  Speaking of which… We’ve been working hard over the last few months at putting together a truly amazing event and disruptive technology such as 3D printing is featured strongly.

  We have limited seats available so if you want to attend then I suggest going to the event website and booking now in order to avoid missing out what will be an orgy of intellectual brainpower.

  – Chris

  “Mass production keeps the world divided between consumer and producer. Demassification of production may hasten the speed towards an era of prosumers.” ? Michael Petch

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• 'Bust' Town Texas – "We Never Expected The Good Times To End"

  The residents of West Texas are accustomed to a life dependent on hydrocarbons. As Bloomberg reports, the small communities built into the flat desert are dotted with oil pumps and rigs, and the chemical smell of an oil field hangs in the air.

  

   

  Here the economy rises and falls on drilling.

  

   

  When the drilling is good, everyone in the town benefits. When it's bad, most of West Texas feels the pinch.

  

   

  Oil prices have plunged as much as 75 percent since June 2014. That drop has dismal consequences for residents, and not just the ones working in oil fields. Bloomberg spoke with some of the people trying to endure the historic dip in oil prices. This video tells some of their stories….

  

  

  

  

  

• "X-Rated" Markets Expose A Gaggle Of Fantasy-Enablers

  Authored by Mark St.Cyr,

  It was U.S. Supreme Court Justice Potter Stewart’s candor which famously described his test in an obscenity trial (“…I know it when I see it,”) when arguments were posed as to why something did, or did not, meet the threshold exceeding the Roth test. Today, the obscenity as to just how adulterated the very fabric of the financial markets have become was ripped clean and laid bare for all to see this past week.

  The markets were sent screaming first down, then up, by nothing more than some economic two-bit fantasy both during, and after, the latest ECB’s monetary dictates. These perversions are so visibly adulterating they can no longer be denied by anyone with a modicum of business, or common sense. They are both fiscally and economically disgusting perversions. Period.

  As shameful as this has become, what’s just as disgraceful is the cohort of so-called “smart people” arguing why not only is all this trash good, but also, giving detailed explanations of economic theories, equations, formulas, extrapolations, causation, blah, blah, blah as to explain the nuances of it all. I have just one statement for the so-called “smart crowd.” Please stop it. You are now not only embarrassing yourselves ever the more (if it were even possible at this stage) You are now annoying everyone with any decency of what free markets are supposed to represent. You’ve gone past the once laughable stage to the outright vulgar. So please – spare us.

  Today’s Ph.D’s within the Ivory Towers of academia, along with their minions throughout Wall Street, have shown they are nothing more than a gaggle of fantasy enablers and promoters as to perpetuate the delusion that there will be financial ecstasy in the end. Just like there always is for the “whomever” that knocks on the door in all those adult movies. Problem here is: this is the world economy they’re screwing with. Not the entertainment industry.

  Today, if you’re trying to run a business of any size just how can one use, or view, the latest move in the markets for possible insights on what to do next? Hint – you can’t. Nothing of it made any sense at all, let alone gave one clues as to whether or not one could properly take meaningful advantage for gains or de-risk accordingly. Want just one example?

  Hedged your exposure to volatility via the FX markets? How’d that work out last week? I thought things like that only happened in EM (emerging market) currencies? Well, look no further because the €uro just joined that cast with size and swings that would make an adult star proud.

  I have a question for all the “Ph.D” styled economists currently touting their interpretations of why this, and that, or, why that, and not this, will equate into monetary bliss. After all; all I hear, read, or watch is one after another giving their hypothesis and back it up with the implied insinuation others should listen because they’re called “Dr.” more times during an interview than a real doctor is addressed at a hospital. Here’s that question:

  What does R²+D/K-(34/8√)X52=? Hint: Absolutely nothing. Just like all the current equations, hypothesis and examples of economic theories spewed across most of the financial media as well as prevalent in Ivy Leagues across the globe. It’s all made up, meaningless, gibberish now shown as the outright alchemy it always was.

  Today, it’s all about “the printing press.” (e.g., central bank interventionism) Economy falling off the cliff? Answer: Print. Need to cover over all those troubling data points? Print. Want to keep your place as “player” in the political hierarchy and remain on the “VIP” list? Print. Want to remain in the world spotlight? Print. Want to pick who wins or who loses? Trick question: Print and go deeper into NIRP. (negative interest rates) This way you get them both coming and going. (Sorry, the pun was unavoidable)

  However, just when this pornographic display of adulteration into everything financial was thought to be contained on just the “pay per view” terminals. It’s now so endemic it’s reached the mass media as they watch in horror their 401K’s along with their hard-earned savings being exposed to this perversion no matter how far they try to remove themselves from its insidious effects or, even shield their eyes. Today it’s everywhere. And it’s being propagated in ways that would make Larry Flint proud.

  It is now being not only acknowledged, but rather, cheered that the “Full Monty” most certainly will include the move into the outright purchasing of corporate bonds. And one thought that was only for the theaters of a “banana republic.” Again, the pun just writes itself. It would be funny if it weren’t so tragic.

  I hear from friends, family members, along with others at events that are beginning to show the early stages of outright panic as to what is happening. Many (just like those addicted to porno) constantly now look at their screens whether it be on their phones, terminals et al, more times a day than ever before just to watch their balances go up and down in moves that would make a porn star blush. Why? Absolutely no other reason than a most likely intentional, well manufactured, and placed attention grabbing headline that may, or may not, be proved factual.

  Another variation of this outright, blatantly manipulative theater is the latest full-frontal-assault now commonly used by many a central banker that takes to the stage and iterates incoherent remarks resembling “This was not that. Unless it’s this or that. However, be that as it may, it certainly will not be that, unless that is what we need, or not.”

  Again, all gibberish as to say nothing more than possibly give the headline reading algorithmic, HFT (high frequency trading) parasites a cue to rip through whatever stop losses deemed “harmful” to the narrative, and clear the sheets of any so-called “true price discovery” that’s somehow discovering the wrong price that the bankers want.

  You don’t need to be told what you’re viewing and just how debouched it has now become. It makes it all clear on its very own.

  This was once perfectly summarized years ago by Themis Trading™ co-founder Joseph Saluzzi in response to the now routinely used “ambush styled” questioning when demanded he back up his insinuation there was manipulation taking place within the markets. He succinctly replied (I’m paraphrasing) “Proof? All I have to do is look at my screens!”

  And there you have it as to explain the “markets” of today. Just like the former Justice once implied: All you need to do is acknowledge what you’re seeing – for what it is. No matter who is arguing differently.

  So now the markets are all breathless awaiting the next release in this series of manipulative, market moving, economic dogma to be contemplated, then released, for the markets viewing pleasure (or horror) via this weeks FOMC meeting. All I’ll say is this.

  For the sake of civility, refinement and taste – I’ll end here.

  

  

  

  

  

• What Happens Next?

  Draghi dead-cat-bounce deja-vu all over again…

   

  

   

  And what happened next?

  

   

  Trade accordingly…

  

  

  

  

  

• Peak Online Lending? SoFi Starts Hedge Fund Just To Buy Loans From Itself

  We’ve written quite a bit about P2P or, more accurately, “marketplace” lending over the years.

  Most recently, we noted that write-offs for five-year LendingClub loans were coming in at between 7% and 8% as opposed to the forecast range of between 4% and 6%. “Their business is to take data and use that to underwrite risk,” Compass Point’s Michael Tarkan told Bloomberg by phone. “If you’re an investor in the loans on the platform, this creates a concern around that underwriting model.”

  Or, as we put it, “the algorithms LendingClub uses to assess credit risk aren’t working. Plain and simple.”

  We also recently checked in on Prosper, the P2P site that inadvertently (we hope) financed Syed Farook and Tashfeen Malik’s San Bernardino jihad with a $28,000 loan. Prosper is raising rates to an average of 14.9% from 13.5% and last month told investors in a letter that estimated losses on loans have been increasing over the last six months.

  That came on the heels of a warning from Moody’s who said some Prosper-linked bonds could face downgrades as the loans backing the deals began to go sour. “Charge-offs have been coming in at a higher rate than expected, very simply,” Amy Tobey, a senior credit officer at the ratings agency remarked at the time. “It is not a two-month blip,” she added.

  No, it’s not, and concerns about the health of the US economy and the true state of the labor market will likely mean that demand for marketplace-backed paper won’t exactly be what one would call “robust” going forward. Of course that’s a problem for lenders like SoFi, which pools its loans and sells them to free up space on the books for still more loans. It’s the same “originate to sell” model that was used in the lead-up to the housing crisis and that’s now a part of the subprime auto space (although Citi will tell you that it’s not endemic there).

  These companies need to be able to offload the loans in order to keep the model running, and if they can’t tap the securitization market, their ability to lend will suffer. But don’t worry, because SoFi – which originates billions in personal loans – has an idea. They will start a hedge fund and buy their own loans.

  No, really.

  “Social Finance Inc., a rapidly growing online lender, is hoping to stoke investor demand for the debt it originates by starting a hedge fund that will buy its own loans — and potentially those of its competitors,” Bloomberg reports.

  The fund, called SoFi Credit Opportunities Fund, has raised $15 million so far. “It’s seeking to attract more money from wealthy individuals, funds of hedge funds and other institutional investors that may not want to buy whole loans directly from the company or securities backed by the debt,” Bloomberg goes on to note.

  According to a company spokeswoman, there’s no annual fee and the fund will simply charge 25% on anything above a 3% return. The fund may also look to buy loans sold by other online lenders, in what certainly sounds like the beginning of an absurd P2P merry-go-round where everyone is selling loans to each each other. 

  SoFi Credit Opportunities could eventually grow to a $500 million to $1 billion fund, WSJ, who originally reported the story said. The company brought its first ABS deal of the year to market this month, but the rate investors demanded on the highest rated tranche was notably higher than it was last year, reflecting market angst. Rather than argue with the market, the company figures it can get around the issue with the hedge fund idea. “[This is] a real chance to solve the balance-sheet problems facing the industry,” Chief Executive Mike Cagney said. Along with CFO Nino Fanlo, Cagney worked at Wells’ prop trading desk, and still works part-time at macro-focused Cabezon Investment Group.

  

  (Cagney)

  Now obviously, there are any number of things that can and probably will go wrong here. First the incestuous relationship not just among the fund and Sofi itself, but between the fund and the rest of the industry (assuming they do indeed decide to buy loans from other P2P lenders) means the entire thing is self-referential.

  If losses on these loans continue to rise, the hedge fund obviously shouldn’t keep buying them, but they’re putting themselves in a position where they’ll have to, unless lending at SoFi were to grind to a halt. ABS issuance in the space will dry up altogether in a stress scenario and so, the only way for the model to keep going will be for Sofi to keep giving itself money to loan to other people. That will embed more and more bad loans in the hedge fund, which would then invariably see an investor exodus on poor performance. After that, if the securitzation market is slammed shut, it’s not clear what happens next.

  Further, although as WSJ goes on to write, “Mr. Cagney said the fund has an independent trustee who must approve purchases of SoFi’s loans to head off conflicts of interest,” both he and Fanlo “sit on an investment committee that must approve trades.”

  Obviously, when the going gets tough, Cagney’s not going to not favor SoFi if his company needs money to keep making loans. As a reminder, this entire thing depends on non-deposit funding.

  At the end of Q4, Peer IQ wrote that the Marketplace ABS market was hardly shutting down. In fact Q4 was “a busy one” for securitizations.

  

  But that won’t continue in perpetuity if charge-offs continue to rise.

  It’s worth noting that LendingClub has a subsidiary called LC Advisors which does something similar to what SoFi is doing, but technically, LC isn’t a hedge fund. We hope LC hasn’t been buying the parent’s five-year loans.

  

  Consider the following excerpts from EuroMoney:

  Take the peer-to-peer lending industry, which is often anything but. As the size and number of participants has grown, it has morphed into marketplace lending with banks originating the loans, selling them to marketplace intermediaries who subsequently sell to institutional investors. If that doesn’t sound a million miles away from originate-to-distribute, it is because it isn’t. 

   

  There are now more than 100 marketplace lenders in the US, the largest of which are Lending Club and Prosper Marketplace. Both of these firms have relied on a small, Salt Lake City-based lender, WebBank, for much of their business. Lending Club disbursed more than $4 billion in 2014, most of which was originated by WebBank and Prosper Marketplace used WebBank to source $1.6 billion of lending last year. 

   

  The bank, which has an ROE of 44%, originates the loan but immediately sells the risk on to the marketplace lender. It all sounds eerily reminiscent of banks originating sub-prime mortgages and selling them to third party vehicles to securitise.

  Exactly. And now, in addition to the securitizations which are likely to experience waves of downgrades, you have the lenders starting their own hedge funds just to keep the model going. 

  This will one day seem like a laughably bad idea in retrospect. Especially when people start figuring out what the borrowers were spending the loans on.

  Finally, if you needed another reason to not trust SoFi’s new hedge fund, here you go (again, from Bloomberg): “Last month, SoFi said it had hired former Deutsche Bank AG co-Chief Executive Officer Anshu Jain as an adviser.”

  

  

  

  

  

• Trump Threatens "Communist Friend" Bernie, Swamps Rubio In Florida

  Amid the maelstrom of Sunday's political show machinations over Trump's rallies, one awkward fact remains – The Donald's lead increases. The latest NBC/Marist polls show Trump 'swamping' Rubio in his home state of Florida (43% to 21%), a solid lead in Illinois (34% to Cruz's 25%), and is closing the gap on Kasich in Ohio (33% to Kasich's 39%). However, as Reuters reports, despite the growing social unrest, The Donald shows no sign of toning down his rhetoric, theatening to send his supporters to the campaign rallies of "Communist friend" Bernie Sanders and hammering Kasich's "Ohio recovery" narrative.

  Donald Trump took a defiant tone in response to criticism that his fiery language is inciting violence, denying that anyone has been injured at his campaign events and threatening to send his supporters to disrupt Senator Bernie Sanders’s rallies.

  “I don’t accept responsibility,” the 2016 Republican presidential front-runner said Sunday on NBC’s “Meet The Press” broadcast. “We had somebody that was punching and vicious and had gone crazy. They’re not protesters. They’re professionals.”

  As Reuters reports,

  Trump, appeared unchastened after simmering discord between his supporters and protesters angry over his positions on immigration and Muslims turned into a palpable threat on Friday, forcing him to cancel a Chicago rally and shadowing his campaign appearances on Saturday.

   

  Trump blamed supporters of Democratic candidate Sanders for the incidents in Chicago, where scuffles broke out between protesters and backers of the real estate magnate. He called the U.S. senator from Vermont "our communist friend".

   

  On Sunday, he went a step further in an early morning post on Twitter:

  Bernie Sanders is lying when he says his disruptors aren't told to go to my events. Be careful Bernie, or my supporters will go to yours!

  — Donald J. Trump (@realDonaldTrump) March 13, 2016

  The scenes in Chicago followed several weeks of violence at Trump rallies, in which protesters and journalists have been punched, tackled and hustled out of venues, raising concerns about security leading into the Nov. 8 presidential election to replace Democratic President Barack Obama.

   

   

  The disturbances continued on Saturday at a Trump rally in Dayton, Ohio, where Secret Service officers scrambled to surround the candidate after a man charged the stage.

   

  Trump scheduled rallies on Sunday in Illinois, Ohio and Florida before the next five presidential nominating contests on Tuesday, which could cement his lead over Republican rivals U.S. Senators Ted Cruz and Marco Rubio and Ohio Governor John Kasich.

   

  Trump, who has harnessed the discontent of white, working class voters angry over international trade deals that cost them jobs, has made his opposition to the 1993 North American Free Trade Agreement and proposed 12-nation Trans-Pacific Partnership a centerpiece of his campaign.

   

  He has hammered Kasich on the issue before Tuesday's vote.

  Ohio Gov.Kasich voted for NAFTA, from which Ohio has never recovered. Now he wants TPP, which will be even worse. Ohio steel and coal dying!

  — Donald J. Trump (@realDonaldTrump) March 13, 2016

   

  But as Politico reports, Donald Trump is swamping Sen. Marco Rubio in his home state of Florida, while John Kasich is holding on to a lead in Ohio, according to new NBC/Marist polls released Sunday morning.

  Trump is winning 43 percent of the vote in Florida, compared to just 22 percent for Rubio.

   

  

   

  Texas Sen. Ted Cruz is essentially tied with Rubio, earning 21 percent, while Kasich brings up the rear with a mere 9 percent. Florida is winner-take-all and awards 99 delegates.

   

  Kasich has a significant lead in Ohio, earning 39 percent of the vote to 33 percent for Trump. Cruz has 19 percent and Rubio has just six percent. Kasich's campaign has long pegged Ohio as a must-win on the governor's Midwestern-centric path to the nomination. Ohio, like Florida, is winner-take-all.

   

  Trump also leads in Illinois with 34 percent of the vote to Cruz's 25 percent. Kasich has 21 percent and Rubio has 16 percent.

  All three states vote Tuesday, along with the states of Missouri and North Carolina. Establishment Republicans have said denying Trump a win there is crucial to preventing him from earning a majority of delegates at the Republican National Convention.

  

  

  

  

  

• Goldman Warns Its Clients They Are Overlooking "The Largest Macro Market Risk"

  In the aftermath of Friday’s market “reassessment” and subsequent surge, when the ECB’s “bazooka” was found quite stimulative for risk assets after all (as opposed to the Thursday post-kneejerk reaction) one would think that Goldman which still has a 2,100 year end target on the S&P500, would be delighted. Oddly enough, just like Bank of America, Goldman’s reaction is somber, and instead of joining the euphoria unleashed by the surge in energy, momentum and corporate debt-related risk, the firm’s chief strategist David Kostin says the bounce won’t last as it is on the back of firms with “Weak Balance Sheet”, and that both energy and momentum stocks will return their downward trajectory once the dollar it rise as soon as the week when the Fed reverts to a far more hawkish stance.

  As Kostin explains, a big part of the unwind of the recent renormalization in value-vs-momentum factors, is on the back of the spike in oil:

  Earlier in the week commodity prices, and specifically crude oil, caused violent swings in market momentum that has dominated investor focus. After rising by 31% in 2015, our momentum factor (ticker: GSMEFMOM) has declined by 5% YTD, with its volatility leaping to the highest levels since 2009. This month alone the factor has experienced daily returns falling in the 2nd percentile (-3%) and 99th percentile (+5%) since 1980. Energy firms currently account for 25% of the factor’s short leg. Since bottoming at $26 on February 11, WTI crude has risen by $12 (44%) and driven the S&P 500 Energy sector to outperform the broad market by 265 bp (12% vs. 9%).

  These unprecedented whipsawed moves have caught most by surprise:

  The correlation between major macro trends has caught many popular investment themes in the momentum spin cycle. In 2015 and the first weeks of this year, lower oil prices were accompanied by lower Treasury yields and downward revisions to US growth expectations, boosting the performance of popular growth stocks and defensive equities while weighing on banks. At the same time, the US dollar, which carries a strong negative correlation with oil, strengthened by nearly 15% and presented another headwind to the US economy. The combination of growth concerns and low oil prices widened credit spreads to recessionary levels and benefitted the performance of stocks with strong balance sheets. All of these trends have reversed sharply in recent weeks (see Exhibits 1 and 2).

  

   

  Kostin warns, just as Jeff Currie did earlier this week, that the oil rally is not sustainable and is actually counterproductive to eliminating near term supply imbalances, as the higher the bear market rally pushes oil, the more production will go back online, ultimately defeating the purpose of the Saudi shale “cleanse”, perhaps forcing the Saudis to boost output once again.

  Our commodity strategists believe that the surge in commodity prices is premature and unsustainable. They believe that an extended period of lower prices is necessary to force the financial stress that will cause a reduction in supply, rebalance the market and lead to an eventual sustainable rally. They continue to forecast a trendless but volatile oil market, with spot crude prices in 2Q 2016 ranging between $25 and $45/bbl.

  Which brings us to the main point of this post: what Goldman thinks is not being priced in by investors: a return to a hawkish Fed, and a resumption in the climb of the dollar.

  While investors focus on oil and the ECB, they overlook the largest current macro market risk – and opportunity – which centers on the Fed. Next Wednesday the FOMC will announce a rate decision, release its revised projections, and hold a press conference. Although our economists expect rates will remain unchanged, a credible argument can be made for the FOMC to proceed with the “flight path” it had previously outlined. The unemployment rate stands at 4.9%, and core inflation has surprised to the upside, with PCE rising to 1.7% in February. Our economists expect three 25 bp funds hikes in 2016. However, despite the Fed standing within striking distance of its dual mandate, investors have rejected this forecast. Fed futures prices currently imply less than a 50% chance of a hike in June, and only two full rate hikes through the end of 2017.

   

  

  The punchline: “The market’s eventual acceptance of the Fed tightening path will spur some parts of the momentum trade to resume and others to unwind.“

  In other words, just as we took the elevator up after taking it down just as fast in February, and then again in early January, the whole process may repeat, especially if the stronger USD leads to the now well-known retaliation by the PBOC. To wit:

  Fed tightening, especially contrasted with easing by the ECB and BOJ, should drive the dollar higher and benefit domestic-facing US stocks. As we discussed last week, our FX strategists expect policy divergence and interest rate differentials will drive the USD higher by 8% this year.

  Who knows, maybe Goldman’s FX strategist Robin Brooks will finally get one right.

  As for Kostin’s forecast…

  We forecast a tightening Fed and lower oil prices will return upward momentum to the performance of stocks with strong balance sheets. Strong balance sheet stocks began to outperform their weak balance sheet counterparts as QE ended. We believe the trend will continue as the Fed normalizes policy given that leverage for the median S&P 500 stock stands at the highest level in a decade

  

  For Goldman to be warning about the market’s near record leverage ratio (when coupled with the ECB’s scramble to unlock the debt/buyback issuance channel) things must be perilously close to getting unhinged.

  In summary:

  Although the recent oil rally tightened credit spreads and eased the pressure on weak balance sheet stocks, we expect high leverage and tighter financial conditions will support strong balance sheet stocks as the cycle matures. The reversal in crude oil prices expected by our commodity strategists should hasten the dynamic.

  How to trade this? For the Goldman faders (after all Goldman got exactly one of its Top 6 trades for 2016 right) it means buy momentum and sell value; for those who believe that the market will actually appreciate the fundamentals that not only we, but even Goldman is now pounding the table on, the time to fade the momentum and energy rally has arrived, and the best trade to put on is long companies with less net debt, while shorting those companies which continue to see their leverage rise, mostly as a result of another year of record debt-funded stock buybacks.

  Here’s the problem though: while this trade would have worked easily before the ECB decided to start buying corporate debt, now that the European central bank is backstopping bond issuers, it will almost certainly lead to even more outperformance by weak balance sheet companies as yet another central bank intervention unleashes another divergence between fundamentals and central planning.

  

  

  

  

  

• Oil Prices Should Fall, Possibly Hard

  Submitted by Art Berman via ArtBerman.com,

  Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

  Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.

  

  Saudi Arabia’s Minister of Petroleum & Mineral Resources Ali Al-Naimi speaks at the annual IHS CERAWeek global energy conference Tuesday, Feb. 23, 2016, in Houston.

  A Production Freeze Will Not Reduce The Supply Surplus

  An OPEC-plus-Russia production cut would be a great step toward re-establishing oil-market balance. I believe that will happen later in 2016 but is not on the table today.

  In late February, Saudi oil minister Ali Al-Naimi stated categorically, “There is no sense in wasting our time in seeking production cuts. That will not happen.”

  Instead, Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37% from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.

  The problem is that neither Saudi Arabia nor Russia has greatly increased production since the oil-price collapse began in 2014 (Figure 1). A freeze by those countries, therefore, will only ensure that the supply surplus will not get worse because of them. It is, moreover, doubtful that Saudi Arabia or Russia have the spare capacity to increase production much beyond present levels making the proposal of a freeze cynical rather than helpful.

  

  Figure 1. Incremental liquids production since January 2014 by the United States plus Canada, Iraq, Saudi Arabia and Russia. Source: EIA & Labyrinth Consulting Services, Inc. (click image to enlarge)

  Saudi Arabia and Russia are two of the world’s largest oil-producing countries. Yet in January 2016, Saudi liquids output was only ~110,000 bpd more than in January 2014 and Russia was actually producing ~50,000 bpd less than in January 2014. The present world production surplus is more than 2 mmbpd.

  By contrast, the U.S. plus Canada are producing ~1.9 mmbpd more than in January 2014 and Iraq’s crude oil production has increased ~1.7 mmbpd. Also, Iran has potential to increase its production by as much as ~1 mmbpd during 2016. Yet, none of these countries have agreed to the production freeze. Iran, in fact, called the idea “ridiculous.”

  Growing Storage Means Lower Oil Prices

  U.S. crude oil stocks increased by a remarkable 10.4 mmb in the week ending February 26, the largest addition since early April 2015. That brought inventories to an astonishing 162 mmb more than the 2010-2014 average and 74 mmb above the bloated levels of 2015 (Figure 2).

  

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

  The correlation between U.S. crude oil stocks and world oil prices is strong. Tank farms at Cushing, Oklahoma (PADD 2) and storage facilities in the Gulf Coast region (PADD 3) account for almost 70% of total U.S. storage and are critical in WTI price formation. When storage exceeds about 80% of capacity, oil prices generally fall hard. Current Cushing storage is at 91% of capacity, the Gulf Coast is at 87% and combined, they are at a whopping 88% of capacity (Figure 3).

  

  Figure 3. Cushing and Gulf Coast crude oil storage. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge)

  Prices have fallen hard in step with growing storage throughout 2015 and early 2016. Since talk of a production freeze first surfaced, however, intoxicated investors have ignored storage builds and traders are testing new thresholds before they fall again.

  The truth is that prices will not increase sustainably until storage volumes fall, and that cannot happen until U.S. production declines by about 1 mmbpd.

  Despite extreme reductions in rig count and catastrophic financial losses by E&P companies, production decline has been painfully slow. The latest data from EIA indicates that February 2016 production will fall approximately 100,000 bpd compared to January (Figure 4).

  

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

  That is an improvement over the average 60,000 bpd monthly decline since the April 2015 peak.  It is not enough, however, to make a difference in storage and storage controls price.

  EIA and IEA will publish updates this week on the world oil market balance and I doubt that the news will be very good. IEA indicated last month that the world over-supply had increased almost 750,000 bpd in the 4th quarter of 2015 compared with the previous quarter. EIA data corroborated those findings and showed that the surplus in January 2016 had increased 650,000 bpd from December 2015.

  Oil Prices and The Value of the Dollar

  Why, then, have oil prices increased? Partly, it is because of hope for an OPEC production freeze and that sentiment is expressed in the OVX crude oil-price volatility index (Figure 5).

  

  Figure 5. Crude oil volatility index (OVX) and WTI price. Source: EIA, CBOE and Labyrinth Consulting Services, Inc. (click image to enlarge)

  The OVX reflects how investors feel about where oil prices are going. It is sometimes called the “fear index.” That suggests that investors are feeling pretty good and less fearful about the oil markets than in the last quarter of 2015 when oil prices fell 47%. Since mid-February, prices have increased 37%.

  But there is more to it than just hope and that may be found in the strength of the U.S. dollar. The negative correlation between the value of the dollar and world oil prices is well-established. The oil-price increase in February was accompanied by a decrease in the trade-weighted value of the dollar (Figure 6).

  

  Figure 6. U.S. Dollar value vs. WTI NYMEX futures price. Source: EIA, U.S. Federal Reserve Bank and Labyrinth Consulting Services, Inc. (click to enlarge)

  Now, that trend has reversed. The U.S. jobs report last week was positive so continued strength of the dollar is reasonable for awhile. Assuming the usual correlation, that means that oil prices should fall.

   Oil Prices Should Fall Hard

  It is a sign of how bad things have gotten in oil markets that we feel optimistic about $35 oil prices. It should also be a warning that the over-supply that got us here has not gone away.

  Oil storage volumes continue to grow and that is the surest indication that production has not declined enough yet to make a difference. It is impossible to imagine oil prices rising much beyond present levels until storage starts to fall. In fact, it is difficult to understand $35 per barrel prices based on any measure of oil-market fundamentals.

  The OPEC-plus-Russia production freeze is a cynical joke designed to increase their short-term revenues without doing anything about production levels. An output cut would make a difference but a freeze on current Saudi and Russian production levels means nothing.  It apparently made some investors feel better but it didn’t do anything for me. Iran got this one right by calling it ridiculous.

  No terrible economic news has surfaced in recent weeks but that does not change the profound weakness of a global economy that is burdened with debt and weak demand. The announcement last week by the People’s Bank of China that it sees room for more quantitative easing may have comforted stock markets but it only added to my anxiety about reduced oil consumption and future downward shocks in oil prices.

  I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall. As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.

  

  

  

  

  

• Nassim Taleb Sums Up America's Election In 17 "Black Swan" Words

  Sometimes, less is more, and in infamous “Black Swan” philosopher Nassim Taleb’s case, summing up the chaos that is enveloping America, and its forthcoming election was as simple as the following:

  “The *establishment* composed of journos, BS-Vending talking heads with well-formulated verbs, bureaucrato-cronies, lobbyists-in training, New Yorker-reading semi-intellectuals, image-conscious empty suits, Washington rent-seekers and other “well thinking” members of the vocal elites are not getting the point about what is happening and the sterility of their arguments.”

  To which he appended the following 17 perfectly succinct words:

  “People are not voting for Trump (or Sanders). People are just voting, finally, to destroy the establishment.”

  

  

  

  

  

• "Let Them Come For Me!" Maduro Defiant As Thousands Protest In Venezuela

  Some Venezuelans aren’t happy with Nicolas Maduro, and it’s easy to see why.

  Inflation in the socialist paradise is projected to run at a mind boggling 720% this year after topping 200% in 2015. Long queues are common at grocery stores, where the country’s beleaguered citizens wait in hopes of grabbing the last of increasingly scarce basic staples like rice and, famously, toilet paper. According to a trade group of drug stores, 90% of medicines are now scarce.

  As we documented last month, the acute economic crisis – Venezuela is the worst performing economy in the world – is the result of years of disastrous policies pursued by the socialist government which has pushed out private industry and badly mismanaged the country’s oil wealth. Default is now virtually assured, as 90% of crude revenue needs to be diverted to debt payments. Thanks to rising imports and falling oil sales, the CA deficit has worsened, forcing Caracas to liquidate assets to fund a budget deficit that’s projected to hover near 20% of GDP for the foreseeable future.

  The economic malaise has fueled a political crisis. Last month, Maduro used a Supreme Court stacked with allies to push through a decree granting the presidency “emergency powers.” Opposition lawmakers – who, you’re reminded, in December won 99 of 167 seats that were up for grabs in what amounted to the worst defeat in history for Hugo Chavez’s leftist movement – were livid and decided to accelerate plans to remove to the hapless leader.

  Those plans will include a recall referendum and an amendment aimed at reducing the length of the President’s term. Oh, and those plans also include inciting mass protests.

  “Venezuela’s opposition held a national day of protest Saturday, the opening salvo in its new strategy to oust President Nicolas Maduro, who responded with a rally of his own,” AFP reports. “With shouts of ‘Resign now!’ thousands of Venezuelans demonstrated against Maduro in northeast Caracas, as the socialist president gathered thousands of his own red-clad supporters in the center of the capital to chants of ‘Maduro won’t go!’”

  As AFP goes on to note, it’s a small miracle no one was killed considering the tension and what happened in 2014 when anti-government protests left dozens dead. Here are the visuals from the capital:

  

  

  

  

  

  

  

  

  “Venezuela is in chaos … more misery, more crime and more destruction,” one law student among opposition supporters told Reuters. “I came because what we want is change, because we cannot continue standing in line to buy medicine, food, for everything, for car parts, for everything,” another demonstrator said.

  Maduro was predictably defiant, giving a “thundering” speech to supporters at what he called an “anti-imperialist rally.” “Let them come for me. Nobody’s giving up here!” he said. “I imagine him in Miraflores (presidential palace.) My God, save us from that! There’d be a national insurrection a week later,” he added, referencing opposition leader Henry Ramos.

  Of course there’s already a “national insurrection” – and he’s the target.

  “My opponents,” Maduro boomed, “have gone crazy [and I will] hang on to power until the final day.” Here’s an amusing picture from the speech:

  

  Although some in the opposition crowds said they were “expecting more people,” you can bet the groundswell of support for the anti-Maduro movement will only grow – especially now that a majority of lawmakers want to President gone.

  There’s only so long the populace is going to tolerate inflation that appears as though it may eventually top 1,000% and without higher oil prices, the country’s reserves (along with its gold) will be gone in a matter of months. A desperate attempt on Energy Minister Eulogio Del Pino’s part to convince fellow OPEC members to come to an agreement on lifting prices was a miserable failure last month and as documented earlier today, Iran isn’t about to budge.

  Perhaps it will take a sovereign default for the parts of the population who still buy Maduro’s “blame the imperialists” rhetoric to finally wake up, but make no mistake, Maduro’s pledge to “hang to power until the final day” will be put to the test in relatively short order. Whether or not that test comes from lawmakers or angry, torch-waving Venezuelans demanding toilet paper remains to be seen.

  

  

  

  

• Martin Armstrong Exclaims "Central Bankers Are Crazy & The Public Is Out Of Its Mind"

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  The central bankers are simply crazy, not evil.

  

  They are trying to steer the economy by utilizing this simpleton theory that if you make something cheaper, someone will buy it. Japanese and German cars managed to get a major foothold in the U.S. because the quality of U.S. manufacturers collapsed, thanks to unions. The socialist battle against corporations forgot something important – the ultimate decision maker is the consumer. The last American car I bought in the 1970s simply caught on fire while parked in my driveway. Another friend bought a brand-new American car and there was a terrible rattle. When they took the door panel off, there was an empty bottle of Coke inside.

  Cheaper does not always cut it. Gee, shall we cheer if the stock market goes down by 90%? It would be a lot cheaper. Why does the same theory not apply?

  Then we have the trading public.

  

  If the central bankers have gone crazy with this whole negative interest rate theory, then the public is simply out of their minds. The euro rallied because Draghi cut rates further, extended the stimulus another year, increased the amount by another 33%, and then declared rates would stay there for years to come. And these insane traders cheer. Unbelievable! They are celebrating the public admission of Draghi that all his efforts to date have failed, so let’s do even more of the same. And they love this nonsense?

  Negative interest rates have become simply a tax on saving money and the stupid traders and media writers love it. The Fed tries to raise rates and they say – NO! This is a stunning combination of admission and stupidity that one would expect from a pretty but clueless girl and her drunk college boyfriend who can’t say no to any girl: “I asked John if he slept with Karen and got his admission!”…“I told him, Oh that’s cool, I think it’s probably about time you stopped drinking.”

  All they see is that lower interest rates “should” stimulate but ignore the fact that they never do. They are too stupid to grasp the fact that raising taxes cannot be offset by lower interest rates. People judge everything by the bottom-line and not some crazy theory that’s just stupid. A simple correlation study by a high school student in math class would prove this theory does not correlate to the expected outcome. And we cheer this insanity confirming our own overall stupidity and one is left wondering who is crazier?

  I suppose it is just that central bankers are crazy and the public, as well as the media, are just out of their minds.

  It reminds me of the old TV commercial by Wendys:

  

  

  

  

  

• "They Should Leave Us Alone": Iran Wants No Part Of Oil Freeze Until Output Higher

  On Tuesday, Kuwait’s oil minister Anas al-Saleh delivered a rather stark warning to the rest of OPEC when he said the following about the much ballyhooed crude output freeze: “I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell.”

  That was a response to a question about what Kuwait would do if all major producers failed to agree to the freeze. Of course “all major producers” includes Iran and having just now begun to enjoy the financial benefits of being free to sell its oil without the overhang of crippling international sanctions, Tehran isn’t exactly thrilled about the idea of capping production at the current run rate of around 3 million b/d.

  As soon as sanctions were lifted, Iran immediately committed to boosting production by 500,000 b/d and said that by the end of the year, it would bring an additional 500,000 b/d of supply online. That would put Iranian production at around 4 million b/d total and, as we noted back in January, would mean the country will be raking in between $3 and $5 billion every month by the end of 2016.

  

  Whether or not those numbers are ultimately achievable is debatable, but the point is, Iran came back to market at a rather inauspicious time. President Hassan Rouhani is attempting to rebuild his country’s economy and Tehran is attempting to attract tens of billions in investments. Taking the foot off the pedal now would be a bitter pill to swallow.

  On Sunday, we got the latest from Iranian Oil Minister Bijan Zanganeh and the message was unequivocal: “They should leave us alone as long as Iran’s crude oil has not reached 4 million. We will accompany them afterwards.”

  
  

  So based on January’s ouput of 2.93 barrels, we’ve got a ways to go here. One can hardly blame Tehran. After all, the Saudis are producing at a record pace. So are the Russians. And so are the Iraqis. As Reuters writes, “sanctions had cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years.” There’s a lot of lost time (and money) to recover here and if everyone else gets to “go full power” – to quote Anas al-Saleh – then Tehran thinks they should as well.

  Zanganeh went on to say that $70 was a “suitable” price for oil. He’ll meet Russian Energy Minister Alexander Novak on Monday. No details about the meeting were available.

  So, as we said on Tuesday, “one can forget about a production freeze well into 2017 if not forever since by then at least one if not more OPEC members will be bankrupt.”

  This comes as analysts are increasingly split over the prospects for prices. For their part, Goldman called any sustained bounce “self-defeating” as “energy needs lower prices to maintain financial stress to finish the rebalancing process.”

  The IEA on Friday called Iran’s return to market “less dramatic” than anticipated and suggested prices may have bottomed. “For prices there may be a light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance,” the agency said.

  We can’t either. But what we can be sure of is that even if one wants to characterize Iran’s move to ramp production as “less dramatic” than Tehran might have anticipated, their refusal to cap that “less dramatic” production hike at 3 million b/d will cause the likes of Kuwait – which itself churns out 3 million b/d – to refuse to support what is already an exceptionally tenuous proposal to freeze output. And the cumulative effect of the enitre effort breaking down could prove to be quite “dramatic” indeed.

  

  

  

  

  

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• Nassim Taleb Sums Up America's Election In 17 "Black Swan" Words

  Sometimes, less is more, and in infamous “Black Swan” philosopher Nassim Taleb’s case, summing up the chaos that is enveloping America, and its forthcoming election was as simple as the following:

  “The *establishment* composed of journos, BS-Vending talking heads with well-formulated verbs, bureaucrato-cronies, lobbyists-in training, New Yorker-reading semi-intellectuals, image-conscious empty suits, Washington rent-seekers and other “well thinking” members of the vocal elites are not getting the point about what is happening and the sterility of their arguments.”

  To which he appended the following 17 perfectly succinct words:

  “People are not voting for Trump (or Sanders). People are just voting, finally, to destroy the establishment.”

  

  

  

  

  

• This Election Is The Biggest Threat To The US Aristocracy (Biggest Opportunity For Voters) Since At Least 1932

  Authored by Eric Zuesse,

  The historical significance of the 2016 U.S. Presidential contest isn’t yet generally recognized. Consider the evidence regarding this historical significance, in the links that will be provided here, and from which the argument here is constructed:

  For the first time ever, a Republican campaign ad against Hillary Clinton is entirely truthful about her and focuses on the most important issue facing voters:

   

   

  For the first time since 1932, an American Presidential campaign presents an opportunity for the public to overthrow the aristocracy.

   

  And, for the first time in U.S. history, a realistic possibility exists that the voters’ choice between the two Parties’ Presidential nominees might turn out to be between two enemies of the aristocracy: Bernie Sanders versus Donald Trump. 

  However, if it turns out instead to be between Trump v. Clinton, then what will be the aristocratic backing of each?

  On Clinton’s side will be Wall Street — and this includes the ‘shadow banks’ (the non-“bank” sellers of what Bill Clinton and the Republicans caused to become unregulated credit derivatives), from which Hillary Clinton is also receiving donations, and from which the Clinton Foundation is supported and overseen — along with other Clinton funders).

  Clearly, this is the first Presidential contest since 1932 in which the interests of the aristocracy versus the interests of the public will be presented to the voters, for them to decide which of the two sides they’re actually on.

  And, if the election turns out to be between Trump versus Sanders, then this will be the first U.S. Presidential election ever in which both of the major-Party nominees will have committed themselves to policies (Trump clearly on foreign affairs, Sanders clearly on domestic affairs) that the aristocracy vigorously oppose, and that presents a severe threat to the aristocrats' continued rule of the country.

  *  *  *

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

  

  

  

  

  

• Visualizing The Militarization Of The Middle East

  The global arms trade is huge.

  

   

  While it’s hard to pin down an exact value of arms transfers, VisualCapitalist's Jeff Desjardins notes the Stockholm International Peace Research Institute estimates that the number was at least $76 billion in 2013, with the caveat that it is likely higher.

  The volume of transfers have been trending upwards now for roughly 15 years.

  Volume of Arms Transfers
  
  Courtesy of: SIPRI

  But where are these arms going?

  The answer, as VisualCapitalist's Jeff Desjardins explains, is that they are increasingly going to militarize the Middle East, which has increased imports of arms by 61% in 2011-2015, compared to the previous five year period.

  The Syrian Civil War now entering its sixth year, and it’s clear that conflict is stopping no time soon in the Middle East. As a result of this and the various proxy wars, complicated relationships, and a continuing threat from ISIS, neighboring countries in the region have loaded up on arms.

  That’s why Saudi Arabia, Qatar, and the UAE have increased imports of arms by 275%, 279%, and 35% respectively compared to the 2006-2010 time period. Saudi Arabia is now the second largest importer of arms in the world.

  Rounding out the Top 20 largest arms importers are other countries in the general region, such as the UAE, Turkey, Pakistan, Algeria, Egypt, India, and Iraq:

  
  Courtesy of: SIPRI

  How are these arms flowing to these countries?

  Here’s a diagram showing the top three suppliers to each of the biggest arm importers:

  

  Original graphics by: MEE and AFP

  

  

  

  

• We are Going Higher in the SP 500 Index (Video)

  By EconMatters

  

  The extra 22 Billion in USD terms is going to find its way to US based Risk Assets via carry trades from European stimulus Measures. 2060 is the next upside target for the S&P 500 Index, we will have pullbacks and retracements along the way, but we should be considerably higher over the next 6 weeks in Risk On Assets like equities. I anticipate ultimately putting in a new high sometime over the next 6 months conservatively in the S&P 500, i.e., think in terms of the 2150 area, with a more aggressive upside target of the nice round number of 2200 in the Election Year.

  Don`t focus on Energy company earnings as they are going to be awful, keep in mind money has to be stored somewhere, and now an extra $22 Billion a Month needs to find a home in financial markets.

  If you are short the market you need a likely catalyst that is new for your cause, your best case outside an unforeseen Geopolitical or Natural Disaster event would be a spike in wages that leads the Bond Market to bust through 2.40% and 2.65% Yield levels on the 10-Year US Treasury Bond, and ultimately blow through the 3% line in the sand where the Bond Market is susceptible to crash scenarios from a price standpoint.

  If we are wrong in this analysis the likely reason is that we are stuck on the latest move in a “Trader`s Market” expecting continuation, and in fact we are one move behind, i.e., the shorts expecting more continuation to the downside at the lows of the year in Risk Assets. The shorts were one move behind, still stuck on the last move, and missed where the markets were going on the next move.

  This doesn`t matter as we are Traders and will have forecast models from a theoretical standpoint, but ultimately the markets dictate from a price action standpoint where we should be aligned from a Capital allocation standpoint. However, Investors who are not as fast, flexible and become entrenched in directional bias could wish they sold this rally, if indeed this is the “last move” and we are headed lower into second quarter earning`s season.

  

   

   

  

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• Daylight Saving Time: A Government Annoyance

  Submitted by James Alexander Webb via The Mises Institute,

  On March 13 Americans will, in their tolerant nature, acquiesce once again to a government initiated (and hardly popular) loss of one hour, and the setting of clocks out of sync with our planet’s celestial rhythm.

  After an earlier (unpopular) 1918 trial of Daylight Saving Time and its later repeal in 1919, it was re-enacted nationwide under Nixon under the “Emergency Daylight Saving Time Energy Conservation Act of 1973.” It’s now a relic of inappropriate interventions of the early seventies that included wage-price controls and the 55 mph speed limit. It represents what we don’t need. Consider some of the reasons for repeal:

  Nature: It unbalances what is naturally harmonious. High noon should be when the sun reaches its apex, or as near as this can be, given the use of time zones.

   

  Sleep Cycles: The (circadian) sleep cycle need not be disrupted twice a year, even if accomplished by a show of hands. In truth, the legislative process should be called out for its shortsighted habit of running roughshod over established peaceable social order. Here it smacks of social engineering with a disregard for workers, not to speak of an insensitivity to children losing sleep in the adjustment.

   

  As reported at telegram.com “The Fatal Accident Reporting System found a 17 percent increase in traffic fatalities on the Monday after the shift.” This article cited findings in a University of Colorado at Boulder study of an increase in fatal motor vehicle accidents the first six days after the clocks spring ahead. This study suggests that the time change may even increase the risk of stroke.

   

  Freedom: If those in a workplace agree to change their hours of work they are free to do so. Such “emergency” legislation imposed by the Federal government, on the other hand — however minor they seem — mandate conformity at the expense of basic freedoms.

   

  Efficiency: Moreover, with the advent of LED-lights, the old cost-of-lighting argument has faded, especially because the start of the day has already been advanced about one hour as mentioned above. In fact, with more air-conditioning, the bias is for increased use of electric power under the time-shift, as people come home earlier in the hot season and turn up their air-conditioning.

   

  Inconvenience: One has the annoyance of twice a year resetting clocks. This may take only 10 minutes, but over a 60-year span it’s 20 hours.

   

  We all know what it feels like to arrive at work on time to find that everyone else had dutifully changed their clocks, so that we turn out to be one hour late.

   

  There are real-world effects on major industries as well. Train and transport schedules cannot be easily adjusted. Amtrak, for instance, idles trains (and passengers) for one hour to keep on schedule in the fall and then tries to make up an hour in the spring by hurrying. More hourly work schedules need adjustment now that more businesses are open 24-7.

   

  Affrontery: Perhaps worst of all is the fact is that there is no gain whatsoever in the number of minutes of sunlight in a day. It is hence presumptuous to maintain that the culture and habits of the people, as expressed by their arrangements and choices, were in error before the change. The benefit of the doubt should logically rest with conventional time.

   

  Principle: Resetting clocks and watches not once but twice a year, is less a compromise of effort than of principle. It contributes to the habituation of interference by the state. We already prostrate ourselves filling out 1040 forms that tax the sale of our labor, including a required signature in disregard of the Fifth Amendment protection against self-incrimination. If we ever want to undo such an affront to freedom, annoying impositions such as time-shifting are a good place to start.

   

  Sunset Old Laws: Thomas Jefferson suggested an automatic sunset provision for legislation: “… every law, naturally expires at the end of nineteen years.” In an April 2016 Reason article by Veronique de Rugy: “What Government Can Learn from Moore’s Law,” is suggested a sunset provision (that could be retroactive) in all Federal statutes and regulations to require an updated renewal within two years. Even better, might be a required supermajority for renewal. In Jefferson’s day, by the way, clocks were known as “regulators,” but such regulation stemmed not from legislation, but from social convention that produced efficient governing without the state.

  As with a plethora of interventions some may be minor inconveniences, but like time-shifting, they share in a disrespect for the principle of simply leaving people alone. Mandated time shifting affects everyone while standard time imposes on no one.

  

  

  

  

  

• "This Will End Badly" Grant Williams Warns "The Probability Of War Is Increasing"

  "The problem that many people have is that they think that 2008 was ‘the event’ and that it cleared the brush and we’re back to a sustainable path," but, as TTMYGH's Grant Williams explains to MacroVoices' Erik Townsend, "nothing could be further from the truth."

   What is more troublesome is that, as Williams exclaims, "the glue that binds all of this together, unfortunately for everybody, is faith in central bankers," and 'Laws of Nature' dictate that "this will end very badly, but end it will."

  And most worryingly, for everyone, "wars are, unfortunately, a very convenient solution to a lot of the problems that governments face."

  Erik and Grant's conversation is must-view as they discuss:

  • The likelihood of a US recession
  • The unsustainability of global credit growth
  • The continuing erosion of faith in central bankers
  • The response to negative interest rates in Japan
  • The excesses promised by politicians to citizens of Western Democracies
  • "The Consequences of Economic Peace"
  • Big Cyles, Kondratieff Waves, The Laws of Nature
  • The similarity between current times and the lead up to WWI
  • Thinking about outcomes we'd rather not and assigning probabilities accordingly

  Full discussion below (via MacroVoices.com):

   

  Highlights include:

  19:30 – “The problem that many people have is that they think that 2008 was ‘the event’ and that it cleared the brush and we’re back to a sustainable path, but nothing could be further from the truth.”
   
  20:05 – “The glue that binds all of this together, unfortunately for everybody, is faith in central bankers.”
   
  20:30 – “I think when you look at it and you look at the chances of these guys being able to fix this, they are very slim indeed.”
   
  20:50 – “To have something as ephemeral as confidence in a group of academics holding the world financial system up is a terrifying prospect to me, because we don’t when when it will evaporate, or what might trigger it, but it could be tomorrow, it could be in three years…”
   
  23:55 – “The Laws of Nature dictate that this will end very badly, but end it will. In the meantime you extend and pretend.”
   
  26:45 – “At these points in time there is always a conflict somewhere between two global powers, and we’re seeing the embers of that.”
   
  28:20 – “You cannot rule out the possibility of war… Sometimes the probability may be at fractions of a percent, but I think it’s more than that right now and it’s something people need to be very much aware of. And the more the economic pressure ratchets up on these governments…the more there is a need for a solution, and wars are, unfortunately, a very convenient solution to a lot of the problems that governments face.”
   
  29:00 – “As the pressure increases, that level of probability (of war) increases significantly, and the possibility for a miscalculation ratchets up every single day.”

  Finally, here is TTMYGH.com's Grant Williams' latest (and scariest) presentation – "Duck Test" – if it looks like a 'duck', quacks like a 'duck', and smells like a 'duck', it must be a… recession…

  Grant Williams Duck Test

  

  

  

  

  

• Deutsche Bank: Negative Rates Confirm The Failure Of Globalization

  Negative interest rates may or may not be a thing of the past (many thought that the ECB had learned its lesson, and then Vitor Constancio wrote a blog post showing that the ECB hasn't learned a damn thing), but the confusion about their significance remains. Here is Deutsche Bank's Dominic Konstam explaining how, among many other things including why Europe will need to "tax" cash before this final Keynesian experiment is finally over, negative rates are merely the logical failure of globalization.

  Misconceptions about negative rates

  Understanding how negative rates may or may not help economic growth is much more complex than most central bankers and investors probably appreciate. Ultimately the confusion resides around differences in view on the theory of money. In a classical world, money supply multiplied by a constant velocity of circulation equates to nominal growth. In a Keynesian world, velocity is not necessarily constant – specifically for Keynes, there is a money demand function (liquidity preference) and therefore a theory of interest that allows for a liquidity trap whereby increasing money supply does not lead to higher nominal growth as the increase in money is hoarded. The interest rate (or inverse of the price of bonds) becomes sticky because at low rates, for infinitesimal expectations of any further rise in bond prices and a further fall in interest rates, demand for money tends to infinity. In Gesell’s world money supply itself becomes inversely correlated with velocity of circulation due to money characteristics being superior to goods (or commodities). There are costs to storage that money does not have and so interest on money capital sets a bar to interest on real capital that produces goods. This is similar to Keynes’ concept of the marginal efficiency of capital schedule being separate from the interest rate. For Gesell the product of money and velocity is effective demand (nominal growth) but because of money capital’s superiority to real capital, if money supply expands it comes at the expense of velocity. The new money supply is hoarded because as interest rates fall, expected returns on capital also fall through oversupply – for economic agents goods remain unattractive to money. The demand for money thus rises as velocity slows. This is simply a deflation spiral, consumers delaying purchases of goods, hoarding money, expecting further falls in goods prices before they are willing to part with their money.

  For an economy that suffers from deficient demand, lowering interest rates doesn’t work if it simply lowers expected returns on real capital through oversupply. The shale boom in the US is blamed on cheap money. As Gesell also argued, where Marx was wrong but Proudhon was right, is that to destroy capitalism you don’t need workers to strike and close the capitalists’ factories; instead the workers should organize and build another factory next to the capitalists. The means of the production are nothing more than capitalized labor. Oversupply destroys capitalism in a natural way. In this way the demise of positive interest rates may be nothing more than the global economy reacting to a chronic oversupply of goods through the impact of globalization including the opening up of formerly closed economies as well as ongoing technological progress.

  Of course raising rates isn’t a solution. If effective demand is deficient due to money hoarding of new money supply and a decline in velocity when goods supply is expanding, in a rising rate environment, demand is deficient with money supply itself falling regardless of any change in velocity. Interest on real capital may rise, even with goods prices stable eventually recovering but at the cost of huge unemployment and social distress. The difference can be thought of as the aggregate demand curve shifting inwards relative to supply and supply still exceeding demand when monetary conditions are too tight versus a falling interest environment whereby the aggregate supply curve moves out relative to demand such that the curves don’t intersect at prices above zero – the latter reflecting an implied rising real money interest rate.

  In a Keynesian world of deficient demand, the burden is on fiscal policy to restore demand. Monetary policy simply won’t work if there is a liquidity trap and demand for cash is infinite. Interest rates cannot be reduced any further to stimulate demand. (In Gesell’s terminology the product of velocity and money supply i.e. effective demand keeps falling). In Gesell’s world money itself needs to be taxed to prevent hoarding and to equalize the worth of money to goods. If cash is taxed (and he suggested at the annual tax rate might be 5.2 percent, according to Keynes) then velocity is stabilized, demand for money falls and goods demand recovers. The tendency to oversupply however in an economy unfettered by “privilege” effectively implies that interest rates in equilibrium may converge to zero. Taxing of money specifically is to deal with an ex ante effective demand deficiency.

  Europe’s long time obsession with negative rates, to quote our present day Fischer, is fair but misleading in the context of how negative interest rates are being applied. The combination of penalty rates on banks’ excess reserves and QE is designed at one level to expand private sector credit. This if anything will promote supply of goods. If supply creates its own demand and/or if Keynesian investment accelerator models are valid, then they may well be successful in restoring a Keynesian deficient demand problem.

  This is essentially the same as saying there is no liquidity trap. (If we think of the inverse bond price on the vertical axis as being a private sector asset price, then a large price rise can be achieved for a relatively small amount of money expansion). But it presupposes that there is deficient loan demand due to high money capital interest rates rather than due to too low real capital expected returns. The risk is that QE itself is simply new money being hoarded on the demand side so that money velocity falls and effective demand remains weak. Falling interest rates may well promote new loan demand and increase supply but only in a deflationary spiral of further falls in expected capital returns and the perceived need for still lower money interest rates. If Gesell is correct, it is essential to tax money itself which means not just retail deposits but cash in circulation. Then velocity would stabilize with effective demand as households would be willing to own goods rather than money. It is conceivable that the Europeans are heading in this direction and maybe it will be worse before it gets better. Or maybe there is still time for the Keynesian mechanism to prove that we are not in a liquidity trap.

  * * *

  Here is our far simpler explanation of what Konstam just said, and why DB would much prefer more QE over NIRP: QE takes away the liquidity preference choice out of the hands of the consumers, and puts it into the hands of central bankers, who through asset purchases push up asset prices even if it does so by explicitly devaluing the currency of price measurement; it also means that the failure of NIRP is – by definition – a failure of central banking, and if and when the central bank backstop of any (make that all) asset class – i.e., Q.E., is pulled away, that asset (make that all) will crash. The only asset that does not have a central bank backstop (in fact, central banks are actively pushing it lower)? Gold.

  

  

  

  

  

• The Status Quo Plan – Convince The American Public To Accept Serfdom

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Earlier today we came across a fantastic article published at Naked Capitalism by a writer known as Gaius Publius.

  Yves Smith introduces the piece with the following poignant passage:

  Let us not forget that the “things are going to get worse for you” story also conveniently diverts attention from the degree of rent extraction and looting that is taking place. US corporate profit share of GDP has been at record levels, depending on how you compute if, of 10% of 12% of GDP, when no less than Warren Buffett deemed a profit share of over 6% of GDP as unsustainably high as of the early 2000s. That higher profit share is the direct result of workers getting a far lower share of GDP growth than in any post-war expansion. So the increased hardships that ordinary people face is not inevitable, but is to a significant degree due to the ruling classes taking vastly more than their historical share out of greed and short-sightedness.

  Now here are some excerpts from the Gaius Publicis piece:

  If you think of the country as in decline, as most people do, and you think the cause is the predatory behavior of the big-money elites, as most people do, then you must know you have only two choices — acceptance and resistance.

   

  Why do neo-liberal Democrats, like the Clinton campaign, not want you to have big ideas, like single-payer health care? Because having big ideas is resistance to the bipartisan consensus that runs the country, and they want to stave off that resistance.

   

  But that’s a negative goal, and there’s more. They not only have to stave off your resistance. They have to manage your acceptance of their managed decline in the nation’s wealth and good fortune.

   

  Again: The goal of the neo-liberal consensus is to manage the decline, and manage your acceptance of it.

  Corey Robin says when Clinton tells the truth, believe her:

   

  “Amid all the accusations that Hillary Clinton is not an honest or authentic politician, that she’s an endless shape-shifter who says whatever works to get her to the next primary, it’s important not to lose sight of the one truth she’s been telling, and will continue to tell, the voters: things will not get better. Ever. At first, I thought this was just an electoral ploy against Sanders: don’t listen to the guy promising the moon. No such thing as a free lunch and all that. But it goes deeper. The American ruling class has been trying to figure out for years, if not decades, how to manage decline, how to get Americans to get used to diminished expectations, how to adapt to the notion that life for the next generation will be worse than for the previous generation, and now, how to accept (as Alex Gourevitch reminded me tonight) low to zero growth rates as the new economic normal. Clinton’s campaign message isn’t just for Bernie voters; it’s for everyone. Expect little, deserve less, ask for nothing. When the leading candidate of the more left of the two parties is saying that – and getting the majority of its voters to embrace that message – the work of the American ruling class is done.”

   

  In Germany after WWI, austerity imposed by outsiders created the conditions for fascism to grow. We knew this. We were even taught this in school. And we certainly know just how good that is for women and minorities.

   

  But in America (and Britain), that austerity is being imposed by our own leaders, and most effectively by leaders of the Democratic Party (and Labour Party) — the supposed “left” party, the party that was understood to support working people.

   

  Clinton, like all of the DLC, talks like this “new economy” of decline is something that just happened, like it’s a natural force. They do not admit that it was a political decision to break the power of ordinary working people and put it back into the hands of the aristocracy. They pat us on the head and tell us they will try not to make it as bad as the Republicans will, but it will happen and there is nothing to be done about it.

   

  And they actively divide us by making personal and tribal differences into the main show of the public political arena (only 7% of Americans claim never to have used birth control, so how is it a “Democrat” thing?) while behaving like the really big decisions that are wrecking our lives are none of our business. (Bank bailouts that were opposed 200-1 in calls to the White House from the public! Stopping the prosecutions of fraudulent banksters! HAMP instead of real home-owner relief! Secret TPP talks, for godssakes!)

   

  As a woman and person of funny-color, I know who is being callous and insensitive toward me, and it isn’t Bernie Sanders.

  Perfectly put.

  Indeed, the American public has two clear choices: Fight back, or accept serfdom.

  What’s it gonna be?

  

  

  

  

  

• Why Oil Producers Don't Believe The Oil Rally: Credit Suisse Explains

  For the past month, the price of oil has soared by a 50% on no fundamental catalyst; in fact, the “fundamental” situation has gotten progressively worse with the record oil inventory glut increasing by the day even as US crude oil production posted a modest rebound in the past week after two months of declines, while the much touted OPEC/non-OPEC oil production freeze has yet to be discussed, let alone implemented.

  With or without a valid catalyst, however, the short squeeze price action has drastically changed not only investor psychology, but that of the IEA as well, which on Friday announced that oil may have bottomed (if the agency’s predictive track record is any indication, oil is about to crash).

  But while traders, algos and CNBC guest “commodity experts” may be certain that oil will never drop to $27 again, someone else is not at all convinced that oil prices will not drop again: oil producers themselves.

  We first noted this earlier this week,since January, the spread between Brent for delivery on the 2020 end of the curve and crude for prompt supply has dropped by nearly $8 to around $10.71 a barrel. “Brent’s flattening contango since January comes as many producers want to cash in immediately on recent price rises. They’ve been heavily selling 2017/2018 and beyond, and it shows that they don’t quite trust the higher spot prices yet,” said one crude futures trader.

  

   

  “This means that even the producers don’t really expect a strong price rally until well into 2017 or later,” he said. The companies that explore for oil and pump it out of the ground have been locking in price gains by selling off future output as a financial hedge, pulling down prices for those contracts, said sources with some of the producers and traders who had been counterparty to deals.

  And now, courtesy of Credit Suisse James Wicklund’s wonderful “Things We’ve Learned This Week” summary of key events in the oil space in the last 7 days, is an explanation of just this:

  Locking It In. Since January, the spread between spot Brent prices and 2020 Brent prices has dropped nearly $8.00 to $10.71 per barrel, indicating selling in 2017, 2018, and 2019 futures contracts. According to Reuters, the majority of selling has come from E&Ps looking to lock in prices to hedge against a repeat of last year’s second half commodity price route. At the same time, the hedges indicate a lack of confidence that the current commodity rally will continue.

  However, as long as the momentum-cashing algos are bidding oil up, the majors will be delighted to hedge at ever higher prices; which incidentally means that Saudi Arabia’s plan to put as many marginal producers out of business in the fastest possible time, has just been delayed by another 9-12 months. Whether this means that Saudi plans for a production “freeze” have also just been swept away, remains to be seen as soon as that so overhyped OPEC meeting takes place, if ever.

  * * *

  As a bonus, here are several of Wicklund’s other key event highlights from the past week:

  • Near Record. Despite significantly reduced activity in North America, 2015 was the second-largest year in terms of total proppant volumes supplied as frac sand, ceramic proppant, and resin-coated proppant producers supplied 55mm tons to the oil and gas industry. Frac sand accounted for over 92% of the 2015 market, whereas ceramic proppant and resin-coated proppant volumes fell to their lowest levels since 2010. The resilience of proppant volumes was the result of increased proppant intensity per well. Unfortunately for proppant producers, prices fell off a cliff in 2015 due to excess market supply.
  • Talking Politics. During Sunday’s Democratic Presidential debate, fracking was a hot topic between Sen. Bernie Sanders and Sec. Hillary Clinton. Clinton has, in general, historically supported fracking. Clinton changed her stance noting, “[b]y the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place.” Sanders took a more adamant stance, calling for an all-out ban against fracking on federal lands.
  • North Sea Production Holding Firm. North Sea crude supply is expected to average 2.22mm boe/d during April, up from March’s 2.17 mm boe/d and its highest level in four years. If April’s estimate is met, crude oil supply out of the North Sea will have exceeded 2 mm boe/d for 8 consecutive months.
  • Flood Gates Opening? In late 2015, the National Iranian Oil Company (NIOC) unveiled 49 development projects to be offered to local and foreign investors under the new Iran Petroleum Contract (IPC). The 29 oil and 20 gas projects offer a wide array of development opportunities, ranging from brownfield projects on mature onshore and offshore fields, recently developed fields, to very large greenfield projects. Government officials project that the removal of sanctions on Iran may trigger at least $50B a year in foreign investment to finance a rebound in an economy hit by the oil slump.
  • Infusion. We have been paying close attention to E&P equity raises over the past few weeks, looking specifically at the size and proceeds of the deals. So far in 2016, NAM E&Ps have raised $9.3B in equity, down from $16.0B for full-year 2015. Proceeds are similar to 2015 as E&Ps proceeds are going to pay down debt and, in some cases, fund capex.

  

  

  

  

  

• A Rigged And Rotten System

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

  Feeding Like Leeches

  The poor Republicans! A Washington Post story wonders if the party could “break in two.” Party stalwarts are threatening to desert to Hillary. And a Texas newspaper worries that the GOP could be “on the verge of extinction.”

   

  

  Aaaaaaand… it’s gone!

   

  Not much to report from Wall Street lately. The Dow is still teetering on the 17,000 level… like a school bus on the edge of a bridge. Several readers wrote in to complain about our fact-ish item: that $176,000 was the cost of “salaries” for the typical third-grade classroom.

  The figure came from Conspiracies of the Ruling Class, a new book by Lawrence Lindsey, the director the National Economic Council during the G.W. Bush administration. The title was so provocative, we picked it up.

  The idea of a “conspiracy” at the top of U.S. politics… and a “ruling class” in what is supposed to be a republic… suggested that the author, a Republican insider, had lost his party membership… or his mind. We opened it eagerly… hoping it was the former, not the latter.

  Perhaps Lindsey – anticipating the neocons who are abandoning the GOP banner for the Deep State favorite, Hillary Clinton – had stolen a march on them… and gone over to the Democrats. Lindsey’s point, insofar as the education numbers are concerned, was that the typical third-grade teacher doesn’t get a salary of $176,000. Nowhere close.

  Instead, the money goes into salaries for administrators, “educators,” and all the assorted zombies now feeding like leeches on the public school system.

   

  

  Lawrence Lindsey, former director of the National Economic Council, comes rolling by.

   

  Rigged and Rotten

  You could look at the entire system in the same way. You’d find zombies hiding in every corner and crevice – from the National Labor Relations Board… to the Federal Bureau of Prisons… to Pentagon procurement… to the Food and Drug Administration… to the Securities and Exchange Commission.

  The whole shebang is rigged and rotten – including the financial system. The typical voter doesn’t understand why or how. Who does? But he feels it. Something is wrong; he knows it. And more and more, he wants to say so.

  So far, the most effective voices for this discontent are Donald Trump and Bernie Sanders – neither of whom has much truck with the GOP’s traditional principles.  Consider a report yesterday in Investor’s Business Daily.

  “Small Businesses Are Hitting the Brakes on Wages and Benefits,” reads the headline. The article that follows gives the results of a poll of small business owners. Generally, they are not feeling their oats. Instead, they are putting a “chill” on hiring and capital expansion projects.

   

  

  The NFIB small business optimism index is once again rolling over after having barely recovered from the demise of the housing bubble. Few charts illustrate better how the centrally planned fiat money-based cronyism of modern regulatory “democracy” is becoming an unbearable burden on what little is left of free market capitalism. Its assorted rackets are siphoning more and more real wealth away from genuine wealth creators into the pockets of cronies and zombies – click to enlarge.

   

  This attitude is now being blamed for the surprisingly weak wage data that came out earlier this week. More people are working – according to the official reports – but doing less overtime and earning less money.   The survey also revealed the following detail:

  “Another factor for weaker wages: In addition to weaker sales, a net 4% reported lower selling prices, the worst in more than five years.”

  Lower prices leave businesses with lower margins. And less desire to hire. This is part of the dreary picture that faces young people today… and it’s why they, too, may be turning against the GOP and its “establishment” candidates.

   

  Generation Stagnation

  From Red Alert Politics, an online publication for conservatives, comes the following report:

  “A 30-year-old millennial earns roughly the same as what a 30-year-old earned 30 years ago, according to a new study from the Center for American Progress. The wage stagnation is demoralizing when the differences are vast. Millennials today “are 50% more likely to have finished college and that they work in an economy that is 70% more productive,” but a weak recovery and a shift in the labor market has kept starting salaries low, the report notes. The median compensation for 30-year-old workers in 1984 was $18.99 per hour. By 2004, it had moved up to $20.63 hourly, but declined to $19.32 hourly by 2014.”

   

  

  Stagnation nation: median real household incomes by age bracket. People in 15-35 year age group have made zero progress in almost half a century – click to enlarge.

   

  The Atlantic added further detail:

  “In retail, wholesale, leisure, and hospitality – which together employ more than one quarter of this age group [between 25 and 34] – real wages have fallen more than 10% since 2007. To be clear, this doesn’t mean that most of this cohort are seeing their pay slashed, year after year. Instead it suggests that wage growth is failing to keep up with inflation, and that, as twenty-somethings pass into their thirties, they are earning less than their older peers did before the recession.”

  Count on a progressive think tank like the Center for American Progress to provide claptrap “solutions” – including increasing “private sector unionism.” Bernie’s got answers, too – raising taxes on the rich and providing free education and free health care.

  But the poor GOP – and its leading man, Trump – has no answers at all, not even crackpot ones. Mr. Trump is a deal maker. A negotiator par excellence. But who are you going to negotiate with to get the economy moving in the right direction?

  We saw him on TV last night. The more we see him, the more we like him… and the surer we are that Americans are doomed. “The world is ripping us off,” he said; who “the world” is and how it rips us off is unclear.

   

  

  Successful nightmare dispensers

   

  Part of the Problem

  Old-school Republicans would have had answers. But you’d have to go back a long time to find them.

  “Try some real money for a change,” they would have said. “And, oh yes, balance the budget, too.”

  But today’s Republicans are usually part of the problem, not the solution. They have been bought by the Deep State. Now, they offer much the same nonsense as the Democrats: tax, spend, borrow, regulate, bomb, imprison. In that regard, the last Bush administration was probably the worst in modern U.S. history.

  The GOP is in disarray. It doesn’t believe its own core ideas. Neither does its standard bearer, Trump, or the voters.   When we picked up Lindsey’s book, we hoped he might put some light on the subject. Or at least a kick in the derriere to the Republican leadership.

  “They lost the plot,” he might have said. “They set up the Deep State to take over. No wonder their candidates aren’t winning!” Instead, he loses the plot himself. It’s all the fault of the liberals, Obama, the Clintons… and even Franklin Roosevelt, he suggests. In such a target-rich environment, it is a shame to waste the ammunition on the dead.

   

  

  Here is an “old school” Republican – a species that has all but died out: Senator Robert A. Taft of Ohio, here depicted in 1952 during his bid for the nomination. He was the ideological opposite of today’s neo-”conservatives”. In favor of a sane foreign and domestic policy, often denounced as an “isolationist” because he didn’t want the country to wage costly and unnecessary wars of aggression.

  

  

  

  

  

• North America's Most Expensive Housing Markets

  Courtesy of Point2Homes

  When the average home price in San Francisco went over the $1 million threshold in the first half of 2015, it was pretty obvious for most people that the Bay city secured the top position as the most expensive housing market in the U.S. This is exactly what happened. According to records released at the end of last year, San Francisco is the superstar housing market not only in the U.S., but for the entire North America as well.

  But what may really surprise some people when looking at the top 15 list of the most expensive housing markets in North America is seeing Vancouver — the third most expensive city in the world — down in the 6th position, behind a less expected entry … Brooklyn, N.Y.! The reason for this is the same one which pushed Toronto out of the top 10 list and to #11: a weaker Canadian dollar. And guess who comes right after Toronto? Well, it’s Queens, N.Y.

  

   

  #1. San Francisco, CA

  Median home sale price (Dec. 2015): $1,085,000 USD

  With sky-high home prices becoming the norm in San Francisco, many are wondering how long people are going to be able to afford buying a home here, especially since the condo market is not significantly cheaper than the detached-home segment.

   

  #2. Manhattan, NY

  Median home sale price (Dec. 2015): $1,059,000 USD

  According to real estate data powerhouse PropertyShark, at the end of 2015, the median home sale price in Manhattan went over $1 million for the first time. And if you take into account that in 3 Manhattan neighborhoods prices jumped over $3 million as well, then this news is expected.

   

  #3. San Jose, CA

  Median home sale price (Dec. 2015): $700,000 USD

  The state of California has another strong representative in list of the top most expensive housing markets in North America. And not just on this continent. With $700,000 the median home sale price, San Jose also ranks very high on the list of most unaffordable cities in the world, according to Demographia’s housing index.

   

  #4. Brooklyn, NY

  Median home sale price (Dec. 2015): $620,000 USD

  Said to be following in Manhattan’s footsteps, Brooklyn has seen home prices break all previous records in 2015. It’s a surprising entry into our list and its high median price reflects a peaking luxury market which has attracted a growing number of foreign investors.

   

  #5. Los Angeles, CA

  Median home sale price (Dec. 2015): $565,000 USD

  In the second and third quarters of 2015, Los Angeles saw home prices soar to levels last seen before the onset of the financial crisis. The fourth quarter, however, remained flat, leaving real estate experts looking ahead to the warm months for sales to pick up again.

  On the other hand, rentals in Los Angeles haven’t slowed down. They continue to climb all over town.

   

  #6. Vancouver, B.C. (Canada)

  Median home sale price (Dec. 2015): $549,783 USD / $760,900 CAD

  The main culprit of Vancouver’s low position in our list is the Canadian dollar. The fact that it lost strength against the US dollar made the Canadian real estate properties a much more affordable asset for American home buyers. Now an average home in Vancouver (including condos) will cost Americans just a little over $500,000 USD, which is half of what they pay now for a home in San Francisco. However, the benchmark for a single-family home was, at the end of 2015, at record-levels — $1,226,300 CAD, which still means a jaw-breaking $911,240 USD.

   

  #7. Seattle, WA

  Median home sale price (Dec. 2015): $538,500

  The tech boom Seattle has been seeing in the last years has taken its toll on home prices, which have been following a rising trend. Although the year-over-year growth is somewhere around 13%, real estate professionals expect the city to be the next Silicon Valley or New York in the next 5 years.

   

  #8. Washington, D.C.

  Median home sale price (Dec. 2015): $510,838 USD

  Home prices grew exponentially in Washington D.C. especially between 2012 and 2014, when other cities were registering decreases. Although the pressure has eased a bit in certain markets, central neighborhoods continue to see prices sky-rocket.

   

  #9. San Diego, CA

  Median home sale price (Dec. 2015): $510,000 USD

  Almost tieing with Washington D.C., San Diego is still more affordable than other counties in California, most notably Orange County and LA County. Home prices have been rising in the past years, leaving some experts wondering if the city hasn’t reached a bubble.

   

  #10. Boston, MA

  Median home sale price (Dec. 2015): $451,250 USD

  Boston had several things to show off for 2015:  4 of its neighborhoods were included on the list of the hottest neighborhoods in the nation, plus the number of sales and the median home price continued to register increases compared to 2014.

   

  #11. Toronto, ON (Canada)

  Median home sale price (Dec. 2015): $443,064 USD/ $613,200 CAD

  Despite its low position in our list this year, the Toronto housing market is still the second hottest in Canada, after Vancouver, and one of the most active markets in the world. The recent boom in condo development placed Toronto ahead of any other city in the world in terms of numbers of new recorded building permits.

  

  

  

  

  

• War On Terror Turns Inward – NSA Surveillance Will Be Used Against American Citizens

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  In time of actual war, great discretionary powers are constantly given to the Executive Magistrate. Constant apprehension of War, has the same tendency to render the head too large for the body. A standing military force, with an overgrown Executive will not long be safe companions to liberty. The means of defence against foreign danger, have been always the instruments of tyranny at home. Among the Romans it was a standing maxim to excite a war, whenever a revolt was apprehended. Throughout all Europe, the armies kept up under the pretext of defending, have enslaved the people.

   

  – James Madison, Founding Father and 4th President of these United States

  Our founding fathers studied power structures over the millennia and knew exactly what they were doing when solidifying the Bill of Rights into the U.S. Constitution. All it took was a couple hundred years, an extraordinarily ignorant and apathetic American public, and a major terror attack to roll back this multi-generational gift.

  For many years, I and countless others have been screaming from the rooftops that a society should never trade civil liberties for security. Life on earth has always been dangerous for us humans, and what has historically separated free and noble civilizations from stunted tyrannies is a willingness to acknowledge such a precarious existence while at the same time demanding and defending one’s dignity and liberty. In the aftermath of the attacks of 9/11 (seemingly carried out by U.S. ally Saudi Arabia), the American public has demonstrated no such strength of character or historical maturity, thus allowing a corrupt, deceptive and lawless government to run roughshod over freedom with very little resistance.

  Well now the chickens are coming home to roost. The tyrannical powers granted to government in order to stop foreign terrorists are rapidly being turned inward against an ever servile and apathetic American public.

  As Radley Balko at the Washington Post notes:

  A while back, we noted a report showing that the “sneak-and-peek” provision of the Patriot Act that was alleged to be used only in national security and terrorism investigations has overwhelmingly been used in narcotics cases. Now the New York Times reports that National Security Agency data will be shared with other intelligence agencies like the FBI without first applying any screens for privacy. The ACLU of Massachusetts blog Privacy SOS explains why this is important:

   

  What does this rule change mean for you? In short, domestic law enforcement officials now have access to huge troves of American communications, obtained without warrants, that they can use to put people in cages. FBI agents don’t need to have any “national security” related reason to plug your name, email address, phone number, or other “selector” into the NSA’s gargantuan data trove. They can simply poke around in your private information in the course of totally routine investigations. And if they find something that suggests, say, involvement in illegal drug activity, they can send that information to local or state police. That means information the NSA collects for purposes of so-called “national security” will be used by police to lock up ordinary Americans for routine crimes. And we don’t have to guess who’s going to suffer this unconstitutional indignity the most brutally. It’ll be Black, Brown, poor, immigrant, Muslim, and dissident Americans: the same people who are always targeted by law enforcement for extra “special” attention.

   

  This basically formalizes what was already happening under the radar. We’ve known for a couple of years now that the Drug Enforcement Administration and the IRS were getting information from the NSA. Because that information was obtained without a warrant, the agencies were instructed to engage in “parallel construction” when explaining to courts and defense attorneys how the information had been obtained. If you think parallel construction just sounds like a bureaucratically sterilized way of saying big stinking lie, well, you wouldn’t be alone. And it certainly isn’t the only time that that national security apparatus has let law enforcement agencies benefit from policies that are supposed to be reserved for terrorism investigations in order to get around the Fourth Amendment, then instructed those law enforcement agencies to misdirect, fudge and outright lie about how they obtained incriminating information — see the Stingray debacle. This isn’t just a few rogue agents. The lying has been a matter of policy. We’re now learning that the feds had these agreements with police agencies all over the country, affecting thousands of cases.

  This parallel construction concept is extraordinarily important, and most people are completely unaware of its meaning and usage. To get up to speed, see last year’s post:

  How the DEA Uses “Parallel Construction” to Hide Unconstitutional Investigations

  Of course, this is just one example of how the “war on terror” is slowly but surely transitioning into a “war on the citizenry.” A war that will only intensify as the public mood toward the status quo deteriorates further.

  For example, we recently learned a little bit about how military drones are being used on U.S. soil for domestic non-terrorism related purposes. USA Today reports:

  The Pentagon has deployed drones to spy over U.S. territory for non-military missions over the past decade, but the flights have been rare and lawful, according to a new report.

   

  The Pentagon has publicly posted at least a partial list of the drone missions that have flown in non-military airspace over the United States and explains the use of the aircraft. The site lists nine missions flown between 2011 and 2016, largely to assist with search and rescue, floods, fires or National Guard exercises.

   

  But the policy said that any use of military drones for civil authorities had to be approved by the Secretary of Defense or someone delegated by the secretary. The report found that defense secretaries have never delegated that responsibility.

  While use thus far apparently has been measured, this is always how it starts. The following paragraphs should make it clear where it’s headed.

  The report quoted a military law review article that said “the appetite to use them (spy drones) in the domestic environment to collect airborne imagery continues to grow, as does Congressional and media interest in their deployment.”

   

  Military units that operate drones told the inspector general they would like more opportunities to fly them on domestic missions if for no other reason than to give pilots more experience to improve their skills, the report said. “Multiple units told us that as forces using the UAS capabilities continue to draw down overseas, opportunities for UAS realistic training and use have decreased,” the report said.

  Unless there’s significant pushback to the use of military drones domestically, the practice is likely to expand and expand and expand until you can’t go out for a coffee without a camera dangling above your head.

  

  

  

  

  

  

• Greenspan Explains The Fed's Miserable Track Record: "We Didn't Forecast Better Because We Can't"

  On March 11, the National Archives announced its first opening of Financial Crisis Inquiry Commission (FCIC) records, along with a detailed 1,400-page online finding aid (yes, just the index is 1,400 pages). The records which are available via DropBox, seek to identify the causes of the 2008 financial crisis.

  Among the numerous materials are interviews with key players in Washington and on Wall Street, from Warren Buffett to Alan Greenspan. The documents also include minutes of commission meetings and internal deliberations concerning the causes of the financial crisis.

  While we admit we have yet to read the several hundred thousand pages released yesterday, here is what has so far emerged as of the better punchlines within the data dump, and it comes courtesy of the man who many believe is responsible not only for the second global great depression (which needs trillions in central bank liquidity to be swept under the rug every day), but for the “bubble-bust-bigger bubble” cycle that was unleashed with Greenspan’s Great Moderation.

  Here is Allan Greenspan meeting with Dixie Noonan et al on March 31, 2010:

  This is a reason why the Board is getting an unfair rap on this stuff. We didn’t forecast better than anyone else; we regulated banks that got in trouble like anyone else. Could we have done better? Yes, if we could forecast better. But we can’t. This is why I’m very uncomfortable with the idea of a systemic regulator, because they can’t forecast better.

  This comes from the person in charge of the most powerful central bank in the world; a world which now is reliant exclusively on central bankers for its day to day pretend existence.

  Good luck to all.

  

  

  

  

  

• Caption Contest: When Kerry Met Sally

  US Secretary of State John Kerry met with Saudi Arabia’s King Salman today, describing the world’s foremost human rights abuser and alleged funder of ‘terrorism’ as “an enduring historic partner and ally.”

  Productive meeting with His Majesty King Salman earlier today. #SaudiArabia is an enduring, historic partner & ally. pic.twitter.com/IXrJl3nQuO

  — John Kerry (@JohnKerry) March 11, 2016

   

  Is it just us, or does John Kerry look like he is about to break into tears?

  

  

  

  

  

• About That Miraculous Recovery Of The Post-ECB-Plunge

  Deja-vu all over again…

   

  

   

  And what happened next?

  

   

  Trade accordingly…

  

  

  

  

  

• Court Decision Could Accelerate Oil And Gas Bankruptcies

  Submitted by Dave Forest via OilPrice.com,

  Oil and gas data experts Evaluate Energy showed yesterday that U.S. E&Ps took a huge hit in 2015. With the value of total proved reserves in the sector declining by an astounding $515 billion dollars. 

  The chart below shows just how great the damage is, compared to reserves valuations the last few years.

  

  Factors like that have caused an increasing number of high-profile E&Ps to file for bankruptcy in America. And a critical court decision this week could mean even more coming.

  That ruling came Tuesday in the bankruptcy proceedings of Sabine Oil & Gas, detailed by Energy Law360. Where a New York judge ruled that bankruptcy allows Sabine to cancel contracts it holds with midstream firms on the company’s petroleum licenses in Texas.

  Here’s why this is a sea change for oil and gas law.

  Sabine held three separate contracts with pipeline firms in Texas, for the transport and sale of oil and gas that the company produced. These contracts came with clauses like “deliver or pay” features — where Sabine was obligated to send minimum volumes of production through the pipeline, or pay financial penalties to the pipeline operators.

  Such contracts could have been a stumbling block in bankruptcy — requiring the company to deliver production or cash at a time when its operations have slowed or stopped. And so Sabine had challenged in bankruptcy court to have the agreements nixed.

  And the judge in the case agreed. Ruling that the midstream contracts are not “running with the land” — in essence, saying that the contracts are not inextricably tied to the land assets that underlie Sabine.

  The decision opens the door for Sabine to sever the contracts as it restructures in bankruptcy. A strategy that other E&Ps immediately jumped on — with bankrupt producer Magnum Hunter Resources yesterday striking a deal to cancel four midstream contracts as it restructures.

  With the case giving producers a greater financial incentive to declare bankruptcy, we could see such filings increase. Obviously posing a risk for equity holders — and also for midstream companies, which could see a rising amount of contract business disappear in the bankruptcy courts.

  Watch for more cases of canceled contracts emerging. And possible write-downs and loss of income at midstream firms as a result.

  

  

  

  

  

• Inflation is Already Here… Gold Knows It… So Does the Fed

  Since 2007, the world’s Central Banks have collectively put more than $14 trillion into the financial system since 2008. To put that number into perspective, it’s equal to roughly 17% of global GDP.

   

  This kind of money printing is literally unheard of in modern history. And it has set the stage for a roaring wave of inflation to hit the financial system. Indeed, the first signs are already showing up… not in the “official” Government data (which is bogus) but in how those who run businesses around the globe are acting.

   

  Most people believe that when inflation hits, prices have to go higher. This is true, but higher prices can be manifested in multiple ways. Firms usually do not simply raise prices in nominal terms because it would hurt sales.

   

  Instead, companies resort to a number of strategies to maintain profit margins without hurting their sales. One of them is to simply leave part of a package EMPTY, thereby selling LESS product for the SAME price (a hidden price hike).

   

  Food manufacturers, like the politicians currently debating health reform, may have a solution to the obesity crisis: Feed Americans a lot of hot air. But this heated air is not just a figure of speech for packaged goods companies including Ralcorp Holdings' (RAH) Post Foods and PepsiCo (PEP) subsidiaries Frito-Lay and Quaker.

   

  In many packaged products, as much as 50% of the contents is just empty space, an investigation by Consumer Reports reveals. And we consumers are buying that nothingness every day.

   

  Source: Daily Finance

   

  Another tactic corporation use is to simply sell smaller packages for the SAME price (another means of selling less for MORE= a price hike).

   

  U.S. Companies Shrink Packages as Food Prices Rise

             

  Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.

   

  Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don't notice that they're getting less of the product for the same price.

   

  Source: Daily Finance

   

  However, perhaps the most scandalous policy employed by companies looking to engage in stealth price hikes is to swap out higher quality ingredients for lower quality/ lower cost alternatives. One big name coffee maker was caught doing this just a few years ago.

   

  Reuters is reporting that many of America's major brands have been quietly tweaking their coffee blends. While most coffee companies consider their blends trade secrets, and are loath to disclose exactly what goes into them, both circumstantial and direct evidence suggests they're now substituting lower-grade Robusta beans for some of their pricier Arabica, and degrading the quality of our coffee…

   

  At least one coffee roaster has admitted it. In November, Massimo Zanetti USA, which roasts for both Chock full o'Nuts and Hills Bros., publicly confirmed upping its Robusta usage by 25% this year.

   

  Why the switcheroo? Prepare to not be shocked. The answer is: price.

   

  Last year, a shortage of Arabica caused prices of the premium bean to spike as high as $3 a pound — $2 more than what a pound of Robusta would cost. This compares to a five-year historical trend of Arabica costing closer to 70 cents more than Robusta. In recent weeks, the trend has reversed, with Arabica prices falling to just a 62-cent premium over Robusta.

   

              Source: Daily Finance

   

  In simple terms, inflation is already around us, though it’s not yet showing up in LITERAL price hikes. Instead, we’re all paying MORE for LESS. And it’s only a matter of time before the situation really gets out of control.

   

  Indeed, Core Inflation is already above 2%…at a time when prices of most basic goods are at 19-year lows. Any move higher in Oil and other commodities will only PUSH core inflation higher.

   

  

  The Fed is cornered. Inflation is back. And Gold and Gold-related investments will be exploding higher in the coming weeks.

  We just published a Special Investment Report concerning a secret back-door play on Gold that gives you access to 25 million ounces of Gold that the market is currently valuing at just $273 per ounce.

   

  The report is titled The Gold Mountain: How to Buy Gold at $273 Per Ounce

   

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

   

  To pick up yours, swing by:

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

   

   

  Best Regards

   

  Graham Summers

  Chief Market Strategist

  Phoenix Capital Research

   

  

  

  

  

• Caught On Tape: Secret Service Agents Storm Stage To Protect Donald Trump

  Shortly after beginning his speech at a rally in Dayton, Ohio, Donald Trump was rapidly surrounded by Secret Service agents after an audience member grew increasingly raucous to the point of Trump appearing to duck at hearing a noise. Trump did not leave the stage and carried on with his speech, adding "I was ready for him, but it's much easier if the cops do it, don’t we agree?" This comes after last night's violent protests (which Soros-funded MoveOn.org have taken credit for) and this morning's misinformation about the cancellation of the Ohio rally.

   

   

  Trump's anxiety is understandable after last night's violence, and expectations of further protests to come, as Infowars reports, Ilya Sheyman, a failed Illinois contender for Congress and the executive director of MoveOn.org Political Action, has taken credit for the violence at a cancelled Trump event last night in Chicago.

  He promised similar violence and disruption will occur at future Trump political events leading up to the election.

   

  “Mr. Trump and the Republican leaders who support him and his hate-filled rhetoric should be on notice after tonight’s events,” on the George Soros funded MoveOn web page. “To all of those who took to the streets of Chicago, we say thank you for standing up and saying enough is enough. To Donald Trump, and the GOP, we say, welcome to the general election.”

   

  The violent demonstration in Chicago on Friday may represent a precursor to the sort of activity the organization will engage in as it tries to “shut down” its political enemies and elect either Hillary Clinton or Bernie Sanders.

   

  On Friday night many of the protesters shouted “Bernie!” and held placards announcing their support for the socialist Democrat.

   

  The group acts as a front for wealthy Democrats. It was founded with the help of the financier George Soros who donated $1.46 million to get the organization rolling. Linda Pritzker of the Hyatt hotel family gave the group a $4 million donation.

  The "promise" of violence? Sounds like domestic terrorism? Or is that only when "the other" side do it?

  Of course, the media is implicitly opining that this is all his own doing, which made us consider the alternative – Imagine if someone attacked President Obama and the media proclaimed it was Obama's own fault?

  So far it seems 45,000 people in Dayton and Cleveland were ready to peacefully listen to what Trump had to say…

  Just finished my second speech. 20K in Dayton & 25K in Cleveland- perfectly behaved crowd. Thanks- I love you, Ohio! pic.twitter.com/IDmwG5FQsw

  — Donald J. Trump (@realDonaldTrump) March 12, 2016

  

  

  

  

  

• The Year Of The Red Monkey: Volatility Reigns Supreme

  Submitte dby Charles Hugh-Smith via PeakProsperity.com,

  In the lunar calendar that started February 8, this is the Year of the Red Monkey.

  I found this description of the Red Monkey quite apt:

  "According to Chinese Five Elements Horoscopes, Monkey contains Metal and Water. Metal is connected to gold. Water is connected to wisdom and danger. Therefore, we will deal with more financial events in the year of the Monkey. Monkey is a smart, naughty, wily and vigilant animal. If you want to have good return for your money investment, then you need to outsmart the Monkey. Metal is also connected to the Wind. That implies the status of events will be changing very quickly. Think twice before you leap when making changes for your finance, career, business relationship and people relationship."

   

  (Source)

  In other words, the financial world will be volatile. And few will have the agility and wile to outsmart the market-monkey.

  For those who don’t believe in astrological forecasts, there are plenty of other reasons to anticipate sustained volatility in 2016 that strips certainty and cash from bulls and bear alike.

  What’s the Source of Volatility?

  Why are global markets now so volatile? The basic answer is as obvious as it is officially verboten: the global growth story is unraveling, and central banks and governments are desperate to re-ignite stagnating growth.

  When solid evidence of flagging trade, sales and profits surfaces, markets drop. When central banks and states talk up monetary and fiscal stimulus, markets leap higher, as seven years of stimulus programs have rewarded those who “buy the dips.”

  The relatively brief downturns and quick recoveries of the past seven years have led many to believe that this tug of war will resolve itself one way or the other in a few months. But the past seven years may not be a good guide to the next year or two: volatility might persist, month after month, with no clear resolution.

  Indeed, the past 25 years may not be a good guide to the next few years, as there are no analogous periods of sustained volatility in recent history. Rather, the current period shares characteristics with each crisis and crash of the past 25 years, but combines all these causal factors in one overlapping series. This makes the present volatility unique.

  Another causal factor is also unique to this era: after seven long years of zero interest rate policy (ZIRP), central banks have started pursuing an unprecedented policy of financial repression: negative interest rates (NIRP), in effect punishing savers for holding capital.

  The uncertainties generated by these policies are fueling rapid cycling between selling and buying in both human and machine (trading bots) participants.  Money managers fear losing capital in a crash, but are forced to seek yield in a zero or negative interest world.

  No wonder volatility will reign supreme for some time to come: never before have all these causal factors been mixed together in a toxic brew of over-indebtedness, impaired collateral, faltering growth, collapsing commodity valuations, zero interest rates and currency devaluations.

  The question everyone seeks to answer is simple: is the global economy sliding into recession? If so, it’s smart to sell all risk assets such as stocks and emerging-market currencies before the herd panics and triggers a crash. 

  Triggers of Recession

  The classic recession is the result of the ebb and flow of credit in the business cycle: in the expansion phase, credit blossoms as households borrow money to buy autos, homes, etc., and businesses borrow more to expand production, retail outlets, etc.

  The “animal spirits” of heady expansion inevitably exceed prudent limits, and credit is eventually extended to marginal borrowers and marginal investments. As marginal borrowers default and risky bets sour, loans must be written off and the expansion of credit ceases: households and enterprises pay down debt (deleverage) and cut expenses, causing sales, profits and employment to slump.

  Once the deleveraging has cleared the economy of impaired collateral, mal-investments and unsustainable debt loads, credit once again begins to expand as cheap assets and new opportunities present themselves to creditworthy borrowers.

  A variety of crises can trigger a reversal of risk-on “animal spirits” to fear-based risk-off prudence.  One classic trigger is a liquidity crisis: as euphoria shifts to caution, lenders are wary of rolling existing  risky debt into new loans.  Firms that owe the principal on existing debt find themselves short of cash and unable to access new credit, i.e. liquidity.  These vulnerable firms founder, launching a panic in which assets are sold to raise cash and marginal lenders and borrowers alike become insolvent.

  In the status quo narrative, central banks arose to eliminate liquidity crises: when credit dries up, your friendly central bank stands ready to issue unlimited credit to banks, enabling the banks to roll over existing debt and fund cash-poor enterprises.

  These liquidity-driven panics are typically short-term events, as the washout is violent and brief, much like a thunderstorm. But asset bubbles/collateral crises are more like hurricanes—slow-moving storms that shred the bubble assets over months or even years.

  In a credit-fueled asset bubble, the asset prices have been pushed to the moon by easy credit extended to marginal borrowers and speculators—participants who would have been unable to buy assets in more prudent eras.

  All this new debt is based on collateral: if a house is valued at $250,000 and the mortgage is $200,000, the $250,000 market value is the collateral supporting the mortgage. The difference between the debt and the market value—$50,000—is the owner’s collateral, and the lender’s cushion against any future decline in value.

  If the house soars in a bubble to $500,000, a lender might extend a $450,000 mortgage on the property. Once the house value falls back to $250,000, the collateral is woefully inadequate: if the owner defaults, the lender is facing a $200,000 loss on the eventual sale of the asset.

  This is the “balance sheet” recession: the balance sheets of households and enterprises are crippled by heavy debt loads and non-performing debt.

  Understandably, lenders are reluctant to book these horrendous losses, as they render highly leveraged lenders insolvent.  Borrowers may be reluctant to declare bankruptcy, and governments fear the decline in property values and taxes.

  Those with the most to lose share a common purpose: mask the collapse of collateral and delay the day of reckoning, i.e. the booking of the losses.  There are a number of ways to accomplish this: allow banks to maintain an unrealistic value on the property, i.e. “mark to fantasy,” or roll the mortgage over into a new larger loan that enables the owner to use new debt to make token payments on the new mortgage, and so on.

  These stalling tactics drag out the process of writing down bad debt and liquidating impaired assets.  As a result, participants can never be confident that asset values have truly been washed out.

  A third trigger of recession is an external shock that saps confidence by raising costs or introducing uncertainty. Energy shortages, widespread natural disasters and war are examples of external shocks.

  The Great Stagnation

  A fourth and relatively new kind of recession is the “stagflation” or “Great Stagnation” type of recession that may not even qualify technically as a recession (the classic definition of recession is two quarters of negative growth).  An economy that expands by a meager .2% year after year escapes the technical definition of recession, but it is mired in stagnation—a stagnation that can be accompanied by inflation in “stagflation” or by mild deflation/near-zero inflation.

  Great Stagnations are deadly to the status quo of debt-dependent growth because without expansion of assets, revenues, profits and payrolls, credit cannot expand except if it is extended to marginal borrowers and mal-investments—precisely the type of risky borrowers that default and trigger a classic business-cycle recession of falling asset values, mass defaults and the resulting insolvency of overleveraged lenders, enterprises and households.

  Since voters famously vote their pocketbooks, politicians presiding over deep recessions tend to get voted out of office. As a result, the political establishment is absolutely loathe to allow the cleansing of impaired debt and failed gambles that is necessary to establish a new foundation for prudent borrowing and healthy expansion.

  Now that the global engine of rapid growth in credit, trade and asset valuations—China—has ceased to expand, the global economy is now mired in a Great Stagnation.  For many regions, the Great Stagnation started in 2008 and has never really ended.

  The problem is governments and central banks attempted to force an exit from the Great Stagnation by inflating asset bubbles—bubbles that were intended to restore confidence and the “animal spirits” that fuel more borrowing, investing and spending.

  But these asset bubbles failed to lift household incomes or generate employment; as a result, the asset bubbles are teetering precariously on more promises of fiscal and monetary stimulus.

  Unfortunately for those who own these bubble-assets, the returns on fiscal and monetary stimulus have rapidly diminished: China, for example, has created a stupendous $1 trillion in new credit in the past two months, and has very little in sustainable income/employment growth to show for this explosive expansion of debt. (Source)

  No wonder markets are volatile: everything that worked for seven years is no longer working, but the promises of more stimulus are generating hope that the asset bubbles won’t burst.

  In Part 2: Outsmarting The Monkey, we look at capital flows and controls, and consider what average investors might do to protect themselves from volatility.

  The mischievous red monkey's purpose is to make this time as difficult as possible for investors to preserve their wealth. Fortunes have already been lost in the first few months of this year, and he's just getting started.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

   

  

  

  

  

  

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• Democracy, Be Damned – The "Sea Island" Conspiracy Reveals The Deep State

  Submitted by Patrick Buchanan via Buchanan.org,

  Over the long weekend before the Mississippi and Michigan primaries, the sky above Sea Island was black with corporate jets.

  Apple’s Tim Cook, Google’s Larry Page and Eric Schmidt, Napster’s Sean Parker, Tesla Motors’ Elon Musk, and other members of the super-rich were jetting in to the exclusive Georgia resort, ostensibly to participate in the annual World Forum of the American Enterprise Institute.

  Among the advertised topics of discussion: “Millennials: How Much Do They Matter and What Do They Want?”

  That was the cover story.

  As revealed by the Huffington Post, Sea Island last weekend was host to a secret conclave at the Cloisters where oligarchs colluded with Beltway elites to reverse the democratic decisions of millions of voters and abort the candidacy of Donald Trump.

  Among the journalists at Sea Island were Rich Lowry of National Review, which just devoted an entire issue to the topic: “Against Trump,” and Arthur Sulzberger, publisher of the Trumphobic New York Times.

  Bush guru Karl Rove of FOX News was on hand, as were Speaker Paul Ryan, Majority Leader Mitch McConnell and Sen. Lindsey Graham, dispatched by Trump in New Hampshire and a berserker on the subject of the Donald.

  So, too, was William Kristol, editor of the rabidly anti-Trump Weekly Standard, who reported back to comrades: “The key task now, to … paraphrase Karl Marx, is less to understand Trump than to stop him.”

  Kristol earlier tweeted that the Sea Island conclave is “off the record, so please do consider my tweets from there off the record.”

  Redeeming itself for relegating Trump to its entertainment pages, the Huffington Post did the nation a service in lifting the rug on “something rotten in the state.”

  What we see at Sea Island is that, despite all their babble about bringing the blessings of “democracy” to the world’s benighted, AEI, Neocon Central, believes less in democracy than in perpetual control of the American nation by the ruling Beltway elites.

  If an outsider like Trump imperils that control, democracy be damned. The elites will come together to bring him down, because, behind party ties, they are soul brothers in the pursuit of power.

  Something else was revealed by the Huffington Post — a deeply embedded corruption that permeates this capital city.

  The American Enterprise Institute for Public Policy Research is a 501(c)(3) under IRS rules, an organization exempt from U.S. taxation.

  Million-dollar corporate contributions to AEI are tax-deductible.

  This special privilege, this freedom from taxation, is accorded to organizations established for purposes such as “religious, educational, charitable, scientific, literary … or the prevention of cruelty to children or animals.”

  What the co-conspirators of Sea Island were up at the Cloisters was about as religious as what the Bolsheviks at that girls school known as the Smolny Institute were up to in Petrograd in 1917.

  From what has been reported, it would not be extreme to say this was a conspiracy of oligarchs, War Party neocons, and face-card Republicans to reverse the results of the primaries and impose upon the party, against its expressed will, a nominee responsive to the elites’ agenda.

  And this taxpayer-subsidized “Dump Trump” camarilla raises even larger issues.

  Now America is not Russia or Egypt or China.

  But all those countries are now moving purposefully to expose U.S. ties to nongovernmental organizations set up and operating in their capital cities.

  Many of those NGOs have had funds funneled to them from U.S. agencies such as the National Endowment for Democracy, which has backed “color-coded revolutions” credited with dumping over regimes in Serbia, Ukraine and Georgia.

  In the early 1950s, in Iran and Guatemala, the CIA of the Dulles brothers did this work.

  Whatever ones thinks of Vladimir Putin, can anyone blame him for not wanting U.S. agencies backing NGOs in Moscow, whose unstated goal is to see him and his regime overthrown?

  And whatever one thinks of NED and its subsidiaries, it is time Americans took a hard look at the tax-exempt foundations, think tanks and public policy institutes operating in our capital city.

  How many are like AEI, scheming to predetermine the outcome of presidential elections while enjoying tax exemptions and posturing as benign assemblages of disinterested scholars and seekers of truth?

  How many of these tax-exempt think tanks are fronts and propaganda organs of transnational corporations that are sustained with tax-deductible dollars, until their “resident scholars” can move into government offices and do the work for which they have been paid handsomely in advance?

  How many of these think tanks take foreign money to advance the interests of foreign regimes in America’s capital?

  We talk about the “deep state” in Turkey and Egypt, the unseen regimes that exist beneath the public regime and rule the nation no matter the president or prime minister.

  What about the “deep state” that rules us, of which we caught a glimpse at Sea Island?

  A diligent legislature of a democratic republic would have long since dragged America’s deep state out into the sunlight.

  

  

  

  

  

• What The Average Zhou Thinks Of China's Housing Bubble: "Only After War Breaks Out, We'll Be Able To Afford It"

  Chinese home prices are soaring. In fact, according to the latest data, the bubble among China's top, or "Tier 1" cities has never been bigger entirely at the expense of all other cities.

   

  

   

  And while this appears at first glance a positive, for central-planners and leveraged speculators, we wondered what the man on the street of Beijing thought of it.

  Policies by Chinese authorities to stimulate the country’s housing market have contributed to sky-high prices in some big cities such as Beijing, Shanghai and Shenzhen – with developers and real estate agents adding to the craze. What do Beijing residents make of the current market? Do they fear that a property bubble might be on the horizon?

  The Wall Street Journal hit the streets to find out, and discovered the average Zhou is not happy…

  Hu Xiaolin, 56, retired worker from Beijing

  

  Do you currently own a house? If not, do you plan to buy one in the future?

  No, I don't own a house. I don't plan to buy one; I can't afford it. My parents had a house, but my brother and sister live in it now. I just saw the news today about a "school district house:" an 11-square-meter bungalow was sold at 460,000 yuan ($71,000) per square meter. In total it's 5 million yuan ($770,000). It's just a game for the rich!

  Why do you think real estate prices are so high? Do you expect them to decline or keep rising?

  A few years ago the high prices were due to real demand. Gradually there was speculation, and now even regular people know that real estate is more valuable than stocks; the value just keeps rising. A house originally worth 4-500,000 yuan ($62-$77,000) might now be worth 2-3 million yuan ($300-$460,000). You can survey how many houses have owners living in them by counting the lights at night. Why so many empty houses? They belong to the real estate speculators, the hoarders and the corrupt officials.

  Have you ever used a housing agent in Beijing? What was your experience like?

  Yes. They're unreliable. Most talk rubbish, especially those working for small agencies. They always go back on their word and the staff are low quality; all they think about is selling houses and drawing a commission.

  With “destocking” one of this year’s economic targets, what kind of change do you hope to see? What is the role of the housing market in China’s economy, in your opinion?

  I hope the bubble can be eliminated more or less. What worries me is that if there are no purchasing requirements for outsiders and the rich flood into Beijing, the pressure will be overwhelming. The home-purchase policy isn't implemented strictly. Beijing isn't a livable city at all.

  Liu Na, 32, garment trader from Shandong

  

  "Chinese people want a house after they get money. It’s a fixed asset and can be passed to their descendants. But I have no plan or fantasy to buy one. The price makes it off-limits. It’s also a food chain: Only the richest and most capable people can live here."

  Anna Zhuo, 33, ad industry worker from Heilongjiang

  

  "I hope the prices can be stabilized. The government can release regulations on housing replacement, sparing the ownership transfer fees. The housing market is a pillar (of the economy). If it's ruined, our economy will be, too. It’s also a visible bubble. Everybody knows it will burst, but they still touch it."

  Martin Lee, 34, business manager from Beijing

  

  "Housing is the most direct way to exploit people. The prices will rise steadily and fall dramatically after they've reached a certain point."

   

  "It's a means for the privileged and interest groups to make a profit. 1,000 years ago, the ancient poet Du Fu said, "Where can I get a big broad shelter a thousand, ten thousand spans wide, a huge roof that all the world's poor people can share with smiling faces?" Now, nothing has changed. The housing market is part of the bubble economy. In 5 years or so, after a war has broken out, then the middle class will be able to afford a home."

  *  *  *

  And finally, there is Shi Ji, 24, housing agent from Jilin

  

  "The Chinese housing market started in the 1990s and is still in an initial stage. It’s a backbone of the economy. The Beijing real estate industry pays tens of billions of yuan in taxes annually. Many say they can’t afford to buy a house, which is not exactly right. Most consumers are seeking to upgrade their homes. If you can’t buy a big house, buy a small one. If you can’t buy in Beijing, buy in second-tier…"

  So buy, buy, buy!

   

  

  

  

  

  

• FBI Morale "Very Good" As 'Immune' Hillary IT-Staffer Reportedly A "Devastating Witness"

  Despite the arrogance of Hillary's campaign claiming to be "pleased" that the Justice Department granted immunity to an IT specialist who worked on Hillary's private email server, Fox News reports Bryan Pagliano has told the FBI key details, about how and what devices she used, citing an intelligence source who called him a "devastating witness." Having been warned that she should be "terrified" since "they would not be immunizing him and thereby inducing him to spill his guts unless they wanted to indict someone," Pagliano has reportedly provided information allowing investigators to knit together the emails with other evidence, including images of Clinton on the road as secretary of state.

  Watch the latest video at video.foxnews.com

  FOX News reports that the intelligence source said Pagliano told the FBI who had access to the former secretary of state’s system – as well as when – and what devices were used, amounting to a roadmap for investigators.

  "Bryan Pagliano is a devastating witness and, as the webmaster, knows exactly who had access to [Clinton's] computer and devices at specific times. His importance to this case cannot be over-emphasized," the intelligence source said.

   

  The cross-referencing of evidence could help investigators pinpoint potential gaps in the email record. "Don't forget all those photos with her using various devices and it is easy to track the whereabouts of her phone," the source said. "It is still boils down to a paper case. Did you email at this time from your home or elsewhere using this device? And here is a picture of you and your aides holding the devices." 

  At a Democratic debate Wednesday evening, Clinton brushed off the question when asked by the moderator whether she would withdraw from the presidential race if faced with criminal charges.

  Univision’s Jorge Ramos asked, "If you get indicted, will you drop out?" Clinton responded, "My goodness. That is not going to happen. I'm not even answering that question."

  She then added her now standard explanation that nothing she sent or received was marked classified at the time. While technically correct, the distinction appears misleading. The January 2009 classified information non-disclosure agreement signed by Clinton says she understood that classified information could be marked and unmarked, as well as verbal communications. Classification is based on content, not markings.

  The intelligence source said the FBI is "extremely focused" on the 22 “top secret” emails deemed too damaging to national security to publicly release under any circumstances, with agents reviewing those sent by Clinton as well her subordinates including former chief of staff Cheryl Mills.

  "Mrs. Clinton sending them in this instance would show her intent much more than would receiving [them],” the source said. "Hillary Clinton was at a minimum grossly negligent in her handling of NDI [National Defense Information] materials merely by her insisting that she utilize a private server versus a [U.S. government] server. Remember, NDI does not have to be classified."

   

  According to the Congressional Research Service, NDI is broadly defined to include “information that they have reason to know could be used to harm the national security.”

   

  It was emphasized to Fox News that Clinton’s deliberate “creation” and “control” of the private server used for her official government business is the subject of intense scrutiny. Pagliano knows key details as to how the private server was installed and maintained in her home.

   

  The 22 “top secret” emails are not public, but in a Jan. 14 unclassified letter, first reported by Fox News,  Intelligence Community Inspector General I. Charles McCullough III notified Congress of the findings of a recent comprehensive review by intelligence agencies identifying "several dozen" additional classified emails — including specific intelligence known as "special access programs" (SAP).

   

  That indicates a level of classification beyond even "top secret," the label previously given to other emails found on her server, and brings even more scrutiny to the presidential candidate's handling of the government's closely held secrets.

  The intelligence source described the morale of agents as "very good and nobody is moping around which is the first sign a big case is going south."

  *  *  *

  Keep on running…

  

  

  

  

  

  

• Trump Cancels Chicago Speech After Violent "Make America Hate Again" Protests Erupt – Live Feed

  Update:

  Cruz chimed in:

  • *CRUZ SAYS TRUMP CAMPAIGN BEARS RESPONSIBILITY IN CHICAGO
  • *RESPONSIBILITY STARTS AT THE TOP, TED CRUZ SAYS

  And then Trump responded:

  • *DONALD TRUMP COMMENTS IN CALL-IN INTERVIEW ON FOX NEWS
  • *TRUMP SAYS CHICAGO PROTESTERS WERE 'ORGANIZED GROUP'
  • *TRUMP: `I THINK WE DID THE RIGHT THING' CANCELLING RALLY

  As we detailed earlier:

  Following his appearance in St.Louis in front of 1000s, which was interrupted six times by protesters, Donald Trump has been forced to cancel his appearance in Chicago "due to security concerns" as a crowd waiting for him to arrive erupted into violence.

  The GOP front-runner was scheduled to speak at the school’s pavilion at 6 p.m., with doors opening at 3 p.m. The first person in line to wait for a spot at the free event arrived at 3 a.m. The arena seats 9,500, though it's not clear how many are set to attend the rally.

  Protesters lined up across the street from the pavilion, carrying signs that read "Build a wall around Trump and I'll pay for it!" and yelling to supporters in line for the rally.

  As NBC Chicago reports, a crowd waiting for Donald Trump to speak Friday erupted after the presidential front-runner postponed his rally at the University of Illinois-Chicago Pavilion over safety concerns.

  "Mr. Trump just arrived in Chicago and after meeting with law enforcement has determined that for the safety of tens of thousands of people that have gathered in and around the arena, tonight's rally will be postponed until another date," an announcer said. "Thank you very much for your attendance and please go in peace."

   

   

  The crowd burst into shouts and cheers, and some scuffles broke out in the crowd, in the minutes after the announcement was made.

   

   

  An hour before the rally was scheduled to begin, protesters were seen being escorted out of the venue.

  #TrumpRally protesters chant "We gonna be alright" after announcement of a Trump no-show. pic.twitter.com/FXce08oWzI

  — Chicago Reader (@Chicago_Reader) March 12, 2016

  Three attendees wearing shirts that read "Muslims United Against Trump" and "Make America Hate Again" were removed from the venue as protesters gathered inside and outside the pavilion.

   

   

   

  Crowds shouted as the protesters were escorted out before several people in the audience began repeatedly chanting "U-S-A." It was not immediately clear why the three were removed from the event.

  Trump supporters were disappointed. “It is an assault on liberty. I think everyone should have a right to have a rally,” said Corey Bartkus, who recently graduated from college.

  Live Feed:

  Make America Hate Again @realDonaldTrump pic.twitter.com/SN8UxQCMbn

  — Sarah Wotaszak (@sievehead_) March 12, 2016

  

  

  

  

• Fukushima Five Years Later: "The Fuel Rods Melted Through Containment And Nobody Knows Where They Are Now"

  Today, Japan marks the fifth anniversary of the tragic and catastrophic meltdown of the Fukushima nuclear plant. On March 11, 2011, a massive earthquake and tsunami hit the northeast coast of Japan, killing 20,000 people. Another 160,000 then fled the radiation in Fukushima. It was the world’s worst nuclear disaster since Chernobyl, and according to some it would be far worse, if the Japanese government did not cover up the true severity of the devastation.

  At least 100,000 people from the region have not yet returned to their homes. A full cleanup of the site is expected to take at least 40 years. Representative of the families of the victims spoke during Friday’s memorial ceremony in Tokyo. This is what Kuniyuki Sakuma, a former resident of Fukushima Province said:

  For those who remain, we are seized with anxieties and uncertainties that are beyond words. We spend life away from our homes. Families are divided and scattered. As our experiences continue into another year, we wonder: ‘When will we be able to return to our homes? Will a day come when our families are united again?’

   

  There are many problems in areas affected by the disaster, such as high radiation levels in parts of Fukushima Prefecture that need to be overcome. Even so, as a representative of the families that survived the disaster, I make a vow once more to the souls and spirits of the victims of the great disaster; I vow that we will make the utmost efforts to continue to promote the recovery and reconstruction of our hometowns.

  Sadly, the 2011 disaster will be repeated. After the Fukushima nuclear meltdown, Japan was flooded with massive anti-nuclear protests which led to a four-year nationwide moratorium on nuclear plants. The moratorium was lifted, despite sweeping opposition, last August and nuclear plants are being restarted.

  Meanwhile, while we await more tragedy out of the demographically-doomed nation, this is what Fukushima’s ground zero looks like five years later. As Reuters sums it up best,  “no place for man, or robot.“

  

  The robots sent in to find highly radioactive fuel at Fukushima’s nuclear reactors have “died”; a subterranean “ice wall” around the crippled plant meant to stop groundwater from becoming contaminated has yet to be finished. And authorities still don’t know how to dispose of highly radioactive water stored in an ever mounting number of tanks around the site.

  Five years ago, one of the worst earthquakes in history triggered a 10-metre high tsunami that crashed into the Fukushima Daiichi nuclear power station causing multiple meltdowns. Nearly 19,000 people were killed or left missing and 160,000 lost their homes and livelihoods.

  Today, the radiation at the Fukushima plant is still so powerful it has proven impossible to get into its bowels to find and remove the extremely dangerous blobs of melted fuel rods.

  The plant’s operator, Tokyo Electric Power has made some progress, such as removing hundreds of spent fuel roads in one damaged building. But the technology needed to establish the location of the melted fuel rods in the other three reactors at the plant has not been developed.

  “It is extremely difficult to access the inside of the nuclear plant,” Naohiro Masuda, Tepco’s head of decommissioning said in an interview. “The biggest obstacle is the radiation.”

  The fuel rods melted through their containment vessels in the reactors, and no one knows exactly where they are now. This part of the plant is so dangerous to humans, Tepco has been developing robots, which can swim under water and negotiate obstacles in damaged tunnels and piping to search for the melted fuel rods.

  But as soon as they get close to the reactors, the radiation destroys their wiring and renders them useless, causing long delays, Masuda said. 

  Each robot has to be custom-built for each building.“It takes two years to develop a single-function robot,” Masuda said. 

  IRRADIATED WATER

  Tepco, which was fiercely criticized for its handling of the disaster, says conditions at the Fukushima power station, site of the worst nuclear disaster since Chernobyl in Ukraine 30 years ago, have improved dramatically. Radiation levels in many places at the site are now as low as those in Tokyo.

  More than 8,000 workers are at the plant at any one time, according to officials on a recent tour. Traffic is constant as they spread across the site, removing debris, building storage tanks, laying piping and preparing to dismantle parts of the plant.

  Much of the work involves pumping a steady torrent of water into the wrecked and highly radiated reactors to cool them down. Afterward, the radiated water is then pumped out of the plant and stored in tanks that are proliferating around the site.

  What to do with the nearly million tonnes of radioactive water is one of the biggest challenges, said Akira Ono, the site manager. Ono said he is “deeply worried” the storage tanks will leak radioactive water in the sea – as they have done several times before – prompting strong criticism for the government.

  The utility has so far failed to get the backing of local fishermen to release water it has treated into the ocean.

  Ono estimates that Tepco has completed around 10 percent of the work to clear the site up – the decommissioning process could take 30 to 40 years. But until the company locates the fuel, it won’t be able to assess progress and final costs, experts say.

  The much touted use of X-ray like muon rays has yielded little information about the location of the melted fuel and the last robot inserted into one of the reactors sent only grainy images before breaking down.

  ICE WALL

  Tepco is building the world’s biggest ice wall to keep  groundwater from flowing into the basements of the damaged reactors and getting contaminated.

  First suggested in 2013 and strongly backed by the government, the wall was completed in February, after months of delays and questions surrounding its effectiveness. Later this year, Tepco plans to pump water into the wall – which looks a bit like the piping behind a refrigerator – to start the freezing process.

  Stopping the ground water intrusion into the plant is critical, said Arnie Gunderson, a former nuclear engineer.

  “The reactors continue to bleed radiation into the ground water and thence into the Pacific Ocean,” Gunderson said. “When Tepco finally stops the groundwater, that will be the end of the beginning.”

  While he would not rule out the possibility that small amounts of radiation are reaching the ocean, Masuda, the head of decommissioning, said the leaks have ended after the company built a wall along the shoreline near the reactors whose depth goes to below the seabed.

  “I am not about to say that it is absolutely zero, but because of this wall the amount of release has dramatically dropped,” he said.

  

  

  

  

  

• Two Charts To Consider Before The Monday Open

  Deja-vu all over again…

   

   

  

   

  And what happened next?

  

   

  Trade accordingly…

  

  

  

  

  

• Meanwhile, In Front Of A Trump Rally In St. Louis

  As Trymaine Lee notes, “literally the longest line I’ve ever seen…”

   

  Trump rally. Literally the longest line I’ve ever seen. pic.twitter.com/eQlRFk2x24

  — Trymaine Lee (@trymainelee) March 11, 2016

  Trump rally right now in St Louis.pic.twitter.com/zW6wTFqZaW (@YourAnonNews)

  — Breaking911 (@Breaking911) March 11, 2016

  And then this:

  WATCH: Anti-Trump protesters clash with Trump supporters ahead of rally in St. Louis.https://t.co/u4TKt7h9xT

  — NBC Nightly News (@NBCNightlyNews) March 11, 2016

  . @JuniusRandolph has been posting videos of St. Louis Trump rally that quickly escalated. pic.twitter.com/jCF8GCjO51 #Election2016

  — reported.ly (@reportedly) March 11, 2016

   

  And here is Trump himself in St. Louis being interrupted for 14 straight minutes:

  

  

  

  

  

• Hillary On Life Under President Trump: "I Will Not Move To Canada"

  While Google searches for "how can i move to Canada" are surging, there is one American that will not be leaving the nation when (or if) Donald Trump is crowned President. Speaking to MSNBC's Rachel Maddow, Hillary Clinton said if The Donald was elected, "I would never leave our country, but I would certainly be spending a lot of time yelling at the TV set."

   

  Some might be disappointed…

   

  Or is it because she will be behind bars?

  

  

  

  

  

• Why Negative Rates Can't Stop the Coming Depression

  Submitted by Bill Bonner via InternationalMan.com,

  Are you ready to pay to save?

   

  Agora founder Bill Bonner explains why “negative interest rates” are spreading around the world…and could soon come to the U.S.

   

  Like Doug Casey, Bill believes the worst is yet to come.

   

  Bill says the coming financial collapse will be worse than the market crashes in 1987, 2000, and 2008. But this time, he says, it will affect everything from your portfolio…to your bank account…to the cash in your wallet.

  About $7 trillion of sovereign bonds now yield less than nothing. Lenders give their money to governments…who swear up and down, no fingers crossed, that they’ll give them back less money sometime in the future.

  Is that weird or what?

  Into the Unknown

  At least one reader didn’t think it was so odd. “You pay someone to store your boat or even to park your car,” he declared. “Why not pay someone to look out for your money?”

  Ah…we thought he had a point. But then, we realized that the borrower isn’t looking out for your money; he’s taking it…and using it as he sees fit.

  It is as though you gave a valet the keys to your car. Then he drove it to Vegas or sold it on eBay.

  A borrower takes your money and uses it. He doesn’t just store it for you; that is what safe deposit boxes are for.

  When you deposit your money in a bank, it’s the same thing. You are making a loan to the bank. The bank doesn’t store your money in a safe on your behalf; it uses it to balance its books.

  If something goes wrong and you want your money back, you can just get in line behind the other creditors.

  The future is always unknown. The bird in the bush could fly away. Or someone else could get him.

  So, when you lend money, you need a little something to compensate you for the risk that the bird might get away.

  A New Level of Absurdity

  That’s why bonds pay income – to compensate you for that uncertainty.

  Inflation, defaults, depression, war, and revolution all raise bond yields because all increase the odds that you won’t get your money back.

  That’s why countries with much uncertainty – such as Venezuela – have higher interest rates than countries, such as Switzerland, where the future is probably going to be a lot like the past.

  Venezuelan 10-year government bonds yield 11%. The Swiss 10-year government bond yields negative 0.3%.

  The interest you earn on a bond is there to compensate you for the risk that you won’t get your money back. Or that the money you do get back when the bond matures will have less purchasing power than the money you used to buy the bond in the first place.

  You never know. Maybe the company or government that issued the bond will go broke. Or maybe the Fed will cause hyperinflation. In that case, even if you get your money back, it won’t buy much.

  With interest rates at zero, lenders must believe that the future carries neither risk. The bird in the bush isn’t going anywhere; they’re sure of it.

  As unlikely as that is, negative interest rates take the absurdity to a new level.

  A person who lends at a negative rate must believe that the future is more certain than the present.

  In other words, he believes there will always be MORE birds in the bush.

  Boneheaded Logic

  The logic of lowering rates below zero is so boneheaded that only a PhD could believe it.

  Economic growth rates are falling toward zero. And at zero, it normally doesn’t make sense for the business community – as a whole – to borrow. The growth it expects will be less than the interest it will have to pay.

  That’s a big problem…

  Because the Fed only has direct control over the roughly 20% of the overall money supply. This takes the form of cash in circulation and bank reserves. The other roughly 80% of the money supply comes from bank lending.

  If people don’t borrow, money doesn’t appear. And if money doesn’t appear – or worse, if it disappears – people have less of it. They stop spending…the slowdown gets worse…prices fall…and pretty soon, you have a depression on your hands.

  How to prevent it?

  If you believe the myth that the feds can create real demand for bank lending by dropping interest below economic growth rates, then you, too, might believe in NIRP.

  It’s all relative, you see. It’s like standing on a train platform. The train next to you backs up…and you feel you’re moving ahead.

  Negative interest rates are like backing up. They give borrowers the illusion of forward motion…even if the economy is standing still.

  Or something like that.

  

  

  

  

  

• Oil Market Commentary 3 11 2016 (Video)

  By EconMatters

  

  A sleepy Friday where we touched $39 a barrel briefly before profit taking into the European close. We have near term support for WTI at $37.22 for the April contract, with the next level of stronger support at the $36.12 area on the charts. If we break $36 a barrel this will signal weakness as we will be breaking back down from where we recently broke out of from a trading range.

  Strong Uptrending Week

   

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

  

  

  

  

• Why Companies Don't Want You To Look At GAAP Earnings

  Two weeks ago, when we did our latest analysis of GAAP and non-GAAP earnings, we were stunned by several findings:

  First, consensus Q1 2016 non-GAAP earnings, the kind that even Warren Buffett openly rails against, have imploded from +5% to -8.3% (this was “only” -7.4% two weeks ago), and more than double the -3.4% plunge in Q4 2015 EPS.

  

  Keep in mind that all of the above is on a non-GAAP basis, and if one looks at GAAP earnings, the picture goes from dire to absolutely disastrous. 

  Second, we said that if one uses I/B/E/S GAAP earnings, which exclude the barrage of pro-forma write offs, addbacks, “non-recurring items” and countless other “misleading numbers that can deceive investors”, what one gets is a true shocker: instead of 118 in LTM EPS for the S&P 500 (shown in red in the chart below) the true, Warren Buffett-approved number (shown in blue in the chart bellow) is a paltry 91.5! This is also the lowest S&P500 GAAP earnings per share since 2010, and translates into a 21.2 GAAP PE. 

  

  Two weeks later, after the market’s recent surge, the market’s GAAP PE is now over to 22x.

  We then explained what is taking place with the following chart showing the amount of EPS
  “writeoffs” and pro-forma adjustments should explain it. “In 2015, 26.5 of the total non-GAAP in S&P earnings, is the result of accounting gimmicks. The addbacks to the S&P’s EPS are now the highest since the 2008 financial crisis, and in nominal dollar terms, are already an all time high”

  

   

  Today, we are delighted to find that Factset itself has taken on this critical distinction between GAAP and Non-GAAP earnings as the core topic of its weekly earnings insight report.

  It’s finding confirms everything we warned about two weeks ago, and explains why every single company is desperate for investors to look only at its non-GAAP myth, and to stay as far away from the GAAP reality as possible.

  Did DJIA Companies Report Higher Non-GAAP EPS in FY 2015?

   

  While all US companies report EPS on a GAAP (generally accepted accounting principles) basis, many US companies also choose to report EPS on a non-GAAP basis. There are mixed opinions in the market about the reporting of non-GAAP EPS by US corporations. Supporters of the practice argue that it provides the market with a more accurate picture of earnings from the day-to-day operations of companies, as items that the companies deem to be one-time events or non-operating in nature are typically excluded from the non-GAAP EPS numbers.Critics argue that there is no industry-standard definition of non-GAAP EPS, and companies can take advantage of the lack of standards to (more often than not) exclude items that have a negative impact on earnings in order to boost non-GAAP EPS.

   

  

   

   

  As of today, all of the companies in the Dow Jones Industrial Average (DJIA) have reported EPS for FY 2015. What percentage of these companies reported non-GAAP EPS for FY 2015? What was the average difference between non-GAAP EPS and GAAP EPS for companies in the DJIA for FY 2015? How did this difference compare to last year?

   

  

   

  For FY 2015, 20 of the 30 companies in the DJIA (or 67%) reported non-GAAP EPS in addition to GAAP EPS for the fiscal year. For 18 of these 20 companies, non-GAAP EPS was higher than GAAP EPS. On average, non-GAAP EPS exceeded GAAP EPS by 30.7% for these 20 companies. For FY 2014, 19 of the 30 companies in the DJIA (or 63%) reported non-GAAP EPS in addition to GAAP EPS for the fiscal year. For 15 these 19 companies, non-GAAP EPS was higher than GAAP EPS. On average, non-GAAP EPS exceeded GAAP EPS by 11.8% for these 19 companies. Thus, there was a wider gap on average between non-GAAP EPS and GAAP EPS in FY 2015 compared to FY 2014 for companies in the DJIA.

   

  

   

  Due in part to this wider gap between non-GAAP EPS and GAAP EPS, companies in the DJIA on average reported a much smaller year-over-year decline in year-over-year EPS on a non-GAAP basis than on a GAAP basis for the year. For FY 2015, the 20 companies in the DJIA that reported non-GAAP EPS reported an average year-over-year decline in non-GAAP EPS of -4.8%. These same 20 companies reported an average year-over-year decline in GAAP EPS of -12.3%.

  So now that we know our math was right, perhaps our punchline from two weeks is correct as well, and it ias follows: “if using GAAP earnings, and applying the market’s already generous 16.5x non-GAAP P/E, one gets a fair value of the S&P 500 of 1,500, or over 25% lower than the recent prints in the S&P 500.”

  Which may explain the unprecedented scramble to pump up both the market, and P/E multiples as high as possible before the trapdoor is opened once again.

  

  

  

  

  

• It's Not Just The Republican Party; The Corrupt, Cronyist Democratic Party Is Imploding Too

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  Anyone who thinks the Democratic Party isn't imploding for the exact same reasons the Republican party is imploding is purposefully ignoring reality.

  Legions of pundits are crawling out of the woodwork to gloat over the implosion of the Republican Party. Corrupt, crony-capitalist, Imperial over-reach–good riddance.

  But far fewer pundits dare declare that the other corrupt, crony-capitalist party of Imperial over-reach–yes, the Democratic Party–is imploding, too, for the same reason: it too is rotten to the core and exists solely to protect the privileges of the few at the expense of the many.

  Democrats need to ask themselves: if Hillary Clinton is the shining epitome of what the Democratic Party stands for and represents, then what does the Democratic party stand for other than corruption, greed, pay-to-play, Imperial over-reach, elites who are above the law, and a permanent war state overseen by a corporatocracy bent on protecting the unearned privileges of the few at the expense of the many?

  

  Two Clintons. 41 years. $3 Billion.

  How about the Clintons' $153 million in speaking fees? Just good ole democracy in action?

  How about Hillary's "super-delegates"–you know, the delegate system that makes the old Soviet Politburo look democratic by comparison. Hillary has rigged the media coverage, a fact that is painfully obvious to anyone who is non-partisan. The New York Times, for example, couldn't wait to announce in blaring headlines that Hillary regains the momentum after she rigged a couple-hundred vote caucus in Nevada–and barely won that.

  The mainstream media fell all over themselves to declare Hillary the clear winner in the Michigan debate, and were delighted to run story after story of Hillary's commanding 21-point lead– all designed, of course, to discourage Sanders supporters from even going to the polls.

  It was obvious to non-partisan observers that Sanders won the debate–no question. And he went on to trounce Clinton despite her "commanding 21-point lead", which was quickly finessed away by a servile corporate media.

  How many pundits are commenting on the fact that Democratic voters are staying away in droves? Or that–according to one zany poll–venereal disease is more popular than Hillary among young quasi-Democratic voters?

  Every American knows the system is rigged to guarantee the skim of the protected classes. Insider Peggy Noonan recently penned an essay calling out the protected class, which can only be protected by stripmining the unprotected: Trump and the Rise of the Unprotected.

  The only difference between the two parties' protected class is the Democrats protect public union employees from any market or fiscal realities, until their unaffordable pay and health/pension benefits bankrupt local governments. At that point, the party bosses will come crying to Washington, D.C. to bail out benefit and payroll costs that were never fiscally viable in the first place.

  The protected classes love the Status Quo, because it exists to protect their privileges. The unprotected classes loathe the Status Quo for the same reason.

  Anyone who thinks the Democratic Party isn't imploding for the exact same reasons the Republican party is imploding is purposefully ignoring reality–a reality that threaten the protected classes' lock on wealth and power.

  

  

  

  

  

• Everything Was Working Great… And Then Today's ECB Blog Post Left JPMorgan "Dazed And Confused"

  In a historic first, earlier today ECB vice president Vitor Constancio (the same one who in October 2014 explained that the European stress tests refuse to consider a scenario with deflation  “because indeed we don’t consider that deflation is going to happen” just a few months before Europe got its first deflationary print since the crisis) penned an official ECB opinion piece, some might call it a blog post, titled “In Defense of Monetary Policy” just hours after the ECB’s historic “all in” gamble which included the first ever monetization of corporate bonds.

  In it he tried to do two things:

  • To explain why, despite repeated rumblings that monetary policy is longer relevant, it is in fact essential, or as he says “not only is it wrong to start talking down monetary policy – it’s actually dangerous“, and to do this he attempts to prove a counterfactual saying that without QE, European deflation would be far worse than it is now, and that structural reforms, while critical “it is difficult to see how they could spur growth significantly in the next two years, especially when the current problem is lack of global demand.”  In other words, yes, we should no longer stimulate, but we can’t stop as governments are too inefficient, and take too long to do what they have to, so we will keep stimulating.
  • The second one is both a justification for negative rates, in which far from the now accepeted reason that the ECB no longer wants to impair bank profitability, what Constancio suggests is that the only gating factor is fears about a flight to cash should rates go even more negative (and hence why the ECB has been so aggressively moving to eliminate the €500 bill).

  The problem with these two points, and especially the second one, is that it runs completely counter to the entire narrative that was sloppily errected overnight as justification for today’s rally, which as a reminder was that the ECB will no longer cut rates to support European banks, and that the ECB is explicitly no longer targeting a weaker Euro but instead will do everything in its power to promote credit creation (as it did with LTRO1-4, as it did with QE1 and so on).

  We were not the only ones who wre left scratching our heads. In a note by JPM’s Malcolm Barr, he admits that JPM is likewise “thoroughloy confused” by Constancio’s blog, and says that “it is disappointing to us to see the ECB without a clear and convincing explanation for why it perceives a bound on rates at -0.4% at this point.“

  The explanation is simple: the ECB not only has gone all but is now grappling and adjusting the narrative to fit to whetver the market wants to hear at any given moment just to go higher. This is precisely what happened on December 4th after the ECB’s last “policy failure.” The problem is that Draghi’s attempt to jawbone markets higher lasted only a few days.

  The risk, as JPM implies, is that once Friday’s buying rally fizzles not only in the US but in Europe, and all attentions turns back to the ECB for “more”… there will be nothing there, and Draghi will have to revert back to even more negative rates, to banning cash, and to reminding markets that absolutely nothing has changed.

  What is most ironic, is that everything was working out great – the market was soaring for whatever reason, and the narrative had shifted to make it seem that the ECB actually knew what it was doing… and then Constancio once again spoke up and demonstrated that the ECB really has no idea what is going on!

  Here is JPM’s note on the topic, authored by Malcom Barr

  ECB’s Constancio: Dazed and confused?

  ECB Vice-President Constancio has taken the unusual step up of publishing an “Opinion piece” on the ECB website (link), entitled “In Defence of Monetary Policy”. We can’t recall any instances of senior ECB officials putting pen to paper (as opposed to giving interviews) so soon after an ECB decision. In our view, two things in this piece stand out. One we would welcome, the other we find thoroughly confusing.

  • A reality check on fiscal policy and structural reform. Constancio points out that there are significant legal and political constraints on the ability of countries to use fiscal policy to stimulate growth. In his words “countries that could use fiscal space, won’t; and many that would use it, shouldn’t”. The hint that these constraints may be at least a little unhelpful reflects the drift of opinion on this issue we have been seen of late from the leadership of the ECB. What Constancio has to say about structural reform, however, cuts somewhat against the grain. Pointing out that structural reforms tend to be deflationary in the first instance, he states: “Structural reforms are essential for long-term potential growth, but it is difficult to see how they could spur growth significantly in the next two years, especially when the current problem is lack of global demand”. We agree, and it is refreshing to see the ECB acknowledge this so openly.
  • Why the bound at -0.4%? Having argued that monetary policy has had to step into the void left by other policies, Constancio argues that monetary policy has boosted growth by around two-thirds of a percentage point over the last two years. But “all policies have limits. In the case of the instruments, we are now using, this is particularly true of negative interest rates on our deposit facility. The reasons are more fundamental than just the effect on banks”. At this point Constancio cites a recent blog by Cecchetti and Schoenholtz (link), before pointing out that bank returns on equity in the Euro area went up in 2015 despite negative rates. But if it is not the impact on bank profitability that sets a limit to the usefulness of negative rates, then what is the “more fundamental” reason?

  The Cecchetti and Schoenholtz blog discusses the experience in Europe to date, and notes that rates have been moved further below zero than was thought possible without beginning to trigger flight to cash by banks. They suggest that the floor on rates may be higher in large jurisdictions than in smaller, owing to economies of scale in cash holding. And they also point out that the limit may change dependent on how long rates are expected to be below zero. But they do not conclude that we have, by now, clearly reached the limits of how low negative rates could go. Moreover, the piece almost completely ignores the impact that the specific design of tiering regimes can have on the marginal incentive to hold cash (where the exemption on negative rates is withdrawn as banks’ holdings of cash rise).

  So this leaves us thoroughly confused. We had thought that the ECB was turning away from further moves into negative territory because of the impact on bank profitability and, hence, on credit availability. Constancio appears to say this is not the key reason, and that the constraint from possible flight to cash is coming into view. In our view, it is not clear that either argument is convincing. But the argument for stopping at -0.4% based on impacts on bank profitability is more convincing than any suggestion that rates simply will not stick much below -0.4% because of flight to cash. It is disappointing to us to see the ECB without a clear and convincing explanation for why it perceives a bound on rates at -0.4% at this point.  

  * * *

  It’s ok Malcolm, the ECB will just make it up as it goes along, quite literally day by day now.
  

  

  

  

  

  

• Draghi-Dip-Buyers Send Stocks, Crude To 2016 Highs; Gold Slammed

  Was there ever any doubt…

   

  So this happened…

  

   

  Yes it is all very exciting, but year-to-date, Gold is outperforming The Dow by 20ppt…

  

   

  For the best year since 1974…

  

   

  And since The Fed hiked rates…

  

   

  And before we start, remember how excited everyone was in mid-September (before The Fed folded)…

  

  h/t @NorthmanTrader

   

  Let's look at markets post-ECB…

  

   

  And post-Draghi's "no more" comments, It looks like someone was desperate to make sure Gold (the anti-centrally-planned world asset) was outperforming…

  

   

  Trannies and Small Caps ripped over 2% today…

  

   

  On the week, it's all green for the 4th week in a row, led by The Dow (rather unusually)

  

   

  But futures show the real craziness…

  

   

  S&P 500 broke above its 200DMA for the first time this year…

  

   

  And just look at the vol in Financials and Energy this week…

  

   

  HYG (deluged with institutional cash looking for a home amid a barren primary issuance market) soared today to its best 4 week gain since Oct 2011 – which marked the top of that bounce…

  

   

  One quick question – if everything is awesome, then why is financials' credit risk so extreme high still?

  

   

  Treasury yields were all higher today (and on the week) with 30Y outperforming (pushing the 2s30s spread to Dec08 lows – 2nd biggest cirve flattening this year)

  

   

  5Y Yields broke back to the middle of the range (up 25bps in 2 weeks – the most in 4 months)

  

   

   

  The USD Index was smacked lower for the 2nd week in a row, near 5 month lows…

  

   

  This is the biggest 6-week drop in USD Index since May 2015…

  

   

  USDJPY rallied back but not like stocks…

  

   

  But EURUSD didn't give any back…

  

   

  Gold and silver closed modestly lower on the week (slammed in the last hour of the day), copper dropped and oil popped…

  

   

  Gold futures aretrading like a penny stock!!

  

   

  Oil rallied for the 4th week in a row (for the first time since May 2015)…

  

   

  The biggest 4-week run (30.8%) since March 2009…

  

   

   

  Charts: Bloomberg

  

  

  

  

• Pentagon Admits It 'Kinda Sorta' Deployed Spy Drones Over America

  In what will likely not surprise too many, The Pentagon has admitted it has deployed drones to spy over U.S. territory for non-military missions over the past decade. Confirming yet another conspiracy theory is conspiracy fact, FBI director Robert Mueller testified before Congress that the bureau employed spy drones to aid investigations, but in a "very,very minimal way, very seldom." The report concludes, "the appetite to use spy drones in the domestic environment to collect airborne imagery continues to grow."

  As USA Today reports, the report by a Pentagon inspector general, made public under a Freedom of Information Act request, said spy drones on non-military missions have occurred fewer than 20 times between 2006 and 2015 and always in compliance with existing law.

  The report, which did not provide details on any of the domestic spying missions,  said the Pentagon takes the issue of military drones used on American soil "very seriously."

   

  A senior policy analyst for the ACLU, Jay Stanley, said it is good news no legal violations were found, yet the technology is so advanced that it's possible laws may require revision.

   

  "Sometimes, new technology changes so rapidly that existing law no longer fit what people think are appropriate," Stanley said. "It's important to remember that the American people do find this to be a very, very sensitive topic."

   

  The use of unmanned aerial surveillance (UAS) drones over U.S. surfaced in 2013 when then-FBI director Robert Mueller testified before Congress that the bureau employed spy drones to aid investigations, but in a "very,very minimal way, very seldom."

  The inspector general analysis was completed March 20, 2015, but not released publicly until last Friday.

  It said that with advancements in drone technology along with widespread military use overseas, the Pentagon established interim guidance in 2006 governing when and whether the unmanned aircraft could be used domestically. The interim policy allowed spy drones to be used for homeland defense purposes in the U.S. and to assist civil authorities.

   

  But the policy said that any use of military drones for civil authorities had to be approved by the Secretary of Defense or someone delegated by the secretary. The report found that defense secretaries have never delegated that responsibility.

  The report quoted a military law review article that said "the appetite to use them (spy drones) in the domestic environment to collect airborne imagery continues to grow, as does Congressional and media interest in their deployment."
  *  *  *
  Shortly before the inspector general report was completed a year ago, the Pentagon issued a new policy governing the use of spy drones. It requires the defense secretary to approve all domestic spy drone operations. It says that unless permitted by law and approved by the secretary, drones "may not conduct surveillance on U.S. persons." It also bans the use of armed drones over the United States for anything other training and testing.

  Given the lies that were told about Obama's secret drone assassination project, who knows what the reality is if they are admitting "we droned some American folks on American soil."

  

  

  

  

  

• Weekend Reading: The Bull/Bear Struggle Continues

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  The standoff between the “bulls” and “bears” continued this week as prices struggled to rise. The “bulls” continue to “hope” that the recent turmoil that started at the beginning of this year has come to an end. The “bears” continue to point out silly things like an ongoing earnings recession, weakening economic data, and deteriorating technicals to make their case.

  Silly “bears”.

  Interestingly, on Thursday, the ECB launched its biggest “bazooka” yet pushing further into negative interest rates, increasing their already failed QE program and crossing every finger and toe for “good luck.”  Via the ECB:

  “At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

  (1) The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00%, starting from the operation to be settled on 16 March 2016.

  (2) The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.

  (3) The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%, with effect from 16 March 2016.

  (4) The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.

  (5) Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.”

  Question:

  “What happens during the next global economic recession when these unsecured corporate bonds go bankrupt?” 

  If you remember, Lehman bonds were IG unsecured corporate bonds the DAY BEFORE they went into bankruptcy. That event sparked the global financial crisis. But this time will be different, right?

  I’m only asking the question.

  Anyway, I digress. This week’s reading list takes a look at various views on the market, the latest jobs report, oil prices and other interesting reads.

  ---

  1) Do Any Of The Recent Rallies Pass The Sniff Test by Charles Hugh Smith via OfTwoMinds

  “As Chris Martenson and many others have noted, “price discovery” is a joke now, as markets are either propped up by central bank “we got your back” guarantees or outright asset purchases, or driven up and down by speculative hot money flows.

   

  This is not capitalism, or a functioning market: this is the end-game of legalized looting and financialization. What’s the value of real estate? If interest rates are pushed negative, then that gooses housing demand, as the cost of interest on a mortgage declines to near-zero in real terms.”

  

  • But Also Read: This Bull Market Is Getting No Respect by Wallace Witkowski via MarketWatch
  • And Read: Are We Going To See 2500 S&P Soon? by Avi Gilburt via MarketWatch
  • Don’t Miss: Fasten Your Seatbelts – It’s Going To Get Bumpy by Michael Brush via MarketWatch
  • Interesting: GS Says Relief Rally Was Too Fast by Tyler Durden via ZeroHedge

  ---

  2)  The Markets Are Stretched, So I’m “All-In” Short by Doug Kass via Real Clear Markets

  “My recent column Not So Super Tuesday highlights why I believe markets are tipping over to short-term bearish, while my Top 10 Reasons to Sell Stocks Now piece incorporates most of my intermediate-term concerns.

   

  That’s why I moved to “all-in short” on Friday during the market’s post-jobs-report ramp-up. I believe stocks’ recent rally from their mid-February low has stretched valuations and drastically altered the risk-vs.-reward ratio.

   

  I‘d also note that Friday’s seemingly good February U.S. jobs report wasn’t quite as “clean” as the strong headline number of 242,000 non-farm job gains suggests. For instance, average wages dropped by 0.1%, while average hours worked fell by 0.2 — a decline usually seen in recessions. (Previous similar drops occurred in February 2010 and December 2013.)”

  • But Also Read: The Market Is Doing The Most Bullish Thing It Can Do by Kevin Marder via MarketWatch
  • And Read: Stocks Won’t Earn Nearly As Much Over Next 7-Years by Mark Hulbert via MarketWatch
  • Further Reading: The Perfect Storm Isn’t Over Yet by Mohamed El-Erian via Project Syndicate

  ---

  3) The Wall Street Profits Illusion by Sam Ro via Yahoo Finance

  “Wall Street gurus like Societe Generale’s Andrew Lapthorne, have been tracking the discrepancy between GAAP and non-GAAP reported profits for years.

   

  But last fall, more experts like Deutsche Bank’s David Bianco grew increasingly concerned with what was becoming a growing divide between GAAP and non-GAAP profits.

   

  ‘Blended [non-GAAP] 4Q earnings per share is $29.49 with GAAP EPS of $19.92,’ Bianco said of S&P 500 profits on Monday. He further noted that this 67% ratio of GAAP to non-GAAP EPS is ‘well below the normal ~90% ex. recessions.'”

  

  • Also Read: Analyzing Q4 Earnings via RIA
  • But Also Read: The Retracement Rally Is Over by Erik Swarts via Market Anthropology

  ---

  4) February Jobs Report A Little Misleading by John Crudele via New York Post

  “Labor trumpeted that 242,000 new jobs were created in February, although wages declined 0.1 percent, the average workweek dropped by 0.2 hours and aggregate hours worked fell 0.4 percent. And part-time work soared in February while full-time job growth was mediocre.

   

  Even the 242,000 job growth looked hokey. Retailing, for instance, saw an unbelievable (as in “not to be believed”) jump of 55,000 jobs despite the fact that February isn’t exactly the month when stores hire people to handle a swarm of shoppers.

   

  As I said last Thursday and in a special Saturday column, the February job report was helped by rogue statistics — untrustworthy seasonal adjustments (especially in retailing) and giddy assumptions made by Labor that will probably have to be corrected later.“

  • Also Read: Wages – Shadow Hanging Over Jobs Market by Jeff Cox via CNBC
  • And Read: Does Jobs Report Point To Recession by Jared Pincin via Real Clear Policy

  ---

  5) Oil Prices Should Fall, Possibly Hard by Art Berman via Forbes

  “Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

   

  Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.“

  

  • Also Read: Oil: Lower Prices For Longer via Morgan Stanley
  • And Read: The Future Of Oil Is Here & It Ain’t Pretty by Michael Clare via The Nation

  ---

  OTHER GOOD READS

  • The Failed 401k Experiment by David Dayen via The Fiscal Times
  • BIS Sends Global Storm Warning by Lianna Brinded via BI
  • Draghi Plays Last Deflation Card by Ambrose Evans-Pritchard via The Telegraph
  • Central Banks About To Ambush The Casino by David Stockman via Contra Corner
  • The Market’s 7-Year Itch by David Keohane via FT Alphaville
  • Interest Rates, Fed & Inflation’s New Normal by Andrew Dasson via CFA Institute
  • NIRP – No Need To Go There by Paul Kasriel via Financial Sense
  • Dividend Investing – Not All Its Cracked Up To Be by Meb Faber via Faber Research
  • Margin Debt’s Message Could Not Be More Clear by Jesse Felder via The Felder Report
  • The Line In The Oil Sand via Dana Lyons via Tumblr
  • Houston Real Estate Is In Trouble by Aaron Layman

  ---

  “When the paddy wagon rolls up, they take the good girls with the bad” – Old Wall Street Bear Market Axiom

  

  

  

  

  

• "Stay Angry My Friends"

  The last decade or two has been a failure…

  

   

  For everyone apart from the elites…

   

  

   

  Which created this…

  

  Source: Townhall.com

  Which is leading to this…

  

   

  So stay angry my friends…

  

  Source: Townhall.com

  As we noted earlier, it seems more than a few are “angry”…

  Trump rally. Literally the longest line I've ever seen. pic.twitter.com/eQlRFk2x24

  — Trymaine Lee (@trymainelee) March 11, 2016

  

  

  

  

  

• What Does Nasdaq Know?

  Nasdaq risk is dramatically higher than S&P risk at current levels. Despite the exuberant ramp of the last few weeks, the ratio of Nasdaq VIX to S&P VIX is at its highest in over 6 months.

  

   

  This is worrisome since the last time Nasdaq traders were this much more concerned about future risk than S&P traders, was right before the August flash-crash collapse…

  And if that wasn’t enough, look where we are…

  

  h/t @NorthmanTrader

  

  

  

  

  

• A Top Performing Hedge Fund Just Went Record Short: Here's Why

  When we last looked at the $2.9 billion Horseman Capital, we reported that not only has the fund which many have called the “most bearish in the world” generated tremendous returns almost every single year since inception (except for a 25% drop in 2009 after returning 31% during the cataclysmic 2008), but more notably, it has achieved that return while been net short – and quite bearish on – stocks ever since 2012.

  In that period it has consistently generated low double-digit returns, a feat virtually none of its competitors have managed to replicate. Its performance has put it in the top percentile of all hedge funds in recent years.

  Furthermore, in a year most other hedge funds would love to forget, the fund “crushed it”, with a 20.45% return for 2015 and 5.6% in the tumultuous month of December. 

  Today, we received Horseman’s latest February numbers and the fund’s outperformance has continued: in a very volatile month, in which many hedge funds were stopped out in both directions, Horseman returned a respectable 1.5%, after 8% the month before, and with a 9.6% YTD tally, it remains in the 99%+ percentile of returns for the year.

  

  Outperforming the market is hardly new to Horseman: it has been doing so for four years in a row, and not surprisingly, 2015 was its best year since 2008. 2016 is starting off just as good as the prior year.

  

  What was the source of Horseman’s February outperformance? Recall that in January it was all about short Chinese exposure. This is what the fund was shorting in February:

  This month both the long and short equity portfolios incurred small losses while gains came from the long positions in government bonds and the currency positions. Losses came primarily from the small remaining long positions in European banks and from the short positions in the automobile sector. Gains were made in discount retailers in the long portfolio and in financials in the short portfolio.

   

  In the airline industry, the decision to operate a new or an old aircraft has nothing to do with safety or reliability as routinely airliners fly 100,000 hours or more before they are retired out of service. According to Aviation Consultants 360, the Federal Aviation Administration does not disqualify an aircraft based on its chronological age when determining a jet aircraft’s condition or safety. What counts is the aircraft’s current maintenance status, its maintenance history, current required upgrades and engines.

   

  Manufacturers have made significant improvements in engine efficiency, but it only matters when fuel prices are high. Improvements have been made in avionics and communication but these are separate safety issues beyond the safety and reliability of the aircraft’s airframe, and the equipment can be updated. Consequently, for all practical purposes, a well maintained 30 year old aircraft with 10,000 hours on its airframe is as safe and dependable as any new aircraft but costs only a fraction. According to Aviation Consultants 360, in many ways, the older aircraft is safer; it has history and is known to be safe, a huge benefit.

   

  Although Boeing and Airbus revealed record production figures for 2015, net new orders fell by almost half at Boeing and a third at Airbus. An analyst at Citigroup recently pointed that in the aviation cycle before 2008, around 70% of demand for new airplanes was from airlines and leasing companies planning to add capacity, and that since then, demand from customers seeking to replace old planes with new more fuel efficient ones has risen to more than half of deliveries. In our opinion, as fuel prices have fallen, the replacement market is likely to shrink as fuel efficiency is no longer a top priority.

   

  A large part of Boeing and Airbus’ order books has been driven by demand from emerging countries’ low cost airlines (sources: Boeing; Airbus), who in our opinion, may cancel orders in the event of further emerging markets currency devaluations versus the US dollar. During the month we built a short position to aircraft manufacturers and aircraft leasing companies of about 10%.

  So while being bearish China was the flavor of last month, this time it is all about shorting airplane manufacturers.

  This is what Horseman’s sector allocation looks like as of this moment:

  

  However, what remains most remarakable about Horseman Capital is that even as it modestly boosted its gross exposure to 59%, as of February the fund’s net short exposure has risen from what was a previous record of 76%, to a whopping -88%, an unprecedented record even for one of the world’s most bearish hedge funds!

  

  Finally or those seeking to glean some wisdom from the Horseman’s inimitable Chief Investment Manager, Russell Clark, here is his latest letter.

  * * *
  

  Your fund made 1.47% net last month mainly on the back of its Japan related positions.

  The fund has had a good move from its last drawdown in October of last year, and is probably overdue for a pullback. The first few days of March are bearing this out. However in many ways the drawdown in the fund began in February, as consensus short positions in the market began to rally furiously. Good examples are stocks such as Glencore, which the market was pricing for bankruptcy in January, has now seen its stock price rise 58% year to date. The 10 best performing stocks in the S&P this year, were down last year on average 40%. The reality is no one likes it when loser stocks rally. It makes everyone look bad. Short sellers get crushed, best performing long managers from last year start underperforming the market, and investors wonder why they even bother with active managers!

  Sadly, I am all too familiar with markets like these. A significant and surprising move in the market, for example yen strength in February, can cause significant losses in a large macro fund. This macro fund will then seek to reduce risk, and will sell long positions and buy back short positions. This can cause a short counter trend rally, which is painfully, but usually short lived.

  My view is that when indices have broken down and are trading as a bear market the best thing to do is to try and reduce the long book as much as possible. There is a strong temptation to find “safe” long positions to own that will reduce the net short position of your fund. I have found this to be the worst possible thing to do as almost every other market participant is trying to crowd into these same safe positions. When the inevitable redemptions come, long positions get sold and short positions get covered, and your “safe” longs end up causing as much damage as your short book.

  For that reason over the last year as the bear market has become more and more apparent, I have been continually adding to the short book and selling the long book. I have also been moving the fund to less consensual bearish ideas, such as long yen and short Japanese and European exporters. This strategy has paid dividends in February, which was a very tough month for many other short sellers. The big rally in the yen, helped our currency book, bond book (our JGBs have had a significant move) and short Japanese stocks positions.

  I have always felt that having these type of non-consensual trades on are very important as they give you time to observe the market before making a change to the strategy. The equity and commodity markets are sending signals that perhaps the bear market in commodities and the related bear market in emerging markets is over. This however seems very unlikely to me, as many of the indicators for commodity supply are still flashing red, and the issue of excessive capacity has not really been adequately addressed. Big moves in commodity prices could be suggestive of government policies finally becoming effective in creating inflation and above trend growth. However what we are also seeing is a strong yen and falling bond yields, which is not consistent with accelerating growth or inflation.

  More likely the yen rally in February has been extremely painful for a number of large macro funds, and has caused these funds to cut risk from the long and short book, which given consensual positioning in markets is causing a great deal more pain. If history is a guide, I would assume that we are nearly through this mean reversion trade.

  Your fund remains short equities, long bonds.

  

  

  

  

  

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• Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

  While the leaders of the Fed and other central banks claim that their extraordinary monetary policies haven't significantly increased inequality, economists with the world's most prestigious financial agency, the Bank of International Settlements – known as "the Central Banks' Central Bank" – just released a report showing otherwise.

  BIS notes:

  Our simulation suggests that wealth inequality has risen since the Great Financial Crisis. While low interest rates and rising bond prices have had a negligible impact on wealth inequality, rising equity prices have been a key driver of inequality …. Monetary

  policy may have added to inequality to the extent that it has boosted equity prices.

   

  ***

   

  Inequality is back in the international economic policy debate. Evidence of a growing dispersion of income and wealth within major advanced and emerging market economies (EMEs) has sparked discussions about its economic consequences. Although there is no consensus on the relationship between inequality and growth, there are concerns that rising inequality may become a serious economic headwind. [Right.]

   

  ***

   

  Moreover, the faster rise in remuneration at the very top of the income distribution relative to wage growth in the lower percentiles has been linked both to the rapid growth of the financial sector since the 1980s [correct] and to changes in the social norms that contribute to the determination of executive pay (Piketty (2014)).

   

  ***

   

  The share of securities holdings, equity in particular, tends to be even higher at the top 5% or 1% of the distribution. [Obviously.]

   

  Conversely, housing accounts for a higher share in the lowest net wealth quintile, for which low net wealth is in many cases a reflection of high levels of mortgage debt. In a number of cases, net wealth is negative, suggesting that liabilities, in the form of mortgage, consumer and other debt, exceed assets.

   

  ***

   

  Unconventional monetary policies might have had the most significant effects on the dynamics of wealth inequality through changes in equity returns and house prices. The evidence suggests that unconventional policies had a relatively strong and immediate effect on equity prices (see eg Rogers et al (2014)). As investors reshuffle their portfolios away from assets being purchased by the central bank towards other, potentially riskier, assets, the equity risk premium should decline, boosting equity prices further. And a low interest rate environment is likely to have encouraged a search for yield.

   

  ***

   

  Monetary policy may affect household wealth through different channels. Interest rate changes directly affect the valuation of both financial assets (eg equities and bonds) and real estate as well as the cost of leverage. Conventional easing of monetary policy by lowering short-term interest rates tends to boost asset prices. This works through a lowering of the discount rates applied to future income flows from these assets, and possibly by raising profit expectations and/or reducing risk premia.

  Indeed, boosting stock prices has been the Fed and other central banks' main focus.

  In addition, it has been thoroughly documented that quantitative easing.    It’s been known for some time that quantitative easing (QE) increases inequality (and see this and this.)  Many economists have said that QE quantitative easing benefits the rich, and hurts the little guy.   3 academic studies – and the architect of Japan’s quantitative easing program – all say that QE isn’t helping the American economy.

  Negative interest rates – another increasingly widespread form of extraordinary monetary policy – may increase inequality as well. For example, economist Katie Evans notes:

  Negative interest rates could increase inequality. While the experiences of countries who have tried negative rates suggest it wouldn’t lead to a boom in mortgage lending, the cost of borrowing would remain at rock bottom for those who could afford to do so. Those with substantial incomes and existing assets could borrow cheaply and invest in assets like property. Those on lower incomes, meanwhile, would find it even harder to save for a deposit and see house prices rising further out of reach.

  (Several other economists agree.) Indeed, negative interest rates motivate consumers to hoard cash, rather than spend or invest it, putting in even further behind those who have enough to freely invest.

  Other recent central bank policy is also a main driver of inequality.  And see this.

  Postscript: Surprisingly – given the arcane nature of central bank policy – the natives are getting restless.

  

  

  

  

• Rigged Democracy – Nearly 10% Of Democratic Party Superdelegates Are Lobbyists

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  On July 25, these superdelegates will cast votes at the Democratic National Convention for whomever they want, regardless of primary and caucus outcomes. Democrats like to describe superdelegates as mostly elected officials and prominent party members, including President Obama and former Presidents Bill Clinton and Jimmy Carter.

   

  But this group, which consists of 21 governors, 40 senators and 193 representatives, only makes up about a third of the superdelegates. Many of the remaining 463 convention delegates are establishment insiders who get their status after years of donations and service to the party. Dozens of the 437 delegates in the DNC member category are registered federal and state lobbyists, according to an ABC News analysis.

   

  In fact, when you remove elected officials from the superdelegate pool, at least one in seven of the rest are former or current lobbyists registered on the federal and state level, according to lobbying disclosure records.

   

  – From the ABC News article: The Reason Why Dozens of Lobbyists Will Be Democratic Presidential Delegates

  When it comes to presidential primaries, there isn’t a whole lot of “democracy” in the Democratic Party.

  Last year, The New York Times published an article examining the American attitude toward the question of money in politics. This is what it found:

  Americans of both parties fundamentally reject the regime of untrammeled money in elections made possible by the Supreme Court’s Citizens United ruling and other court decisions and now favor a sweeping overhaul of how political campaigns are financed, according to a New York Times/CBS News poll.

   

  The findings reveal deep support among Republicans and Democrats alike for new measures to restrict the influence of wealthy givers, including limiting the amount of money that can be spent by “super PACs” and forcing more public disclosure on organizations now permitted to intervene in elections without disclosing the names of their donors.

  As evidence of just how lopsided opinion is on the subject, see the following graphic:

  

  You might think the supposedly “liberal” Democratic Party would take this sort of thing to heart, but you’d be wrong. Not only is the super delegate system intentionally undemocratic, but a remarkable 9% of superdelegates are actually lobbyists.

  You just can’t make this stuff up.

  From ABC News:

  Hillary Clinton holds a substantial edge among a particular and little-noticed kind of delegate to the Democratic National Convention: Superdelegates.

   

  On July 25, these superdelegates will cast votes at the Democratic National Convention for whomever they want, regardless of primary and caucus outcomes. Democrats like to describe superdelegates as mostly elected officials and prominent party members, including President Obama and former Presidents Bill Clinton and Jimmy Carter.

   

  But this group, which consists of 21 governors, 40 senators and 193 representatives, only makes up about a third of the superdelegates. Many of the remaining 463 convention delegates are establishment insiders who get their status after years of donations and service to the party. Dozens of the 437 delegates in the DNC member category are registered federal and state lobbyists, according to an ABC News analysis.

   

  In fact, when you remove elected officials from the superdelegate pool, at least one in seven of the rest are former or current lobbyists registered on the federal and state level, according to lobbying disclosure records.

   

  That’s at least 67 lobbyists who will attend the convention as superdelegates. A majority of them have already committed to supporting Hillary Clinton for the nomination.

  Of course they have.

  Superdelegates are unique to the Democratic nominating process. Of the 4,763 delegates who will attend the Democratic National Convention in Philadelphia, 717 will be superdelegates — almost a third of the total required to win the nomination.

  Meanwhile, former presidential candidate and current Democratic Party superdelegate, Howard Dean, shared his personal thoughts on democracy via Twitter the other day.

  @D_Born @BernieSanders Super delegates don't "represent people" I'm not elected by anyone. I'll do what I think is right for the country

  — Howard Dean (@GovHowardDean) March 5, 2016

  Any questions?

  

  

  

  

  

• Life And Times During The Great Depression

  The economy of the United States was destroyed almost overnight.

  As VisualCapitalist's Jeff Desjardins notes, more than 5,000 banks collapsed, and there were 12 million people out of work in America as factories, banks, and other shops closed.

  Many reasons have been supplied by the different economic camps for the cause of the Great Depression, which we reviewed in the first part of this series.

  Regardless of the causes, the combination of deflationary pressures and a collapsing economy created one of the most desperate and miserable eras of American history. The resulting aftermath was so bad, that almost every future Central Bank policy would be designed primarily to combat such deflation.

   

  

  Courtesy of: The Money Project

   

   

  The Deflationary Spiral

  After the stock crash, money and consumer confidence was hard to find. Instead of spending money on new things, people hoarded their cash.

  Fewer dollars spent meant more drops in demand and prices, which led to defaults, bankruptcies, and layoffs.

  As a result of this spiral, the prices for many food items in the U.S. fell by nearly 50% from their pre-WW1 levels.

  The price of butter went from pre-crisis levels of $0.21 to $0.13 per pound in 1932. Wool had a drop from $0.24 to $0.10 per pound, and most other goods followed the same price trajectory.

  The Effects

  Here’s how “real value” is affected in a deflationary environment:

  Money
  Real value increases: cash is king and gains in real value.

  Assets (stocks, real estate)
  Real value decreases as prices fall.

  Debt
  Debtors owe more in real terms

  Interest Rates
  Real interest rates (nominal rates minus inflation) can rise as inflation is negative, causing unwanted tightening.

  From Bad to Worse

  The Great Depression lasted from 1929 to 1939, which was unprecedented in length for modern history.
  To this day, economists disagree on why the Depression lasted so long. Here’s some of their explanations:

  The New Deal was not enough

  Looking back on The Great Depression, John Maynard Keynes believed that monetary policy could only go so far.
  The Central Bank could not ultimately push banks to lend, and therefore demand had to be created through fiscal policy. Keynes advocated massive deficit spending to offset markets’ failure to recover.

  Keynesians such as Paul Krugman believe that Franklin D. Roosevelt’s economic policies through The New Deal were too cautious.

  “You can’t push on a string.” – Keynes

  The New Deal made things worse

  Some economists believe the New Deal had a negative net effect on the recovery.

  The National Recovery Administration (NRA) is a primary subject of this criticism. Established in 1933, the goal of the NRA was to lift wages. To do this, it got industry leaders to meet and establish minimum prices and wages for workers.

  Cole and Ohanian claim that this essentially created cartels that destroyed economic competition. They calculate that this, along with the aftermath of these policies, accounted for 60% of the weak recovery.

  Lastly, one other charge leveled at Roosevelt by his critics is that the sprawling policies from the New Deal ultimately created uncertainty for business leaders, leading to less investment. This lengthened the recovery.

  “[The] abandonment of [Roosevelt’s] policies coincided with the strong economic recovery of the 1940s.” – Cole and Ohanian

  The Federal Reserve didn’t do enough

  Milton Friedman claimed that the Federal Reserve made the wrong policy decision, which extended the length of the Depression.

  Between 1929 and 1933, the monetary supply dipped 27%, which decreased aggregate demand and then prices. The Fed’s failure was in not realizing what was happening and not taking corrective action.

  “The contraction is…a tragic testimonial to the importance of monetary forces…[D]ifferent and feasible actions by the monetary authorities could have prevented the decline in the stock of money… [This] would have reduced the contraction’s severity and almost as certainly its duration.” – Milton Friedman (and co-author Anna Schwartz)

  The Federal Reserve shouldn’t have done anything

  Austrian economists believe that the Fed and government both made policy choices that slowed the recovery.
  For starters, most agree with Friedman that the Fed’s policy choices at the start of the Depression led to deflation.

  They also point to the premature tightening that occurred in 1936 and 1937 as a policy failure. During those two years, the Fed not only hiked interest rates, but it also doubled bank-reserve requirements. These policies coincided with Roosevelt’s tax hikes, and a recession occurred within the Depression from 1937 to 1938.

  Critics of these policies say that this delayed the recovery by years.

  “I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.” – Friedrich Hayek

  Personal Stories from The Great Depression

  “One evening when we went down to check on the bank, there were hundreds of people out front yelling and crying and fighting and beating on the locked doors and windows. They had fires built in the street to keep warm and there were people milling around all over the downtown.” – Vane Scott, Ohio

  “A friend I worked with said in the Depression he rode the rails and stopped to eat vegetables out of a garden. The owner said he would shoot him if he didn’t stop. My friend said ‘go ahead,’ as he was that hungry. ” – James Randolph, Ohio

  “When neighbors couldn’t get a loan from the bank, they’d come to Dad. He sold farm machinery. He never put his money in a bank. He stored it in a strongbox in the fruit cellar, under the apples. He’d loan the neighbors what they needed and they paid him back when they could. If there was a month—especially the winter months—when they couldn’t pay, they’d slaughter a cow or a pig and give him a portion. In the summer it was vegetables: corn, peas, whatever they had growing.” – Gladys Hoffman, New York

  “I thought the Depression was going to go on forever. For six or seven years, it didn’t look as though things were getting better. The people in Washington DC said they were, but ask the man on the road? He was hungry and his clothes were ragged and he didn’t have a job. He didn’t think things were picking up.” – Arvel “Sunshine” Pearson, Arkansas

  Conclusion

  After the 1937-38 Recession, the United States economy began to recover.

  The focus of the American public would eventually shift away from the Great Depression, as events in Europe unfolded after Germany’s invasion of Poland in 1939.

  

  

  

  

  

• The Brazilian 'Earthquake' & The Empire Of Chaos

  Authored by Pepe Escobar, originally posted at SputnikNews.com,

  Imagine one of the most admired global political leaders in modern history taken from his apartment at 6 am by armed Brazilian Federal Police agents and forced into an unmarked car to the Sao Paulo airport to be interrogated for almost four hours in connection with a billion dollar corruption scandal involving the giant state oil company Petrobras.

  This is the stuff Hollywood is made of. And that was exactly the logic behind the elaborate production.    

  The public prosecutors of the two-year-old Car Wash investigation maintain there are "elements of proof" implicating Lula in receiving funds — at least 1.1 million euros — from the dodgy kickback scheme involving major Brazilian construction companies connected to Petrobras. Lula might — and the operative word is "might" — have personally profited from it mostly in the form of a ranch (which he does not own), a relatively modest seaside apartment, speaking fees in the global lecture circuit, and donations to his charity.  

  Lula is the ultimate political animal — on a Bill Clinton level. He had already telegraphed he was waiting for such a gambit, as the Car Wash machine had already arrested dozens of people suspected of embezzling contracts between their companies and Petrobras — to the tune of over $2 billion — to pay for politicians of the Workers' Party (PT), of which Lula was leader.  

  Lula's name surfaced via the proverbial rascal turned informer, eager to strike a plea bargain. The working hypothesis — there is no smoking gun — is that Lula, when he led Brazil between 2003 and 2010, personally benefited from the corruption scheme with Petrobras at the center, obtaining favors for himself, the PT and the government. Meanwhile, inefficient President Dilma Rousseff is herself under attack engineered via a plea bargain by the former government leader in the Senate.

  Lula was questioned in connection to money laundering, corruption and suspected dissimulation of assets. The Hollywood blitz was cleared by federal judge Sergio Moro — who always insists he's been inspired by the Italian judge Antonio di Pietro and the notorious 1990s Mani Pulite ("Clean Hands") investigation.   

  And here, inevitably, the plot thickens.

  Round up the usual media suspects

  Moro and the Car Wash prosecutors justified the Hollywood blitz insisting Lula refused to be interrogated. Lula and the PT vehemently insist otherwise. 

  And yet Car Wash investigators had consistently leaked to mainstream media words to the effect, "We can't just bite Lula. When we get to him, we will swallow him." This would imply, at a minimum, a politicization of justice, the Federal Police and the Public Ministry. And would also imply that the Hollywood blitz may have been supported by a smoking gun. As perception is reality in the frenetic non-stop news cycle, the "news" — instantly global — was that Lula was arrested because he's corrupt.  

  Yet it gets curioser and curioser when we learn that judge Moro wrote an article in an obscure magazine way back in 2004 (in Portuguese only, titled Considerations about Mani Pulite, CEJ magazine, issue number 26, July/September 2004), where he clearly extols "authoritarian subversion of juridical order to reach specific targets " and using the media to intoxicate the political atmosphere. 

  All of this serving a very specific agenda, of course. In Italy, right-wingers saw the whole Mani Pulite saga as a nasty judicial over-reach; the left, on the other hand, was ecstatic. The Italian Communist Party (PCI) emerged with clean hands. In Brazil, the target is the left — while the right, at least for the moment, seems to be composed of hymn-singing angels.    

  The pampered, cocaine-snorting loser candidate of the 2014 Brazilian presidential election, Aecio Neves, for instance, was singled out for corruption by three different accusers — and it all went nowhere, without further investigation. Same with another dodgy scheme involving former president Fernando Henrique Cardoso — the notoriously vainglorious former developmentalist turned neoliberal enforcer.

  What Car Wash has already forcefully imprinted across Brazil is the perception that corruption only pays when the accused is a progressive nationalist. As for Washington consensus vassals, they are always angels — mercifully immune from prosecution.

  That's happening because Moro and his team are masterfully playing to the hilt Moro's self-described use of the media to intoxicate the political atmosphere — with public opinion serially manipulated even before someone is formally charged with any crime. And yet Moro and his prosecutors' sources are largely farcical, artful dodgers cum serial liars. Why trust their word? Because there are no smoking guns, something even Moro admits.

  And that leads us towards the nasty scenario of a made in Brazil media-judicial-police complex possibly hijacking one of the healthiest  democracies in the world. And that is supported by a stark fact: the right-wing Brazilian opposition's entire "project" boils down to ruining the economy of the 7^th largest global economic power to justify the destruction of Lula as a presidential candidate in 2018.

  Elite Plundering Rules

  None of the above can be understood by a global audience without some acquaintance with classic Braziliana. Local legend rules that Brazil is not for beginners. Indeed; this is an astonishingly complex society — which essentially descended from a Garden of Eden (before the Portuguese "discovered" it in 1500) to slavery (which still permeates all social relations) to a crucial event in 1808: the arrival of Dom John VI of Portugal (and Emperor of Brazil for life), fleeing Napoleon's invasion, and carrying with him 20,000 people who masterminded the "modern" Brazilian state. "Modern" is an euphemism; history shows the descendants of these 20,000 actually have been raping the country blind for the past 208 years. And few have ever been held accountable. 

  Traditional Brazilian elites compose one of the most noxious arrogant-ignorant-prejudiced mixes on the planet. "Justice" — and police enforcement — are only used as a weapon when the polls do not favor their agenda. 

  Brazilian mainstream media owners are an intrinsic part of these elites. Much like the US concentration model, only four families control the media landscape, foremost among them the Marinho family's Globo media empire. I have experienced, from the inside, in detail, how they operate.

  Brazil is corrupt to the core — from the comprador elites down to a great deal of the crass "new" elites, which include the PT. The greed and incompetence displayed by an array of PT stalwarts is appalling — a reflection of the lack of quality cadres. Corruption and traffic of influence involving Petrobras, construction companies and politicians is undeniable, even if it pales compared to Goldman Sachs shenanigans or Big Oil and/or Koch Brothers/Sheldon Adelson-style buying/bribing of US politicians. 

  If this was a no-holds-barred crusade against corruption — which the Car Wash prosecutors insist it is — the right-wing opposition/vassals of the old elites should have been equally exposed in mainstream media. But then the elite-controlled media would simply ignore the prosecutors. And there would be nothing remotely on the scale of the Hollywood blitz, with Lula — pictured as a lowly delinquent — humiliated in front of the whole planet.

  Car Wash prosecutors are right; perception is reality. But what if it backfires?

  No consumption, no investment, no credit

  Brazil couldn't be in a gloomier situation. GDP was down 3.8% last year; probably will be down 3.5% this year. The industrial sector was down 6.2% last year, and the mining sector down 6.6% in the last quarter. The nation is on the way to its worst recession since…1901.

  There was no Plan B by the — incompetent — Rousseff administration for the Chinese slowdown in buying Brazil's mineral/agricultural wealth and the overall global slump in commodity prices. 

  The Central Bank still keeps its benchmark interest rate at a whopping 14.25%. A disastrous Rousseff neoliberal "fiscal adjustment" actually increased the economic crisis. Today Rousseff "governs" — that's a figure of speech — for the banking cartel and the rentiers of Brazilian public debt. Over $120 billion of the government's budget evaporates to pay interest on the public debt.

  Inflation is up — now in double-digit territory. Unemployment is at 7.6% — still not bad as many a player across the EU — but rising.

  The usual suspects of course are gloating, spinning non-stop how Brazil has become "toxic" for global investors.

  Yes, it's bleak. There's no consumption. No investment. No credit. The only way out would be to unlock the political crisis. Maggots in the opposition racket though have a one-track obsession; the impeachment of President Rousseff. Shades of good ol' regime change; for these Wall Street/Empire of Chaos vassals, an economic crisis, fueled by a political crisis, must by all means bring down the elected government of a key BRICS player.

  And then, suddenly, out of left field, surges…Lula. The move against him by the Car Wash investigation may yet backfire — badly. He's already on campaign mode for 2018 — although he's not an official candidate, yet. Never underestimate a political animal of his stature.

  Brazil is not on the ropes. If reelected, and assuming he could purge the PT from a legion of crooks, Lula could push for a new dynamic. Before the crisis, Brazilian capital was going global — via Petrobras, Embraer, the BNDES (the bank model that inspired the BRICS bank), the construction companies. At the same time, there might be benefits in breaking, at least partially, this oligarchic cartel that control all infrastructure construction in Brazil; think of Chinese companies building the high-speed rail, dams and ports the country badly lacks.

  Judge Moro himself has theorized that corruption festers because the Brazilian economy is too closed to the outside world, as India's was until recently. But there's a stark difference between opening up some sectors of the Brazilian economy and let foreign interests tied to the comprador elites plunder the nation's wealth.

  So once again, we must go back to the recurrent theme in all major global conflicts. 

  It's the oil, stupid

  For the Empire of Chaos, Brazil has been a major headache since Lula was first elected, in 2002 (for an appraisal of complex US-Brazil relations, check the indispensable work of Moniz Bandeira).

  A top priority of the Empire of Chaos is to prevent the emergence of regional powers fueled by abundant natural resources, from oil to strategic minerals. Brazil amply fits the bill. Washington of course feels entitled to "defend" these resources. Thus the need to quash not only regional integration associations such as Mercosur and Unasur but most of all the global reach of the BRICS.

  Petrobras used to be a very efficient state company that then doubled as the single operator of the largest oil reserves discovered in the 21^st century so far; the pre-salt deposits. Before it became the target of a massive speculative, judicial and media attack, Petrobras used to account for 10% of investment and 18% of Brazilian GDP.

  Petrobras found the pre-salt deposits based on its own research and technological innovation applied to exploring oil in deep waters — with no foreign input whatsoever. The beauty is there's no risk; if you drill in this pre-salt layer, you're bound to find oil. No company on the planet would hand this over to the competition.

  And yet a notorious right-wing opposition maggot promised Chevron in 2014 to hand over the exploitation of pre-salt mostly to Big Oil. The right-wing opposition is busy altering the juridical regime of pre-salt; it's already been approved in the Senate. And Rousseff is meekly going for it. Couple it to the fact that Rousseff's government did absolutely nothing to buy back Petrobras stock — whose vertiginous fall was deftly engineered by the usual suspects.

  The meticulous dismantling of Petrobras, Big Oil eventually profiting from the pre-salt deposits, keeping in check Brazil's global power projection, all this plays beautifully to the interests of the Empire of Chaos. Geopolitically, this goes way beyond the Hollywood blitz and the Car Wash investigation.

  It's no coincidence that three major BRICS nations are simultaneously under attack — on myriad levels: Russia, China and Brazil. The concerted strategy by the Masters of the Universe who dictate the rules in the Wall Street/Beltway axis is to undermine by all means the BRICS's collective effort to produce a viable alternative to the global economic/financial system, which for the moment is subjected to casino capitalism. It's unlikely Lula, by himself, will be able to stop them. 

   

  

  

  

  

  

• Goldman Is About To Be Stopped Out Of Its Gold Short

  Given China's new focus on a basket of currencies, rather than pegging to the dollar alone, today's record-breaking reversal in EUR has sparked a yuuge 300 pips rally in Offshore Yuan (from 6.5270 to 6.4940) pushing to its strongest level since mid-December. At the same time, Gold is accelerating as China opens, pushing up to $1288 – new 13-month highs. Most critical is we are within $5 of Goldman Sachs "short gold" stop at $1291…

  Yuan surges to 3-month highs…

  

   

  As Gold spikes to fresh 13-month highs…

  

  Goldman went short gold on 2/15 at around $1205…

  We also maintain our bearish view on gold that has rallied along with the other commodities. Our short gold recommendation (which we opened with a 17% upside, in line with our $1000/toz 12-m forecast) is currently at a c.5% loss, with a stop loss at 7%.

   

  This gold rally was driven by a lack of conviction in divergence in US growth as a weak US dollar has been highly correlated with a higher gold price.

   

  We believe this realignment view of weak global growth is not supported by the US data, which will likely reinforce higher US yields, a stronger US dollar and the return of divergence, particularly should strong US consumer growth dissolve market fears regarding US growth. This in turn will likely put downward pressure on gold prices towards our near-term target of $1100/toz

  Tonight we are getting very close to Goldman's stop-loss…

  

   

  Leaving Goldman clients pensive…

  

  

  

  

  

  

• Establishment Demands "Family Friendly" Debate, Trumps Says "Maybe" – Live Feed

  Judging by the progression of the previous 11 GOP debates, tonight's slugfest will involve actual measurement of genitalia, a Hulk-Hogan-esque chair-slamming, and excessive use of four-letter words. As "handy" Trump, "little" Marco, "lyin'" Ted, and "quiet" Kasich step up to the podiums (podia?), the chairman of the Republican Party has declared that he wants tonight's Republican presidential debate to be "more of a G-rated" event than recent showdowns. Good luck with that.

  And then there were four…

  

  As AP reports, Republican National Committee Chairman Reince Priebus, the take-no-sides chief fundraiser for the party, has been saying all week that he wants the whatever-it-takes "tone" of past debates to improve on Thursday's debate stage.

  On Wednesday, he described on CNN just how, saying he'd like to see "more of a G-rated debate" than "some of the things that have been said in the past."

   

  He said the RNC has spoken to the campaigns and to the sponsors about taking steps to "reduce the temperature" on the debate stage and in the audience.

  And before it starts, here's where we stand…

  

   

  Live Feed (via CNN): no embed, click link for access (no login required)

  

   

  Alternative Live Feed:

   

  And finally, because no debate is complete without some side-games, here is ABC's freshly updated  GOP Debate Bingo Card…

  

   

  As a reminder, this is how it all started…

  

  

  

  

  

• The Coming Collapse Of Saudi Arabia

  Submitted by Nick Giambruno via InternationalMan.com,

  They met in secret to plan a devastating attack…

  Two powerful men, colluding at a palace in the Middle East.

  In September 2014, U.S. Secretary of State John Kerry flew to Saudi Arabia. He was there to meet with King Abdullah, the country’s ruler and one of the richest men in the world.

  Informed observers say Kerry and Abdullah drew up a plan at this meeting to destroy their common enemies: Russia and Iran.

  To carry out the attack, they wouldn’t use fighter jets, tanks and ground troops. They would use a much more powerful weapon…

  Oil.

  Oil is the world’s most traded commodity. Saudi Arabia is the world’s largest oil exporter. It has arguably more control over the price of oil than any other country does.

  Insiders say Saudi Arabia agreed to flood the oil market at this secret meeting. The purpose was to drive down the price of oil. This would hurt Russia’s and Iran’s economies. They both depend heavily on oil sales.

  They wanted to hurt Russia for supporting their regional foe, Syrian President Bashar al-Assad. They wanted to hurt Iran for the same reason. Iran is the Saudis’ fierce geopolitical rival in the region.

  Their strategy has had some success.

  As you can see in the chart below, the price of oil has plummeted over 70% since John Kerry’s secret meeting with King Abdullah in September 2014.

  

  There’s so much conflict in the Middle East—but oil prices are falling.

  And despite China’s economic slowdown…it still imported more oil in 2015 than in 2014. China is the world’s number two oil consumer behind the U.S.

  Turmoil plus demand says oil should be going up, not down. But the mystery is explained by the Saudis’ oil war and their strategy of flooding the market to bankrupt competitors.

  Saudi Arabia’s Other Target

  The Saudis have also declared war on the U.S. shale oil industry.

  In the 1990s, the U.S. imported close to 25% of its oil from Saudi Arabia. Today—because of high U.S. shale oil production—we import only 5%.

  By keeping the market saturated with oil, the Saudis are driving down the price. They hope to drive it down low enough and long enough to bankrupt the shale industry…since shale oil costs more than Saudi oil to produce.

  This would knock out a major competitor and let the Saudis regain lost market share.

  But economic warfare doesn’t always go according to plan. I think the Saudis made a colossal mistake…

  Impaled on Their Own Sword

  I think the Saudis have overplayed their hand…big time.

  Oil makes up 90% of Saudi government revenue. So the price drop has been very painful. They’re bleeding through their reserves.

  The market is putting more pressure on their currency peg than at any time in its history.

  For over 30 years, Saudi Arabia has pegged its currency at 3.75 riyals per U.S. dollar. To maintain this, it needs a large stash of U.S. dollars. With its historically large reserves, this has never been a problem.

  But now, the Saudi budget is under serious pressure. The government is only staying afloat by draining its foreign exchange reserves. This threatens Saudi Arabia’s ability to support its currency peg.

  If the currency peg breaks—which is exactly what the current market expects—the riyal would be devalued. This would increase the cost of living for Saudis across the board.

  It would also increase social unrest.

  The Saudis are also losing billions underwriting foolhardy wars in Yemen and Syria.

  The Saudis thought they could support armed Syrian rebels and topple the Assad government in a matter of months. They figured Assad would fall just as easily as Gadhafi did in Libya in 2011. It was a gross miscalculation.

  There’s also the Saudi war in Yemen, Saudi Arabia’s southern neighbor.

  The Saudis launched the war in March 2015. They wanted to reinstate a Saudi-friendly government. The Saudis thought the intervention would last a few months, then they’d declare “mission accomplished” and go home. That’s not what happened.

  The political and economic stars are aligning against the Saudis. It’s their most vulnerable moment since the kingdom was founded in 1932.

  Crisis Investing 101

  The Saudis are having some success. In the past year, at least 67 U.S. oil companies have filed for bankruptcy. Analysts estimate as many as 150 could follow. The shale oil industry is in “survival mode.”

  And the crisis in the oil market could spread. That’s because many banks made big loans to these distressed shale oil companies. A wave of bankruptcies means those loans could go bad, which would be a huge threat to those banks.

  It has the potential to trigger another meltdown in the financial system. The warning signs are there.

  I wouldn’t own any bank that has big exposure to risky shale plays…nor keep my life savings there.

  The Saudis have damaged the U.S. shale oil industry. And they’ll continue to cause more damage. But they won’t bankrupt every producer.

  The shale industry has more staying power than Saudi Arabia. Some producers now say they’re profitable with $40 oil. And their pace of innovation will drive that even lower. The industry will survive.

  All the Saudis have done is create an existential crisis for themselves.

  If the Saudis don’t stop flooding the market—and there are no signs they will—they won’t be shooting themselves in the foot… but in the head. Saudi Arabia will either collapse or surrender—and stop flooding the market.

  Either way, oil will eventually go a lot higher.

  

  

  

  

  

• The Next Startup Fraud? Jessica Alba's $1.7 Billion "Honest Company"

  Back in the summer of 2014, roughly a year and a half before the second bubble of profitless, “story”, aka “tech”, companies had burst, we wrote in dismay, that “the true indicator of just how bubbly the second coming of the dot com era has become comes courtesy of none other than Jessica Alba’s, yes the actress, own startup: a company launched in 2012 and which makes “non-toxic” diapers (as opposed to toxic diapers?), called the Honest Co., has raised $70 million at a valuation just shy of $1 billion in preparation for an IPO.”

  What was the company’s business model? Simple: one part Amazon monthly subscription purchase, and one part promise that its products are clean and don’t contain what it says are harsh chemicals found in many mainstream products; apparently that is a critical deciding factor for today’s largely unemployed Millennial generation:

  “since launching in 2012 with its non-toxic diapers and other natural baby products, the California-based startup has grown quickly by blending its environmentally sensitive products with a social mission. Annual revenue is tracking to hit north of $150 million in 2014, or three times the revenue of 2013. Roughly 80% of Honest revenue is from customers who subscribe to a monthly service delivering diapers and other consumable products on a recurring basis.”

  All this happened at a time when frauds such as Theranos were being valued in the billions, so in retrospect the “Honest Company’s” idiotic valuation may be explainable.

  What isn’t as easily explained is that since we profiled Alba’s “Honest Company“, its valuation has grown by another 70%, and according to the WSJ it is now $1.7 billion with total funding raised more than $200 million “thanks to its marketing of cleaning supplies, diapers and other consumer products that it says are safer and more ecologically friendly than other brands.”

  But what Alba herself will have a very difficult time explaining is why, just like in the case of Theranos, her company it not only grossly misnamed, but may also be another fraud, because according to a just released WSJ expose, “one of the primary ingredients Honest tells consumers to avoid is a cleaning agent called sodium lauryl sulfate, or SLS, which can be found in everyday household items from Colgate toothpaste to Tide detergent and Honest says can irritate skin. The company lists SLS first in the “Honestly free of” label of verboten ingredients it puts on bottles of its laundry detergent, one of Honest’s first and most popular products. But two independent lab tests commissioned by The Wall Street Journal determined Honest’s liquid laundry detergent contains SLS.“

  “Our findings support that there is a significant amount of sodium lauryl sulfate” in Honest’s detergent, said Barbara Pavan, a chemist at one of the labs, Impact Analytical. Another lab, Chemir, a division of EAG Inc., said its test for SLS found about the same concentration as Tide, which is made by P&G. “It was not a trace amount,” said Matthew Hynes, a chemist at Chemir who conducted the test.

  In Alba’s 2013 book, “The Honest Life” she lists SLS as a “toxin” that consumers should avoid. She started Santa Monica, Calif.-based Honest in 2011 after she said she had an allergic reaction to a popular brand of laundry detergent. According to the WSJ, she has no problem actually including it in her product, comparble to the Theranos’ bezzle, in which its blood test was not only inaccurate, but had been superceded by products by its biggest competitors.

  And just like Theranos, “Honest” disputes the labs’ findings and says its own testing found no SLS in its products.

  “We do not make our products with sodium lauryl sulfate,” said Kevin Ewell, the company’s research and development manager.

  And just as the WSJ exposed Theranos, now it has set its sight on the one company that years ago couldn’t pass the smell test, and now stinks like a rotting venture capital corpse.

  The blame game begins:

  Honest said its manufacturing partners and suppliers have provided assurances that its products don’t contain SLS beyond possible trace amounts. Honest provided the Journal with a document it said was from its detergent manufacturer, Earth Friendly Products LLC, that stated there was zero “SLS content” in the product. Earth Friendly in turn said the document came from its own chemical supplier, a company called Trichromatic West Inc., which it relied on to test and certify that there was no SLS.

   

  Trichromatic told the Journal the certificate wasn’t based on any testing and there was a “misunderstanding” with the detergent maker. It said the “SLS content” was listed as zero because it didn’t add any SLS to the material it provided to Earth Friendly and “there would be no reason to test specifically for SLS.” It said the product in question “was fairly and honestly represented” to its customer.

   

  Honest said it didn’t deal directly with Trichromatic and declined to comment further on the certificate. Earth Friendly reiterated that it relied on Trichromatic to test the ingredient.

   

  Honest also disagreed with the methods used by the Journal’s labs, and said the labs tested against a sample of SLS that isn’t the type used in consumer products. Both Chemir and Impact Analytical said they stand by their test results, used the most precise method for quantifying SLS in a consumer laundry detergent and followed standard scientific guidelines.

  Then there is the question of what “Honest” uses instead of SLS: the WSJ reports that Honest supposedly prefers an alternative called sodium coco sulfate, or SCS, which the company says is less irritating and a different compound from SLS. “We have evidence that our laundry detergent contains SCS, not SLS, and any contention to the contrary is wrong.” The problem is that SCS contains SLS, which means fundamentally the fraud at the Honest company, one which it uses to pray on naive and impressionable young moths, is one of cheap marketing alternatives.

  Rival Seventh Generation lists SLS as an ingredient in its laundry detergent, including a variety made for sensitive skin, and lists sodium coco sulfate as an ingredient in its hand wash. It says both cleaning agents have the potential to irritate skin but are safe when products are formulated properly. “In all practicality they act and behave as the same chemical in consumer products,” said Tim Fowler, Seventh Generation’s senior vice president of research and development.

  Not for Alba, who preys on the wallets of the uninformed with false advertising.

  Then there is the real-time alteration of the company’s public materials during the WSJ’s investigation into the company:

  During the Journal’s reporting, Honest made changes to wording on its website, including revising the description of its “Honestly Free Guarantee.” It used to say its products are “Honestly free of” dozens of ingredients, including SLS. Now it says the products are “Honestly made without” those ingredients. Honest also removed claims that other companies use “risky” or “toxic” ingredients that it doesn’t use.

   

  When asked about the website changes, Honest co-founder and Chief Product Officer Christopher Gavigan said they were to help clarify, educate and accurately represent the company’s position. He said in a December meeting that Honest was also changing its product labels to match its website and had no plans to reformulate its detergent.

  

   

  Alba, who is Honest’s chief creative officer in addition to co-founder, declined to be interviewed for the WSJ article. Just like Elizabeth Holmes, when the WSJ demolished the skyhigh valuation of Theranos. Her attorney Bert Fields said, “Jessica Alba and the folks at Honest truly believe that their detergent is free of non-trace SLS and have been assured of that by their suppliers.”

  Sadly that too is a lie.

  As is the gratuitous false marketing of this post with photos of the “Honest” CEO. Spoiler alert: they too are not genuine and contain an abnormal dose of Photoshop.

  

  

  

  

  

  

  

  

  

• How Vancouver Is Being Sold To The Chinese: The Illegal Dark Side Behind The Real Estate Bubble

  One month ago, when describing the latest in an endless series of Vancouver real estate horror stories, in this case an abandoned, rotting home (which is currently listed for a modest $7.2 million), we explained the simple money-laundering dynamic involving Chinese “investors” as follows.

  • Chinese investors smuggle out millions in embezzled cash, hot money or perfectly legal funds, bypassing the $50,000/year limit in legal capital outflows.
  • They make “all cash” purchases, usually sight unseen, using third parties intermediaries to preserve their anonymity, or directly in person, in cities like Vancouver, New York, London or San Francisco.
  • The house becomes a new “Swiss bank account”, providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow.

  We also explained that hundreds if not thousands of Vancouver houses, have become a part of the new normal Swiss bank account: “a store of wealth to Chinese investors eager to park “hot money” outside of their native country, and bidding up any Canadian real estate they could get their hands on.”

  This realization has now fully filtered down to the local population, and as the National Post writes in its latest troubling look at the “dark side” of Vancouver’s real estate market, it cites wholesaler Amanda who says that “Vancouver seems to be evolving from a residential city into almost like a lockbox for money… but I have to live among the empty houses. I’m a resident, not just an investor.”

  The Post article, however, is not about the use of Vancouver (or NYC, or SF, or London) real estate as the end target of China’s hot money outflows – by now most are aware what’s going on. It focuses, instead, on those who make the wholesale selling of Vancouver real estate to Chinese tycoons who are bidding up real estate in this western Canadian city to a point where virtually no domestic buyer can afford it, and specifically the job that unlicensed “wholesalers” do in spurring and accelerating what is currently the world’s biggest housing bubble.

  A bubble which, the wholesalers themselves admit, will inevitably crash in spectacular fashion.

  

  This is the of about Amanda, who was profiled yesterday in a National Post article showing how a “Former ‘wholesaler’ reveals hidden dark side of Vancouver’s red-hot real estate market.” Amanda quit her job allegely for moral reasons; we are confident 10 people promptly filled her shoes.

  * * *

  Vancouver’s real estate market has been very good to Amanda. She’s not a licensed realtor, but buying and selling property is her full-time job.

  She started about eight years ago as an unlicensed “wholesaler” in Vancouver.

  She would approach homeowners and make unsolicited offers for private cash deals. Amanda made a 10-per-cent fee on each purchase by immediately assigning the contract to a background investor. It is seen as the lowest job in property investment, but it is low risk and very profitable. Amanda has done so well that she now owns two homes in Vancouver and develops property in the U.S.

  Unlicensed wholesaling is an illicit and predatory business that is quickly growing in Metro Vancouver because enforcement is virtually non-existent.

  It’s similar to a tactic currently being examined by B.C. real estate authorities known as “assignment flipping,” which involves legally but secretly trading homes on paper to enrich realtors and circles of investors.

  However, unlicensed wholesaling is completely unregulated. Amanda estimates hundreds of wholesalers are scouring Metro Vancouver’s never-hotter speculative market — not including the realtors who are secretly wholesaling for themselves.

  Amanda decided to step away from the easy money for moral reasons.

  She’s most concerned that wholesalers are targeting B.C.’s vulnerable seniors who don’t understand the value of their old homes. She is also worried about offshore money being laundered, and the resulting vacant homes.

  Because wholesalers are unlicensed, they have no obligation to identify their background investors or reveal the source of funds to Canadian authorities who fight money laundering.

  “Vancouver seems to be evolving from a residential city into almost like a lockbox for money,” Amanda said. “But I have to live among the empty houses. I’m a resident, not just an investor.”

  Amanda said she believes that unethical and ignorant investors are driving B.C.’s housing market at full speed towards a crash. For these reasons, and with the condition that we not use her real name, she came forward to reveal how wholesalers operate.

  The calling cards of wholesalers — hand-written flyers offering homeowners “confidential” and “discreet” cash sales — started flooding westside Vancouver homes over the past 18 months. With the dramatic surge in home prices, wholesalers now are spreading into neighbourhoods across Metro Vancouver and Vancouver Island.

  In eight years Amanda has never seen the market hotter than it is right now, and her colleagues are urging her to start wholesaling again.

  

  Notices offering cash for homes are the calling card of unlicensed wholesalers

  “A lot of money is leaving China, so now every second day people are asking if I can go out and find places for them. They have tons of money,” Amanda said. “They are basically brokering business deals specifically for Chinese investors.”

  She said the mechanics of wholesaling schemes work like this:

  The investor behind the unlicensed broker targets a block, often with older homes, and gives the wholesaler cash in a legal trust.

  The wholesaler persuades a homeowner to sell, offering immediate cash, no subjects, no home inspections, and savings on realtor fees.

  While the wholesaler claims to represent one buyer, or in some cases to be the buyer, Amanda said three or four contract flippers are often already lined up, with an end-buyer from China who will eventually take title in most cases. These unlicensed broker deals appear to be illegal.

  A veteran Vancouver realtor confirmed these types of deals. The realtors we spoke to have been asked by their brokerages not to comment to reporters, so we agreed to withhold their names.

  “I work with some non-licensed flippers,” one said. “They walk on to the lawn of an older house, see the owner and yell, ‘We’re not realtors!’ The owner invites them in, thinks they’re saving a commission — which they are — and loses big-time on the actual sale. I’ve seen it first-hand.”

  According to flyers obtained from across Metro Vancouver and interviews with homeowners who were solicited, wholesalers often say they have Chinese buyers willing to pay a premium for quick sales.

  Homeowners in Richmond, Vancouver’s east and west sides, Surrey, Langley, Coquitlam, Burnaby, White Rock, Delta and North Vancouver confirmed such offers in interviews.

  One resident of Vancouver’s west side Dunbar area said she was annoyed by wholesalers constantly soliciting her, and a man in Surrey said his elderly mother was bothered by wholesalers.

  “A guy walked up and he offered $700,000 cash within a day, and he said I would save on the realtor fees,” said Zack Flegel, who lives near 119th Street and Scott Road in Delta.

  “He also says he will give me $100,000 cash and move me into a $600,000 house. He said he has a bunch of properties. He was talking about my house like it was a trading card. We don’t have abandoned homes yet like Vancouver, but this is how it happens, right?”

  After the offer is accepted, the wholesaler assigns the purchase contract to the investor for a 10-per-cent markup, Amanda said. But some wholesalers aren’t content with making $100,000 or more per sale.

  “People were going in and offering, for example, an 80-year-old widow, she bought the house for $70,000 and it is now worth $800,000 and they were offering her $200,000,” Amanda said. “So they are making $300,000 or $400,000 (after assigning the contract).

  “And you are socializing with other wholesalers, and it is hard to hear them say, ‘Oh this whole street is filled with seniors whose partners are dropping off like flies.’ Or, ‘They just want to get rid of it, they have no clue what their house is worth, and it’s the whole street.’”

  Amanda said her father died recently. She pictured her mother being targeted by wholesalers and resolved never to play that role again.

  “There are elements of this that are elder abuse, absolutely.”

  In a recent story that deals with implications of rising property taxes rather than predatory real estate practices, the Financial Post reported that, especially in Vancouver and Toronto’s scorching markets, “it’s not uncommon for some Canadian seniors to be unaware of the value of their location.”

  B.C.’s Superintendent of Real Estate, Carolyn Rogers, conceded the potential for elder abuse as reported by Amanda.

  “We would welcome an opportunity to speak to (Amanda) and assuming she gives us the same information, we would open a file,” Rogers said. “The conditions in the Vancouver market right now present risks … and seniors could be an example of that.”

  It is illegal for wholesalers to privately buy and sell property for investors without a licence, Rogers said. She said her officers have approached some wholesalers recently and asked them to become licensed or cease their activities.

  A review of the superintendent’s website shows no enforcement orders, fines or consumer alerts filed in connection to unlicensed wholesalers making cash deals and flipping contracts.

  Amanda said that over the past year she learned of new levels of “layering and complexity that I didn’t see five years ago” in wholesaling and assignment-clause flipping.

  “Five years ago I didn’t see realtors wholesaling, and I didn’t see people calling me so that I would get them a property and not assign the property to them, but work as a ‘partner’ and I would attach a 10-per-cent fee.

  “And then they would assign it to their boss and attach 10 per cent, and then that person’s boss would attach 10 per cent. I’ve been watching over the last month, and it has got astounding.”

  Amanda said some wholesale deals involve only unlicensed brokers and pools of offshore cash organized informally, and some appear to involve realtors and brokerages hiding behind unlicensed wholesalers.

  “I’ve seen it from the back end. We have friends in the British Properties and the realtor said he will buy their property for $2 million. And then six months later it was sold for $3.5 million. When I’m looking at that, it is a pretty clear wholesale deal.”

  Darren Gibb, spokesman for Canada’s anti-money-laundering agency, FINTRAC, confirmed that unlicensed property buyers have no obligation to report the identity or sources of funds of the buyers they represent.

  However, Gibb said, if realtors are involved in “assignment flipping” it is mandatory that they and unlicensed assistants make efforts to identify every assignment-clause buyer and their sources of funds.

  Vancouver realtors confirmed that money laundering is a big concern in assignment-flipping deals, whether organized by an unlicensed wholesaler or a realtor.

  “When you are a non-realtor broker you no longer have to play by any rules,” one Vancouver realtor said.

  “There is a role for assignments, but nobody is asking where the money came from. We are creating vehicles for money laundering.”

  “No person in their right mind wants to buy your house once, and sell it three more times in a small window of opportunity, unless they have a whole pool of people lined up trying to get their money out of the country. The higher the prices go, these vehicles to get money out of the country get bigger and bigger.”

  NDP MLA David Eby and Green MLA Andrew Weaver commented that allegations of unlicensed brokers targeting seniors and participating in potential money-laundering schemes call for direct action from Victoria and independent investigation, because these concerns fall outside the jurisdiction of the B.C. Real Estate Council and its current ongoing review of real estate practices.

  “It is very troubling to me,” Eby said, “that not only do we have a layer of real estate agents that are acting improperly and violating the rules, but there might be this additional layer who are not bound by any rule and have explicitly avoided becoming agents for that reason.

  “This unscrupulous behaviour is targeting seniors who need money for retirement. What kind of society is that?” Weaver said.

  

  

  

  

  

• Japanese Government Bond Futures Are Flash-Crashing (Again)

  Remember that once-in-a-lifetime, "don't worry there's plenty of liquidity" flash-crash in japanese Government Bond futures on Tuesday night (Wednesday morning Japan time)… well it happened again…

  JGB Futures to be halted any minute…

  

   

  And so the market chaos even among the "safest" of securities, the result of central bank intervention, continues. Bloomberg's Richard Breslow summarized it best:

  Even with QEs creating what look an awful lot like bubbles, it’s been fair to say, those distortions reflected the reaction function of how central bankers interpreted the state of play. Yield levels, let alone negative rates, and volatility are making these guideposts increasingly questionable.

   

  If you look at the yield curves of much of the world, you’d be hard pressed not to conclude we are very much still experiencing a severe global recession. Central bankers may strongly disagree, yet Japanese 10-year JGBs haven’t seen 2% this century. German bunds have backed up to 21bps. Both are likely to increase QE. The U.S. is tightening (?) and 10- year yields are still down 42bps on the year

   

  The Fed wants to raise rates but insists on re-investing the take on its massive portfolio. They act like fund managers protecting their AUM.

   

  The Osaka Stock Exchange had to invoke circuit breakers today on the March JGB future for excessive volatility. Buying panic yesterday to front-run today’s QE buying led to panic selling today into BOJ bids 22 bps through Monday’s close. Oh, and did I mention, ahead of an auction tomorrow. The take-away is mayhem, not analysis.

  And now we look forward to an even greater surge in volatility first ahead of the Fed and BOJ next week, who – just like everyone else – have no idea what is going on any more.

  Tonight's debate comes just five days ahead of the next week's "Super Tuesday 3," when there are more than 350 delegates up for grabs, including in winner-take-all contests in Florida and Ohio.

  Some wonder just who it is that is selling JGBs so aggressively and in such entirely economically irrational a manner? Well we got hints who has been dumping Bunds from Goldman recently, which makes us think, as MNI 'hints' at, if The BoJ is not trying to "Goldilocks it"…

  BOJ officials recognize that any upward pressure on JGB yields stemming from a brighter view on economic growth and inflation would be impeded by the BOJ's massive purchases of JGBs, which also have been restricting risk premiums.

   

  But some of them worry that the drop in the 10-year yield into negative territory may reflect undue pessimism by market players.

   

  Just how much the negative yields are influenced by that pessimism and how much by the BOJ bond buying can't be determined.

   

  At this point it is also unclear how a gradual return to a steeper yield curve will happen, although BOJ officials must assume it will. It may be that changing sentiment in the market will be enough to overpower the other factors and begin to push up yields.

   

  If it isn't, things may become much more complicated, since it would then take some move toward an unwinding of the BOJ's bond-buying policy to shift yields, and that would bring officials uncomfortably close to a knife edge of trying to edge up yields without making them spike.

  In other words – rates not too low (or signals pessimism for growth) and not too high (because the entire fiscal balance will implode) – good luck centrally planning that.

  

  

  

  

  

• Why Trump Haters Really Hate Trump

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  It’s not the hair.

  Or the bad manners.

  Or the “beautiful” wall he says he’ll build.

  There’s a different, more subtle reason why the Republican establishment, donor class, political operatives, and the news media in general hate Donald Trump.

  The reason can be found in a New York Times best selling business book, Stacking The Deck, by Wharton professor David Pottruck.

  Pottruck, the Charles Schwab CEO who took the genial brokerage house online and into the big time, says that organizations hate change. Hate it with a PASSION!

  That’s because when there’s a new way of doing things, a new way of solving problems, a new way of relating to everything, they feel threatened as a deep personal-loss.

  Change renders meaningless the value of their hard-won experience and know-how. In politics, it may means family member lose their cushy jobs and perks.

  Student loans of government employees get automatically paid off by government – TAX FREE.

  Those in government have done things one way forever. Change is NOT FAIR to them

  Everything they have done to line their pockets is threatened. The rules of the game may no longer apply.

  So they dig in their heels and will do whatever it takes to resist change.

  They resist perpetually until forced otherwise.

  They subvert any process that would lead to change.Until they lose, it becomes open warfare against the people to sustain the establishment and its perks.

  And so it is with Donald Trump. Like him or not, he has completely rewritten the rules of Presidential politics.

  He bypasses the media, taking his message, raw and unfiltered, to the millions of people who follow him on Twitter.

  The party establishment went from underestimating him and laughing at him to fearing him breaking out in night sweats.

  They fear all power and their relevance will vanish into thing air.

  Donors gave Jeb Bush $120 million and he came in dead last.

  The money, like Jeb, is gone and it could not save their fiefdom.

  Now wealthy donors have a choice. Oppose Trump and he wins and they are out in the cold. Understand there is a change in the wind and shift sides to the people.

  How ironic.  It took a billionaire to neuter the billionaire donor class.

  Most of the media hates Trump to the core and dislike the fact they are no longer able to play kingmaker losing their power fearing they will be irrelevant with the internet displacing them.

  The political class have lost the power to rule behind the curtain from paid operatives and cronies who cannot transition to the new world where the old rules of campaigning don’t apply.

  Trump has spent more on hats than he has on polls so the pollsters also have lost their importance.

  Diplomats worldwide are running scared because Trump will renegotiate everything from a business standpoint that cannot be bought like Hillary & her foundation.

  The handwringing, the dire predictions of doom, and the wailing and gnashing of teeth have little to do with Donald’s positions, but their loss of power.

  They complain Trump is bringing in new voters who are not Republican. And this is bad?

  The Trump threat isn’t to the Constitution, to America’s standing in the world, or even to Republican Congressional candidates, it is to the establishment.

  If you think Trump’s supporters are angry about the way the government and the business world colluded, you are right. The establishment fails to appreciate the anger.

  They’re just furious. Even if Trump fails to win, there will be more in the wings. He is inspiring a change and he doesn’t even understand how profound.

  

  

  

  

  

• Ben Carson To Endorse Donald Trump On Friday Morning

  If there was still any doubt whether the Trump juggernaut can be stopped before, if not so much after the Michigan primary earlier this week, it can be laid to rest now because shortly after Trump received the endorsement of Chris Christie, the real estate mogul has now secured his second highest profile backing, that of Ben Carson who according to the Washington Post will endorse Trump officially on Friday morning.

  

  According to WaPo, the endorsement “was finalized Thursday morning when Carson met with Trump at Mar-a-Lago, the luxury club owned by the Republican front-runner, the people said. The sources requested anonymity to discuss private conversations.”

  Friday’s announcement will also take place at Mar-a-Lago in Palm Beach, Fla., where the onetime rivals will appear alongside one another at a news conference.

  The endorsement comes at a critical time for Trump, who will almost certainly become undefeatable if he wins the upcoming Florida and Michigan “winner take all” primaries.

  As WaPo adds, the support of Carson, a famed retired neurosurgeon and author, will likely give Trump a boost with GOP base voters and evangelicals, who embraced Carson’s campaign in its early days and fueled his brief rise to the top of Republican primary polls.

  Carson’s decision may surprise some of his backers since Trump made blistering critiques over the past year of stories from Carson’s past. But according to people close to him, Carson has gradually come to see Trump as the GOP’s best chance of winning a general election and turning out droves of disengaged voters.

  The endorsement will probably not come as a big surprise, because earlier today on Fox News radio, Carson hinted that he is “certainly leaning” toward a candidate and spoke highly of Trump.

  “There’s two Donald Trumps. There’s the Donald Trump that you see on television and who gets out in front of big audiences, and there’s the Donald Trump behind the scenes,” he said. “They’re not the same person. One’s very much and entertainer, and one is actually a thinking individual.”

  And now we await tonight’s seemingly token GOP debate, which just like last time, will showcase Trump knowing he has a critical endorsement in the bag, and will surely crush his already demoralized competitors.

  

  

  

  

  

• The Incredible Story Of How Hackers Stole $100 Million From The New York Fed

  The story of the theft of $100 million from the Bangladesh central bank – by way of the New York Federal Reserve – is getting more fascinating by the day.

  As we reported previously, on February 5, Bill Dudley’s New York Fed was allegedly “penetrated” when “hackers” (of supposed Chinese origin) stole $100 million from accounts belonging to the Bangladesh central bank. The money was then channeled to the Philippines where it was sold on the black market and funneled to “local casinos” (to quote AFP). After the casino laundering, it was sent back to the same black market FX broker who promptly moved it to “overseas accounts within days.”

  That was the fund flow in a nutshell.

  As we explained, the whole situation was quite embarrassing for the NY Fed, because what happened is that someone in the Philippines requested $100 million through SWIFT from Bangladesh’s FX reserves, and the Fed complied, without any alarm bells going off at the NY Fed’s middle or back office.

  “Some 250 central banks, governments, and other institutions have foreign accounts at the New York Fed, which is near the centre of the global financial system,” Reuters notes. “The accounts hold mostly U.S. Treasuries and agency debt, and requests for funds arrive and are authenticated by a so-called SWIFT network that connects banks.”

  Well, as it turns out, Bangladesh doesn’t agree that the Fed isn’t ultimately culpable. “We kept money with the Federal Reserve Bank and irregularities must be with the people who handle the funds there,” Finance Minister Abul Maal Abdul Muhith said on Wednesday. “It can’t be that they don’t have any responsibility,” he said, incredulous.

  Actually, Muhith, the New York Fed under former Goldmanite Bill Dudley taking zero responsibility for enabling domestic and global crime is precisely what it excels at.

   

  

  Commuters pass by the front of the Bangladesh central bank building in Dhaka March 8, 2016.

  * * *

  But what really happened?

  As it turns out there is much more to the story, and as Bloomberg reports today now that this incredible story is finally making the mainstream, there is everything from casinos, to money laundering and ultimately a scheme to steal $1 billion from the Bangladeshi central bank.  In fact, the story is shaping up to be “one of the biggest documented cases of potential money laundering in the Philippines. It risks setting back the Southeast Asian nation’s efforts to stamp out the use of the country to clean cash, and tarnishing the legacy of President Benigno Aquino as elections loom in May.”

  And yes, it does appear that hackers managed to bypass the Fed’s firewall:

  “Even as banks continue to harden their defenses against such sabotage, hackers too have upped their game to breach servers by utilizing both technical skills and rogue elements within the financial institutions,” said Sameer Patil, an associate fellow at Gateway House in Mumbai who specializes in terrorism and national security.

  * * *

  The story begins in Bangladesh, a country of about 170 million people that’s recently found itself with record foreign reserves thanks to a low wage-fueled export boom and inward remittances. Some of those reserves were held in an account at the Federal Reserve Bank of New York.

  Finance Minister Abul Maal Abdul Muhith this week accused the Fed of “irregularities” that led to the unauthorized transfer of $100 million from the account. The Bangladesh central bank said the funds had been stolen by hackers and that some had been traced to the Philippines.

  As reported previously, a Bangladesh central bank official who is part of a panel investigating the disappearance of the funds said Wednesday that a separate transfer of $870 million had been blocked by the Fed, something the Fed refused to comment on. It does not, however, explain why $100 million was released.

  Essentially the dispute is about whether the Fed went through the right procedure when it received transfer orders.

  Naturally, the Fed’s story is that it did nothing wrong. Bloomberg writes that according to a Fed spokeswoman, instructions to make the payments from the central bank’s account followed protocol and were authenticated by the SWIFT codes system. There were no signs the Fed’s systems were hacked, she said.

  The problem is that the counterparty on the other side of the SWIFT order was not who the Fed thought, and what should have set off red lights is that the recipients was not the government of the Philippines but three casinos!

  On the other hand, Bangladesh is quite – understandably – furious: a local official said the Fed should’ve checked the payment orders with the central bank to ensure they were authentic, even if they used the correct SWIFT codes. The official also said there are plans to take legal action against the Fed to retrieve missing funds.

  Aquino spokesman Sonny Coloma said he had no information on reports that funds from the Bangladesh central bank reached the Philippines. The case is being handled by the AMLC, an independent body, Coloma said. Bangko Sentral ng Pilipinas Governor Amando Tetangco, who heads the AMLC, did not reply to mobile-phone messages seeking comment.

  If at this point flashing light bulbs are going off above the heads of some of our more industrious readers, we can understand why: after all if a fake SWIFT money order is all it takes to have the Fed send you $100 million dollars then…

  * * *

  Separately, a Reuters report digs into the details of the SWIFT wire requests: it notes that the hackers breached Bangladesh Bank’s systems and stole its credentials for payment transfers, two senior officials at the bank said. They then bombarded the Federal Reserve Bank of New York with nearly three dozen requests to move money from the Bangladesh Bank’s account there to entities in the Philippines and Sri Lanka, entities which as will be revealed shortly were… casinos.

  Four requests to transfer a total of about $81 million to the Philippines went through, but a fifth, for $20 million, to a Sri Lankan non-profit organization was held up because the hackers misspelled the name of the NGO, Shalika Foundation.

  Hackers misspelled “foundation” in the NGO’s name as “fandation”, prompting a routing bank, Deutsche Bank, to seek clarification from the Bangladesh central bank, which stopped the transaction, one of the officials said.

  There is no NGO under the name of Shalika Foundation in the list of registered Sri Lankan non-profits. Reuters could not immediately find contact information for the organization.

  Luckily, the Fed stopped some of the $1 billion in total requested funds. The unusually high number of payment instructions and the transfer requests to private entities – as opposed to other banks – raised suspicions at the Fed, which also alerted the Bangladeshis, the officials said. The details of how the hacking came to light and was stopped before it did more damage have not been previously reported. Bangladesh Bank has billions of dollars in a current account with the Fed, which it uses for international settlements.

  The transactions that were stopped totaled $850-$870 million, one of the officials said. At least$80 million made it through without a glitch.

  * * *

  Meanwhile, back in the Philippines, the gaming regulator said it is investigating reports that as much as $100 million in suspicious funds were remitted to the bank accounts of three casinos it didn’t identify.

  The Philippine Daily Inquirer has led reporting on the theft. It wrote last month that cash may have entered the Philippines via the Jupiter Street, Makati City, branch of Rizal Commercial Banking Corp. The money was converted into pesos and deposited in the account of an unidentified Chinese-Filipino businessman who runs a business flying high net worth gamblers to the Philippines.

  The funds were used to buy casino chips or pay for losses at venues including Bloomberry Resorts Corp.’s Solaire Resort & Casino and Melco Crown Philippines Resort Corp.’s City of Dreams Manila, according to the paper. There was no suggestion in the report the banks or casinos named were complicit with any improper movement of funds.

  In other words, the Fed was funding gamblers, only these were located in Philippine casinos, not in the financial district. Ironically, that’s precisely what the Fed does, only it normally operates with gamblers operating out of Manhattan’s financial district.

  Bloomberry Resorts investor relations director Leo Venezuela and City of Dreams Manila Vice President Charisse Chuidian didn’t reply to calls and phone messages.

  And then, once the “gamblers” were done having their fun laundering freshly received Fed money, they moved the cash offshore: funds were later dispatched into accounts outside the Philippines, the paper said, including to Hong Kong. The Hong Kong Monetary Authority declined to comment, as did the Hong Kong police. The Inquirer separately reported the head of the Rizal branch where the transactions occurred had made a statement that top bank officials were aware of the transactions “at every stage.”

  Were the banks in on this unprecedented theft? Probably, although it will be nearly impossible to prove.

  Rizal’s shareholders “are fully committed to comply with all banking laws and regulations, in particular those on money laundering,” Vice Chairman Cesar E.A. Virata said in a statement Wednesday. In a separate statement, the bank’s Chief Executive Officer Lorenzo Tan condemned “any insinuations that the top management of the bank knew of and tolerated alleged money laundering activities in one branch.”

  * * *

  The exact amount stolen from Bangladesh is still not exactly clear, as is what happens next in the dispute with the Fed.

  While Muhith said the Fed was responsible for at least $100 million, another Bangladeshi central bank official who asked not to be identified said $20 million of a $101 million total had been recovered from an account held in Sri Lanka, leaving $81 million unaccounted for. That figure matches the amount Rizal’s Virata said the bank was investigating.

  What we would like to know, is whether this is merely the Fed’s way of testing its level of preparedness for the moment it has to wire helicopter money around the globe, in lieu of using drone delivery of cash, especially if cash has been banned previously as so many “famous economists” demand, clearly unaware that cash has to be present when in the last ditch step to boost inflation, the Fed has no choice but to hand out physical money to every willing recipient.

  For a few lucky recipients in the Philippines, it already worked out.

  

  

  

  

  

• UK Inquiry Finds Gulf "Allies" Sustaining ISIS In The Face Of Oil Price Collapse

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Although the extent to which oil-related funding has sustained ISIS over the past couple of years is highly contested, it’s undeniable that the collapse in prices has had a negative cash flow impact on the terror threat du jour. As such, how’s the group sustaining itself in the fact of such a major cash crunch? According to a UK inquiry, we can thank donations from America’s Persian Gulf “allies.”

  Of course, none of this will be surprising to Liberty Blitzkrieg readers. I’ve been pointing this out for a very long time. In fact, evidence was already piling up two years ago, as can be seen in the following excerpts from a piece published in June 2014 titled, America’s Disastrous Foreign Policy – My Thoughts on Iraq:

  But in the years they were getting started, a key component of ISIS’s support came from wealthy individuals in the Arab Gulf States of Kuwait, Qatar and Saudi Arabia. Sometimes the support came with the tacit nod of approval from those regimes; often, it took advantage of poor money laundering protections in those states, according to officials, experts, and leaders of the Syrian opposition, which is fighting ISIS as well as the regime.

   

  “Everybody knows the money is going through Kuwait and that it’s coming from the Arab Gulf,” said Andrew Tabler, senior fellow at the Washington Institute for Near East Studies. “Kuwait’s banking system and its money changers have long been a huge problem because they are a major conduit for money to extremist groups in Syria and now Iraq.”

   

  Iraqi Prime Minister Nouri al-Maliki has been publicly accusing Saudi Arabia and Qatar of funding ISIS for months. Several reports have detailed how private Gulf funding to various Syrian rebel groups has splintered the Syrian opposition and paved the way for the rise of groups like ISIS and others.

  Fast forward two years, and not much has changed. The Guardian reports:

  A collapse in oil revenues available to Islamic State is likely to have made it increasingly dependent on donations from wealthy Gulf states and profits from foreign exchange markets, the first UK inquiry into the terror group’s funding has heard.

   

  Attacks by the US-led coalition on Isis’s oil installations and convoys are believed to have reduced its oil revenues by more than a third as the funding of the group becomes one of the central fronts in the battle to defeat it in Syria and Iraq.

   

  But experts have told the committee the UK government may be vastly over-estimating the importance of oil revenue, and underestimating the extent to which Isis is reliant on foreign donors in the Gulf or its manipulation of the Iraqi banking system.

   

  Luay al-Khatteeb from the Iraq Energy Institute claimed the cost of waging war for Isis must be so high, and its oil revenues now so limited, that it must be accessing large-scale donations.

   

  “Some might wonder to what extent Gulf Arab financing has continued to subsidise the caliphate. Certainly, IS was able to draw on some other sources of income between January 2015, when Raqqa’s economy had reportedly collapsed, and mid-January 2016, when IS forces have been able to launch a major new Syrian offensive. The money is coming from somewhere.”

   

  The UK government has effectively admitted that Gulf states did fund Isis in its early days, saying it is confident all such government funding has now stopped. But Dan Chugg, a Foreign Office expert, admitted to the select committee this reassurance had limited value. 

  Meanwhile, it’s also become abundantly clear that the Saudis played a major role in  the 9/11 attacks. See:

  The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack

  Must Watch Video – Congressman Thomas Massie Calls for Release of Secret 9/11 Documents Upon Reading Them

  Two Congressmen Push for Release of 28-Page Document Showing Saudi Involvement in 9/11

  With friends like these…

  

  

  

  

  

• Oil Market Commentary 3 10 2016 (Video)

  By EconMatters

  

  We look to be basing right now for a higher move in the oil market into summer. We are headed for another higher week for oil prices, and the uptrend continues.

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

  

  

  

  

• The Germans React To Draghi's Monetary "Tidal Wave"

  Having discussed the market’s disturbing reaction to Mario Draghi’s desperate “all in” monetary gamble – one which saw an early bout of euphoria followed by one of the most aggressive Euro spikes in history, second only to the “December debacle” and the Fed’s March 2009 announcement of QE1, we were waiting for the just as important reaction by the ECB’s nemesis: the one country that not only has seen hyperinflation first hand (and appears to recall it vividly), but is just as aware where the ECB’s monetary lunacy ends: the Germans.

  We got it from Germany’s Handelsblatt, when in an article titled “The dangerous game with the money of the German savers”, the authors provide a metaphorical rendering of what is happening in Europe as follows:

  

   

  They also paint an oddly accurate caricature of the man behind this last ditch monetary policy:

  

   

  And write the following:

  A determined ECB chief Mario Draghi plows ahead with his negative interest rate policy. The positive effects on the economy are low. Great, however, are the risks: this is the greatest redistribution of wealth in Europe since World War II.

  It clearly got the ECB’s attention: former FT journalist and current head of media relations at the ECB Michael Steen promptly responded, calling the Handelsblatt article a “hatchet job” but congratulating it on the “lovely photoshop of cash tidal wave.”

  Trying to find something nice to say about Handelsblatt hatchet job, there is a lovely photoshop of cash tidal wave pic.twitter.com/GqglBGwzdX

  — Michael Steen (@michaelsteen) March 10, 2016

   

  Whether the ECB’s PR office will be as glib in a few years when the full destructive nature of the central bank’s grand monetary experiment fully unravels, is unknown. What is known is that the war of words between Germany and Frankfurt’s most prominent, if increasingly despised, resident has just hit a new, and disturbing, plateau.

  

  

  

  

  

• Obama To GOP: Stop Blaming Me For 'Creating' Trump

  While admitting he shares some blame for the widening partisan divide during his term in office, President Obama dismissed the notion that he's responsible for the rise of Donald Trump, who has harnessed voter anger during his presidential run, urging GOP elites to do some "introspection" about the how "the politics they've engaged in allows the circus we've been seeing to transpire."

  "I'm not going to validate some notion that the Republican crackup that’s been taking place is a consequence of actions that I’ve taken…"

   

  Obama: The GOP created "an environment where somebody like a Donald Trump can thrive" https://t.co/Syw4ZVotVC https://t.co/avHzLxWsZa

  — CNN Politics (@CNNPolitics) March 10, 2016

  As The Hill reports,

  Despite his feuds with Republicans in Congress, Obama insisted that he wants “an effective Republican Party.”

   

  “I think this country has to have responsible parties that can govern,” he said, adding the GOP could “challenge some of the blind spots and dogmas in the Democratic Party” on issues such as trade.

   

  He pointed a finger at conservative media and GOP leaders for fueling “a notion that everything I do is to be opposed; that cooperation or compromise somehow is a betrayal; that maximalist, absolutist positions on issues are politically advantageous; that there is a ‘them’ out there and an ‘us,’ and the ‘them’ are the folks causing the problems you’re experiencing.”

  To this line of reasoning we offer the following simple reality of check of the fiction President Obama is peddling…

  

   

  Of course, one has to believe Obama because he is 'Presidential' and would never say anything "outrageous" or lie…

   

  

   

  So did he or didn't he? No matter – Trump is here now… and everything's about to really "change."

   

  

  

  

  

  

• Gold Soars As Draghi "Dud" Unleashes Chaos In Bonds, Stocks, & FX

  "You get nothing…"

   

  This was not the day many had planned on…After the initial "as expected" move, everything went pear-shaped for the central planners when Draghi committed the ultimate sin – closing an open-ended monetary policy…

  

   

  The USD was hammered, gold surged, and stocks and oil gave up gains…

  

   

  Then The PPT stepped in to save the world, ramped us back to VWAP…

  

   

  And Dow back to 17,000…unfriggingbelievable!!

  

   

  *  *  *

  Surveying some of the damage (that was unable to benefit from US manipulation)…

  Let's start with the worst…EURUSD screamed almost 400 pips off the post-Draghi lows…

  

   

  As Bespoke notes, today is the largest positive reversal (3.2%) off an intraday decline of at least 1% in the history of the Euro.

  

   

  We could show all kinds of epic fail European markets, but Italian banks – with their exploding NPLs – are the best example. After smashing to a halt limit-up, they fell back to earth to practically unchanged by the close…

  

   

  *  *  *

  After yesterday's idiotic ramp to perfectly end Dow at 17000, things went a little bit turbo today…until the late-day re-emergence of America's own National Team…

  

   

  The plunge stalled when Europe closed – went sideways – then ripped higher to unch as NYMEX closed…to get the S&P 500 perfectly unchanged!

  

   

  Look at the utter panic VIX slams to get Dow back to 17,000 (just like yesterday)…

  

   

  As Shorts were once again squeezed…

  

   

  Treasury yields all rose on the day (with the belly underperforming and 30Y outperforming after a strong auction all the way back to yields lower on the week)…

  

   

  Dragged higher in yield by Bund weakness (as Draghi disappointed expectations for the rate cut)

  

   

  Early in the day, the TSY yield curve collapsed to its lowest since Dec 2008…

  

   

  Not boding well for the Dimon Bottom?

  

   

  The USD Index was monkey-hammered as EURUSD's initial drop exploded into an avalanche of short-covering… The biggest daily drop in over a month..
  

   

  Gold ansd Silver outperrformed on the day as crude and copper slipped lower…

  

   

  Gold recovers its quintuple whammy slams…

  

   

  And oil rallied back as Europe closed for absolutely no good reason at all…

  

   

  Finally, Oil Vol remains notably "cheap" relative to equity protection (for now)…

  

   

  Charts: Bloomberg

  

  

  

  

• 7 Harsh Realities Of Life Millennials Need To Understand

  Submitted by The Libertarian Republic, via The Burning Platform blog,

  Millennials.

  They may not yet be the present, but they’re certainly the future. These young, uninitiated minds will someday soon become our politicians, doctors, scientists, chefs, television producers, fashion designers, manufacturers, and, one would hope, the new proponents of liberty. But are they ready for it?

  Time after time, particularly on college campuses, millennials have proven to be little more than entitled, spoiled, anti-intellectual brats who place far too much emphasis on feelings and nowhere near enough emphasis on critical thinking. To the millennial, words are cause for the creation of safe spaces, alternative ideas must be stifled, and anything they perceive to be a microaggression is enough to send them spiraling into a state of mental distress.

  It’s time millennials understood these 7 harsh realities of life so we don’t end up with a generation of gutless adult babies running the show.

  1. Your Feelings Are Largely Irrelevant

  

  Seriously, nobody who has already graduated college cares about your feelings. That means that when you complain to your boss because your co-worker mis-gendered you, he’s probably not going to bend over backwards to bandage your wounds. Given feelings are entirely subjective in nature, it’s completely unreasonable to demand everyone tip-toe around you to prevent yours from being hurt. The reality is that people will offend you and hurt your feelings, and they won’t stop to mop up your tears because they shouldn’t have to. Learning to accept criticism, alternative viewpoints, and even outright insults will make you happier in the long run than routinely playing the victim card.

   

  2. You Cannot Be Whatever You Want To Be

  

  This is a comforting lie parents have started telling their children to boost their morale in school. Unfortunately, millennials are now convinced it’s true, especially as society has now decided to push this narrative as well. The reality is if you’re 17 years old and still can’t figure out basic division, you’re not going to be a rocket scientist. If you’re overweight and unattractive, you’re not going to be the quarterback’s prom date. If you lack fine motor skills, you’re not going to be a heart surgeon. It’s okay to accept that you cannot be whatever you want to be. In fact, once you accept this, you’ll be able to focus on the things you can be — the things you really are talented at.

  3. Gender Studies Is A Waste Of Money

  

  You heard me. While some millennials taking useless degrees will claim they’re beneficial for teaching or research positions, the reality is that they just put themselves several thousands dollars in debt to learn how to be a professional victim. While you’re struggling to make ends meet after graduation because nobody who pays more than minimum wage is interested in your qualifications and you’re drowning in student loan debt, be sure to check out the next harsh reality before you start complaining.

  4. If You Live In America, You’re Already In The 1%

  

  That’s right. Even though you work at McDonald’s for minimum wage because you got a useless, outrageously expensive college degree, you’re still far better off than the vast majority of the planet. Don’t believe me? Fly to Uganda and check out the living conditions there. Fly to China, Saudi Arabia, North Korea, Iran, Russia, and even European countries like Ukraine and Greece, and you’ll quickly discover just how well-off you really are. While it may be cool these days to dump on capitalism, it’s the only reason you aren’t already worse off.

  5. You Don’t Have A Right To It Just Because You Exist

  

  That includes healthcare, guaranteed income, and somewhere to live. Just because you’re here and breathing doesn’t mean society owes you anything. Like the billions of people who lived before you, working hard is a better guarantor of wealth and the ability to comfortably take care of yourself than begging society or the government to do it for you. Demanding healthcare be a right, for example, is equivalent to demanding government force the taxpayer to pay for it. While that may seem like a good idea in theory, it only leads to rationing of care when costs become unsustainable, which negatively impacts not just your health, but everyone else’s, too.

  6. You DO Have The Right To Live As You Please — But Not To Demand People Accept It

  

  By contrast, you do have the right to live however you please, so long as it’s within the confines of the law. If you want to cross-dress, smoke marijuana, drink lots of alcohol, have lots of sex, and, yes, even go to school for gender studies, then by all means, go for it. Government should not be allowed to legislate people’s behavior as long as it doesn’t infringe upon someone else’s rights, but that doesn’t mean society isn’t allowed to have an opinion. You don’t have the right to demand people keep their opinions about your lifestyle to themselves, especially if you’re open and public about it. I have as much of a right to comment on the way you live your life as you do to actually live it. Your feelings are not a protected right, but my speech is.

  7. The Only Safe Space Is Your Home

  

  No matter where you go in life, someone will be there to offend you. Maybe it’s a joke you overheard on vacation, a spat at the office, or a difference of opinion with someone in line at the grocery store. Inevitably, someone will offend you and your values. If you cannot handle that without losing control of your emotions and reverting back to your “safe space” away from the harmful words of others, then you’re best to just stay put at home. Remember, though: if people in the outside world scare you, people on the internet will downright terrify you. It’s probably best to just accept these harsh realities of life and go out into the world prepared to confront them wherever they may be waiting.