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

  Submitted by Justin Raimondo via AntiWar.com,

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

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

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

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

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

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

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

   

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

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

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

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

  “The neocons’ willingness to consider Cruz stands in sharp contrast with a new line of current conventional wisdom in Washington that Cruz, who is the object of particularly intense personal dislike from establishment Republicans, is actually less acceptable to the establishment than Trump.”

  We know who is the Establishment: it’s those brilliant folks who brought us the Iraq war, who want us to repeat our mistake in Syria, and who pine for a US-led regime-change operation in Russia to get rid of Putin and install a pliable Yeltsin-substitute in power. The Establishment, in short, is the War Party, otherwise known as the neoconservatives, and they are the tireless enemies of peace and liberty. Until and unless they are destroyed as a viable political force, either in the GOP or outside it, there will be no peace in this world. If and when Trump succeeds in sidelining them, that alone will be worth whatever price we have to pay in the – unlikely – event he makes it to the White House.

  As even the usually clueless Ben Domenech, over at The Federalist, observes:

  “On foreign policy, Donald Trump is exploiting American frustration with the elites of both parties. He cites over and over again his opposition to the war in Iraq as a smackdown for the neoconservative views which have ruled the roost in Republican foreign policy circles for 15 years. But he also uses his opposition to engagement in Libya to smack Barack Obama, Hillary Clinton, and Marco Rubio.

   

  “It is very telling that the two leading candidates in the GOP primary today are very critical of intervention in Iraq and Libya and Syria, and this has not only not hurt them, but potentially helped them reach more than 50 percent support in the polls. One would think Republican elites would recognize this and think about what it means about the views of their base. One would think, but one would be wrong.”

  With the triumph of Trumpismo having demolished the GOP foreign policy consensus – and the neocons’ ideological and organizational stranglehold on the conservative movement – the way will be cleared for a libertarian-ish insurgency to arise out of the rubble and make some real headway. I realize it’s hard to see this at the present moment: just like on HGTV, when some clueless couple on “Fixer Upper” or “Property Brothers” just can’t see that the scary dilapidated wreck of a house they’re being shown could become their Dream Home. Yet, in the end, they are bowled over by the luxurious and stunning result.

  (Of course, there are no guarantees in life: a lot depends on if the fractious libertarians, beset as they are by right-wing opportunism and a brainless form of anti-political sectarianism, can finally get their act together.)

  On the other side of the aisle – that is, in the Democratic party – a similar drama, with some significant variations, is being played out in the race pitting Bernie Sanders against Hillary Clinton. The latter is widely considered the presumptive heir, much like Jeb Bush was assumed to be the GOP frontrunner on account of his last name. Yet Bush has been humiliated and sidelined, and Mrs. Clinton may well be in danger of sharing his fate: Sanders is beating her in New Hampshire as well as in Iowa. This has “centrist” Michael Bloomberg, former New York City mayor and professional scold, so upset that he is threatening to launch a third party run if Sanders gets the nod.

  The beleaguered Mrs. Clinton doesn’t have major principled differences with Sanders when it comes to domestic policy: their disagreements are over strategy, not goals. The real split is over foreign policy, with Hillary the hawk pecking at Sanders over his relatively dovish stances on issues from Iran to Libya. And now a posse of “national security” bureaucrats has taken out after Sanders with a joint statement deploring his unwillingness to parrot the War Party’s line:

  “Over the past four debates, the subject of ISIS and Iran have come up a number of times. These are complex and challenging times, and we need a Commander in Chief who knows how to protect America and our allies and advance our interests and values around the world. The stakes are high. And we are concerned that Senator Sanders has not thought through these crucial national security issues that can have profound consequences for our security.

   

  “His lack of a strategy for defeating ISIS – one of the greatest challenges we face today – is troubling. And the limited things he has said on ISIS are also troubling.

   

  “For example, his call for more Iranian troops in Syria is dangerous and misguided and the opposite of what is needed. Supporting Iranian soldiers on Israel’s doorstep is a grave mistake. And while we support de-escalation of Sunni-Shia tensions, his argument that Iran and Saudi Arabia – two intense adversaries – should join together in a military coalition is just puzzling. Indeed, the Iranian government recently failed to stop protesters from ransacking and burning the Saudi embassy in Tehran, after which Saudi Arabia cut off diplomatic ties with Iran.

   

  “We are all strong supporters of the nuclear diplomacy with Iran. Some of us were part of developing the policy that produced the diplomacy over the past several years. And we believe that there are areas for further cooperation under the right circumstances. But Senator Sanders’ call to ‘move aggressively’ to normalize relations with Iran – to develop a ‘warm’ relationship – breaks with President Obama, is out of step with the sober and responsible diplomatic approach that has been working for the United States, and if pursued would fail while causing consternation among our allies and partners.

   

  “Given these concerns, it is important to ask what he would do on other issues – on Russia, China, our allies, nuclear proliferation, and so much else. We look forward to hearing him address these issues.

   

  “We need a Commander in Chief who sees how all of these dynamics fit together – someone who sees the whole chessboard, as Hillary Clinton does.”

  The only time the Clintonistas want to “move aggressively” is when it involves invading a sovereign nation like Iraq, Libya and Syria, and turning it into a cauldron of Islamist terror. Her “strategy” for defeating ISIS is to set up “no fly zones” in Syria, reoccupy Iraq, and fund the very head-chopping Syrian “rebels” from which ISIS and Al-Qaeda have sprung and with whom they are ideologically aligned. Indeed, Mrs. Clinton, who spearheaded the movement inside the US government to arm the Islamists in Syria and Libya, deserves the title “Mother of ISIS.”

  As for all the balderdash about Iran: this is clearly the Israel lobby talking, and if there was any confusion about Mrs. Clinton’s role as their champion in the Democratic party, this should clear it up.

  Yet the Clintonian arguments for an anti-Iranian foreign policy are not very convincing. For just one example: If “supporting Iranian soldiers at Israel’s doorstep is a grave mistake” then is Israel supporting ISIS at their own doorstep an equally grave miscalculation? But of course you won’t be hearing any criticism like that coming from this crowd.

  From a noninterventionist perspective, neither Sanders nor Trump is perfect – both are very far from that. But to nitpick over their deviations is to entirely miss the point, as sectarians of both the left and right are bound to do. These two candidates represent, each in their own way, powerful and growing tendencies on both sides of the ideological spectrum that the movement for peace can utilize to its own advantage. For we cannot change the world until and unless we begin to understand it: only then can we take advantage of such openings as it allows. What is happening in this country is a rebellion against both wings of the War Party – and that is something to be celebrated and encouraged, even as we critique its shortcoming and urge the rebels to take their insurgency further.

  Insofar as this election season is concerned, the watchwords or slogans that give voice to the “correct” position are best expressed in terms of double-negatives. For the conservative Republican readers, that would be: anti-anti-Trump. For the progressive Democrats: anti-anti-Sanders.

  We are hearing the voices of the Mushy Moderate Middle rise up in defense of the status quo: Democrats like the Washington courtier Dana Milbank are warning us against Sanders, while the neocons to a man are railing against the Trumpist Temptation. This should be enough to tell us what is the right road to take and what our answer to the Mushy Middletarians must be: Extremism in defense of peace is no vice – and moderation in the fight against the War Party is no virtue!

  

  

  

  

  

• ISIS Planning To Build Navy, NATO Commander Imagines

  Perhaps the most peculiar thing about Islamic State is that despite continual reports of highly successful airstrikes and proclamations from various governments regarding the extent to which the group’s operational capacity has been severely diminished, they never seem to go away.

  In fact, besides the recent declaration from the group’s leadership that fighters’ salaries will be cut by 50% due to “exceptional circumstances,” we really haven’t seen any concrete evidence to support the contention that “the terrorists” (as Sergei Lavrov matter-of-factly calls them) are on their last legs.

  Ramadi was retaken by the Iraqi army but the real prize is Mosul and ISIS remains just as entrenched there as they ever were. The group recently launched a serious offensive in Libya, where the country’s oil infrastructure is under attack. And no one is any closer to liberating Raqqa, the de facto ISIS capital.

  Sure, Russia has released hundreds of videos depicting what The Kremlin says are airstrikes against training centers, stongholds, and, most notably, oil tankers but at the end of the day, al-Hayat Media Center continues to churn out the propaganda and the group fights on, seemingly no worse for wear.

  One person who isn’t convinced that the group’s capabilities have been curtailed is Vice-Adml Clive Johnstone, a senior NATO Naval officer.

  Clive is especially concerned about Islamic State’s maritime “ambitions.” ISIS, he figures, wants to build a navy. “The march of Islamic State in Iraq and Levant (Isil) along the Libyan coast has cast an ‘uncomfortable shadow’ across shipping,” The Telegraph writes, quoting Johnstone.

  “We know they have had ambitions to go off shore, we know they would like to have a maritime arm,” the Admiral continues.

  Back to that in a moment after a brief trip down hypocrisy lane.

  Johnstone says he’s worried about “sophisticated Chinese and Russian” weapons falling into the hands of militant groups like Hezbollah. Those weapons, he says, create a “horrible opportunity” that a “misdirected, untargeted round of a very high quality weapons system will just happen to target a cruise liner, or an oil platform, or a container ship.”

  Johnstone apparently isn’t concerned that “sophisticated” American weapons might be used for similar attacks.

  After all, the US is arming all sorts of Sunni extremists in Syria and one group (the FSA) has already done exactly what Johnstone claims to be so afraid of: they used a US-supplied TOW to destroy a Russian search and rescue helicopter (see here for more).

  The other hypocritical thing to note about Johnstone’s assessment is that it was NATO itself that put Libya in the position it’s in now. Had NATO not supported the overthrow of Gaddafi, we wouldn’t be in this situation in the first place and ISIS wouldn’t be running amok in the country’s oil crescent. 

  Johnstone goes on to describe what type of attack he imagines might be coming in the Mediterranean.

  “I think it won’t be a planned, horrible mischievous act, I think it will be an act which is almost a mistake, or it will be an act of random terrorism that will suddenly have extraordinary implications for the Western world,” he says.

  Got that? It will either be some kind of unplanned, “almost” accident that isn’t “horrible” or it will be an earth-shattering, murderous, “random” act of terrorism. It seems pretty clear from that convoluted bit of nonsense that Johnstone has no idea what he’s talking about.

  But that’s ok, because the Admiral’s point isn’t to provide any intelligence about a credible threat to a cruise liner. No, his point is to explain why NATO needs to send more ships to the Mediterranean. And because it’s not polite to say “we need to have a stepped up presence because the Russians are there,” he’ll claim extra maritime muscle is necessary because ISIS is building a navy. Here’s The Telegraph again:

  The Nato allies must also not allow themselves to be “hustled out” of the eastern Mediterranean, where the Russian Navy is increasingly active, he said.

   

  He said the growing risks to shipping in the Mediterranean mean he is “quietly worried” there will be an attack or serious incident.

  Got it. So NATO needs more warships in the region because ISIS may be planning a “serious” maritime “incident.” Just like how the US needs to have troops in Syria because of ISIS. And just like Turkish President Recep Tayyip Erdogan needs to consolidate power so he can combat the ISIS threat. And just like Russia needs to support Bashar al-Assad in order to keep ISIS from taking Damascus. 

  Now that you mention it, you can pretty much justify anything these days by claiming you’re fighting ISIS. Maybe that’s why they’ve stuck around so long. If world powers eliminate them, how will everyone explain their warmongering?

  

  

  

  

  

• Chart Of The Day: $17 Trillion In Student Debt By 2030

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

   

  

  Source: DailyInfographic.com

  This industry of education is going backwards, and will one day burst – will that happen soon?

  

  

  

  

  

• China's 3 Trillion Yuan Margin Call Time Bomb Is About To Explode

  Make no mistake, investors didn’t need any more reasons to be bearish on Chinese equities.

  Mainland markets are veritable casinos dominated by retail investors who until last summer, were enthralled with the prospect of easy riches in an environment where shares only seemed to know one direction: up.

  All of that changed last June when a dramatic unwind in the half dozen backdoor margin lending channels that helped to fuel the rally triggered an epic rout that became self-fulfilling once the retail crowd (which accounts for 80% of the market) became rip sellers rather than dip buyers.

  Since then, successive efforts on the part of the CSRC to stabilize the situation by pouring CNY1.5 trillion into A-shares has met with limited success as periods of calm are interrupted by violent bouts of selling like those we saw earlier this month when China tried and failed to implement a circuit breaker.

  Throw in the ongoing yuan deval fiasco and there’s every reason not to be involved in Chinese stocks.

  But when it rains it pours, and now, analysts say margin calls on SCLs are the next landmine that may pose a “systemic risk” for China’s battered markets.

  “Some companies that had pledged shares as collateral for loans are now faced with a stark choice – dump them under pressure from impatient brokers and banks and book a loss, or stump up fresh cash or other assets to make up for the difference in value,” Reuters writes.

  This is a rather large problem. Over half of all listed companies have their shares pledged. As BofA notes, “1,411 A-share companies have had some of their shares been pledged for SCLs by their major shareholders, representing 50.2% of the total number of A-shares. The value of stocks pledged for SCLs has been rising consistently – from Rmb2.36tr on 1 July 2015 to Rmb3.05tr by 1 Jan 2016, i.e., up by 29% in 2H15.”

  

  In short, the steep decline in margin financing paints an incomplete picture when it comes to understanding how much leverage is in the system. 

  On one hand, the headline figure on margin financing suggests quite a bit of deleveraging has taken place since things hit peak absurdity last spring. Here’s a look at how quickly the unwind materialized once things began to get dicey:

  

  But as the SCL chart shown above demonstrates, the decline in headline margin debt only tells part of the story. Indeed, BofA says even the CNY3.05 trillion number for SCLs may be underestimate the amount of leverage in the market. “Our SCL data might have under-estimated the true extent of such activities because 1) only major shareholders, i.e., those who own more than 5% of a company’s stocks, are obliged to disclose their SCL activities; and 2) we have assumed a 12-month duration for the 2,889 deals, 44% of the total, that have no ending date disclosed vs. over 16 months on average for those that have,” the bank writes. 

  Where things get truly frightening is when one looks under the hood on these deals. 

  Have a look at the following table which shows that of companies with pledged shares, an astonishing 82% were trading at a multiple of 50X or more at the time of their pledging:

  

  “The collateral value,” BofA says dryly, “is far from solid.”

  “If the market continues to fall, equity pledging-related selling pressure could increase significantly,” Gao Ting, head of China strategy with UBS warns. 

  To let BofA tell it, fully a third of SCLs will face margin call pressure and some 371 of the 1,411 stocks pledged have already hit their triggers. “Assuming 40% loan-to-asset value at the time of SCL granting, our analysis suggests that by now, 371 stocks, worth Rmb641bn based on their current market values, have seen their share prices reached the stop-loss levels; and additional 281 stocks, worth Rmb310bn, the warning levels.”

  What happens when the margin calls start you ask? Well, nothing good.

  “When a position has to be closed for transactions using floating shares as collateral, the pledger sells on the secondary market, putting further pressure on the stock market,” Ting cautions.

  Right. Which means stocks fall further and trigger more margin calls which means more forced liquidations in a never-ending, self reinforcing loop. Or, as Reuters puts it: “[It’s] a vicious cycle where further share price drops are likely to trigger more margin calls and threaten further forced sales.“

  And this isn’t some hypothetical – it’s already started. “On Jan 18, some stocks of a company used as collaterals for a SCL were liquidated by the lender, which prompted its share price to limit down the next day,” BofA recounts. “The stock had been suspended from trading since then. So far, at least 11 A-shares have been suspended as their prices approached the cut-loss levels.”

  “On Thursday, trading in shares of Maoye Communication and Network Co Ltd was halted after it said it received notice that its controlling shareholder faces margin calls, one of at least eight companies that have made similar announcements so far this year,” Reuters adds.

  Note that if this entire thing were to unwind it would be larger than if every bit of margin debt were squeezed out of the system. BofA figures the  average loan-to-asset value is about 40%. Apply that to the CNY3.05 trillion pile of collateralized stocks and you’ve got the potential for a CNY1.22 trillion unwind.

  And it gets still worse. Remember China’s multi-trillion yuan black swan, the WMP industry? Well the WMPs are involved here too. Here’s an example, again from BofA:

  We cite a recently reported example involving the controlling shareholder of Guangxi Future Technology. According to articles by Securities Times (Jan 19) and 21st Century Business Herald (Jan 20), in December 2015 Pudong Development Bank set up a WMP called Tebon Huijin No.1 Asset Management Plan to fund the shareholder’s purchase of its own company’s shares. Essentially, the WMP buyers, as the senior tranche investors, lent money for the shareholder to buy their own stock. Similar to other structured WMPs, this product has a stop-loss clause, and the company’s share price dropped below the stop-loss level on Jan 18. As the controlling shareholder did not put up additional margin, Pudong Development Bank liquidated all stock in the plan (equivalent to 2.13% of the company’s outstanding shares). This is the first case of forced liquidation by such products but in our view there could be additional cases given how sharply the market has declined in recent weeks.

  In short, this is a house of cards built on a still enormous amount of leverage. At the risk of mixing metaphors, the problem here is that once the dominos start to fall, it will be impossible to stop the downward momentum.

  The takeaway: “we’re going to need a bigger plunge protection team”…

  

  

  

  

  

• Zika Outbreak Epicenter In Same Area Genetically-Modified Mosquitoes Released In 2015

  Submitted by Clare Bernishvia TheAntiMedia.org,

  The World Health Organization announced it will convene an Emergency Committee under International Health Regulations on Monday, February 1, concerning the Zika virus ‘explosive’ spread throughout the Americas. The virus reportedly has the potential to reach pandemic proportions — possibly around the globe. But understandingwhy this outbreak happened is vital to curbing it. As the WHO statement said:

  “A causal relationship between Zika virus infection and birth malformations and neurological syndromes … is strongly suspected. [These links] have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions.

   

  “WHO is deeply concerned about this rapidly evolving situation for 4 main reasons: the possible association of infection with birth malformations and neurological syndromes; the potential for further international spread given the wide geographical distribution of the mosquito vector; the lack of population immunity in newly affected areas; and the absence of vaccines, specific treatments, and rapid diagnostic tests […]

   

  “The level of concern is high, as is the level of uncertainty.”

  Zika seemingly exploded out of nowhere. Though it was first discovered in 1947, cases only sporadically occurred throughout Africa and southern Asia. In 2007, the first case was reported in the Pacific. In 2013, a smattering of small outbreaks and individual cases were officially documented in Africa and the western Pacific. They also began showing up in the Americas. In May 2015, Brazil reported its first case of Zika virus — and the situation changed dramatically.

  Brazil is now considered the epicenter of the Zika outbreak, which coincides with at least 4,000 reports of babies born with microcephaly just since October.

  

  When examining a rapidly expanding potential pandemic, it’s necessary to leave no stone unturned so possible solutions, as well as future prevention, will be as effective as possible. In that vein, there was another significant development in 2015.

  Oxitec first unveiled its large-scale, genetically-modified mosquito farm in Brazil in July 2012, with the goal of reducing “the incidence of dengue fever,” as The Disease Daily reported. Dengue fever is spread by the same Aedes mosquitoes which spread the Zika virus — and though they “cannot fly more than 400 meters,” WHO stated, “it may inadvertently be transported by humans from one place to another.” By July 2015, shortly after the GM mosquitoes were first released into the wild in Juazeiro, Brazil, Oxitec proudly announced they had “successfully controlled the Aedes aegypti mosquito that spreads dengue fever, chikungunya and zika virus, by reducing the target population by more than 90%.”

  Though that might sound like an astounding success — and, arguably, it was — there is an alarming possibility to consider.

  Nature, as one Redditor keenly pointed out, finds a way — and the effort to control dengue, zika, and other viruses, appears to have backfired dramatically.

  

  Juazeiro, Brazil — the location where genetically-modified mosquitoes were first released into the wild.

  

  Map showing the concentration of suspected Zika-related cases of microcephaly in Brazil.

  The particular strain of Oxitec GM mosquitoes, OX513A, are genetically altered so the vast majority of their offspring will die before they mature — though Dr. Ricarda Steinbrecher published concerns in a report in September 2010 that a known survival rate of 3-4 percent warranted further study before the release of the GM insects. Her concerns, which were echoed by several other scientists both at the time and since, appear to have been ignored — though they should not have been.

  Those genetically-modified mosquitoes work to control wild, potentially disease-carrying populations in a very specific manner. Only the male modified Aedes mosquitoes are supposed to be released into the wild — as they will mate with their unaltered female counterparts. Once offspring are produced, the modified, scientific facet is supposed to ‘kick in’ and kill that larvae before it reaches breeding age — if tetracycline is not present during its development. But there is a problem.

  

  Aedes aegypti mosquito. Image credit: Muhammad Mahdi Karim

  According to an unclassified document from the Trade and Agriculture Directorate Committee for Agriculture dated February 2015, Brazil is the third largest in “global antimicrobial consumption in food animal production” — meaning, Brazil is third in the world for its use of tetracycline in its food animals. As a study by the American Society of Agronomy, et. al., explained, “It is estimated that approximately 75% of antibiotics are not absorbed by animals and are excreted in waste.” One of the antibiotics (or antimicrobials) specifically named in that report for its environmental persistence is tetracycline.

  In fact, as a confidential internal Oxitec document divulged in 2012, that survival rate could be as high as 15% — even with low levels of tetracycline present. “Even small amounts of tetracycline can repress” the engineered lethality. Indeed, that 15% survival rate was described by Oxitec:

  “After a lot of testing and comparing experimental design, it was found that [researchers] had used a cat food to feed the [OX513A] larvae and this cat food contained chicken. It is known that tetracycline is routinely used to prevent infections in chickens, especially in the cheap, mass produced, chicken used for animal food. The chicken is heat-treated before being used, but this does not remove all the tetracycline. This meant that a small amount of tetracycline was being added from the food to the larvae and repressing the [designed] lethal system.”

   

  Even absent this tetracycline, as Steinbrecher explained, a “sub-population” of genetically-modified Aedes mosquitoes could theoretically develop and thrive, in theory, “capable of surviving and flourishing despite any further” releases of ‘pure’ GM mosquitoes which still have that gene intact. She added, “the effectiveness of the system also depends on the [genetically-designed] late onset of the lethality. If the time of onset is altered due to environmental conditions … then a 3-4% [survival rate] represents a much bigger problem…”

   

  As the WHO stated in its press release, “conditions associated with this year’s El Nino weather pattern are expected to increase mosquito populations greatly in many areas.”

  Incidentally, President Obama called for a massive research effort to develop a vaccine for the Zika virus, as one does not currently exist. Brazil has now called in 200,000 soldiers to somehow help combat the virus’ spread. Aedes mosquitoes have reportedly been spotted in the U.K. But perhaps the most ironic — or not — proposition was proffered on January 19, by the MIT Technology Review:

  “An outbreak in the Western Hemisphere could give countries including the United States new reasons to try wiping out mosquitoes with genetic engineering.

   

  “Yesterday, the Brazilian city of Piracicaba said it would expand the use of genetically modified mosquitoes …

   

  “The GM mosquitoes were created by Oxitec, a British company recently purchased by Intrexon, a synthetic biology company based in Maryland. The company said it has released bugs in parts of Brazil and the Cayman Islands to battle dengue fever.”

  

  

  

  

• Dallas Fed "Responds" To Zero Hedge FOIA Request

  Two weeks ago, Zero Hedge reported an exclusive story corroborated by at least two independent sources, in which we informed our readers that members of the Dallas Federal Reserve had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.

  The Dallas Fed took the opportunity to respond (on Twitter), when in a tersely worded statement it said the following:

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

  — Dallas Fed (@DallasFed) January 18, 2016

  We thanked the Fed for answering even if its response was in itself a lie, and further since we fully stood by our story, we asked the Federal Reserve chaired by Goldman Sachs veteran, Robert Kaplan, to answer several follow up questions regarding this matter which is of significant public interest.  To wit:

  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, met with U.S. bank and other lender management teams in recent weeks/months and if so what was the purpose of such meetings?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, requested that banks and other lenders present their internal energy loan books and loan marks for Fed inspection in recent weeks/months?
  • Has the Dallas Fed, or any other members and individuals of the Federal Reserve System, discussed options facing financial lenders, and other creditors, who have distressed credit exposure including but not limited to:
    • avoiding defaults on distressed debtor counterparties?
    • encouraging asset sales for distressed debtor counterparties?
    • advising banks to avoid the proper marking of loan exposure to market?
    • advising banks to mark loan exposure to a model framework, one created either by the creditors themselves or one presented by members of the Federal Reserve network?
    • avoiding the presentation of public filings with loan exposure marked to market values of counterparty debt?
  • Was the Dallas Fed, or any other members and individuals of the Federal Reserve System, consulted before the January 15, 2016 Citigroup Q4 earnings call during which the bank refused to disclose to the public the full extent of its reserves related to its oil and gas loan exposure, as quoted from CFO John Gerspach:

    “while we are taking what we believe to be the appropriate reserves for that, I’m just not prepared to give you a specific number right now as far as the amount of reserves that we have on that particular book of business. That’s just not something that we’ve traditionally done in the past.”

  • Furthermore, if the Dallas Fed, or any other members and individuals of the Federal Reserve system, were not consulted when Citigroup made the decision to withhold such relevant information on potential energy loan losses, does the Federal Reserve System believe that Citigroup is in compliance with its public disclosure requirements by withholding such information from its shareholders and the public?
  • If the Dallas Fed does not issue “such” guidance to banks, then what precisely guidance does the Dallas Fed issue to banks?

  We assumed (correctly) there would be no Twitter, or any other unofficial response to this list of questions, which is why two weeks ago we, in collaboration with several readers (due to obvious reverse FOIA purposes), also requested an official response from the Fed through a Freedom Of Information Act submission. Surely if the Fed would go so far as to call us liars, it would have no problem either responding or providing the required information.

  This is what we got back.

  

  We appreciate the “response.”

  With regard to [1] and [2], we find it disturbing that the Dallas Fed not only does not keep internal logs of who visits the Fed (or whom the Fed visits), but especially that there is no internal log of whom the President meets with as part of ordinary course of business.

  This is troubling when one considers that as part of its routine disclosures, the NY Fed not only keeps a detailed log of the President’s daily schedules but also makes them publicly available each quarter (link to the most recent one). One wonders how the Board, and the president, holds itself “reasonably” accountable to the public if there is no internal record at all of any in house meetings, which clearly become a relevant topic in issues such as this.

  As for [3], we will gladly readdress the question in the proper semantic protocol, and will follow back with another FOIA requesting the explicit financial records of bank energy loan books which the Fed has collected as part of its recent diligence efforts to uncover which banks are underreserved, the same diligence that prompted the Fed to pursue the procedure that prompted our article in the first place, a procedure which the Dallas Fed alleges “there is no truth” to.

  We look forward to discovering what excuse the Dallas Fed will provide to not supply the requested information in that particular FOIA request.

  

  

  

  

  

• OPEC Production Cut News Dominates the Oil Market, Jan. 29, 2016 (Video)

  By EconMatters

   

  It seems we may have bottomed in the oil market, and a lot of shorts are starting to get nervous considering their large short trading book right now. Can you say “Short Squeeze”?

   

   

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

  

  

  

  

• Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens

  With Citi's chief economist proclaiming "only helicopter money can save the world now," and the Bank of England pre-empting paradropping money concerns, it appears that Australia's largest investment bank's forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a "basic monthly income" for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job.

  The plan, as The Daily Mail reports, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not.  But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5.

  Under the proposed initiative, each adult would receive $2,500 per months, and each child would also receive 625 francs ($750) a month.

   

  The federal government estimates the cost of the proposal at 208 billion francs ($215 billion) a year.

   

  Around 153 billion francs ($155 bn) would have to be levied from taxes, while 55 billion francs ($60 bn) would be transferred from social insurance and social assistance spending.

  That is 30% of GDP!!!

  The action committee pushing the initiative consists of artists, writers and intellectuals, including publicist Daniel Straub, former federal government spokesman Oswald Sigg and Zurich rapper Franziska Schläpfer (known as “Big Zis”), the SDA news agency reported. Personalities supporting the bid include writers Adolf Muschg and Ruth Schweikert, philosopher Hans Saner and communications expert Beatrice Tschanz. The group said a new survey showed that the majority of Swiss residents would continue working if the guaranteed income proposal was approved.

  'The argument of opponents that a guaranteed income would reduce the incentive of people to work is therefore largely contradicted,' it said in a statement quoted by The Local.

   

  However, a third of the 1,076 people interviewed for the survey by the Demoscope Institute believed that 'others would stop working'.

   

  And more than half of those surveyed (56 percent) believe the guaranteed income proposal will never see the light of day.

  The initiative’s backers say it aims to break the link between employment and income, with people entitled to guaranteed income regardless of whether they work.

  Or put another way – break the link between actually having to work for anything ever again… but maybe this "group of itellentuals" should hark Margaret Thatcher's words that "eventually you run out of other people's money!!"

  *  *  *

  As we previously detailed, support is growing around the world for such spending to be funded by “People’s QE.” The idea behind “People’s QE” is that central banks would directly fund government spending… and even inject money directly into household bank accounts, if need be. And the idea is catching on.

  Already the European Central Bank is buying bonds of the European Investment Bank, an E.U. institution that finances infrastructure projects. And the new leader of Britain’s Labor Party, Jeremy Corbyn, is backing a British version of this scheme.

   

  That’s the monster coming to towns and villages near you! Call it “overt monetary financing.” Call it “money from helicopters.” Call it “insane.” 

   

  But it won’t be unpopular. Who will protest when the feds begin handing our money to “mid- and low-income households”?

  Simply put, The Keynesian Endgame is here… as  the only way to avoid secular stagnation (which, for the uninitiated, is just another complicated-sounding, economist buzzword for the more colloquial “everything grinds to a halt”) is for central bankers to call in the Krugman Kraken and go full-Keynes.

  Rather than buying assets, central banks drop money on the street. Or even better, in a more modern and civilised fashion, credit our bank accounts! That, after all, may be more effective than buying assets, and would not imply the same transfer of wealth as previous or current forms of QE. Indeed, ‘helicopter money’ can be seen as permanent QE, where the central bank commits to making the increase in the monetary base permanent.

   

  Again, crediting accounts does not guarantee that money will be spent – in contrast to monetary financing where the newly created cash can be used for fiscal spending. And in many cases, such policy would actually imply fiscal policy, as most central banks cannot conduct helicopter money operations on their own.

   

  …

   

  So again, the thing to realize here is that this has moved well beyond the theoretical and it's not entirely clear that most people understand how completely absurd this has become (and this isn't necessarily a specific critique of SocGen by the way, it's just an honest look at what's going on). At the risk of violating every semblance of capital market analysis decorum, allow us to just say that this is pure, unadulterated insanity. There's not even any humor in it anymore.

   

  You cannot simply print a piece of paper, sell it to yourself, and then use the virtual pieces of paper you just printed to buy your piece of paper to stimulate the economy. There's no credibility in that whatsoever, and we don't mean that in the somewhat academic language that everyone is now employing on the way to criticizing the Fed, the ECB, and the BoJ.

  And it will end only one way…

  The monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds and drops the money into household bank accounts, the central bank buys the new bonds and promptly buries them in the bank's balance sheet as an asset.

   

  The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues.

   

  But the downsides of helicopter money are never mentioned, of course. Like QE (i.e. monetary stimulus), fiscal stimulus (helicopter money) will be sold as a temporary measure that quickly become permanent, as the economy will crater the moment it is withdrawn.

  The temporary relief turns out to be, well, heroin, and the Cold Turkey withdrawal, full-blown depression.

  

  

  

  

  

• Indictment Looms As FBI Declares 22 Clinton Home-Server Emails "Top Secret"

  Just as we warned, and she must have known, it appears at least 22 of the emails found on Hillary Clinton’s private email server have been declared “top secret” by The FBI (but will not be releasing the contents) according to AP.

  Clinton has insisted she never sent or received information on her personal email account that was classified at the time. No emails released so far were stamped “CLASSIFIED” or “TOP SECRET,” but reviewers previously had designated more than 1,000 messages at lower classification levels for public release. Friday’s will be the first at the top secret level.

  And because the administration believes strongly in transparency and accountability, you won’t get any information about just what kind of state secrets were passed on a non-secure server:

  • STATE DEPT WON’T SPEAK ON CONTENT OF TOP SECRET E-MAILS: KIRBY
  • KIRBY: SOME CLINTON-OBAMA E-MAIL EXCHANGES ARE BEING WITHHELD

  As AP reports,

  The Obama administration is confirming for the first time that Hillary Clinton’s unsecured home server contained some closely guarded secrets, including material requiring one of the highest levels of classification.

   

  The revelation comes just three days before the Iowa presidential nominating caucuses in which Clinton is a candidate.

   

  The State Department will release more emails from Clinton’s time as secretary of state later Friday.

   

  But The Associated Press has learned that 7 email chains are being withheld in full for containing “top secret” material.

   

  The 37 pages include messages recently described by a key intelligence official as concerning so-called “special access programs” — a highly restricted subset of classified material that could point to confidential sources or clandestine programs like drone strikes or government eavesdropping.

   

  Department officials wouldn’t describe the substance of the emails, or say if Clinton had sent any herself.

   

  Spokesman John Kirby tells the AP that no judgment on past classification was made. But the department is looking into that, too.

  For those that Clinton only read, and didn’t write or forward, she still would have been required to report classification slippages that she recognized.

  Possible responses for classification infractions include counseling, warnings or other action, State Department officials said, though they declined to say if these applied to Clinton or senior aides who’ve since left the department. The officials weren’t authorized to speak on the matter and spoke on condition of anonymity.

  However, as we previously noted, the implications are tough for The DoJ – if they indict they crush their own candidate’s chances of the Presidency, if they do not – someone will leak the details and the FBI will revolt… The leaking of the Clinton emails has been compared to as the next “Watergate” by former U.S. Attorney Joe DiGenova this week, if current FBI investigations don’t proceed in an appropriate manner. The revelation comes after more emails from Hilary Clinton’s personal email have come to light.

  “[The investigation has reached] a critical mass,” DiGenova told radio host Laura Ingraham when discussing the FBI’s still pending investigation. Though Clinton is still yet to be charged with any crime, DiGenova advised on Tuesday that changes may be on the horizon. The mishandling over the classified intelligence may lead to an imminent indictment, with DiGenova suggesting it may come to a head within 60 days.

  “I believe that the evidence that the FBI is compiling will be so compelling that, unless [Lynch] agrees to the charges, there will be a massive revolt inside the FBI, which she will not be able to survive as an attorney general,” he said.

   

  “The intelligence community will not stand for that. They will fight for indictment and they are already in the process of gearing themselves to basically revolt if she refuses to bring charges.”

  The FBI also is looking into Clinton’s email setup, but has said nothing about the nature of its probe. Independent experts say it is highly unlikely that Clinton will be charged with wrongdoing, based on the limited details that have surfaced up to now and the lack of indications that she intended to break any laws.

  “What I would hope comes out of all of this is a bit of humility” and an acknowledgement from Clinton that “I made some serious mistakes,” said Bradley Moss, a Washington lawyer who regularly handles security clearance matters.

  Legal questions aside, it’s the potential political costs that are probably of more immediate concern for Clinton. She has struggled in surveys measuring her perceived trustworthiness and an active federal investigation, especially one buoyed by evidence that top secret material coursed through her account, could negate one of her main selling points for becoming commander in chief: Her national security resume.

  

  

  

  

  

• Former Citi Trader Exposes How Wall Street Came To Own The Clintons

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Former FX trader at Citigroup, Chris Arnade, just penned a poignant and entertaining Op-ed at The Guardian detailing how Wall Street came to own the Democratic Party via the Clintons over the course of his career. While anyone reading this already knows how completely bought and paid for the Clintons are by the big financial interests, the article provides some interesting anecdotes as well as a classic quote about a young Larry Summers.

  Here are some choice excerpts from the piece:

  I owe almost my entire Wall Street career to the Clintons. I am not alone; most bankers owe their careers, and their wealth, to them. Over the last 25 years they – with the Clintons it is never just Bill or Hillary – implemented policies that placed Wall Street at the center of the Democratic economic agenda, turning it from a party against Wall Street to a party of Wall Street.

   

  That is why when I recently went to see Hillary Clinton campaign for president and speak about reforming Wall Street I was skeptical. What I heard hasn’t changed that skepticism. The policies she offers are mid-course corrections. In the Clintons’ world, Wall Street stays at the center, economically and politically. Given Wall Street’s power and influence, that is a dangerous place to leave them.

   

  The administration’s economic policy took shape as trickle down, Democratic style. They championed free trade, pushing Nafta. They reformed welfare, buying into the conservative view that poverty was about dependency, not about situation. They threw the old left a few bones, repealing prior tax cuts on the rich, but used the increased revenues mostly on Wall Street’s favorite issue: cutting the debt.

   

  Most importantly, when faced with their first financial crisis, they bailed out Wall Street.

   

  That crisis came in January 1995, halfway through the administration’s first term. Mexico, after having boomed from the optimism surrounding Nafta, went bust. It was a huge embarrassment for the administration, given the push they had made for Nafta against a cynical Democratic party.

   

  Money was fleeing Mexico, and much of it was coming back through me and my firm. Selling investors’ Mexican bonds was my first job on Wall Street, and now they were trying to sell them back to us. But we hadn’t just sold Mexican bonds to clients, instead we did it using new derivatives product to get around regulatory issues and take advantages of tax rules, and lend the clients money. Given how aggressive we were, and how profitable it was for us, older traders kept expecting to be stopped by regulators from the new administration, but that didn’t happen.

   

  When Mexico started to collapse, the shudders began. Initially our firm lost only tens of millions, a large loss but not catastrophic. The crisis however was worsening, and Mexico was headed towards a default, or closing its border to money flows. We stood to lose hundreds of millions, something we might not have survived. Other Wall Street firms were in worse shape, having done the trade in a much bigger size. The biggest was rumored to be Lehman, which stood to lose billions, a loss they couldn’t have survived.

   

  As the crisis unfolded, senior management traveled to DC as part of a group of bankers to meet with Treasury officials. They had hoped to meet with Rubin, who was now Treasury secretary. Instead they met with the undersecretary for international affairs who my boss described as: “Some young egghead academic who likes himself a lot and is wide eyed with a taste of power.” That egghead was Larry Summers who would succeed Rubin as Treasury Secretary.

   

  The bailout worked, with Mexico edging away from a crisis, allowing it to repay the loans, at profit. It also worked wonders on Wall Street, which let out a huge sigh of relief.

   

  The success encouraged the administration, which used it as an economic blueprint that emphasized Wall Street. It also emphasized bailouts, believing it was counterproductive to let banks fail, or to punish them with losses, or fines or, God forbid, charge them with crimes, and risk endangering the economy.

   

  The use of bailouts should have also been a reason to heavily regulate Wall Street, to prevent behavior that would require a bailout. But the administration didn’t do that; instead they went the opposite direction and continued to deregulate it, culminating in the repeal of Glass Steagall in 1999.

   

  It changed the trading floor, which started to fill with Democrats. On my trading floor, Robert Rubin, who had joined my firm after leaving the administration, held traders attention by telling long stories and jokes about Bill Clinton to wide-eyed traders.

   

  Wall Street now had both political parties working for them, and really nobody holding them accountable. Now, no trade was too aggressive, no risk too crazy, no behavior to unethical and no loss too painful. It unleashed a boom that produced plenty of smaller crisis (Russia, Dotcom), before culminating in the housing and financial crisis of 2008.

  But hey…

  

  For related articles on Hillary’s long standing Wall Street love affair, see:

  Peak Desperation – Clinton Campaign Deploys Strategist for Wall Street Mega Banks to Attack Bernie Sanders

  A New Low – Hillary Clinton Claims 9/11 is the Reason She’s Owned by Wall Street

  COMPROMISED – How Two of Hillary Clinton’s Top Aides Received Golden Parachutes from Wall Street

  Who’s the Real Progressive? A Side by Side Comparison of Bernie Sanders and Hillary Clinton’s Lifetime Donors

  Here Come the Cronies – Buffett and Blackstone President Launch $33,400 a Plate Hillary Clinton Fundraiser

  

  

  

  

• BofA Presents The 4 "D's" Of Deflationary Doom

  Going into Friday, Japanese monetary policy already stood out as the most egregious example of Keynesian insanity the market has ever witnessed.

  You’ll recall the central bank is monetizing the entirety of gross JGB issuance and is on a lunatic quest to own the entire ETF market.

  But the BoJ still hadn’t gone full-Krugman by taking rates negative. That changed overnight when the bank took the NIRP plunge as Haruhiko Kuroda reminded the world that when it comes to maniacal monetary policy, no one does it like he does.

  Why is NIRP necessary in Japan? The same reason it’s necessary in Europe and the same reason ZIRP had to hang around in the US for eight years: inflation. Or, more specifically, a lack of inflation.

  Japan has been stuck in the deflationary doldrums for as long as some Wall Street rookies have been alive and Europe has bounced around in deflation on several occasions of late although data out today showed eurozone inflation “soaring” 0.4%.

  So what gives? How much damn fiat money do the Kurodas and Yellens and Draghis of the world have to print before inflation picks up? Are central bankers contributing to the problem by destroying creative destruction and thus perpetuating the global deflationary supply glut?

  The problem, BofA’s Michael Hartnett says, can be traced to the “Deflationary D’s”: debt, deleveraging, demographics, disruption. Read on to discover why “the nominal GDP of the industrialized world has grown just 4.1% since the lows of Q1’2009, one of the tiniest, deflationary expansions ever. “

  *  *  *

  From BofA

  The nominal GDP of the industrialized world has grown just 4.1% since the lows of Q1’2009, one of the tiniest, deflationary expansions ever. And while asset prices are up significantly since their 2008/09 lows, the underlying message from Wall Street in recent years (underperformance of bank stocks – see Chart 1, stubbornly low government bond yields, all-time relative highs in “high quality” stocks, and sustained outperformance of “growth” stocks over “value” stocks) has been doggedly deflationary.

  
  

   The Deflationary “D’s”

  Why has an almost manic monetary policy been so ineffective at generating a broad, sustained economic recovery, or at least alleviating the threat of deflation? Secular factors, most obviously the 4 deflationary “D’s” of excess Debt, financial sector Deleveraging, aging Demographics and tech Disruption have played a major role:

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

  And while all are secular in nature, the deflationary D’s have also impacted the economic cycle in recent quarters: excess Debt and financial sector Deleveraging have exacerbated problems in China, energy and credit markets; tech Disruption has been a massive factor in the collapse in the oil price; aging Demographics and tech Disruption have played a role in the desire of the Consumer to save rather than spend in the past 18 months.

  Indeed, even in the US, the ease with which debt, deleveraging, demographics and disruption have nullified the strong tailwinds of low mortgage rates, low unemployment rates and collapsing gas prices, thus resulting in higher household savings rates, has surprised many. It certainly goes far in explaining the “deflationary” nature of the economic expansion, the wage inequality and insecurity associated with this decade, as well as the rise in political populism across the western world.

  *  *  *

  We suppose that at some point, policy makers will heed the (loud) calls for helicopter money and once the cash paradropping begins, we’ll see you in the Weimar Republic.

  

  

  

  

  

• Who Can Afford The American Dream? "Rental Rates Have Reached Apocalyptic Levels"

  Submitted by Mac Slavo via SHTFPlan.com,

  Skyrocketing costs and shrinking opportunity are meeting head on with full on economic disaster. The Dude, Where’s My Stuff? generation doesn’t have much motivation to go on for growing up and getting their life together these days.

  Record numbers are out of the work force; record numbers are living with their parents in the basement; record numbers are losing the battle of return on investment with higher education – purchased with burdensome loans – in order to attain better employment and stability. Rising costs are hitting home owners and renters alike, with a real squeeze coming down on those just starting out.

  And all of that is driving the economy to the brink.

  That American Dream thing is a going up in smoke. Upward mobility has stalled, and stagnation is setting in.

  It is becoming apparent that a lost generation is upon us, and the Americans of tomorrow may not even have a meager concept of what this country stood for, because their lives will be so completely desolate and controlled.

  A Forbes columnist asked the question: Can Millennials Afford The American Dream? Forbes’ Kerri Zane writes:

  The local radio news station in Los Angeles recently reported that the rental rates in this city have reached apocalyptic levels. So it stands to reason the next best step is to purchase a home. Easier said than done, particularly for millennials.

   

  At the end of last year my 25-year-old daughter and I were discussing this issue. She and her live-in boyfriend had been exploring the notion, but with the median home price in Los Angeles exceeding $500,000.00, it is completely out of reach for them. Between juggling school loan payoffs and each working in the freelance world of entertainment, saving for a down payment and/or qualifying for a mortgage, in this day and age, is tough.

   

  […]

   

  Over the last 20 plus years I have watched as the cost of living in the U.S., and more specifically Los Angeles, steadily climbed. It became apparent, without a doubt, that if my daughters (I have two) were going to have a home, it would be up to mom to help them.

   

  Before you rush to judgement about my children’s work ethic or my parenting style… look at the stats… home affordability will decline through-out 2016 by 4 to 5%. We all know that at the end of 2015 the feds increased mortgage rates, and real estate pundits predict home prices will continue to appreciate at 3 to 4%… the cost of  in-state tuition and fees at public four-year institutions have increased at an average rate of 3.4% per year beyond inflation.

  These kids are stuck between a rock and a hard place.

  It is a pertinent question for this generation. Will there be security and prosperity for those who are willing to work hard?

  Basically, all the trends are headed in the wrong direction for a healthy society.

  Demographically, people are falling in on themselves.

  The Pew Research Center conducted a study in 2012 on the rising number of millennials living with their parents, and the reasons contributing to the decline:

  In 2012, 36% of the nation’s young adults ages 18 to 31—the so-called Millennial generation—were living in their parents’ home, according to a new Pew Research Center analysis of U.S. Census Bureau data. This is the highest share in at least four decades and represents a slow but steady increase over the 32% of their same-aged counterparts who were living at home prior to the Great Recession in 2007 and the 34% doing so when it officially ended in 2009.

   

  A record total of 21.6 million Millennials lived in their parents’ home in 2012, up from 18.5 million of their same aged counterparts in 2007. Of these, at least a third and perhaps as many as half are college students.

   

  […]

   

  Since the onset of the 2007-2009 recession, both age groups have experienced a rise in this living arrangement.

   

  […]

   

  The steady rise in the share of young adults who live in their parents’ home appears to be driven by a combination of economic, educational and cultural factors. Among them:

   

  Declining employment. … Rising college enrollment. … Declining marriage.

  And that’s just for those who were willing to give things a try.

  The rest are on the dole, and bulging the size and scope of federal government even further, and millions falling to the bottom are looking to the government as a parental figure and savior – who dispenses benefits and can “take care of” them.

  A wave of unemployment, and those who have permanently dropped out of the work force and all appearances of looking for work, is setting in. And things don’t look pretty from there.

  

  

  

  

  

• Negative Interest Rates Show Desperation of Central Banks

  Image: MarketWatch

  Japan has joined the EU, Denmark, Switzerland and Sweden in imposing negative interest rates.

  Indeed, more than a fifth of the world's GDP is now covered by a central bank with negative interest rates.

  The Wall Street Journal notes:

  TOKYO—Japan’s central bank stunned the markets Friday by setting the country’s first negative interest rates, in a desperate attempt to keep the economy from sliding back into the stagnation that has dogged it for much of the last two decades.

  BBC writes:

  The country is desperate to increase spending and investment.

   

  ***

   

  Japan has been desperate to boost consumer spending for years. At one point it even issued shopping vouchers to stimulate demand.

  The New York Times writes:

  Moving to negative rates reflects a measure of desperation on the part of central banks. Their traditional tools have been largely exhausted, as most countries’ interest rates have been pushed to almost nothing.

  MarketWatch’s senior markets writer, William Watts, notes:

  This might not be the sort of capitulation stock-market investors were anticipating.

   

  The Bank of Japan’s surprise decision Friday to start charging depositors for parking excess reserves at the central bank triggered a global equity rally. But several monetary policy watchers and market strategists worried that the move was an acknowledgment that the world’s central banks are running out of ammunition in the battle against deflation.

   

  “This is an interesting move that looks a lot more like desperation or novelty than it looks like a program meant to make a real difference,” said Robert Brusca, chief economist at FAO Economics.

   

  Kit Juckes, global macro strategist at Société Générale, underlined the moment in a note to clients:

   

  “First of all, forget the details, feed on the symbolism. Germany, Switzerland and Japan, the three great current account powers of the post-Bretton Woods era, whose surpluses have financed the frivolity of baby boomer Anglo-Saxons, are being told in no uncertain terms to stop saving.”

   

  Whether the strategy works or not is less important than what the decision says about global disinflationary forces, he said, which have forced the central banks to “set off on this path…following a trail of breadcrumbs as they head for the gingerbread house.”

   

  ***

   

  But others worry that the move underlines a degree of desperation and a sense that the asset purchases at the heart of global quantitative-easing strategies are running up against some important limits.

   

  ***

   

  Daiwa economists and others expect the Bank of Japan to remain under pressure to ease further. And when push comes to shove, the bank will be likely to push rates further into negative territory rather than ramp up asset purchases.

   

  “Ultimately, negative interest rates from a veteran of monetary expansion such as the BOJ mark a capitulation about the effectiveness of QE alone as an inflation-targeting tool in world of lingering growth-debt imbalances and commodity price wars,” said Lena Komileva, economist at G-plus Economics, in emailed comments.

   

  ***

   

  Banks will presumably move their deposit rates below zero in response ….

  Likewise, Bloomberg previously noted of the initiation of negative rates in the EU:

  Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders.

  And negative rates will eventually come to America.

  Central bankers are implementing negative interest rates to force savers to buy assets … so as to artificially stimulate the economy. Specifically:

  A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

  Next up: The war on cash.

  Postscript: Ironically, the Fed has gone to great lengths to DISCOURAGE banks from lending to Main Street.

   

  

  

  

  

• The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates

  As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP…

  

   

  … and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…

  

  … only to be eviscerated by the BOJ’s negative rates announcement.

  So what happened? Reuters has an amusing take, one which we doubt many macro HFs will find quite entertaining:

  Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.

  The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go horizontal and lead to even more pronounced losses, something European banks – such as Deutsche Bank – have discovered the hard way over the past year and a half.

  There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”

  In a note released this morning, Goldman itself warns that it has “concerns” about Kuroda’s act, the key one being that while it crushed many market participants, the BOJ’s action will have no benefit for the actual economy (and in fact it will end up hurting banks whose NIMs are about to pancake):

  … we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years.

   

  Of interest to us was the growth and inflation forecasts in the Outlook for Economic Activity and Prices (Outlook Report) also released on January 29. As we expected, the BOJ cut the FY2016 core CPI outlook to +0.8%, from +1.4% in October, but other growth rate and price outlooks were largely unchanged. The future benefits of changing to this historical policy regime (i.e., introducing a negative interest rate) were hardly factored in by the Policy Board despite the above explanation of the policy transmission channels made by Governor Kuroda.

   

  In our view, this suggests that the BOJ intended to affect the expectations of forex market participants with a bold and surprising announcement. As we mentioned above, Governor Kuroda had continuously rejected the possibility of cutting interest rates in the Diet and other public forums until only recently. Governor Kuroda may have spotted a chance to surprise at the January 29 MPM having seen a substantial decline in market expectations for an interest rate cut as a result of this. He declared that the BOJ is prepared to lower the interest rate further into negative territory if it decided this was necessary, and introduced examples of countries with large negative interest rates such as Switzerland (-0.75%) and Sweden (-1.1%). We believe this was also intended to keep expectations alive in the forex market going forward.

  Translated, this means that just like China’s central bank, which in recent weeks has been panicking over how to scare currency speculators away from shorting its currency too far, and thus unleashing a surge in capital outflows (which as we wrote yesterday are estimated to have hit a near record $185 billion in January), the BOJ is likewise scrambling to prevent aggressive shorting of the JPY, and now that it has unleashed NIRP will use it as the “backstop bazooka” that can be used at any given moment when the USDJPY gets too low, spooking speculators and other hedge funds who have ironically been the biggest beneficiaries from BOJ policies.

  But how did Draghi get the idea to engage in NIRP specifically as the? Reuters writes that it all started precisely a week ago: on Jan. 21, a day before flying out for the annual World Economic Forum in Davos, Kuroda told Japan’s parliament he was not considering negative interest rates. But he quietly told his staff to come up with several options in case the BOJ eased.“

  Of course, our staff knew that several central banks have adopted negative interest rates, so they’ve been analyzing the step for some time,” Kuroda said at a news conference on Friday. “They raised it as one of the options, which we discussed at today’s meeting.”

   

  By the time Kuroda returned from Davos, BOJ staff were ready to propose negative rates, taking a leaf from the European Central Bank’s book. “The ECB showed that combining QE and negative interest rates can work,” one BOJ official said. “It was just a question of overcoming some technical difficulties.”

  Which at least superficially makes sense: one can be wrong, but if the right intentions are good – it can be excused. But the punchline that should leave everyone speechless is that it wasn’t even the right intention. Instead, it was this:

  People close to Kuroda say that Davos – where he mingled with central bankers such as ECB President Mario Draghi and leading company executives – likely prompted him to pull the trigger. “Davos is really important. Many central bank governors change their perception of things there,” said one central bank policymaker who has regular interaction with Kuroda.

  In other words, it was peer pressure by other, just as desperate central bankers, that forced Kuroda to act!

  Actually, it’s even worse than that, because that is just half of the story. Here is the other half, again thanks to Reuters:

  “When stocks are falling this much, it’s hard to justify not acting,” said one of the individuals, who has occasional contact with Kuroda.

  And there you have it: stocks are dropping, so central banks must intervene, just as they have done from day one. Just as Draghi did most recently on December 4 when asked if his speech was meant to talk up markets: recall the exchange: “was today’s speech deliberately designed to try offset some of the reaction yesterday?” to which Draghi’s response was legendary: “Not really… well, of course.“

  This was followed by loud laughter, and why not: Draghi had succeeded in pushing stocks higher, if only for the time being.

  Just like Kuroda has done today. Alas, just like in December, the laughter won’t last. First, as MarketWatch notes, “The move does speak to a certain degree of desperation.”

  Finally, there’s this disturbing bit from Goldman’s take of the BOJ’s decision:

  Regarding the Introduction of Supplementary Measures for Quantitative and Qualitative Monetary Easing announced at the December 2015 MPM, we believe the BOJ thinks that JGB purchases will have reached their technical limit in quantitative terms eventually, and it is highly likely it was a last-ditch measure to somehow maintain the current pace of purchases for some time. If not, we would have expected the BOJ not to introduce a negative interest rate this time either and to have opted instead to further increase JGB purchases.

  And when none other than Goldman Sachs says the Bank of Japan engaged in a “last-ditch measure” it may be time to panic.

  

  

  

  

  

• Bank of Japan Policy Panic Unleashes Stock, Bond Buying Pandemonium

  Some soothing month-end meditation…

   

  So let's start with today's idiocy… US equities driven by fundamentals!!

  • *S&P 500 EXTENDS GAIN TO 2.1%, HEADED FOR BEST DAY SINCE SEPT.8

  

   

  But here is some context for January's moves…

  For China…

  

   

  Worst ever…

  

   

  For US markets – apart from 2009's collapse, this is the worst January ever… Saved by today's total panic!

  

   

  But bonds had a great one!!

  

  This is Gold's 3rd January up in a row (and 8th of the last 11 years)…

  

   

  Across asset-classes, Bonds & Bullion did well, stocks and crude not so much…

  

   

  Small Caps underperformed while the S&P was the least bad performer…

  

   

  FANTAsy stocks are all down aside from FB – with TSLA and NFLX down over 20%…

  

   

  Bond yields are down across the curve… The belly (5Y and 7Y yield) outperformed – down a stunning 40-45bps on the month…

  

   

  So not an awsesome month but hey… what a week right!!

  *  *  *

  On the week…even Nasdaq managed to get green despite AAPL and AMZN collapse…

  

   

  Energy stocks simply exploded higher off Monday's lows…

  

   

  Bonds & Stocks were bid…

  

   

  With Treasury yields down 12-15bps on the week (though 30Y oddly underperformed)

  

   

  The USDollar Index soared back to unchanged on the week after BoJ's idiocy…

  

   

  Commodities all gained on the week with crude and copper best…

  

   

  Finally today…

  Total panic buying…

  

   

  Yeah this really happened!!! 3000 points of swing in Nikkei 225

  

   

  Creating a giant squeeze in US equities…

  

   

  Well it is Friday after all…

  

   

  And when does this ever end well for stocks?

  

   

  Charts: Bloomberg

  Bonus Chart: An awkward reality check…

  A year ago, Q4 Earnings for the Energy Sector were expected to be -1.8%. Today: -74.1%. #LeverageKills

  — Not Jim Cramer (@Not_Jim_Cramer) January 29, 2016

  

  

  

  

• Meanwhile In Canada, A Real Estate Bargain Emerges…

  We’ve long known that Canada, like Sweden and Denmark, is sitting on a giant housing bubble.

  Indeed we took a close look at the issue back in March of last year and have revisited in on several occasions since. Put simply, the divergence between crude prices and the country’s housing market simply isn’t sustainable a you can see from the following chart:

  

  And while the boom is rapidly turning to bust in places like Calgary, things are humming right along in Waterloo, where Napoleon was defeated in 1815. No, wait – wrong Waterloo. This is Waterloo, Ontario, a town of 140,000 that’s being billed as “Canada’s Silicon Valley.”

  As Bloomberg reports, “the town revolves around two universities and a burgeoning technology sector that’s attracted companies such as Google Inc. and dozens of startups.” Here’s a look inside the Kitchener-Waterloo Google office:

  The buzz has created a “land grab” and now, condos are renting for nearly C$2,000 per month while one-bedroom units are selling for more than a quarter of a million dollars.

  Vacancy rates are at 13-year lows and Google’s country manager for Canada calls the city “lightning in a bottle.”

  If that sounds like a bubble to you, you’d be correct but some investors don’t see it that way.

  Take Bill Ring for instance, head of operations for a property management company who Bloomberg notes drove two hours to Toronto to attend a rowdy sales pitch for condos in Waterloo put on by a Bay Street trader turned-tech investor, turned-real estate mogul. “Students are coming in and need a place to live, tech companies are opening. It’ll all drive the value up,” he says. “I don’t want to invest in stocks because they’re crazy and real estate is a solid, safe investment.“

  Yes, Bill wants a “solid, safe investment” that isn’t “crazy.”

  Like Canadian real estate.

  Which definitely isn’t a bubble.

  After all, if the housing market in Canada were overheating, you wouldn’t be able to get “bargains” like the listing shown below from Vancouver.

  

  

  h/t @penultsquire

  Good luck Bill.

  

  

  

  

  

• Weekend Reading: Mental Floss

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Over the last couple of week’s most of the weekend reading list has been attributed to the market’s stumble since the beginning of this year. Importantly, as we rapidly head into January’s close, there seems to be little to reverse the negative tide sweeping through the market.

  As I wrote earlier this week, this isn’t a good thing.

  “It would seem logical that a weak performance in January would lead to some recovery in February. Markets are oversold, sentiment is bearish and February is still within the seasonally strong 6-months of the year. Makes sense.

   

  Unfortunately, the historical data suggests that this will likely not be the case. The chart below is the historical point gain/loss for January and February back to 1957. Since 1957, there have been 20 January months that have posted negative returns or 33% of the time.”

  

  “February has followed those 20 losing January months by posting gains 5-times and declining 14-times. In other words, with January likely to close out the month in negative territory, there is a 70% chance that February will decline also.

   

  The high degree of risk of further declines in February would likely result in a confirmation of the bear market. This is not a market to be trifled with. Caution is advised.”

  In other words, there is a real probability that if the markets don’t get a lift between now and the end of the month, February could be the beginning of a technical bear market decline.

  But were could that lift come from? The first is month-end window dressing by fund managers after a brutal start to the new year. After much liquidation, fund managers will need to rebalance holdings.

  The second is the potential for Central Banks to intervene which could embolden the bulls as further support could temporarily delay the onset of a bear market and recession. Note: I said temporarily. Pulling forward future consumption is not a long-term solution to organic economic growth. 

  Not to be disappointed, the BOJ announced a move into NEGATIVE interest rate territory to try and boost economic growth in Japan. (Interestingly, however, was the lack of increase in QE.) The announcement was a shock to the markets as the BOJ had just stated last week that negative interest rates were not being considered. Here are some early takes on the BOJ’s move:

  • World shares heat up as Bank of Japan goes sub-zero (Reuters)
  • Stocks Rally With Bonds as BOJ Ends Grim January on High Note (BBG)
  • Japan Follows Europe Into Negative Interest Rate Territory (WSJ)
  • BOJ Move Resulting In Currency Wars & Global Slowdown (ZeroHedge)

  That move, on top of the latest FOMC meeting, more market turmoil and bond yields flip-flopping around 2%, has made this a most interesting week. Here are some of the things I am reading this weekend.

  ---

  1) Why Junk Bonds Will Sink Stocks Further by Yves Smith via Naked Capitalism

  “Investment lore is full of sayings as to how the bond markets can send false positives about lousy prospects for the real economy and the stock market. However, as Wolf sets forth below, a new Moody’s article makes a compelling case as to why the high risk spreads in the junk bond market bode ill for the stock market.”

   

  

  But Also Read:  Credit Cycle In Full Collapse Mode by Myrmikan Research

  And Read: We Should Be Terrified By Junk Bonds by Rana Foroohar via Time

  2) If It’s A Bear Market, It Ain’t Over by Joe Calhoun via Alhambra Partners

  “The real enemy of investors is not these fairly routine 10 or 20% downturns. The real enemy is the bear market that is associated with a recession or crisis, the one that knocks your equity block down by 40 or 50%. And actually it isn’t even the depth that is the real enemy. For most investors the enemy is time.”

  But Also Read: El-Erian: Day Of Reckoning Coming by Mohamed El-Erian via CNBC

   

  Opposing View: Don’t Do Anything, Just Stand There by Wade Slome via Investing Caffeine

  And Also: What Investors Shouldn’t Do In A Bear Market by Peter Hodson via Financial Post

  3) 34 Charts: This Time Is Different by Will Ortel via CFA Institute

  “In October, I asked whether the market could have its cake and eat it too. The hope was for persistent low interest rates and consistently appreciating securities.

  Somebody seems to have remembered cake doesn’t work that way.

   

  According to some, this buying opportunity is brought to you by the letter “C”: China, commodities, and the now questionably healthy consumer. Reaching towards risk feels sensible. It’s been nearly 10 years since it wasn’t.

   

  But today, growth, like certainty, is hard to come by. We hear the word “recession” again. There have been more Google searches for the phrase “sell stocks” this month than at any time since October 2008. And January is not over.

   

  To some strategists, the writing is on the wall. I wrote recently that anyone who says they know exactly what will happen is wrong, cheating, or both. I still think that. So before getting into what I see, I want to tell you what to do: your homework. Now is the time to distinguish yourself as an investor. So as you read through everything below, remember: I’ll be disappointed if you wind up agreeing with everything I say.”

  

  Also Read: Why Dip Buyers Will Get Clobbered by David Stockman via Contra Corner

  Watch: Recession Fears Grow Louder by Heather Long via CNN Money

  <br /> >

  4) The Time To Sell Has Passed by Doug Kass via Yahoo Finance

  “The time to sell has likely passed. Those opportunities had been in place since last spring and were the outgrowth of a deteriorating fundamental and technical backdrop that many investors ignored.

   

  But while I have a more-constructive market view for the short term my confidence level isn’t high. In a fragile-growth setting, too much can upset the apple cart.”

  Also Read: Sellers Are Still In Control by Michael Kahn via Barron’s

  Further Read: It Wasn’t Oil, China Or The Fed by James Juliand via RTW

  5) Feldstein: Let Markets Fall, Fed Should Hike Rates by Greg Robb via Market Watch

  “In an interview with MarketWatch, Feldstein said stocks are overvalued. Any signal from the U.S. central bank that it may pause from its plans to continue raising interest rates would only create the impression that there is a “Fed put” on the market. A put is an option that protects an investor from losses.”

  But Also Read: The Fed Doesn’t Understand Liquidity by Louis Woodhill via Real Clear Markets

  And: Did The Fed Make A Huge Mistake? by Matt O’Brien via WaPo

  ---

  MUST READS

  • Myth Of The 10 Best Days by Meb Faber via Faber Research
  • Why The “R” Word? by John Shmuel via Financial Post
  • 15 Things Productive People Do by Kevin Kruse via Forbes
  • Why Does Pessimism Sound So Smart by Morgan Housel via Motley Fool
  • Here’s Why All The Markets Are Falling by Tyler Durden via Zero Hedge
  • Where’s The CapEx Boom? by Buttonwood via The Economist
  • Don’t Say You Weren’t Warned…Again! by Michael Lebowitz via 720 Global
  • Relief Rallies Truncated By Awful Losses by John Hussman via Hussman Funds
  • What Follows The Most Epic Reach For Yield by Jesse Felder via The Felder Report
  • Will January Volatility Wreck The Year by Dana Lyons via Tumblr
  • Peak Profits by Chris Brightman via Research Affiliates

  ---

  “I can calculate the motion of heavenly bodies, but not the madness of people” – Sir Issac Newton

  

  

  

  

  

• WTF Just Happened Here?

  Early in the day, VIX spiked ‘oddly’ and instanly broke the options market…

  

   

  Prompting the start of an epic ramp in stocks:

  

   

  Which was all good and fine, until the last minute of the US day-session today, when, as a follow up question, we have just this to ask: WTF just happened here?

  

   

  Here is Central Bank XYZ’s VIX fat finger, zoomed in.

  

  When Citi warned earlier to “Be Prepared For All Sorts Of Insanity Today“, it wasn’t kidding.

  

  

  

  

  

• The BoJ "Gift" Is A One Day Reprieve – Use It Wisely

  Via Scotiabank's Guy Haselmann,

  By surprising markets with a move to a negative deposit rate, the Bank of Japan gave investors temporary reprieve, providing a much needed opportunity to pare portfolio risk at better prices.  Unfortunately, the improvement in financial asset prices will be short-lived; except, of course, for long-maturity Treasuries.

  • As I wrote on January 4^th, “Investors should be careful not underestimating just how far long-maturity Treasury yields can fall”.  These conditions still exist. 

  The BoJ action to drop its deposit rate from 0% to -0.10% will likely prove to be more symbolic than impactful.  However, it is understandable why the BoJ wanted to take action. In January, the TOPIX was down 10% and the traded-weighted Yen appreciated by 3.5%.  Currency strength and the fall in oil prices conspired to push Japan’s preferred inflation measure back into deflation.  However, if Japan (which only strips out food) stripped out energy from its measure (like other countries do), then its inflation measure would be above 1%.

  The BoJ issued a highly informative and clear 4-page explanation of its action (China could use this clarity as an example of effective communication).  It introduced a three-tiered system for rates, similar to that used in some European countries. The BoJ made it clear that the negative rate is not applied to outstanding balances of current accounts, but rather applied only to marginal increases in current account balances.

  Since the money base is growing at an annual pace of 80 trillion yen, outstanding balances of current accounts will increase on an aggregate basis.  However, in order to limit harm to earnings of financial institutions from the negative deposit rate, the BoJ will increase the tier thresholds accordingly.  In other words, the current balance to which thezero interest rate will be applied will increase, so that the threshold to which a negative interest is applied “will remain at adequate levels”.

  When a central bank hits the 0% lower bound in rates, the impact of any further unconventional easing actions is felt via a weaker currency. Therefore, the diverging policy actions between the hiking Fed and the easing BOJ and ECB, means that the upward pressure on the USD versus the Euro and Yen will continue.  The effect of a stronger dollar iscounter to the perceived and kneejerk market euphoria that arose today; and which seem to arise during easing actions.  A stronger USD will act like a magnet for global deflationary forces.  Investors beware.  

  A strengthening USD has numerous consequences. The Yuan‘s peg to the USD has certainly damaged China’s competitiveness.  The trade-weighted Yuan has dropped by over 25% during the past three years.  Moreover, Chinese wages have risen considerably in the past decade, further lowering their competitiveness.  China is no longer viewed as the world’s low-cost producer.  China is currently trying to find the tricky balance between finding new sources of growth, remaining competitive, stabilizing financial markets, and limiting capital flight.

  The move by the BoJ makes this balance more difficult. It increases the pressure on China to devalue its currency further.  However, with China’s rise as the world’s second largest economy and its acceptance into the IMF SDR basket, its global responsibility has escalated accordingly.   Currency devaluation by China (or by Japan for that matter) steals growth from the rest of the world; such action is clearly non-beneficial to US risk assets.

  • A strengthening US dollar has already damaged US corporate earnings – around 50% of S&P 500 earning comes from overseas (and global trade has dropped ominously).

  China and Emerging economies were growing above 10% in 2010, but are growing at less than 4%.  Clearly, the global economy has lost an important engine of growth.  Moreover, the world has never been more indebted and the developed world demographics are simply terrible. For several years, China’s debt has been growing at the unsustainable rate of over 2 times its GDP.  Enormous indebtedness has borrowed too much from the future. High indebtedness and low rates globally means there is far less fiscal slack or monetary ammunition with which to respond.

  The savings rate in China is 40% to 50%.  This is partially due to a lack of confidence in the future, but mainly due to China’s very poor retirement and health care programs. After several decades of the one-child policy, many Chinese are not just trying to save for their own retirements, and potential future health care costs, but are saving for two sets of grandparents who did not receive the benefits of recent wage hikes.

  Low interest rates initially cause investors to desperately search for yield.  However, eventually risk assets become too mispriced (and thus skewed to the downside).  When this occurs, portfolio preferences switch to cash alternative or ‘return of capital’ strategies.  During such an environment, the pressure on savers to save more to reach retirement goals intensifies.  If, for example, interest rates fall from 4% to 3%, an investor would have to increase savings by more than 20% each year to reach the same goal over 30 years.

  I maintain that central banks are miscalculating the non-linear cost-benefit equation of their policy actions.  Prudent investors should use today’s month-end BoJ gift to pare portfolio risks and to buy long-dated Treasuries.

  “The change, it had to come / We knew it all along / We were liberated from the fold, that’s all…” – The Who

  

  

  

  

  

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• Chaos Ensues After Nikkei Reports Bank Of Japan Discussed Negative Interest Rate Policy

  Just minutes before The BoJ is due to release its statement, USDJPY and Nikkei 225 went haywire around 2220ET as Nikkei news dropped a headline about NIRP discussions taking place at The BoJ. This is not the BoJ statement but has sparked chaos in Japanese (and all carry trade linked markets). We can only assume this was some well-placed strawman for The BoJ statement enabling Kuroda to get a glimpse of what is possible.

  Total chaos broke out ahead of the BoJ Statement…as Nikkei News dropped this headline…

  • *BOJ DISCUSSES NEGATIVE INTEREST RATE POLICY, NIKKEI SAYS

  BOJ discusses introduction of negative interest rates today at policy meeting, Nikkei reports.

  • Negative rates discussed due to growing concern of downward pressure on Japan economy and CPI because of cheap crude oil, China slowdown: Nikkei

  Nikkei 225 is up 500 points on the news, USDJPY +50 pips

  

   

  Some context for that move…

  

   

  Having given up all its gains since the last QQE update…

  

   

   

  G622

  

  

  

  

  

• Americans Really, Really Hate The Government

  Submitted by Michael Snyder via The Economic Collapse blog,

  If there is one thing that Americans can agree on these days, it is the fact that most of us don’t like the government.  CBS News has just released an article entitled “Americans hate the U.S. government more than ever“, and an average of recent surveys calculated by Real Clear Politics found that 63 percent of all Americans believe the country is heading in the wrong direction and only 28 percent of all Americans believe that the country is heading in the right direction.  In just a few days the first real ballots of the 2016 election will be cast in Iowa, and up to this point the big story of this cycle has been the rise of “outsider” candidates that many of the pundits had assumed would never have a legitimate chance.  Donald Trump, Ted Cruz and Bernie Sanders have all been beneficiaries of the overwhelming disgust that the American people feel regarding what has been going on in Washington.

  And it isn’t just Barack Obama or members of Congress that Americans are disgusted with.  According to the CBS News article that I referenced above, our satisfaction with various federal agencies has fallen to an eight year low…

  A handful of industries are those “love to hate” types of businesses, such as cable-television companies and Internet service providers.

   

  The federal government has joined the ranks of the bottom-of-the-barrel industries, according to a new survey from the American Customer Satisfaction Index. Americans’ satisfaction level in dealing with federal agencies –everything from Treasury to Homeland Security — has fallen for a third consecutive year, reaching an eight-year low.

  So if we are all so fed up with the way that things are running, it should be easy to fix right?

  Unfortunately, things are not so simple.

  In America today, we are more divided as a nation than ever.  If you ask 100 different people how we should fix this country, you are going to get 100 very different answers.  We no longer have a single shared set of values or principles that unites us, and therefore it is going to be nearly impossible for us to come together on specific solutions.

  You would think that the principles enshrined in the U.S. Constitution should be able to unite us, but sadly those days are long gone.  In fact, the word “constitutionalist” has become almost synonymous with “terrorist” in our nation.  If you go around calling yourself a “constitutionalist” in America today, there is a good chance that you will be dismissed as a radical right-wing wacko that probably needs to be locked up.

  The increasing division in our nation can be seen very clearly during this election season.

  On the left, an admitted socialist is generating the most enthusiasm of any of the candidates.  Among many Democrats today, Hillary Clinton is simply “not liberal enough” and no longer represents their values.

   

  On the other end of the spectrum, a lot of Republican voters are gravitating toward either Donald Trump or Ted Cruz.  Both of those candidates represent a complete break from how establishment Republicans have been doing things in recent years.

  Now don’t get me wrong – I am certainly not suggesting that we need to meet in the middle.  My point is that there is absolutely no national consensus about what we should do.  On the far left, they want to take us into full-blown socialism.  Those that support Donald Trump or Ted Cruz want to take us in a more conservative direction.  But even among Republicans there are vast disagreements about how to fix this country.  Establishment Republicans greatly dislike both Trump and Cruz, and they are quite determined to do whatever it takes to keep either of them from getting the nomination.  The elite have grown very accustomed to anointing the nominee from each party every four years, and so the popularity of Trump and Cruz is making them quite uneasy this time around.  The following comes from the New York Times…

  The members of the party establishment are growing impatient as they watch Mr. Trump and Mr. Cruz dominate the field heading into the Iowa caucuses next Monday and the New Hampshire primary about a week later.

   

  The party elders had hoped that one of their preferred candidates, such as Senator Marco Rubio of Florida, would be rising above the others by now and becoming a contender to rally around.

  The global elite gathered in Davos, Switzerland are also greatly displeased with Trump.  Just check out some of the words that they are using to describe him…

  “Unbelievable“, “embarrassing” even “dangerous” are some of the words the financial elite gathered at the World Economic Forum conference in the Swiss resort of Davos have been using to describe U.S. Republican presidential frontrunner Donald Trump.

   

  Although some said they still expected his campaign to founder before his party picks its nominee for the November election many said it was no longer unthinkable that he could be the Republican candidate.

  The truth is that the Republican Party represents somewhere less than half the population in the United States, and today it is at war with itself.  Supporters of Trump have a significantly different vision of the future than supporters of Cruz, and the establishment wing wants nothing to do with either candidate.

  A lot of people seem to assume that since Trump is leading in the polls that he will almost certainly get the nomination.

  That is not exactly a safe bet.

  It is my contention that the establishment will pull out every trick in the book to keep either him or Cruz from getting the nomination.  And in order to lock up the nomination before the Republican convention, a candidate will need to have secured slightly more than 60 percent of all of the delegates during the caucuses and the primaries.

  The following is an excerpt from one of my previous articles in which I discussed the difficult delegate math that the Republican candidates are facing this time around…

  It is going to be much more difficult for Donald Trump to win the Republican nomination than most people think.  In order to win the nomination, a candidate must secure at least 1,237 of the 2,472 delegates that are up for grabs.  But not all of them will be won during the state-by-state series of caucuses and primaries that will take place during the first half of 2016.  Of the total of 2,472 Republican delegates, 437 of them are unpledged delegates – and 168 of those are members of the Republican National Committee.  And unless you have been hiding under a rock somewhere, you already know that the Republican National Committee is not a fan of Donald Trump.  In order to win the Republican nomination without any of the unpledged delegates, Trump would need to win 60.78 percent of the delegates that are up for grabs during the caucuses and primaries.  And considering that his poll support is hovering around 30 percent right now, that is a very tall order.

   

  In the past, it was easier for a front-runner to pile up delegates in “winner take all” states, but for this election cycle the Republicans have changed quite a few things.  In 2016, all states that hold caucuses or primaries before March 15th must award their delegates proportionally.  So when Trump wins any of those early states, he won’t receive all of the delegates.  Instead, he will just get a portion of them based on the percentage of the vote that he received.

   

  In 2016, more delegates will be allocated on a proportional basis by the Republicans than ever before, and with such a crowded field that makes it quite likely that no candidate will have secured enough delegates for the nomination by the time the Republican convention rolls around.

  If no candidate has more than 60 percent of the delegates by the end of the process, then it is quite likely that we will see the first true “brokered convention” in decades.

  If we do see a “brokered convention”, that would almost surely result in an establishment candidate coming away with the nomination.  That list of names would include Bush, Rubio, Christie and Kasich.

  And if by some incredible miracle either Trump or Cruz does get the nomination, the elite will move heaven and earth to make sure that Hillary Clinton ends up in the White House.

  For decades, it has seemed like nothing ever really changes no matter which political party is in power, and that is exactly how the elite like it.

  Our two major political parties are really just two sides of the same coin, and they are both leading this nation right down the toilet.

  

  

  

  

  

• Small Arms Sales Skyrocket In Germany In Reaction To Refugee Attacks

  As we’ve documented on a number of occasions over the past three or so months, Germans have a newfound love for pepper spray.

  In November, we noted that frightened Germans fearing a “foreign invasion” from the Mid-East, were rushing to stock up on what amounts to migrant-be-gone aerosol just in case a refugee should get any designs on trying to get too close.

  “There is fear” explains Kai Prase, managing director of DEF-TEC Defense Technology GmbH in Frankfurt, one of the major producers of repellents. “For the past six to seven weeks we have been practically sold out.”

  Yes, “there is fear”, and that fear only grew after New Year’s Eve when dozens of women reported being sexually assaulted by “gangs” of drunken “Arabs” in Cologne, among other cities.

  The New Year’s incidents triggered even more interest in deterrent technology and before you knew it, Germans were Googling “pepper spray” like there was no tomorrow:

  

  Of course, as we noted earlier this month, pepper spray isn’t much good against a Kalashnikov and besides, mace doesn’t sound like nearly as much fun as a “non-lethal gas pistol,” a replica firearm that shoots tear gas cartridges. 

  “People no longer feel safe, otherwise they would not be buying so many products here,” a seller in North-Rhine Westphalia told Deutsche Welle who adds that the seller, like many of his colleagues, has been moving “an average of three times as many alarm, gas, and signal guns as he was prior to the attacks that took place in Cologne on New Year’s Eve.” 

  Although you can’t go out and buy an AK-47 in Germany, you can obtain a so-called “small arms permit”, which gives you the right to own all sorts of fun things like the aforementioned gas pistol. For those who aren’t familiar with the weapon, here’s a helpful video (note the 1:57 mark when we get a look at “a person running with a… a club at a person who draws and fires on them”): 

  There you go. You can shoot someone in the face and not kill them as long as you “have a spotless record ” when you apply for the permit.

  “There has been an increase of at least 1,000 percent or more in Google search queries for gun permits since January,” Felix Beilharz, a social media expert from Cologne told DW.

  Brauchen die Menschen mehr Schutz? #waffenschein #pfefferspray und #selbstverteidigung nach #koelnhbf Google sagt ja pic.twitter.com/gsnzhXHGJM

  — Dejan is Available (@a_placeholder) January 8, 2016

  And that’s not all.

  Germans are also getting more interested in self defense courses. “Currently, those offering self-defense courses are also profiting from the concerns and fears of many German citizens. Many such courses are booked out for the next several weeks – that was not the case a year ago,” DW says.

  “Several social media entries tagged with #Koelnbhf (Cologne train station) were advertising “efficient martial arts training,” RT adds.

  Here’s a tweet that pretty much sums up the mood in Germany:

  Fit und Schlagfertig für den Alltag!
  – #Selbstverteidigung und mehr…
  Zusatztermine: https://t.co/i3g528ofnw pic.twitter.com/XGHFSAkGDf

  — Cosimo My (@cosimo_my) January 25, 2016

  So perhaps Anders Rasmussen – the prevention specialist at the Danish Crime Prevention Council who we mocked earlier today – was correct to say that a move to make non-lethal deterrents legal “may quickly develop into a sort of armed competition between civilians,” as there does indeed appear to be a non-lethal arms race going on in Germany.

  And just like that, Angela Merkel’s move to take in 1.1 million asylum seekers has turned the streets of Germany into the Wild West, where every man, woman, and child is carrying some manner of weapon.

  The fine for pepper spraying a would-be assailant in Denmark is 500 kroner. Given the preponderance of Danes who are sneaking away to Germany to buy non-lethal weapons, we wonder what the penalty is for shooting an attacker in the face with a tear gas cartridge at point blank range.

  

  

  

  

• Why 2,667 Is The Most Important Number In China Tonight

  Barring some miraculous 8% epic melt-up in the afternoon session – go down as the worst ever January for Chinese stocks. While that is a big enough deal, for now the 24%-plus plunge is the worst of any month since Lehman’s fallout in October 2008. However, it is close… if the Shanghai Composite closes below 2667.50 today, January 2016 will become the worst month for Chinese stocks since 1994… quite a feat in a “stable” and manipulated market.

  Worst January ever…

  

   

  “Worse since Lehman” or Worst in 21 years?

  

   

  2667.50 is all that matters…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Trump vs Fox News: Live Webcast From Donald Trump's "Alternative" Event

  If Fox asked Facebook to tabulate the number of viewers at tonight’s GOP republican debate in Des Moines, Iowa, the answer would probably be over 1 billion. The reality is that most potential viewers will likely be hijacked to tonight’s “alternative” event, the one taking place just a few miles away at Drake University where Donald Trump – why is boycotting the Fox News debate – will address Wounded Warriors & Veterans but what he will really do is school the rest of the republican field how to control the media narrative and to remain constantly in the spotlight especially when he is nowhere near it.

  As WSJ writes, Donald Trump‘s attempt to steal some of the limelight from the Fox News debate drew thousands to the campus of Drake University, a few miles away from where the official debate is being held. The line included hundreds of Drake students, many of whom said they were just curious to see Mr. Trump up close, but also some students who plan to caucus for the Republican front-runner on Monday night. However, many of the young people outside won’t get the chance to see him because the building only holds 700 or so people, leaving many standing outside in the cold.

  Meanwhile, as Trump does his event, seven candidates are set to debate, starting at 9 p.m. ET. Here is what the lineup looks like (including Trump).

  

  Few will watch this particular event.

  Live webcast below from the event spearheaded by the republican who is now leaps and bounds ahead of the competition in Iowa, New Hampshire and South Carolina.

  

  

  

  

  

• F(r)actions Of Gold

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The simple fact of the matter is that gold is no longer money and hasn’t been treated that way in decades. It is a frustrating and often woeful outcome, but deference isn’t a reason to color judgement. As an investment, which is more like what gold has become, it isn’t all that straight, either. Gold behaves in many circumstances erratically; often violently so. In 2008, gold crashed three times; but it also came back (and then some) three times. The metal remains stuck in some orthodox limbo of duality, sometimes acting an investment while at others, more rarely, as almost reclaiming its former status.

  The junction of that dyad format is wholesale collateral. It is a difficult and dense topic because it plumbs the very depths of the wholesale arrangement – factors like leasing, swaps and collateralized lending through binary bespoke arrangements. It is there that I think it helps to form the narrative, however, starting by reviewing what the BIS was up to in late 2009 and early 2010. I am going to borrow heavily from an article I wrote in April 2013 that describes the events in question but this is one of those times when you should read the whole thing.

  Back in July 2010, the Wall Street Journal caused some commotion when it happened to notice in the annual report for the Bank for International Settlements the sudden appearance of gold swap operations to the tune of 346 tons. Subsequent investigation by media outlets, including the Financial Times, reported that the BIS had indeed swapped in 346 tons of gold holdings from ten European commercial banks. That was highly unusual in that gold swaps are typically conducted between and among central banks.

   

  Included in that list of commercial banks were, according to the Financial Times, HSBC, BNP Paribas and Société Générale. The timing of the swaps was pinned down to sometime between December 2009 and January 2010 – just as the world was getting reacquainted with the Greek Republic.

  In other words, “dollar” problems had been reborn despite QE1 and ZIRP (and the follow-on programs at the ECB, SNB and elsewhere) because European banks, in particular, had swapped “toxic” MBS collateral for “toxic” PIIGS sovereigns. Now, like MBS before it, even government bonds were becoming non-negotiable in repo (haircuts) and derivative collateral. Stuck not long after the last crisis, banks were in a tight spot since no central bank appeared ready to commit to another great effort so soon risking what they found a fragile but fruitful early revival. Banks then turned to the BIS in what only can be interpreted as great desperation for survivorship.

  The amount of physical bullion purchased by private investors in the decade of the 2000’s had ended at custodial accounts in various commercial banks. Some of these investors were discerning and suspicious enough to demand allocated accounts. Some were not. Unallocated gold can get pooled into a house custodial account with rights over custody being retained by the bank, not the investor. In this case, said investor owns not gold, but rather a bank liability payable in gold.

   

  Unallocated gold in pooled accounts residing in a bank with growing funding stress makes for a rather easy liquidity target. The gold market offers depth in a broad range of currencies. Gold markets are also very well interconnected, between the physical market in London and various paper markets, particularly the CME in Chicago.

   

  In the case of the large gold swap in 2010, the commercial banks accessed dollar liquidity “off-market” since the BIS simply held the bullion in its custody. Being accustomed to holding physical gold, it did have $23 billion, about 1,200 tons already on account, meant no additional hassle. The BIS surely incurred storage and administrative costs, but they would easily be absorbed by the interest rate the banks would pay on this collateralized loan (essentially the gold swap in this case amounted to a dollar denominated loan with gold bullion held as collateral by the BIS).

  The reason that customers’ unallocated gold was such an “easy liquidity target” for banks in tight spots was that gold in that position had become a liability of the bank rather than being construed, as it should have under purely monetary terms, in constructive bailment. Unallocated gold was nothing more than another kind of deposit account; you didn’t actually own gold but possessed instead a financial claim on gold through the bank. Under bank liability, the bank may do what it wishes so long as it presumes meaningful care in being able to deliver any physical gold (not specific bars) upon convertibility.

  On December 7, 2011, the Financial Times reported that:

  Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week

  There were rumors (admittedly unsubstantiated to this day) that a large bank (or two) in France was to be declared insolvent on December 8; only a week earlier, on November 30, 2011, the Fed had announced a sudden alteration to its dollar swap lines with five reciprocating central banks, both reducing the cost (OIS +50 instead of OIS +100) but more intriguingly mentioning “temporary bilateral swap agreements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.” Then on December 8, the ECB announced their trillion, the LTRO’s.

  On November 30, 2011, the Fed finally relented to unlimited dollar swaps at a low premium (OIS + 50). But still banks were looking to gold leases. So much so that we have no idea at what rates these transactions were occurring. The same Financial Times article cited above quoted “traders” as indicating:

   

  “…few, if any, banks were likely to receive the published rates since they have been skewed in recent months by a widespread reluctance among bullion banks to take gold for dollars.”

   

  The implication here is that “markets” had no reasonable idea how desperate for dollars some banks had become. It is no surprise in that context that the very day after the Financial Times published that article the ECB announced its massive lending facilities through the LTRO’s. In conjunction with the Fed’s swap lines, the two central banks, coordinating with other central banks, aimed to end the liquidity crisis through massive money stock means.

  The relevance of this particularly unnoticed angle in the 2011 re-crisis is the behavior of gold since that point. As noted a few days ago, gold has only come lower as if to signal the “deflationary” impulse of the imploding eurodollar; and that makes sense as that particular time and flow of circumstances was in many ways convincing that there was never going to be a possible pathway to recreating or revisiting the pre-crisis financial system – as every central bank intended and still intends to this day.

  What we don’t know, probably can’t know, is how much gold was traded and where it all ended up during that time. In the more traditional setup of gold swaps, the practical effect was for producers to dislodge stored gold sitting in central bank vaults around the world. It was win-win for central banks because they got to both actualize gold into an interest-earning investment while also, through quite dubious accounting rules, never admitting that gold was gone (all activity contained under a single line item: gold and gold receivables; and you never knew how much was the latter and how little the former).

  The 2011 episode with the BIS reversed in many ways the causal flows of physical, assuming it was physical at all. Commercial banks that had been receiving customer deposits of the metal were now turning it over the central bank of central banks out of “dollar” (and euro, likely even euroeuro) desperation. While we can’t figure out where the physical gold ends up, we can at least recognize the fingerprints of the gold collateral/liquidity arrangement in various forms such as the stretching of claims on gold in “physical” markets such as COMEX; the more gold swaps churn physical or its approximates, the more opportunity there was to create “paper supply.”

  This is the hard part for those who appreciate real money, as money is itself an asset without liability. But here are banks and central banks abusing gold to turn it into just another agent of rehypothecation – further distorting capitalism’s foundational respect for property rights into more financial terms that obey no such constraint (MF Global being the institution caught at it). I wrote about this in May 2013, explaining why, in general, gold leasing in these kinds of situations is negative on gold price:

  The accounting rules are such that the central bank continues to hold “gold” on its books despite the leasing arrangement that moved that actual physical metal into the marketplace. Thus the market has actual gold sold into it while central banks report no loss of supply (under the accounting line “gold and gold receivables”). Since these are opaque transactions, nobody really knows what has been leased out and what actually remains.

   

  Gold lending takes a similar form. Banks typically hold client gold in unallocated accounts – this is intentional since unallocated accounts have smaller fees and clients have not been educated as to the legal distinctions. Unallocated gold is a liability of the bank; the client continues to hold title to physical bullion, but that is in the form of a “paper” promise by the bank to deliver future gold. Often, the agreement that creates the unallocated arrangement even allows for the bank custodian to settle the client claim in cash under certain circumstances.

   

  Therefore, the bank can use the unallocated metal toward its own purposes, in exactly the same way that prime brokers rehypothecate hedge fund credit holdings in margin accounts. In a gold lending relationship, the bank uses the unallocated gold as collateral for cash (in whichever currency is needed, which is one of the appeals of using bullion for collateral). Now, the gold is in the hands of an intermediary that, apart from any haircut set with the borrowing bank, is at price risk. The cash lending bank will either sell the gold outright, since it only has to replace metal at the end of the agreement, or hedge its collateral position (based on the cost of selling futures).

  That would also hold for central bank claims in the prevailing leg of an earlier swap arrangement. Like rehypothecated treasury securities in repo, all that matters is balance sheet ledgers between counterparties agree on balance at the end of the day; each and every day. So long as that happens, there are no cascading triggers that reveal the fractioning.

  While my intent in revisiting the gold crash in 2013 was to add to the weight of financial warnings that have occurred almost regularly since then about the fate of the global “dollar” system, it was a ZeroHedge article from yesterday that brought it further into focus – particularly the current unknown (out)flow of physical metal that “somehow” left undisturbed the futures volume (the paper gold). From that article:

  This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the “coverage ratio” that shows the total number of gold claims relative to the physical gold that “backs” such potential delivery requests, – or simply said physical-to-paper gold dilution – just exploded.

   

  As the chart below shows – which is disturbing without any further context – the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday’s close there was a whopping 542 ounces in potential paper claims to every ounces [sic] of physical gold. Call it a 0.2% dilution factor.

  Is that the anguishing end of years of “dollar” liquidity being literally swapped for physical and paper gold? Much more so the latter? It is, of course, impossible to determine but there are so many corroborating factors that the suggestion is at the very least compelling; and thus why gold has been warning about the eurodollar system since 2013 and really 2011. The fact that gold had so much collateral appeal at that time speaks to that very notion; the artificial MBS “toxic waste” that stood for it during the ravenous runup to 2007 was no sustainable substitute for a small monetary system, let alone the global predicate for global finance and trade.

  Pre-2011 (Gold and Comex Cover were highly correlated)

  

   

  Post-2011 (Gold and Comex Cover were almost perfectly anti-correlated)

  

  [ZH: Something 'broke' in the gold complex when China devalued]

  To that fact, banks were forced throughout 2007-09 and again in 2011 (2013 too? How about 2015?) to alternate funding means no matter how distasteful (to the eurodollar practitioner, gold stands against all of it). Wholesale banking in its purest distillation is a system that seeks to fraction every kind of liability no matter original intent or even customer intent (banks are the central focus, where their balance sheet and financial resources stand as “money”) – to the point of fractions upon fractions; rehypothecations of rehypothecations. It went so badly that the system seems to have repurposed gold once more, the only asset where fractioning is still sensitive enough to signal the desperation. In other words, if the eurodollar and wholesale banking system had been sliced to such a thin margin again by 2011 so as to so heavily depend on the modern duality of gold, it not only would not survive it literally could not survive. The paper dilution we see now may just be that judgement finally seeking open admission.

  

  

  

  

  

• Goldman Banker Who Set Up Slush Fund For Malaysian PM Takes "Personal Leave"

  On Tuesday we learned that Malaysian PM Najib Razak won’t have too much explaining to do domestically when it comes to why Saudi Arabia decided in 2013 to make a $681 million “donation” to his personal bank account.

  Najib’s political opponents have accused the PM of deliberately undermining an investigation into where the money came from. The public has also angrily asked for transparency and in August, street protests led by former PM Mahathir Mohamad were held in Kuala Lumpur. “I don’t believe it is a donation,” Mahathir said at the time. “I don’t believe anybody would give [that much], whether an Arab, or anybody.”

  No, probably not.

  In short, no one is buying Najib’s story except, apparently, Malaysia’s top prosecutor Attorney General Mohamed Apandi who ordered the probe into the transfer closed earlier this week.

  Like many other Malaysians, Mahathir has some questions for Apandi and Najib. Here are a few:

  • “It seems there was a letter by a Saudi stating that a sum of US$681 million or RM2.08 billion was a donation for the PM’s contribution to the fight against Islamic terrorists. Who is this Arab?”
  • “How does he have the huge sum of money to give away?”
  • “What is his business?”
  • “What is his bank?”
  • “How was the money transferred?”
  • “What documents prove these?”
  • “Just a letter from a deceased person or some non-entity is enough for the A-G?“

  And some more:

  • “How and when was this done?”
  • “We are told the balance is frozen by Singapore. Can Singapore explain the unfreezing and the delivery back to the Saudis?”
  • “Or does Singapore also believe in the free gift story, the letter and the Saudi admission?”

  All great questions. Questions which will likely never be answered. 

  As those who have followed the 1MDB story will recall, the fund has strong ties to Goldman and more specifically to Tim Leissner, chairman of the bank’s Southeast Asia ops. 

  1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman and orchestrated by Leissner, who is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

  

  What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit.

  Now, just as Najib is cleared by Malaysia’s top prosecutor and amid multiple 1MDB investigations unfolding in other countries, Tim Leissner is taking a leave of absence from Goldman and is leaving Singapore for Los Angeles. 

  “Leissner, who has been with Goldman Sachs for almost 18 years and was most recently Singapore-based chairman of its Southeast Asia operations, remains an employee,” Bloomberg reports. “The bank’s dealings with the country’s state-owned investment company, 1Malaysia Development Bhd., drew public scrutiny because of the high fees Goldman was paid.”

  “His departure comes as Najib Razak, Malaysia’s prime minister, fights to extricate himself from a donations scandal alleged to be linked to the investment fund, known as 1MDB,” FT adds. “[Leissner’s] close relationships with top officials in Kuala Lumpur produced what one executive described as a ‘golden period’ for the bank.”

  The ubiquitous “people familiar with the matter” say Goldman was unhappy with the amount of time Leissner spent in Los Angeles where his wife is busy building a fashion business.

  Whether or not Leissner’s leave and decision to high tail it out of Singapore has anything to do with the 1MDB scandal is an open question, but the timing certainly looks curious. 

  Incidentally, Leissner will have plenty of places to stay in L.A.

  Najib’s stepson and Jho Low (described as a “close family friend”) own a $39 million mansion on Oriole Drive in the Hollywood Hills in Los Angeles, the L’Ermitage Hotel in Beverly Hills, a home in Beverly Hills known as the pyramid house for a gold pyramid in its garden, as well as other properties in the Los Angeles area.

  

  

  

  

  

• George Soros Finally Suspends His Lifelong War Against Russia

  Submitted by Eric Zuesse via Strategic-Culture.org,

  On January 21st, George Soros, who has throughout his life been passionately opposed not just to communism but also to Russia, has finally stated in a Bloomberg News interview at the World Economic Forum, that the United States (and possibly the EU, but he says that the EU is in terrible economic shape itself) must now fund a new Marshall Plan for all of Europe, including, this time, even his bête noire: Russia.

  However, is he ending, or merely suspending, his lifelong war against Russia? Let’s look at the evidence, including the background for his comments here – the crucial background in order to understand his statement is provided in the links here:

  Previously, he had been urging both the United States and the EU to pump variously $20 billion (in some of his articles) to $50 billion (in others) more into Ukraine’s war to seize back control over Ukraine’s former regions of Crimea and of Donbass, both of which had voted overwhelmingly (75 % in Crimea and over 90 % in Donbass) for the democratically elected Ukrainian President, Viktor Yanukovych, whom Obama overthrew on 20 February 2014 in a bloody staged coup whose gunmen were mainly from Ukraine’s two racist-fascist or ideologically Nazi parties and were all paid by the US via laundered funds through the CIA. Those two regions of Ukraine are strongly pro-Russian and anti-Nazi – they were anti-Nazi in World War II, and are anti-Nazi today.

  However, now that the US-led effort to re-arm the Ukrainian government that it had installed, and to enable them to go to war yet a second time, attempting to seize (or reabsorb) Crimea and Donbass, has failed, and US President Barack Obama has thus at least temporarily given up in all but rhetoric his determination to enable Ukraine to crush those regions, George Soros is stepping back in.

  Soros had, himself, via his International Renaissance Fund, helped to finance the overthrow of Yanukovych. He is now urging that the US (and maybe Europe) help Europe including Russia, to recover from the damages that the US had imposed upon that broader Europe – imposed by means of Obama’s invasions and coups in not only Ukraine but also in the Middle East. (After all, most of the refugees into Europe come from America’s invasions of Iraq, Libya, and Syria, and from the support of jihadists there by America’s Saudi, Qatari, and UAE allies. The refugee-crisis is generated by America and its allies.) Soros says that the fleeing refugees from the Middle East into Europe will break the EU unless stopped, and that US taxpayers (and maybe EU taxpayers) thus now need to fund the salvation of all of those countries which the US – largely at Soros’s own urging and with his help – has all but destroyed. Perhaps he just wants Western taxpayers to bail him out.

  His comment attributes, as being the precedent for his current support of a taxpayer-bailout for Europe including Russia, his prior, 1989, support of a bailout of Eastern Europe including Russia. However, at that time, he was looking for public funds to create debts that those then-communist nations would have toward Western taxpayers. His proposal was rejected, because democracy was, at that time, strong enough in the West, so that the public’s rejection of it caused his proposal to be politically impossible to achieve. The situation is drastically different now, after the Harvard Economics Department and George Soros guided the Russian government into a ‘capitalism’ that’s crony-capitalism or «fascism», from which Harvard University and George Soros extracted billions in giveaways of state property from formerly communist countries that were insider-dealt to not only Russia’s and Ukraine’s (etc.) insiders, but also to America’s, including especially Soros himself (and that link is also here). That link presents the great Janine Wedel reporting that, as a result of one particular insider-rigged auction, «H.M.C. [Harvard Management Company] and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil».

  Ukraine is one of the countries that was stripped this way, and it more recently was taken over by the United States, with Soros’s help, and stripped even more.

  

  The post-Soros, post-Obama, coup-government of Ukraine is essentially bankrupt after all of their ‘anti-corruption’ verbiage has collided with their total-corruption policies in Ukraine, just as had happened under Yeltsin in Russia, so that, notwithstanding Soros’s urgings for $20B+ of Western taxpayer funds to be contributed to that government, it simply won’t happen. Soros therefore now is urging his new proposal for a «Marshall Plan», not only to get Eastern Europe deeper into debt to Western governments, but, perhaps, also to enable Soros’ own investments in Eastern Europe (including Russia) to turn profits for him. Only with taxpayer assistance can such investments now be made profitable.

  That’s the problem with private-investor meddling in foreign policies: governments become controlled by international aristocrats.

  *  *  *

  Here is the transcript of this brief interview-segment, from a Bloomberg, which cannot be accurately understood without reference to the links that were provided in that restatement here of his statement – those links document the reality behind what he is here asserting:

  SOROS: The European Union is in an existential crisis, and it needs to get out of that because of the migration problem [which] is effectively distressing the European Union – it’s falling apart, and that’s a time when you need to have a major initiative, a Marshall Plan. It’s absolutely appropriate. It’s amazing that it comes from Schaivo, who has been one of the proponents of Bundesbank orthodoxy, but I have been in favor of it all along. I was propose[ing] a Marshall Plan for Eastern Europe more than twenty-five years ago [before the end of the USSR], in 1989 in Potsdam, when Potsdam was still in Eastern Germany, and I said this would be a Marshall Plan for Eastern Europe including Russia, and it should be financed by the Europeans for a change, and actually led by the – representative, who started laughing, and the front of the Algemeine [Zeitung] reported that my proposal was greeted with amusement. Now I think this proposal should not be treated with amusement. This should be taken very seriously. It’s going to have a very difficult time passing, because there’s a lot of dissension now, part of the disintegration, but I think it needs public and enthusiastic support. But I think that most people know that something has gone catastrophically wrong and it has to be put right.

   

  INTERVIEWER: Is there a danger of break-up. Last year we were worried about Greece, what should we be worried about this year?

   

  SOROS: I think Greece is still a problem. It’s the one problem that has no solution, because it has been so messed-up that you can only muddle along. But there is no solution, and actually that problem is now coming to the boiling point again. You can see it on the face of the press, but [it] is not a major problem in the scheme of things.

  

  

  

  

  

• Here Is The Reason For January's Selloff: China's January Outflows Soar To Second Highest Ever

  While China’s currency devaluation has, alongside the price of commodities, become one of the two key drivers of market volatility and tubulence around the globe, when it comes to risk, one far more important Chinese metric is the actual amount of capital that leaves the nation.

  The reason for this is that as explained over the weekend, in a world where Quantitative Tightening by EMs and SWFs has emerged as a powerful counterforce to Quantitative Easing – or liquidity injections – by developed central banks, what matters for global risk levels is the net effect of these two opposing money flows.

  

  Of all the global “quantitative tighteners”, the biggest culprit is China, which has seen over $1 trillion in reserve selling since the summer of 2014, the direct result of a virtually identical amount in capital outflows.

  Furthermore in for a “closed’ Capital Account system like is China, the selling of FX reserves is a direct function of capital outflows, so the only real data needed to extrapolate not only the matched reserve selling and thus Quantitative Tightening, but also the direct impact onglobal risk assets, is how much capital outflow has taken place.

  This takes place in one of two ways: by relying on official Chinese historical data, or by estimating how much outflows take place on a concurrent basis, thus allowing one to estimate how much capital is flowing out in real time. Indicatively, China’s SAFE released onshore FX settlement data for the whole banking system (PBoC+banks), suggesting some $97bn of FX outflows in Dec, which is broadly in line with the fall in official reserves.

  But much more important is the question what is taking place right now, the answer to which can either wait until SAFE releases January data in several weeks… or rely on day to day estimates of outflows in the form of central bank FX intervention. 

  Luckily, we have just that.

  According to a Goldman report, so far in January “there has been around $USD 185bn of intervention (with the recent intervention predominantly taking place in the onshore market)” split roughly $143 billion on the domestic side and $42 billion on the offshore Yuan side.

  

  This would make January the month with the second largest amount of intervention since August 2015, and thus the second highest month of capital outflows, and would explain the ongoing deterioration across global asset classes as China’s various FX reserve managers have been forced to sell not just government bonds but equities as well. 

  Goldman also calculates that “total intervention over the last 6 months, using our estimates, sums to USD 775bn.” Run-rating this amount would suggest that nearly $1.6 trillion in Quantiative Tightening is taking place just due to China’s attempts to stem capital flight. This number excludes the hundreds of billions in reserves that all other petrodollar and EM nations have to liquidate as well to prevent the rapid devaluation of their own currencies as the world remains caught in the global dollar margin call we first explained in early 2015.

  The implications from this are two-fold:

  • For the selling culprit, responsible for the recent market weakness look no further than China, whose reverse “flow” has been responsible for the terrible start to 2016 capital markets.
  • For the Beijing politburo, halting capital outflows is becoming a matter of life or death, because there are only so many liquid reserves China can liquidate before it enters dangerous territory; worse, the less the reserves, the greater the desire will be on behalf of the local population to take their money and run.

  Of course, China’s rabid defense of further capital outflows means that its original intent, to devalue the Yuan to a degree that boosts its economy via exports, has been put on hiatus, or in other words China is trapped, and instead of an external rebalancing it is forced to boost its economy in the one way it knows best: by issuing ever more debt. However, with China’s total debt now estimated at 350% of GDP, it only has a finite amount of time before the debt bubble finally pops as well.

  In other words, for China there is, as of this moment, quite literally no way out, and what’s worse the longer it delay the decision of how it will reset its economy, the worse it will be for global risk markets.

  

  

  

  

  

• What If Obama Believed In Individual Liberty & Free Markets?

  Submitted by Richard Ebeling via EpicTimes.com,

  President Barack Obama delivered his final State of the Union address on January 12, 2016, and devoted most of the time to defending his “legacy” of bigger and more intrusive government, with an emphasis on the other aspects of personal and social life he wished could come under the blanket of more political paternalism, if only there was enough time before he leaves office on January 20, 2017.

  But suppose that, instead, Obama had had an epiphany shortly before he spoke before the Congress on January 12^th. Imagine that he had had a realization that the Progressive and political paternalistic ideas that he has believed in, espoused and implemented during his first seven years in the office of the presidency had been wrong and misguided.

  What if he had discovered the ideas, say, of Ayn Rand, Henry Hazlitt, Milton Friedman, and F. A. Hayek, for example? Suppose that he realized that the true principles of a free society were to be found in the ideas and ideals of individual rights and liberty, free markets and competitive enterprise?

  What if the president offered, instead, an agenda for freedom rather than one of paternalism? What would the State of the Union address be like if he had such an epiphany for defending individual liberty rather than more unrestricted government license over our lives?

  Let us imagine what he might have said, instead of the words he actually spoke:

  “My fellow Americans, I come before you tonight to deliver my seventh and last State of the Union address at a time of continuing economic uncertainty and social tensions across our great nation.

   

  “I have spoken to you more than once about the country’s need for ‘hope and change.’ But I now realize that we must look for that hope and change in a far different direction that the one I’ve talked about and argued for in previous years.

   

  

   

  The Free Individual and His Creative Mind

   

  “I was wrong a couple of years ago when I said that the man who owns a business did not ‘make it.’ I assumed that improvements in the human condition only result from the actions of the ‘collective,’ as if the ‘collective’ was a living, breathing, thinking being, separate from the individuals who make up the society.

   

  “I now understand and appreciate from reading Ayn Rand that ‘society’ is merely a sometimes convenient, but often confusing, shorthand for the resulting outcomes of the interactions and associative actions and activities of individual human beings. There is no ‘society’ independent from the thinking, valuing and acting individuals in the world.

   

  “And, furthermore, if anything is built its possibility can and only does begin as a creative thought and idea in the mind of a real, distinct individual man or woman. The ‘idea’ must precede the ‘deed,’ and the idea only can come from an individual human mind. There is no collective brain.”

   

  “My fellow Americans, you do not exist to live and work for ‘society.’ You have a right to your own life, to live it as you think right and best for yourself, through peaceful, honest and productive work. The achievements of ‘society’ are the outcome of voluntary and mutually beneficial exchanges and associations among free men.

   

  “Our Founding Fathers understood this when they signed the Declaration of Independence and promulgated the U.S. Constitution. Man and his rights precede government, and government’s role in society is not to control or direct the actions of men, but to secure and protect their individual rights to life, liberty and honestly acquired property.

   

  Freedom and Knowledge

   

  “Starting tomorrow, I am instructing Treasury Secretary Jack Lew to prepare a set of budget proposals, the goal of which will be a balanced budget before the end of the current fiscal year. And not through raising taxes, but through across-the-board cuts in government spending.

   

  “If we are to restore a thriving and fully employed economy in America it will require getting resources out of the wasteful hands of government, and back under the control and guidance of the private and productive citizens whose work, saving, investment and creativity are the only basis and source of our improving standard of living.

   

  “I now understand that economic growth and opportunity only come from freeing the minds of every American so all may benefit from what others may know. I have learned from F. A. Hayek that it has been a great arrogance on my part and practically everyone else in government for a very long time to believe that we can know enough to direct and plan the actions of multitudes of people in an ever-more complex society.

   

  “All the knowledge of how, where and when to do things that make ‘society’ work and creatively improve cannot be known by any one person or group of people in Washington, D.C. The ‘knowledge of the world’ is dispersed and decentralized among all the minds of all the people in society. We must appreciate that the free market is not only a market place of goods, but of ideas that result in the producing of those goods.

   

  “Government regulations, restrictions, prohibitions, subsidies and plans get in the way of the competitive process that is a great vehicle of ‘discovery’ to find out who, in fact, can creatively imagine and bring to market the new and better products, in greater quantities and lower prices that benefit all in society – especially the poor and less well-off who, year after year, gain from more and less expensive goods available and within their modest economic reach.

   

  “It has been a great ‘pretense of knowledge’ on my part to presume that I, as president of the United States, can know who might ‘win’ the market ‘race’ of competitive improvement and excellence before allowing the process of market competition to serve as the motive and incentive for people to discover within themselves what they are capable of doing and producing.

   

  

   

  Unintended Consequences and the Minimum Wage

   

  “I know that many who have supported me over the years will be wondering how I could turn my back on all those who have looked to me as the great hope for ‘social justice’ and ‘fairness’ in society. Do I no longer care about the poor, the underprivileged, and the needy?

   

  “I now understand after reading Henry Hazlitt that much that seems to be helpful government policy in the short-run can have longer run negative consequences for many of the very people we sincerely wish to help. We must look beyond what is immediately ‘seen’ to what is ‘unseen': the impact of these policies when we look past today to see the effects they will have tomorrow.

   

  “For that reason, rather than calling for an increase in the government-mandated minimum wage, I will be proposing to the Congress the abolition of the federal minimum wage law. I will also be highly recommending that the various state governments should abolish their minimum wage statutes, as well.

   

  “None of us pays more for anything than we think it is worth, in terms of its value to us and what we can afford to spend. And if something goes up in price, we often think twice before we continue to buy as much of it as we have in the past. We ask ourselves, ‘Is it really worth that higher price, and is it worth buying less of other things to keep buying as much of it as we’ve bought before, because the extra expense to purchase the same amount will have to come out of buying less of something else, since our limited financial means only go so far?’

   

  “The only source of an employer’s financial means to pay his workers their wages is the revenues he receives from the customers who buy his product. If the government mandates that he must pay his workers a minimum wage above the market wage, he will have to decide if the value of what some of those workers contribute to make those products that help him earn that consumer revenue is now less than what the government says he must pay them. If he finds that some of them are not worth the minimum wage he will let them go, and other new jobs that he might have offered will not be financially worth opening up.

   

  “Thus, many of the very people – the poor and low-skilled – who can most benefit from an entry level job that offers them on-the-job training, experience and a chance to have their feet on the first rung of the ladder to a better life, will be denied that opportunity because the government minimum wage law prices them out of the market.

   

  “I sincerely care too much about those people to leave them possibly permanently behind due to such a misguided and counterproductive policy as our minimum wage law.”

   

  Free Markets and Real Opportunity

   

  “We must appreciate, as reading Milton Friedman has taught me, that the free competitive market is the ‘great leveler’ that frees people from the artificial barriers to entry and opportunity that only government controls and regulations can place in the way of the poor and less well off from rising out of poverty and low standards of living.

   

  “A free society of free people will always be a society of unequal outcomes. Each of us is a unique and distinct individual from the rest of humanity. That is the reason we should respect each individual’s right to his own life and liberty, since he or she is ‘one of a kind,’ never to be seen again on the face of this planet. We should respect and value them, and not presume to tell them how they should live their only sojourn on this earth. Their life is too precious, if indeed we value ‘the person,’ as we say we do, to make them a slave to how we think they should live.

   

  “But because we all possess degrees of uniqueness in our inborn differences, our inclinations and desires, and our drive and determinations to set and try to achieve goals in our life, the resulting outcomes will be different in various ways from that of others.

   

  “It is also the case that how we find ways and decide to earn a living is valued differently by our fellow men. Thus, how much we may earn in the market place is to a great extent a result of by how much our fellow human beings value the services we can offer them in exchange for what we wish to buy from them in the arena of free, competitive trade.”

   

  

   

  Freedom and Benevolence

   

  “Does that mean that those who are less well off than ourselves may not need and deserve a ‘helping hand’? All people of good will and benevolence might rightly have a sense of assisting those who they think deserve and may benefit from such support.

   

  “But such good will and benevolence cannot be forced or made either ‘moral’ or ‘right’ by compelling a false philanthropy through government coerced redistribution of wealth. It not only undermines a proper and rightly human sense of concern for one’s fellow men, but leads to many wasteful and misdirected uses and abuses of the taxpayer’s hard-earned money.

   

  “For this reason, I will be proposing over the last year of my presidency the repeal of the Department of Health and Human Resources, as well as the Departments of Education, Housing and Urban Development, Labor, Commerce, Transportation, Energy and Agriculture.”

   

  Free Markets for Better Health Care

   

  “This now gets me, my fellow Americans, to the hardest policy decision I am going to propose to Congress in the current session. I came into office with the hope and dream of assuring affordable health care to each and every American. I even took pride when my opponents began to call the Affordable Care Act, ‘ObamaCare.’

   

  “I call upon the Congress to immediately repeal the Affordable Care Act. Everything that I have now learned from reading Hayek, Hazlitt, Friedman and Rand has taught me that turning over the health care industry and medical service to the regulatory and planning control of the government will lead to nothing but disaster for the nation.

   

  “We do need better health care, at more affordable rates and prices, with improved coverage. But that can only come by freeing those creative minds of the market place in a setting of the most open competition as is possible. We must set loose the same competitive discovery process that has given all those other innovative miracles of more, better and less expensive goods and services over the years and decades.

   

  “Deregulation of the medical profession and deregulation of the health insurance industry must be our new policy. Individuals should be free to decide and choose their own health plans and trade-offs, and the unrestrained profit motive must be taken advantage of to incentivize the offering of health insurance coverage and medical care quality improvements.

   

  The Right to Ignore the State

   

  “My fellow Americans, in closing let me just say that I also read the nineteenth century social philosopher of freedom, Herbert Spencer, and he has taught me is that as long as any one of you lives your life peacefully and honestly in your own affairs and in your social and market dealings with others, the government has no moral right to make any claim upon you.

   

  “In other words, you have a ‘right to ignore the state,’ other than when it goes about its proper and limited business in securing and protecting the rights of each and every citizen from the violent and plundering acts of others.

   

  “This is the real and only reasonable agenda for ‘hope and change’ that can bring our country freedom, prosperity and goodwill among all of our people.

   

  “There is, of course, much more that we should do and can do to bring about that change for the better. That is why between now and when I leave office next year on January 20, 2017, I will be putting together proposals to repeal the powers of the NSA, bring all our troops home from around the world and call upon the Congress to abolishthe Federal Reserve System so we can move to a private, competitive banking system with a honest, market-based money such as gold.

   

  “I think that the agenda for freedom, based on individual liberty, free markets and limited government that I have presented this evening can serve as a good beginning to return to the wonderful vision that our Founding Fathers hoped for when they established our great nation.

   

  “Thank you, my fellow Americans, and may God Bless a reborn, truly free America.”

  Barack Obama, of course, did not give such a speech to the country in his State of the Union address. But one can hope that some day there will be a president who will have been elected precisely to articulate and initiate such an agenda for individualism, liberty, and limited government in the United States.

  

  

  

  

  

• BoJ Preview: "The Need For A Kuroda Bazooka Is Growing"

  With The Fed definitely off the table, China promising nothing but daily liquidity drips, and Europe unable to do anything but jawbone, the world's bullish equity market investors are anxiously trawling for a central bank to save the world. Tonight's BoJ meeting could well be it – though judging by their past epic failures – it will be anything but successful as QE23 looms in Japan. “The need for a Kuroda bazooka is increasing,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “This is decision time for Kuroda” as additional stimulus can stop the trend of yen gains and falling stocks.

  Market participants’ views on the BOJ are mixed, but leaning increasingly toward more stimulus as Japan’s growth is sputtering and inflation, at 0.3% year on year as of November, is way below the BOJ’s 2% target.

  

  Weak exports, production and stagnant consumption weighed on growth in the fourth quarter. Despite a negative month-on-month reading for Japan’s industrial output in November, production still may have expanded in the fourth quarter, though likely not enough to offset a 1.2% drop in the third quarter. Companies’ production plans signal that the outlook for a stronger first quarter remain.

  However, just as wih The Fed, despite uninspiring growth data, positive dynamics in the labor market — the basis for the BOJ’s optimism on the price outlook — remain in place.

  

   

  Given Kuroda’s history of surprising observers, the spectrum of potential outcomes is very broad. As Bloomberg reports,

  While only six of 42 economists surveyed by Bloomberg are predicting that Kuroda’s board will expand already-record stimulus this time, others didn’t rule that out. Twenty-nine expect further easing by mid-year. Citigroup Inc., JPMorgan Chase & Co. and UBS Group AG economists are among those giving additional stimulus at this meeting a more than 30 percent chance.

   

  Since the BOJ’s last meeting in December, oil prices fell to a 13-year low, the yen touched a one-year high, stocks have tumbled about 10 percent this year and the outlook for faster wage growth has waned.

   

  All of these things are obstacles to the BOJ hitting the 2 percent inflation target by its goal of around the six months through March 2017. The bank could announce a change to the timing of the target Friday.

   

  And one possible wild card: If stimulus isn’t expanded, look for language that hints at the potential for an unscheduled policy move ahead of the next meeting, which won’t be until March 14-15. The BOJ has a new schedule for 2016, and no longer has a February meeting.

   

  Friday’s meeting is the first at which the board will release the outlook report at the same time as the policy decision, which could delay the release past the typical window of between noon and 12:30 p.m. in Tokyo. Later decisions in the past were often associated with policy shifts, but that may not be the case this time.

  If the board stands pat, observers would expect the yen to climb and Japanese stocks to tumble in the immediate reaction.

  

  But that could shift, if the BOJ signals it will be watching financial markets continuously for signs of damage to the domestic outlook and will be ready to act at any time. Kuroda could emphasize that message in his 3:30 p.m. press conference — though that would be after the close of stock trading in Tokyo.

  “The need for a Kuroda bazooka is increasing,” said Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “This is decision time for Kuroda” as additional stimulus can stop the trend of yen gains and falling stocks.

  Whether the BOJ pushes back the timing of reaching the 2 percent price target and if so by how much will be a key gauge to assess BOJ’s optimism or pessimism.

  The BOJ now forecasts hitting the inflation target around the six months through March 2017. People familiar with discussions at the BOJ told Bloomberg last week that they are considering a delay in the schedule for a third time in less than a year.

   

  If the target is postponed to some time in fiscal 2017, that points to an increasing risk for not achieving it by the end of Kuroda’s term in April 2018, according to Hideo Hayakawa, a former BOJ chief economist. If the inflation target holds firm without further stimulus, that will be an indication that Kuroda remains more optimistic than most.

   

  The key is how Kuroda views the impact of the recent moves in the yen and Japanese stocks, along with concerns about China’s slowdown on Japan’s inflation expectations and corporate investment and wage plans. The economy is growing at about its potential, so it comes down to assessing confidence and whether he thinks a move Friday would strengthen sentiment.

   

  The BOJ also will update its forecasts for economic growth and prices for the first time since October. Hayakawa forecast that the bank will cut the inflation projection to about 1 percent for the year starting in April from 1.4 percent.

  The big question though, as Bloomberg notes, is Will Kuroda Adopt Draghi-Style Communication?

  Masaaki Kanno, the chief Japan economist at JPMorgan, and UBS’s Daiju Aoki say Kuroda may indicate further easing is coming soon as European Central Bank President Mario Draghi did last week. Also, the Fed added a line in its statement this week to say it’s closely monitoring global economic and financial developments.

   

  By adopting the Draghi style, Kuroda could avoid disappointing the markets and buy some time as he examines the impact of stock and yen turbulence on Japan’s economy.

  However, given the market's lackluster response to Draghi's promise, it appears markets are demanding action not words.

  But even actions have not helped, as Alhambra's Jeff Snider previously noted, there is scarcely a block of the calendar since the “impossible” global panic in 2008 that hasn’t seen any of them doing something to expand their balance sheet or impress the “time-axis.”

   By my more conservative count, qualified as the BoJ doing something different rather than purely expanding or extending something already in progress, there have been 10 QE’s in Japan but using the numerical standard which has been applied to the Federal Reserve there may have been as many as 22 or more.

   

   

  

   

   

  This is not so much investing or even finance as it is a cult (calling it a religion or even ideology is unjustifiably too charitable). That is the usefulness of “deflationary mindset” not so much as a matter of actual economic pathology but as a built-in, squishy appeal to “we’ll get it right next time.” And there is always, always a next time which doesn’t seem to count for much inside the cult when, in fact, it is everything.

  *  *  *

  But still investors await tonight's BoJ statement for any buying opportunity because this is the farce that the new normal has become.

  

  

  

  

  

• Saudi Arabia Conducted 119 Airstrikes Against Civilian Targets In Yemen, UN Panel Finds

  In March, Saudi Arabia’s air campaign in Yemen will enter its second year.

  Riyadh began flying combat missions last year in an effort to rollback the Iran-backed militiamen who drove Yemeni President Abd Rabbuh Mansur Hadi into exile. The results of the strikes have been mixed. The Houthis were driven from Aden but the fight for Sana’a is far from over.

  And while the Saudis and the Houthis battle it out, ISIS and al-Qaeda are doing what they do best: finding opportunities amid the chaos. Just today for instance, ISIS claimed responsibility for a car bomb that exploded outside of Hadi’s residence in Aden. Hadi was unharmed but six people were killed in the attack.

  As you might recall, the Saudis have a rather checkered human rights record. Earlier this month, the kingdom carried out its largest mass execution in 25 years, killing 47 in what Riyadh pitched as a crackdown on “terrorists.”

  That rather blatant disregard for human life has carried over into the air campaign in Yemen.

  As we’ve documented extensively, Riyadh’s warplanes have “accidentally” hit everything from MSF hospitals to wedding parties and just last week, we brought you the following footage of what Yemen Health Ministry spokesman Dr. Nashwan Attab called a “heinous massacre” involving an ambulance and rescue workers.

  Now, a 51-page report from a UN panel of experts on Yemen has revealed “widespread and systematic” attacks on civilian targets by Saudi planes.

  The report (which was obtained by The Guardian) says the following: 

  “The panel documented that the coalition had conducted airstrikes targeting civilians and civilian objects, in violation of international humanitarian law, including camps for internally displaced persons and refugees; civilian gatherings, including weddings; civilian vehicles, including buses; civilian residential areas; medical facilities; schools; mosques; markets, factories and food storage warehouses; and other essential civilian infrastructure, such as the airport in Sana’a, the port in Hudaydah and domestic transit routes.”

   

  “The panel documented 119 coalition sorties relating to violations of international humanitarian law.”

  And it gets worse:

  “Many attacks involved multiple airstrikes on multiple civilian objects. Of the 119 sorties, the panel identified 146 targeted objects. The panel also documented three alleged cases of civilians fleeing residential bombings and being chased and shot at by helicopters.”

  And worse:

  The coalition’s targeting of civilians through airstrikes, either by bombing residential neighbourhoods or by treating the entire cities of Sa’dah and Maran as military targets, is a grave violation of the principles of distinction, proportionality and precaution. In certain cases, the panel found such violations to have been conducted in a widespread and systematic manner.”

  And worse:

  “Alongside ground-led obstructions to humanitarian distribution, the panel documented 10 coalition airstrikes on transportation routes (both sea and air routes), four road supply routes and five storage facilities for holding food aid (including two vehicles carrying aid and three warehouses and facilities storing food), along with airstrikes on an Oxfam warehouse storing equipment for a water project funded by the European Union in Sana’a. The panel also documented three coalition attacks on local food and agricultural production sites.”

  So let’s see if we’ve got this straight. Over the course of 119 discrete sorties, Saudi Arabi bombed refugee camps, weddings, civilian cars, buses, people’s homes, hospitals, schools, mosques, residential neighborhoods, an Oxfam warehouse, treated “entire cities as military targets,” and chased after fleeing civilians with attack helicopters.

  Not to put too fine a point on it, but that’s laughably bad – it’s just about the most egregious account of human rights abuses one could possibly imagine. 

  “Human rights groups and the Labour leader, Jeremy Corbyn – who described the leaked report as disturbing – called for an immediate inquiry and a suspension of arms sales to Saudi pending its outcome,” The Guardian notes, adding that “UK arms sales to Saudi Arabia totalled £2.95bn for the first nine months of 2015, and about £7bn since Cameron took office, including a contract for 72 Eurofighter Typhoon jets.”

  

  Of course it’s not just Britain arming the Saudis. 

  In December, the US State Department approved $1.29 billion in arms sals to Riyadh including 13,000 precision guided weapons. 

  According to the kingdom, those weapons will help the Saudis avoid collateral damage. “We used precision bombs in the beginning, but the stocks dwindled and we got no resupply,” NPR quotes a Saudi businessman with links to the royal family as saying. “We know we have a problem, but we must prosecute the war.”

  “You can imagine them saying to everybody that is criticizing them, ‘Look, if we have better weapons, there will be less casualties,’ ” Ford M. Fraker, president of the Middle East Policy Council and a former U.S. ambassador to Saudi Arabia, said last month. “I think that is probably correct, but I think the whole issue of [collateral damage] is not one you are going to eradicate.”

  No it isn’t. Especially not when the Saudis are shooting at civilians.

  

  

  

  

  

• Deutsche Bank Eliminates Management Bonuses After "Horrible," "Grim" Results

  “These are extremely poor results,” Citi’s Andrew Coombs wrote last week after Deutsche Bank CEO John Cryan announced a “sobering” set of numbers for 2015.

  By “sobering,” Cryan meant a net loss of more than $7 billion. It was the first annual loss since the crisis and was capped off by a Q4 loss of €2.1 billion which included €1.2 billion in litigation fees.

  Revenues missed estimates by 11% and fell 16% Y/Y but that in and of itself “fails to explain €0.7bn of the underlying miss,” Citi’s Coombs continued.”It would appear that the bank has also been forced to book elevated credit losses during the quarter.”

  Citi is also looking for some €3.6 billion in additional litigation charges this year.

  On Thursday we got a look at the full results for Q4 and the picture is, well, quite ugly.

  Investment banking was a nightmare, as revenues plunged 30% in corporate banking and securities where provisions for credit losses jumped from just $9 million in Q4 2014 to $115 million. For the year, provisions rose to $265 million versus $103 million for 2014. Deutsche blamed “valuation adjustments in Debt Sales & Trading, a challenging trading environment, and lower client activity” for the decline in revenues. Fixed income and equities revenue fell 16% and 28% during the period, respectively.

  

  “Another pressing question is if the Deutsche investment bank model is in structural decline,” Citi’s Coombs wrote today, after parsing the results. “FICC was down -8% yoy in 4Q15 (vs US peers +4% yoy) [and while] management argues there is no structural deterioration, this remains to be seen.”

  BofAML’s Richard Thomas called the trading numbers “horrible” and the overall results “grim.” “We think that the bank is in for another difficult year in that guidance is that ‘2016 peak restructuring year’,” Thomas said, adding that “it looks like revenues are under a lot of pressure, yet adjusted costs are guided to be flat with another €1bn of restructuring costs.”

  
  

  “In fairness to John Cryan, he signaled that re-orientating the investment bank will have a revenue impact so we shouldn’t be too surprised about that,” Neil Smith, an analyst at Bankhaus Lampe with a buy recommendation on the stock told Bloomberg.

  For his part, John Cryan is sorry both for the performance and for himself because as it turns out, he won’t be getting a bonus and neither will the rest of the firm’s top management. 

  “It would be inappropriate vis-à-vis society to post €5.2bn in legal provisions in one year and not reflect that in compensation, particularly when the share price has fallen, and shareholders have suffered,” he said, explaining why members of the management team will not receive bonuses for 2015. “By and large, I think we are underpaying against our international peer group this year and I hope that many staff understand why.”

  We’re sure they understand why. The results are terrible. How long the staff will stay if they aren’t getting paid is another matter entirely. 

  “Although no one wants to contribute to leading a company when the cost of joining the management board is a diminution in possible compensation, in the context of the overall performance of the bank last year . . . that’s a decision which I respect,” Cryan added.

  Deutsche said litigation costs would be “less than 2015,” which isn’t saying much given that the bank shelled out some €5.2 billion last year paying for the shenanigans of years past. 

  As for whether the bank will ultimately have to raise capital, Citi says that’s a distinct possibility. Here’s why:

  We view the leverage ratio as the binding capital constraint for Deutsche. The current 3.5% is well below peers and the company’s own 4.5% target. Post restructuring & litigation charges and a Postbank divestment at 0.6x P/TB, we estimate a pro-forma leverage ratio of c3.3%. This implies a c€15bn shortfall, of which we expect part to be met by underlying retained earnings and part via AT1 issuance. However this still leaves an equity shortfall – we see a c4% leverage ratio by end-2017 – which is likely to necessitate a capital increase of up to €7bn in our view. In addition we note the target CET1 ratio of >12.5% only allows for a 0.25% management buffer above the fully-loaded SREP requirement. This provides the company with limited flexibility especially if BaFin were to introduce a counter-cyclical buffer (max 2.5% add-on).

  So as it turns out, it’s much harder to turn a profit when you stop cheating as much and when you are forced to fork over billions for all of the cheating you used to do.

  It certainly looks as though Cryan’s bid to overhaul the investment banking side may be far too little far too late, so don’t be surprised to see the equity trading in the single digits by year end.

  Oh, and about that dividend; Cryan says it’s not coming back until 2017 “at the earliest.”

  

  

  

  

  

• For Amazon, The Only Chart That Matters

  For all the traders and hedge fund managers who are under 30, Amazon has been here before, and not just once: a place where the company’s growth prospects – perceived as virtually boundless – were put into question, leading to a collapse in the soaring stock price.

  Indicatively, putting the company’s “valuation” in context, AMZN is now trading at a PE of roughly 460x, which compares to 87x during the last peak in the summer of 2008.

  But what matters for Amazon has never been earnings: it was always top line growth (the company generated $107 billion in sales in 2015 and less than a billion in net income) and multiple expansion (or contraction).

  Putting all that together we get the following chart courtesy of IceFarm Capital: 16 years of sales growth since the first dot com bubble superimposed on top of AMZN’s multiple expansion (or contraction). In the latest quarter, worldwide net sales growth once again took a leg lower despite AMZN now employing over a quarter million workers!

  But the real question is what will the market do: will it continue giving AMZN’s multiple the benefit of the doubt, and let it grow at its recent torrid pace – a pace we have seen many times before – or will the market sniff out that as a result of the global growth slowdown the time to exit has arrived, and lead to an outcome we have also seen many times before, when AMZN’s multiple growth suddenly went into reverse sending the stock price plunging as a result.

  If the answer is yes, watch out below.

  

  

  

  

  

  

• Gold, Political Instability, & Why QE Was The Worst Thing In The World

  Submitted by Jared Dillian via The 10th Man, MauldinEconomics.com,

  Long before I started writing for Mauldin Economics, I was a gold bull.

  A mega-gold bull.

  This started in 2005. I was making markets in ETFs at the time, and as head of the ETF desk at Lehman Brothers, I signed the firm up to be one of the early authorized participants in the SPDR Gold Shares fund (GLD). I was pretty excited.

  It may seem quaint now, but at the time, there really wasn’t an easy way to invest in gold outside of coins or bars (high transaction costs, cumbersome) or futures (high barriers to entry). Physical gold, of course, is preferable, but you can’t really trade it, per se.

  So I bought some GLD in 2005, bought more, bought more, bought more in 2008 with veins popping out of my neck, and was caught massively long in 2011.

  I figured, oh well, it’s just a correction, I’ll ride it out. Except I didn’t know that it was going to be a 40+% drawdown and last five years. If I’d had that knowledge, I probably would have sold.

  But my investment thesis on gold hadn’t changed.

  Let me explain.

  Why Gold

  When the financial system was melting down in 2008, I predicted (possibly before anyone else) that Ben Bernanke would conduct unconventional monetary policy: quantitative easing. In retrospect, it wasn’t a hard call. He basically said he was going to do it in a 2002 speech.

  I remember the day. The long bond rallied nine handles.

  Anyway, that’s when the veins popped out of my neck, because I said all this printed money was going to slosh around the financial system and cause hyperinflation. Of course, I wasn’t the only one saying this, but I was saying it pretty loudly.

  Never happened. All that money never ended up sloshing around—it ended up deposited as excess reserves back at the Fed. Years later, people theorized that quantitative easing actually caused the opposite to happen: deflation.

  Anyhow, in finance, it is okay to be right for the wrong reasons. Gold went up for three more years, the best-performing asset class, even though the underlying thesis was totally wrong. There was no inflation whatsoever. Eventually, gold got the joke as sentiment turned, and you know what the last five years have been like.

  The Weimar Experience

  When the gold bugs start talking about hyperinflation, they usually start talking about Weimar Germany, probably the best-documented example of a situation where inflationary psychology took hold.

  I don’t want to rehash the whole story here, but basically, post WWI, the League of Nations saddled Germany with a bunch of war reparations it could not possibly ever repay. In the end, though, Germany did repay—with printed money.

  The funny thing about inflation is that it is always fun at first. Weimar Germany boomed for a couple of years, before the inflation began to get out of control. Ultimately, the deutsche mark collapsed, replaced by the rentenmark, which was actually backed by something of tangible value: land.

  The ensuing financial collapse brought about political instability, which led to the rise of Hitler, and you know the story from there.

  Now, clearly that hasn’t happened in the US, and it isn’t likely to happen. We did not get inflation… of goods and services. Interestingly, though, we got inflation of financial asset prices. Stocks and bonds went up, as well as real estate—even art. Great, but as you know, not everybody owns stocks, usually only people with some money to invest.

  So as all the research shows, the rich have gotten richer, and the poor have gotten poorer. Inequality has increased massively, which has brought about political instability, which will lead to… who, as president, exactly?

  Perish the thought.

  Anyway, whether gold goes up or down, I continue to assert that printing money is absolutely the worst thing a central bank can do. Even under the best of circumstances, the unintended consequences are colossally bad. Even now, the Fed is just getting around to acknowledging the fact that QE might have actually caused wealth inequality.

  There are those who will always say, “What, was the Fed supposed to do nothing? What do you think would have happened?”

  An unimaginably bad depression. Then, the best recovery ever. And nobody would be mad at each other.

  Gold Is Bouncing

  You can’t deny the price action. Over the last few weeks, it is positively buoyant. If I were short, my butt cheeks would be tightening up.

  I’m starting to develop a theory, which is crazy, but then again… it might not be entirely crazy. You can help me decide.

  Maybe gold is starting to price in some of this political instability. Maybe it is starting to price in a Sanders or Trump presidency.

  After all, if Bernie Sanders were to become president, he would double the debt overnight

   

  If it were Trump, probably the same thing—we are talking about a guy who has spent his entire career screwing creditors.

  This increases the possibility, however remote, of debt monetization. Also, populists are great for gold prices.

  Like I said, maybe not so crazy. Regardless of whether gold goes up or down, or if you think gold bugs are total idiots, it makes sense (for a lot of portfolio theory reasons) to have it as part of your portfolio.

  Sometimes a bigger part than others.

  

  

  

  

  

• Saudi Arabia Hemorrhages $19.4 Billion In Reserves During December

  Saudi Arabia – which was busy playing headline hockey with Russia this morning over a rumored 5% production cut proposal – is running out of money.

  Yes, we know, that sounds absurd. But believe it or not, the country whose monarch recently rented the entire Four Seasons hotel for a 48 hour stay in Washington DC, is in fact going broke. And at a fairly rapid clip.

  The problem: slumping crude. As we first discussed in November of 2014, Riyadh’s move to kill the fabled petrodollar in an effort to bankrupt the US shale complex was a risky proposition. If ZIRP kept US producers in the game longer than the Saudis anticipated, crashing crude could end up blowing a hole in the kingdom’s budget – especially if Iranian supply came back on line and added to the supply glut.

  Fast forward a 14 months and that’s exactly what’s happened. US production is down but not wholly out (yet) and the Iranians are adding 500,000 barrels per day in output in Q1 and 100,000,000 per day by the end of the year.

  Compounding the problem is the war in Yemen (which will enter its second year this March) and the cost of providing subsidies for everyday Saudis.

  All of this has conspired to leave Riyadh with a budget deficit of 16%. That’s expected to narrow in 2016 but at 13%, will still be quite large. Make no mistake, if crude continues to sell for between $30 and $35 per barrel, 13% will probably prove to be a rather conservative estimate.

  “This is a quantum leap in all aspects,” Abdullatif al-Othman, governor of the Saudi Arabian General Investment Authority, told a conference convened this week to study ways for the kingdom to cut spending and shore up the budget. Here’s Reuters:

  Stakes in the operations of big state companies, including national oil giant Saudi Aramco, would be sold off; underused assets owned by the government, such as vast land holdings and mineral deposits, would be made available for development.

   

  Parts of the government itself, including some areas of the national health care system, would be converted into independent commercial companies to improve efficiency and reduce the financial burden on the state. The number of privately run schools would rise to around 25 percent from 14 percent.

   

  Meanwhile, the government would use its massive financial resources to help diversify the economy beyond oil into sectors such as shipbuilding, information technology and tourism, by awarding contracts to new firms and providing finance.

   

  Fadl al-Boainain, a prominent Saudi private-sector economist who attended the conference, said he welcomed officials’ emphasis on developing parts of the economy that had long been neglected because of the focus on oil.

   

  But he added: “The overall economic situation does not support the great optimism that ministers expressed, and it does not support the indicators they referred to.

  Meanwhile, the market is betting that the pressure will ultimately force the Saudis to abandon the riyal peg. Keeping the currency tethered to the dollar is yet another drag on the country’s finances and all in all, the kingdom saw its FX reserve war chest dwindle by more than $100 billion through November.

  That’s what we mean when we say the monarchy is going broke.

  In December, the bleeding continued unabated. Data out today from SAMA shows the Saudis blew through some $19.4 billion last month, as the war chest shrank to $608 billion. 

  

  Thanks to the fact that the composition of the SAMA piggybank is a state secret, we don’t know how much of the drawdown was USTs, but it’s safe to say some US paper was sold.

  As a reminder, the IMF estimates that if current market conditions persist, the kingdom will have burned through the entirety of their rainy day fund within just five years. 

  Here’s BofAML’s analysis of the SAMA stash and how long Riyadh can hold out under various assumptions for crude prices and borrowing.

  

  So even as the Saudis swear the headlines surrounding a proposed 5% production cut are bogus and even if Riyadh managed to weather the storm slightly better in 2015 than some predicted, the kingdom effectively has two choices: 1) cut production, or 2) drop the riyal peg. 

  Otherwise, King Salman won’t be able to tap SAMA for the money he needs to rent Mercedes S600 fleets – and we can’t have that…

  

  

  

  

  

  

• Moronic Mimicking Minds

  A picture story in four parts from the Slope of Hope:  

   

   

  

   

  

  

  

  

  

  

• Red Ponzi Ticking

  Submitted by David Stockman via Contra Corner blog,

  There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula——even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations.

  In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.

  The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington presumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition. That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption.

  Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel.

  So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything.  It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.

  And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century.

  In fact, China is the rotten epicenter of the world’s two decade long plunge into an immense central bank fostered monetary fraud and credit explosion that has deformed and destabilized the very warp and woof of the global economy.

  But in China the financial madness has gone to a unfathomable extreme because in the early 1990s a desperate oligarchy of despots who ruled with machine guns discovered a better means to stay in power. That is, the printing press in the basement of the PBOC—-and just in the nick of time (for them).

  Print they did. Buying in dollars, euros and other currencies hand-over-fist in order to peg their own money and lubricate Mr. Deng’s export factories, the PBOC expanded its balance sheet from $40 billion to $4 trillion during the course of a mere two decades. There is nothing like that in the history of central banking—–nor even in economists’ most febrile imagings about its possibilities.

  

  The PBOC’s red hot printing press, in turn, emitted high-powered credit fuel. In the mid-1990s China had about $500 billion of public and private credit outstanding—hardly 1.0X its rickety GDP. Today that number is $30 trillion or even more.

  Yet nothing in this economic world, or the next, can grow at 60X in only 20 years and live to tell about it. Most especially, not in a system built on a tissue of top-down edicts, illusions, lies and impossibilities, and which sports not even a semblance of financial discipline, political accountability or free public speech.

  To wit, China is a witches brew of Keynes and Lenin. It’s the financial tempest which will slam the world’s great bloated edifice of central bank fostered faux prosperity.

  So the right approach to the horrible danger at hand is not to dissect the pronouncements of Beijing in the manner of the old kremlinologists. The occupants of the latter were destined to fail in the long run, but they at least knew what they were doing tactically in the here and now; it was worth the time to parse their word clouds and seating arrangements at state parades.

  By contrast, and not to mix a metaphor, the Red Suzerains of Beijing have built a Potemkin Village. But they actually believe its real because they do not have even a passing acquaintanceship with the requisites and routines of a real capitalist economy.

  Ever since the aging oligarch(s) who run China were delivered from Mao’s hideous dystopia by Mr. Deng’s chance discovery of printing press prosperity, they have lived in an ever expanding bubble that is so economically unreal that it would make the Truman Show envious. Any rulers with even a modicum of economic literacy would have recognized long ago that the Chinese economy is booby-trapped everywhere with waste, excess and unsustainability.

  Here is but one example. Somewhere near Shanghai some credit-crazed developers built a replica of the Pentagon on 100 acres of land. This was not intended as a build-to-lease deal with the  PLA (People’s Liberation Army); its a shopping mall that apparently has no tenants and no customers!

  

  One of the more accurate things I have ever said is that the USA’s Pentagon was built on a swampland of waste. That is, I do take my anti-statist viewpoint seriously and therefore firmly believe that the Warfare State is every bit as prone to mission creep and the prodigious waste of societal resources as is the Welfare State and the bailout breeding backrooms of Washington.

  But our Pentagon at least has a public purpose and would return some benefit to society were its mission to be shrunk to honestly defending the homeland. By contrast, China’s “Pentagon” gives waste an altogether new definition.

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

  Accordingly, the outward forms of capitalism are belied by the substance of statist control and central planning. For example, there is no legitimate banking system in China—just giant state bureaus which are effectively run by party operatives.

  Their modus operandi amounts to parceling out quotas for national GDP and credit growth from the top, and then water-falling them down a vast chain of command to the counties, townships and villages below. There have never been any legitimate financial prices in China—all interest rates and FX rates have been pegged and regulated to the decimal point; nor has there ever been any honest financial accounting either—-loans have been perpetual options to extend and pretend.

  And, needless to say, there is no system of financial discipline based on contract law. China’s GDP has grown by $10 trillion dollars during this century alone——-that is, there has been a boom across the land that makes the California gold rush appear pastoral by comparison.

  Yet in all that frenzied prospecting there have been almost no mistakes, busted camps, empty pans or even personal bankruptcies.  When something has occasionally gone wrong with an “investment” the prospectors have gathered in noisy crowds on the streets and pounded their pans for relief—-a courtesy that the regime has invariably granted.

  Indeed, the Red Ponzi makes Wall Street look like an ethical improvement society. Developers there built an entire $50 billion replica of Manhattan Island near the port city of Tianjin—– complete with its own Rockefeller Center and Twin Towers—– but have neglected to tell investors that no one lives there. Not even bankers!

   

  

  

  Stated differently, even at the peak of recent financial bubbles in London, NYC, Miami or Houston  they did not build such monuments to sheer economic waste and capital destruction. But just consider the case of China’s mammoth steel industry.

  It grew from about 70 million tons of production in the early 1990s to 825 million tons in 2014. Beyond that, it is the capacity build-out behind the chart below which tells the full story.

  To wit, Beijing’s tsunami of cheap credit enabled China’s state-owned steel companies to build new capacity at an even more fevered pace than the breakneck growth of annual production. Consequently, annual crude steel capacity now stands at nearly 1.2 billion tons, and nearly all of that capacity—-about 65% of the world total—— was built in the last ten years.

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

  

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

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

  The fact is, China will be lucky to have 500 million tons of true sell-through demand—-that is, on-going domestic demand for sheet steel to go into cars and appliances and for rebar and structural steel to be used in replacement construction once the current one-time building binge finally expires. That’s just 40% of its massive capacity investment.

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

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

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

   

  

   

  Total orders at Chinese shipyards tumbled 59 percent during  2015, according to data released by the China Association of the National Shipbuilding, meaning that demand for plate steel from China’s mills will plunge in the years ahead.

  That’s why on Sunday the Beijing State Council made a rather remarkable announcement. To wit, it will close 100 million to 150 million tons of steel-making capacity. That would mean cutting capacity by an amount similar to the total annual steel output of Japan, the world’s No. 2 steel maker, and nearly double that of the US.

  These are not simply gee whiz comparisons. It took the fastidious Japanese nearly five decades to erect the world’s leading steel industry on the back of tens of thousands of step-by-step engineering and operational improvements. China created the same tonnage each and every year after the financial crisis, but it was all based just on a great field of dreams exercise in pell mell expansion. Efficiency. longevity and steel-making technique were hardly an afterthought.

  Nor is its own tail the only loss of market. Even more  fantastic than steel has been the growth of China’s auto production capacity. In 1994, China produced about 1.4 million units of what were bare bones communist era cars and trucks. Last year it produced more than 23 million mostly western style vehicles or 16X more.

  And, yes, that wasn’t the half of it. China has gone nuts building auto plants and distribution infrastructure. It is currently estimated to have upwards of 33 million units of vehicle production capacity. But  demand has actually rolled over this year and will continue heading lower after temporary government tax gimmicks—– that are simply pulling forward future sales—–expire.

  The more important point, however, is that as the China credit Ponzi grinds to a halt, it will not be building new auto capacity for years to come. It is now drowning in excess capacity, and as prices and profits plunge in the years ahead the auto industry CapEx spigot will be slammed shut, too.

  Needless to say, this not only means that consumption of structural steel and rebar for new auto plants will plunge. It also will result in a drastic reduction in demand for the sophisticated German machine tools and automation equipment needed to actually build cars.

  Stated differently, the CapEx depression already underway in China, Australia, Brazil and much of the EM will ricochet across the global economy. Cheap credit and mispriced capital are truly the father of a thousand economic sins.

  China’s construction infrastructure, for example, is grotesquely overbuilt—— from cement kilns, to construction equipment manufacturers and distributors, to sand and gravel movers, to construction site vendors of every stripe. For crying out loud, in three recent year China used more cement than did the United States during the entire 20th century!

  That is not indicative of a just a giddy boom; its evidence of a system that has gone mad digging, hauling, staging and constructing because there was unlimited credit available to finance the outpouring of China’s runaway construction machine.

   

  

  The same is true for its machinery, solar and aluminum industries—to say nothing of 70 million empty luxury apartments and vast stretches of over-built highways, fast rail, airports, shopping mails and new cities.

  In short, the flip-side of the China’s giant credit bubble is the most massive malinvesment of real economic resources—-labor, raw materials and capital goods—ever known. Effectively, the country-side pig sties have been piled high with copper inventories and the urban neighborhoods with glass, cement and rebar erections that can’t possibly earn an economic return, but all of which has become “collateral” for even more “loans” under the Chinese Ponzi.

  China has been on a wild tear heading straight for the economic edge of the planet—-that is, monetary Terra Incognito— based on the circular principle of borrowing, building and borrowing. In essence, it is a giant re-hypothecation scheme where every man’s “debt” become the next man’s “asset”.

  Thus, local government’s have meager incomes, but vastly bloated debts based on the collateral of stupendously over-valued inventories of land—-valuations which were established by earlier debt financed sales to developers.

  Likewise, coal mine entrepreneurs face not only collapsing prices and revenues, but also soaring double digit interest rates on shadow banking loans collateralized by over-valued coal reserves. Shipyards have empty order books, but vast debts collateralized by soon to be idle construction bays. Speculators have collateralized massive stock piles of copper and iron ore at prices that are already becoming ancient history.

  So China is on the cusp of the greatest margin call in history. Once asset values start falling, its pyramids of debt will stand exposed to withering performance failures and melt-downs. Undoubtedly the regime will struggle to keep its printing press prosperity alive for another month or quarter, but the fractures are now gathering everywhere because the credit rampage has been too extreme and hideous.

  It is downright foolish, therefore, to claim that the US economy is decoupled from China and the rest of the world. In fact, it is inextricably bound to the global financial bubble and its leading edge in the form of red capitalism.

  Bubblevision’s endlessly repeated mantra that China doesn’t matter because it only accounts for only 1% of US exports is a non sequitir. It does not require astute observation to recognize that Caterpillar did not export its giant mining equipment just to China; massive amounts of it went there indirectly by way of Australia’s booming iron ore provinces.

  That is, until the global CapEx bust was triggered by two years of crumbling commodity prices. CAT’s monthly retail sales reports are a slow motion record of this unprecedented crash.

  Thus, December US retail sales tumbled 10% over last year, following a 5% drop in November. But that was the optimistic part of its global results. Elsewhere December sales by its dealers were a complete debacle: The Asia/Pacific/China region was down by 21%; EAME dropped by 12%; and Latin America (i.e. Brazil) continued its free fall, dropping by 36% versus prior year.

  

  Overall, CAT’s global retail sales posted a massive 16% drop in December compared to prior year—–a result tied for the worst annual decline since the financial crisis. And that comes on top of the 12% decline a year ago, another 9% in 2013, and -1% in 2012.

  Moreover, four consecutive years of declines is not simply a CAT market share or product cycle matter. Its major Asian rivals have experienced even larger sales declines. Komatsu is down, for example, by 80% from its peak sales levels.

  In the heavy machinery sector, therefore, the global CapEx depression is already well underway. There has been nothing comparable to this persisting plunge since the 1930s.

  Likewise, the US did not export oil to China, but China’s vast, credit-inflated demand on the world market did artificially lift world oil prices above $100 per barrel, thereby touching off the US shale boom that is now crashing in Texas, North Dakota, Oklahoma and three other states. And the fact is, every net new job created in the US since 2008 is actually in these same six shale states.

  Indeed, the rot that was introduced into the global economy by the world’s convoy of money printing central banks extends into nearly unimaginable places, owing to the false bubble prices for crude oil and other raw materials that were temporarily inflated by the global credit boom. Thus, the 5.6X explosion of global credit shown below had everything to do with the aberration of $100 per barrel oil and all the malinvestments and whacky distortions it spawned in places which harvested the windfall rents.

  

  To wit, Iraq is now so broke——–notwithstanding a 33% increase in oil exports last year——that it is petitioning the IMF for a bailout. Yet as recently as a year ago plans were proceeding apace to build the world tallest building at its oil country center at Basra.

  That right. The “Pride of the Gulf” now has tin cup in hand and is heading for an IMF rescue. The monstrosity below will likely never be built, but it does succinctly symbolize the trillions that have been wasted around the world by lucky reserve owning companies and countries during the false boom that emanated from the Red Ponzi.

  

  The planned “Bride of the Gulf” building in Basra. At a height of 1,152 meters, it would outdistance even the Jeddah Tower being built in Saudi Arabia.

  Similarly, US exports to Europe have tripled to nearly $1 trillion annually since 1998, while European exports to China have more than quintupled. Might there possibly be some linkages?

  In short, there is an economic and financial trainwreck rumbling through the world economy called the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles.

  Forget the orderly transition myth. What happens when the iron ore ports go quiet, the massive copper stock piles on the pig farms are liquidated, the coal country turns desolate, the cement trucks are parked in endless rows, the giant steel furnaces are banked, huge car plants are idled and tens of billions of bribes emitted by the building boom dry up?

  What happens is that giant economic cavities open up throughout the length and breadth of the Red Ponzi.

  Industrial profits as a whole are already down 5% on a year over year basis, but in the leading sectors have already turned into read ink. In a few quarters China’s business sector, in fact, will be in the throes of a massive profits contraction and crisis.

  Likewise, tens of millions of high paying jobs, and the consumer spending power they financed, will vanish. Also, the value of 70 million empty apartment units that had been preposterously kept vacant as a distorted form of investment speculation will plunge in value, wiping out a huge chunk of the so-called savings of China’s newly emergent affluent classes.

  So where are all the consumers of services supposed to come from? After peak debt and the crash of China’s vast malinvestments, there will be no surplus income to recycle.

  Most importantly, as the post-boom economic cavities spread in cancer like fashion and the crescendo of financial turmoil intensifies, the credibility of the regime will be thoroughly undermined. Capital flight will become an unstoppable tidal wave as the people watch Beijing  lurch from one make-do fix and gimmick to the next, as they have during the stock market fiasco of the past two years.

  In short, China will eventually crash into economic and civil disorder when the Red Suzerains go full retard with governance by paddy wagons, show trials, brutal suppression of public dissent and a return to Chairman Mao’s gun barrel as the ultimate source of communist party power.

  Self-evidently, the Maoist form of rule did not work. But what is now becoming evident is that Mr.. Deng’s printing press has a “sell by” date, too.

  

  

  

  

  

• This $250,000 Caterpillar Bulldozer Can Be Yours For The Low, Low Price Of $55

  After today’s CAT earnings, in which the company not only announced a steep drop in revenues, profits and cash flow but also obliterated its guidance, cutting the midpoint of the 2016 revenue range (set just three months ago) from $45.5 billion to $42 bilion, it should have become clear to everyone just how bad the company’s income statement is.

  But what about its balance sheet and specifically that $10 billion in inventory? We got a glimpse back in November when we showed how at an auction in Australia, CAT loaders, excavators and tractors, with MSRPs in the millions, were selling for sub-pennies on the dollar, or as low as $15,000 for a machine that was originally sold for $2.9 million.

  The post quickly went viral and while many readers were impressed by the collapse in demand (as reflected by the auction prices) for CAT equipment, some wished they too could participate in the bidding process: after all, what better way to make an impression on one’s neighbors than to take a leisurely stroll down the street in a bulldozer, especially if its costs virtually nothing.

  To all readers who wrote us complaining about this, you are in luck.

  Below we present a Caterpillar D6T Bulldozer, a machine which has a “new” MSRP of over a million dollars, and which with over 5,000 hours of use, sells through reputable dealer channels, for around $250,000 each.

  

   

  Or, as the case may be, does not sell because while $250,000 is well below the MSRP, it is clearly still too high for that occasional leisurely drive around the neighborhood. Or for any other purpose for that matter.

  But what about $50?

  Because that is what the bid is on the exact same dozer (one which has even less total use, or just 3680 hours) currently offered for sale on Proxibid, where with 20 hours left until the end of the auction, $50 is all someone is willing to spend for this heavy machinery marvel.

  

   

  Here are some more photos of the gorgeous, barely used machine you could be the proud owner of for the low, low price of $55.00

  

  

  

  

  

  

  

  

  

   

  Cherry on top: the high-end audio system comes included in the price.

  

   

  What are the terms of the auction? Well, what you buy is pretty much what you get “as is.” But surely there is a catch, like $249,950 shipping? Well no – you just have to go to Louisiana and pick it up.

  But what if $50 feels too rich for this bulldozer? There is always this $10 Komatsu may be more up your alley.

  

  Perhaps a bulldozer is not what you need: then how about this $110 Volvo excavator?

  

  Or maybe neither a bulldozer nor an excavator is your cup of tea? That’s fine: judging by these (lack of) bids, nobody else has an urge to splurge either.

  Which brings us to our original question: if a bulldozer which retails new for over $1 million, can not sell via official channels For 250,000 and has a true price discovery in the hundreds if not tens of dollars, what does that suggest about i) the true mark on Caterpillar’s $10 billion in Inventory, and ii) the losses that CAT’s banks are starting at if they ever are forced to liquidate the “collateral” that backs their loans?

  Source: Proxibid

  

  

  

  

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• Circus Politics: Will Our Freedoms Survive Another Presidential Election?

  Submitted by John Whitehead via The Rutherford Institute,

  “Never has our future been more unpredictable, never have we depended so much on political forces that cannot be trusted to follow the rules of common sense and self-interest—forces that look like sheer insanity, if judged by the standards of other centuries.” ? Hannah Arendt, The Origins of Totalitarianism

  Adding yet another layer of farce to an already comical spectacle, the 2016 presidential election has been given its own reality show. Presented by Showtime, The Circus: Inside the Greatest Political Show on Earth will follow the various presidential candidates from now until Election Day.

  As if we need any more proof that politics in America has been reduced to a three-ring circus complete with carnival barkers, acrobats, contortionists, jugglers, lion tamers, animal trainers, tight rope walkers, freaks, strong men, magicians, snake charmers, fire eaters, sword swallowers, knife throwers, ringmasters and clowns.

  Truly, who needs bread and circuses when you have the assortment of clowns and contortionists that are running for the White House?

  No matter who wins the presidential election come November, it’s a sure bet that the losers will be the American people.

  Despite what is taught in school and the propaganda that is peddled by the media, the 2016 presidential election is not a populist election for a representative. Rather, it’s a gathering of shareholders to select the next CEO, a fact reinforced by the nation’s archaic electoral college system.

  Anyone who believes that this election will bring about any real change in how the American government does business is either incredibly naïve, woefully out-of-touch, or oblivious to the fact that as an in-depth Princeton University study shows, we now live in an oligarchy that is “of the rich, by the rich and for the rich.”

  When a country spends close to $5 billion to select what is, for all intents and purposes, a glorified homecoming king or queen to occupy the White House, while 46 million of its people live in poverty, nearly 300,000 Americans are out of work, and more than 500,000 Americans are homeless, that’s a country whose priorities are out of step with the needs of its people.

  As author Noam Chomsky rightly observed, “It is important to bear in mind that political campaigns are designed by the same people who sell toothpaste and cars.”

  In other words, we’re being sold a carefully crafted product by a monied elite who are masters in the art of making the public believe that they need exactly what is being sold to them, whether it’s the latest high-tech gadget, the hottest toy, or the most charismatic politician.

  As political science professor Gene Sharp notes in starker terms, “Dictators are not in the business of allowing elections that could remove them from their thrones.”

  To put it another way, the Establishment—the shadow government and its corporate partners that really run the show, pull the strings and dictate the policies, no matter who occupies the Oval Office—are not going to allow anyone to take office who will unravel their power structures. Those who have attempted to do so in the past have been effectively put out of commission.

  So what is the solution to this blatant display of imperial elitism disguising itself as a populist exercise in representative government?

  Stop playing the game. Stop supporting the system. Stop defending the insanity. Just stop.

  Washington thrives on money, so stop giving them your money. Stop throwing your hard-earned dollars away on politicians and Super PACs who view you as nothing more than a means to an end. There are countless worthy grassroots organizations and nonprofits working in your community to address real needs like injustice, poverty, homelessness, etc. Support them and you’ll see change you really can believe in in your own backyard.

  Politicians depend on votes, so stop giving them your vote unless they have a proven track record of listening to their constituents, abiding by their wishes and working hard to earn and keep their trust.

  Stop buying into the lie that your vote matters. Your vote doesn’t elect a president. Despite the fact that there are 218 million eligible voters in this country (only half of whom actually vote), it is the electoral college, made up of 538 individuals handpicked by the candidates’ respective parties, that actually selects the next president.

  The only thing you’re accomplishing by taking part in the “reassurance ritual” of voting is sustaining the illusion that we have a democratic republic. What we have is a dictatorship, or as political scientists Martin Gilens and Benjamin Page more accurately term it, we are suffering from an “economic élite domination.”

  Of course, we’ve done it to ourselves.

  The American people have a history of choosing bread-and-circus distractions over the tedious work involved in self-government.

  As a result, we have created an environment in which the economic elite (lobbyists, corporations, monied special interest groups) could dominate, rather than insisting that the views and opinions of the masses—“we the people”—dictate national policy. As the Princeton University oligarchy study indicates, our elected officials, especially those in the nation’s capital, represent the interests of the rich and powerful rather than the average citizen. As such, the citizenry has little if any impact on the policies of government.

  We allowed our so-called representatives to distance themselves from us, so much so that we are prohibited from approaching them in public, all the while they enjoy intimate relationships with those who can pay for access—primarily the Wall Street financiers. There are 131 lobbyists to every Senator, reinforcing concerns that the government represents the corporate elite rather than the citizenry.

  We said nothing while our elections were turned into popularity contests populated by individuals better suited to be talk-show hosts rather than intelligent, reasoned debates on issues of domestic and foreign policy by individuals with solid experience, proven track records and tested integrity.

  We turned our backs on things like wisdom, sound judgment, morality and truth, shrugging them off as old-fashioned, only to find ourselves saddled with lying politicians incapable of making fair and impartial decisions.

  We let ourselves be persuaded that those yokels in Washington could do a better job of running this country than we could. It’s not a new problem. As former Senator Joseph S. Clark Jr. acknowledged in a 1955 article titled, “Wanted: Better Politicians”: “[W]e have too much mediocrity in the business of running the government of the country, and it troubles me that this should be so at a time of such complexity and crisis… Government by amateurs, semi-pros, and minor-leaguers will not meet the challenge of our times. We must realize that it takes great competence to run a country which, in spite of itself, has succeeded to world leadership in a time of deadly peril.”

  We indulged our craving for entertainment news at the expense of our need for balanced reporting by a news media committed to asking the hard questions of government officials. The result, as former congressman Jim Leach points out, leaves us at a grave disadvantage: “At a time when in-depth analysis of the issues of the day has never been more important, quality journalism has been jeopardized by financial considerations and undercut by purveyors of ideology who facilely design news, like clothes, to appeal to a market segment.”

  We bought into the fairytale that politicians are saviors, capable of fixing what’s wrong with our communities and our lives, when in fact, most politicians lead such sheltered lives that they have no clue about what their constituents must do to make ends meet. As political scientists Morris Fiorina and Samuel Abrams conclude, “In America today, there is a disconnect between an unrepresentative political class and the citizenry it purports to represent. The political process today not only is less representative than it was a generation ago and less supported by the citizenry, but the outcomes of that process are at a minimum no better.”

  We let ourselves be saddled with a two-party system and fooled into believing that there’s a difference between the Republicans and Democrats, when in fact, the two parties are exactly the same. As one commentator noted, both parties support endless war, engage in out-of-control spending, ignore the citizenry’s basic rights, have no respect for the rule of law, are bought and paid for by Big Business, care most about their own power, and have a long record of expanding government and shrinking liberty.

  Then, when faced with the prospect of voting for the lesser of two evils, many simply compromise their principles and overlook the fact that the lesser of two evils is still evil.

  Perhaps worst of all, we allowed the cynicism of our age and the cronyism and corruption of Beltway politics to discourage us from believing that there was any hope for the American experiment in liberty.

  Granted, it’s easy to become discouraged about the state of our nation. We’re drowning under the weight of too much debt, too many wars, too much power in the hands of a centralized government, too many militarized police, too many laws, too many lobbyists, and generally too much bad news.

  It’s harder to believe that change is possible, that the system can be reformed, that politicians can be principled, that courts can be just, that good can overcome evil, and that freedom will prevail.

  So where does that leave us?

  Benjamin Franklin provided the answer. As the delegates to the Constitutional Convention trudged out of Independence Hall on September 17, 1787, an anxious woman in the crowd waiting at the entrance inquired of Franklin, “Well, Doctor, what have we got, a republic or a monarchy?” “A republic,” Franklin replied, “if you can keep it.”

  What Franklin meant, of course, is that when all is said and done, we get the government we deserve.

  A healthy, representative government is hard work. It takes a citizenry that is informed about the issues, educated about how the government operates, and willing to make the sacrifices necessary to stay involved, whether that means forgoing Monday night football in order to attend a city council meeting or risking arrest by picketing in front of a politician’s office.

  Most of all, it takes a citizenry willing to do more than grouse and complain.

  We must act—and act responsibly—keeping in mind that the duties of citizenship extend beyond the act of voting.

  The powers-that-be want us to believe that our job as citizens begins and ends on Election Day. They want us to believe that we have no right to complain about the state of the nation unless we’ve cast our vote one way or the other. They want us to remain divided over politics, hostile to those with whom we disagree politically, and intolerant of anyone or anything whose solutions to what ails this country differ from our own.

  What they don’t want us talking about is the fact that the government is corrupt, the system is rigged, the politicians don’t represent us, the electoral college is a joke, most of the candidates are frauds, and, as I point out in my book Battlefield America: The War on the American People, we as a nation are repeating the mistakes of history—namely, allowing a totalitarian state to reign over us.

  Former concentration camp inmate Hannah Arendt warned against this when she wrote, “No matter what the specifically national tradition or the particular spiritual source of its ideology, totalitarian government always transformed classes into masses, supplanted the party system, not by one-party dictatorships, but by mass movement, shifted the center of power from the army to the police, and established a foreign policy openly directed toward world domination.”

  Clearly, “we the people” have a decision to make.

  Do we simply participate in the collapse of the American republic as it degenerates toward a totalitarian regime, or do we take a stand at this moment in history and reject the pathetic excuse for government that is being fobbed off on us?

  

  

  

  

  

• These Stunning Images Depict The Destruction Of Homs, Syria's Third Largest City

  Last week we brought you drone footage from Homs, Syria’s third-largest city.

  The clip was just the latest bit of evidence to support the contention that when the US and its allies seek to bring about regime change in the Mid-East, the results are very often far worse than whatever the political “problem” was in the first place.

  What began a decade ago as a covert effort to usurp the Alawite government by playing on the sectarian divide, mushroomed over the years into an overt effort to overthrow Bashar al-Assad. Now, much like Libya, Syria is a lawless wasteland. Its infrastructure is destroyed. Its people have fled (the ones who are still alive). Its resources have been commandeered by extremists. Its cultural heritage lays in ruin.

  And it’s not over yet.

  With the stakes now higher than ever as the US inserts SpecOps and Russia continues to bombard rebel positions, we wonder if they’ll be anything left of the country by the end of the year. Underscoring the extent of the destruction are the following images, also from Homs.

  Somehow we doubt the city would bear any resemblance to these indelible visuals were it not for Washington’s support of the “peaceful, democratic resistance.”

  

  

  

  

  

  

  

  
  

  
  

  

  

  

  

• Germany Has Repatriated Over 366 Tonnes Of Gold From New York And Paris

  Submitted by Ronan Manly of BullionStar

  Update on Bundesbank Gold Repatriation 2015

  Deutsche Bundesbank has just released a progress report on its gold bar repatriation programme for 2015 – “Frankfurt becomes Bundesbank’s largest gold storage location“.

  During the calendar year to December 2015, the Bundesbank claims to
  have transported 210 tonnes of gold back to Frankfurt, moving circa 110
  tonnes from Paris to Frankfurt, and just under 100 tonnes from New York
  to Frankfurt.

  As a reminder, the Bundesbank is engaged in an unusual multi-year
  repatriation programme to transport 300 tonnes of gold back to Frankfurt
  from the vaults of the Federal Reserve Bank of New York (FRBNY), and
  simultaneously to bring back 374 tonnes of gold back to Frankfurt from
  the vaults of the Banque de France in Paris. This programme began in
  2013 and is scheduled to complete by 2020. I use the word ‘unusual’
  because the Bundesbank could technically transport all 674 tonnes of
  this gold back to Frankfurt in a few weeks or less if it really wanted
  to, so there are undoubtedly some unpublished limitations as to why the
  German central bank has not yet done so.

  

  Given the latest update from the German central bank today, the
  geographic distribution of the Bundesbank gold reserves is now as
  follows, with the largest share of the German gold now being stored
  domestically:

  • 1,347.4 tonnes, or 39.9%, stored in New York;
  • 196.4 tonnes, or 5.8%, stored in Paris;
  • 434.7 tonnes or 12.9% stored at the Bank of England vaults in London;
  • 1402.5 tonnes, or 41.5% now stored domestically by the Bundesbank at its storage vaults in Frankfurt, Germany

  In January 2013, prior to the commencement of the programme, the
  geographical distribution of the Bundesbank gold reserves was 1,536
  tonnes or 45% at the FRBNY, 374 tonnes or 11%, at the Banque de France,
  445 tonnes or 13% at the Bank of England, and 1036 tonnes or 31% in
  Frankfurt.

  The latest moves now mean that over 3 years from January 2013 to
  December 2015, the Bundesbank has retrieved 366 tonnes of gold back to
  home soil (189 tonnes from New York (5 tonnes in 2013, 85 tonnes in
  2014, and between 99-100 tonnes in 2015), as well as 177 tonnes from
  Paris (32 tonnes in 2013, 35 tonnes in 2014, and 110 tonnes in 2015).
  The latest transfers still leave 110 tonnes of gold to shift out of New
  York in the future and 196.4 tonnes to move the short distance from
  Paris to Frankfurt.

  In the first year of operation of the repatriation scheme during
  2013, the Bundesbank transferred a meagre 37 tonnes of gold in total to
  Frankfurt, of which a tiny 5 tonnes came from the FRBNY and only 32
  tonnes from Paris. Whatever those excessive limitations were in 2013,
  they don’t appear to be so constraining now. In 2014, 85 tonnes were let
  out of the FRBNY and 35 tonnes made the trip from Paris. See Koos
  Jansen’s January 2015 blog titled “Germany Repatriated 120 Tonnes Of Gold In 2014” for more details on the 2014 repatriation.

  Those who track the “Federal Reserve Board Foreign Official Assets Held at Federal Reserve Banks” foreign earmarked gold table
  may notice that between January 2015 and November 2015 , circa 4
  million ounces, or 124 tonnes of gold, were withdrawn from FRB gold
  vaults. Given that the Bundesbank claims to have moved 110 tonnes from
  New York during 2015, this implies that there were also other
  non-Bundesbank withdrawals from the FRB during 2015. Unless of course
  other gold was withdrawn from the FRB, shipped to Paris, and then became
  part of the Paris withdrawals for the account of the Bundesbank. The
  FRB will again update its foreign earmarked gold holdings table this
  week with December 2015 withdrawals (if any) which may show an even
  larger non-Bundesbank gold delta for year-end 2015.

  Notably, the latest press release today does not mention whether any
  of the gold withdrawn from the FRBNY was melted down / recast into Good
  Delivery bars. Some readers will recall that the Bundesbank’s updates
  for 2013 and 2014 did refer to such remelting/recasting events.

  Today’s press release does however include some ‘assurances’ from the
  Bundesbank about the authenticity and quality of the returned bars:

  “The Bundesbank assures the identity
  and authenticity of German gold reserves throughout the transfer process
  – from when they are removed from the storage locations abroad until
  they are stored in Frankfurt am Main. Once they arrive in Frankfurt am
  Main, all the transferred gold bars are thoroughly and exhaustively
  inspected and verified by the Bundesbank. When all the inspections of
  transfers to date had been concluded, no irregularities came to light
  with regard to the authenticity, fineness and weight of the bars.”

  But why the need to for such a general comment on the quality of the
  bars while not providing any real details of the bars transferred, their
  serial numbers, their refiner brands, or their years of manufacture?
  Perhaps remelting/recasting of bars was undertaken during 2015 and the
  Bundesbank is now opting for the cautious approach after getting some
  awkward questions last year about these topics – i.e. the Bundesbank’s
  approach may well be “don’t mention recasting / remelting and maybe no
  one will ask”.

   

  Source: Bundesbank

  Limited Hangout

  This bring us to an important point. Beyond the Bundesbank’s
  hype, its important to note that the repatriation information in all of
  the press releases and updates from the Bundesbank since 2013  has
  excluded most of the critical information about the actual gold bars
  being moved. So, for example, in this latest update concerning the 2015
  transport operations, there is no complete bar list (weight list) of the
  bars repatriated, no explanation of the quality of gold transferred and
  whether bars of various purities were involved, no comment on whether
  any bars had to be re-melted and recast, no indication of which
  refineries, if any, were used, and no explanation of why it takes a
  projected 7 years to bring back 300 tonnes of gold that could be flown
  from New York to Frankfurt in a week using a few C-130 US transporter
  carriers.

  There is also no explanation from the Bundesbank as to why these 100
  tonnes of gold were available from New York in 2015 but not available
  during 2014 or 2013, nor why 110 tonnes of gold somehow became available
  in Paris during 2015 when these bars were not available in 2014 or
  2013.

  The crucial questions to ask in my view are where the repatriated
  gold that has so far been supplied to the Bundesbank from New York and
  Paris has been sourced from, what were the refiner brands and years of
  manufacture for the bars, what was the quality (fineness) of the gold,
  and are these bars the same bars that the Bundesbank purchased when it
  accumulated its large stock of gold bars during the 1950s and especially
  the 1960s.

  In essence, all of these updates from Frankfurt could be termed
  ‘limited hangouts’, a term used in the intelligence community, whereby
  the real behind the scenes details are left unmentioned, and questions
  about the real information is invariably left unasked by the mainstream
  media. Overall,  it’s important to realise that the Bundesbank’s
  repatriation updates, press releases, and interviews since 2013 are
  carefully stage-managed, and that the German central bank continually
  dodges genuine but simple questions about its gold reserves and the
  physical gold that is being transported back to Frankfurt.

  For example, in October 2015, the Bundesbank released a partial
  inventory bar list/weight list of it gold holdings. At that time, on 8
  October 2015, I asked the Bundesbank:

  Hello Bundesbank Press Office, 

  Regarding the gold bar list published by the Bundesbank yesterday (07 October https://www.bundesbank.de/Redaktion/EN/Topics/2015/2015_10_07_gold.html), could
  the Bundesbank clarify why the published bar list does not include,for
  each bar, the refiner brand, the bar refinery serial number, and the
  year of manufacture, as per the normal convention for gold bar weight
  lists, and as per the requirements of London Good Delivery (LGD) gold
  bars? 

  Bundesbank bar list:https://www.bundesbank.de/Redaktion/EN/Downloads/Topics/2015_10_07_gold.pdf?__blob=publicationFile 

  From the London Good Delivery Rules, the following attributes are required on LGD bars http://www.lbma.org.uk/good-delivery-rules

  “Marks:   

  Serial number (see additional comments in section 7 of the GDL Rules)    

  Assay stamp of refiner    

  Fineness (to four significant figures)    

  Year of manufacture (see additional comments in section 7 of the GDL Rules)”

   “The marks should include
  the stamp of the refiner (which, if necessary for clear identification,
  should include its location), the assay mark (where used), the fineness,
  the serial number (which must not comprise of more than eleven
  digits or characters) and the year of manufacture as a four digit
  number unless incorporated as the first four digits in the bar number.
  If bar numbers are to be reused each year, then it is strongly
  recommended that the year of production is shown as the first four
  digits of the bar number although a separate four digit year stamp may
  be used in addition. If bar numbers are not to be recycled each year
  then the year of production must be shown as a separate four digit number.”http://www.lbma.org.uk/assets/market/gdl/GD_Rules_15_Final.pdf

  Best Regards, Ronan Manly

   

  The Bundesbank actually sent back two similar replies t the above email:

  Answer 1:

  “Dear Mr Manly, 

  Thank you for your query. Information
  on the refiner and year of production are not relevant for storage or
  accounting purposes, which require the weight data, the fineness and a
  unique number identifying each bar or melt. The Bundesbank has all of this information for each of its gold bars. By contrast, particulars relating to the refiner and year of production merely provide supplementary information. They tell us part of the gold bar’s history but do not describe its entire ‘life cycle’.”

  Yours sincerely,

  DEUTSCHE BUNDESBANK Communication

   

  Answer 2:

  “Dear Mr Manly,

  The crucial data for storage and
  accounting purposes are the weight, the fineness and a unique number
  identifying each bar or melt. The Bundesbank has all of this information
  for each of its gold bars, which it records electronically and also
  makes available to the public. In addition to the data on weight and
  fineness, the Bundesbank, the Bank of England and the Banque de France
  identify gold bars exclusively on the basis of internally assigned
  inventory numbers and not using the serial numbers provided by the
  refiners. These custodians do not classify the bar numbers stamped onto
  the gold bars by the refiner as individual inventory criteria. They do
  not use the refiner’s bar numbers as these are not based on a unique
  numbering system that can be used for identification purposes. Stating
  the refiner and the year of production is not required for storage or
  accounting purposes.”
  

  Yours sincerely, 

  DEUTSCHE BUNDESBANK Communication

   

  Even the large gold ETFs produce detailed weight lists of their bar
  holdings, so you can see from the above answers that the Bundesbank is
  resorting to flimsy excuses in its inability to explain why it is not
  following standard practice across the gold industry.

  For additional Bundesbank’s prevarications on its gold bars, please see my blog “The Keys to the Gold Vaults at the New York Fed – Part 3: ‘Coin Bars’, ‘Melts’ and the Bundesbank” in a section titled “The Curious Case of the German Bundesbank”.

  Finally, see BullionStar guest post from 8 October 2015 by Peter Boehringer, founder of the ‘Repatriate our Gold’ campaign – “Guest Post: 47 years after 1968, Bundesbank STILL fails to deliver a gold bar number list“.
  This guest post adeptly takes apart the Deutsche Bundesbank’s
  stage-managed communication strategy in and around its gold repatriation
  exercise, and asks the serious questions that the mainstream media fear
  to ask.

  

  

  

  

  

• Ammon Bundy Admits Defeat, Calls On Remaining Oregon Occupiers To "Stand Down, Go Home"

  The story of Ammon Bundy and his not so merry band of Federal Wildlife Refuge occupiers is about to come to its end.

  Following the overnight arrest of the Oregon militia leader and six of his associates by the FBI, as well as deadly shooting during a confrontation with federal authorities of Robert “LaVoy” Finicum, spokesperson for the militiamen occupying the Malheur National Wildlife Refuge, moments ago Portland’s KATU reported that Ammon Bundy, through his attorney, asked the remaining armed occupiers at the Malheur National Wildlife Refuge to stand down and go home.

  Bundy and the others were taken to Portland and booked into the Multnomah County Jail and made their first appearance in federal court on felony charges.

  It was here that Bundy decided to stand down.

  “I’m asking the federal government to allow the people at the refuge to go home without being prosecuted,” Bundy said through his attorney Mike Arnold, who stood outside court to read Bundy’s statement. “To those remaining at the refuge, I love you. Let us take this fight from here. Please stand down. Please stand down. Go home and hug your families. This fight is ours for now in the courts. Please go home.”

  Earlier, the handful of remaining armed occupiers tried to convince more people to join them via a YouTube livestream and told any would-be occupiers that if the federal authorities “stop you from getting here, KILL THEM!”

  The occupiers took over the refuge Jan. 2.

  In addition to Bundy, those arrested were Ryan Bundy, Brian Cavalier, Shawna Cox and Ryan W. Payne. They were taken into custody during a traffic stop. Joseph Donald O’Shaughnessy and online talk-show radio host Peter Santilli were arrested in Burns. Jon Ritzheimer was arrested after surrendering to authorities in his home state of Arizona.

  

  Top row from left are Ammon Bundy, Ryan Bundy, Brian Cavalier and Shawna Cox. Bottom row from left are Joseph Donald O’Shaughnessy, Ryan Payne, Jon Eric Ritzheimer and Peter Santilli. (Multnomah County Sheriff’s Office/Maricopa County Sheriff’s Office via AP)

  KATU adds that a federal judge ordered the seven defendants in Portland to stay in federal custody. The judge ruled there’s a risk they wouldn’t show up in court, and those under arrest pose a danger to the community because the occupation at the wildlife refuge continues.

  Defense attorneys argued that none of those under arrest have significant criminal records, but the judge agreed with prosecutors that all should remain in custody until a detention hearing scheduled for Friday.

  None of the seven defendants entered any plea on the charge of impeding federal wildlife officers from doing their job, although the outcome of the legal process at this point is virtually assured: prison, of the Federal kind.

  

  

  

  

• How The Rothschilds Made America Into Their Private Tax Fraud Backyard

  Back in September 2012 we first presented “the world’s biggest hedge fund nobody had ever heard of”: a small, previously unknown company called Braeburn Capital which, however, managed more cash than even Ray Dalio’s Bridgewater, the world’s largest hedge fund.

  

  How had the little firm operating out of a non-descript office building in Nevada achieved this claim to fame? By managing the cash hoard (now well over $200 billion) of the world’s biggest and most valuable company: Apple.

  But what was perhaps more notable is where Braeburn was physically located: Reno, Nevada.

  We explained the company’s choice for location with one simple word: “taxes”, or rather the full, and very much legal, avoidance thereof.

  Three and a half years later we encounter this quiet Nevada town once again, and once again it is Reno’s aura of tax evasion that brings is to the world’s attention courtesy of a Bloomberg report discussing “The World’s Favorite New Tax Haven.”

  Only instead of Apple this time, the focus falls on a far more notorious company: the Rotschilds.

  As Bloomberg writes, “last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how the world’s wealthy elite can avoid paying taxes.  His message was clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments. Some are calling it the new Switzerland.”

  Ah, the rich irony: years after Obama single-handedly destroyed the secrecy-based Swiss banking model, the U.S. itself has taken over the role of the world’s biggest, if no longer very secret, tax haven, and the epicenter is this modest Nevada city located next to lake Tahoe, which has become the favorite city, if only for tax purposes, for such names as Apple and the Rothschild family.

  The Swiss are not amused:

  After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.

   

  “How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour,” wrote Peter A. Cotorceanu, a lawyer at Anaford AG, a Zurich law firm, in a recent legal journal. “That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”

  It will probably come as no surprise, that the firm at the center of it all is the (in)famous financial institution: Rotschild & Company.

  Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

   

  The firm says its Reno operation caters to international families attracted to the stability of the U.S. and that customers must prove they comply with their home countries’ tax laws. Its trusts, moreover, have “not been set up with a view to exploiting that the U.S. has not signed up” for international reporting standards, said Rothschild spokeswoman Emma Rees.

  And where the Rothschilds are to be found, everyone else quickly arrives: “Geneva-based Cisa Trust Co. SA, which advises wealthy Latin Americans, is applying to open in Pierre, S.D., to “serve the needs of our foreign clients,” said John J. Ryan Jr., Cisa’s president.”

  Trident Trust Co., one of the world’s biggest providers of offshore trusts, moved dozens of accounts out of Switzerland, Grand Cayman, and other locales and into Sioux Falls, S.D., in December, ahead of a Jan. 1 disclosure deadline.

   

  “Cayman was slammed in December, closing things that people were withdrawing,” said Alice Rokahr, the president of Trident in South Dakota, one of several states promoting low taxes and confidentiality in their trust laws. “I was surprised at how many were coming across that were formerly Swiss bank accounts, but they want out of Switzerland.”

  Next comes the need to legitimize US hypocrisy and to justify how America, in demanding everyone else opens their books, is ignored when not only does it keep its own books closed but is openly welcoming all those millionaires and billionaires whose offshore accounts were closed as a result of US intervention!

  Rokahr and other advisers said there is a legitimate need for secrecy. Confidential accounts that hide wealth, whether in the U.S., Switzerland, or elsewhere, protect against kidnappings or extortion in their owners’ home countries. The rich also often feel safer parking their money in the U.S. rather than some other location perceived as less-sure.

   

  “I do not hear anybody saying, ‘I want to avoid taxes,’ ” Rokahr said. “These are people who are legitimately concerned with their own health and welfare.”

  Picture that: nobody wants to admit they are intent on evading taxes to their financial advisor. How quaint.  But the greatest thing about US-based tax evasion is that it is taking place right under the nose of the world’s allegedly biggest tax-fraud chaser. It also happens to be perfectly legal.

  There’s nothing illegal about banks luring foreigners to put money in the U.S. with promises of confidentiality as long as they are not intentionally helping to evade taxes abroad. Still, the U.S. is one of the few places left where advisers are actively promoting accounts that will remain secret from overseas authorities.

  Put all that together, and one company has realized there are billions in “fees” to be made by taking advantage of what is now officially the biggest hypocrite in the world: the United States of America. And adding insult to irony is that the “not easy to find” Rothschild Reno office is located just 6 floors away from the U.S. attorney’s office!

  Rothschild’s Reno office is at the forefront of that effort. “The Biggest Little City in the World” is not an obvious choice for a global center of capital flight. If you were going to shoot a film set in Las Vegas circa 1971, you would film it in Reno. Its casino hotels tower above the bail bondsmen across the street, available 24/7, as well as pawnshops stocked with an array of firearms. The pink neon lights at casinos like Harrah’s and the Eldorado still burn bright. But these days, their floors are often empty, with travelers preferring to gamble in Las Vegas, an hour’s flight away.

   

  The offices of Rothschild Trust North America LLC aren’t easy to find. They’re on the 12th floor of Porsche’s former North American headquarters building, a few blocks from the casinos. (The U.S. attorney’s office is on the sixth floor.) Yet the lobby directory does not list Rothschild. Instead, visitors must go to the 10th floor, the offices of McDonald Carano Wilson LLP, a politically connected law firm. Several former high-ranking Nevada state officials work there, as well as the owner of some of Reno’s biggest casinos and numerous registered lobbyists. One of the firm’s tax lobbyists is Robert Armstrong, viewed as the state’s top trusts and estates attorney, and a manager of Rothschild Trust North America.

  A little history: the trust company was set up in 2013 to cater to international families, particularly those with a mix of assets and relatives in the U.S. and abroad, according to Rothschild. It caters to customers attracted to the “stable, regulated environment” of the U.S., said Rees, the Rothschild spokeswoman.

  “We do not offer legal structures to clients unless we are absolutely certain that their tax affairs are in order; both clients themselves and independent tax lawyers must actively confirm to us that this is the case,” Rees said.

  Reread that sentence again, and this time try not to laugh: imagine a world in which both clients and tax lawyers, who are both conflicted and incentivized monetarily to lie, affirmatively confirm that they are not tax cheats? This is almost as good as Wall Street policing itself.

  The managing director of the Nevada trust company is Scott Cripps, an amiable California tax attorney who used to run the trust services for Bank of the West, now part of French financial-services giant BNP Paribas SA. Cripps explained that moving money out of traditional offshore secrecy jurisdictions and into Nevada is a brisk new line of business for Rothschild.

   

  “There’s a lot of people that are going to do it,” said Cripps. “This added layer of privacy is kicking them over the hurdle” to move their assets into the U.S. For wealthy overseas clients, “privacy is huge, especially in countries where there is corruption.”

  Here are some examples of families whose affairs are in order (after active self-confirmation of just that):

  One wealthy Turkish family is using Rothschild’s trust company to move assets from the Bahamas into the U.S., he said. Another Rothschild client, a family from Asia, is moving assets from Bermuda into Nevada. He said customers are often international families with offspring in the U.S.

  America’s gain is Switzerland’s, that centuries-old tax haven’s, loss: Switzerland has been the global capital of secret bank accounts. That may be changing. In 2007, UBS Group AG banker Bradley Birkenfeld blew the whistle on his firm helping U.S. clients evade taxes with undeclared accounts offshore. Swiss banks eventually paid a price. More than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay about $5 billion to the U.S. in penalties and fines.

  Guess who was among them? why yes, Rothschild Bank AG last June entered into a nonprosecution agreement with the U.S. Department of Justice. The bank admitted helping U.S. clients hide income offshore from the Internal Revenue Service and agreed to pay an $11.5 million penalty and shut down nearly 300 accounts belonging to U.S. taxpayers, totaling $794 million in assets.

  Well, Rothschild is doing it all over again, only this time in Uncle Sam’s back yard. Wait, you mean paying a $11.5 million penalty didn’t teach it a lesson? No way.

  But even more tragicomic is the US push for tax transparency, known as the FATCA. Well, a push everywhere except in the US itself.

  The U.S. was determined to put an end to such practices. That led to a 2010 law, the Foreign Account Tax Compliance Act, or Fatca, that requires financial firms to disclose foreign accounts held by U.S. citizens and report them to the IRS or face steep penalties. Inspired by Fatca, the OECD drew up even stiffer standards to help other countries ferret out tax dodgers. Since 2014, 97 jurisdictions have agreed to impose new disclosure requirements for bank accounts, trusts, and some other investments held by international customers. Of the nations the OECD asked to sign on, only a handful have declined: Bahrain, Nauru, Vanuatu—and the United States.

   

  “I have a lot of respect for the Obama administration because without their first moves we would not have gotten these reporting standards,” said Sven Giegold, a member of the European Parliament from Germany’s Green Party. “On the other hand, now it’s time for the U.S. to deliver what Europeans are willing to deliver to the U.S.”

  As it turns out the US had no qualms about implementing global tax disclosure standards… as long as it itself would be exempt and benefit from the entire world parking its criminal money on US territory:

  The Treasury Department makes no apologies for not agreeing to the OECD standards. “The U.S. has led the charge in combating international tax evasion using offshore financial accounts,” said Treasury spokesman Ryan Daniels. He said the OECD initiative “builds directly” on the Fatca law.

   

  “To the extent non-U.S. persons are encouraged to come to the U.S. for what may be our own ‘tax haven’ characteristics, the U.S. government would likely take a dim view of any marketing suggesting that evading home country tax is a legal objective,” he said.

  And since the US now openly welcome all forms of hot, laundered, embezzled, or otherwise misappropriated money, there are countless banks willing to provide the service of parking that money in the US… for a commission. What amounts are we talking about?

  Well, trillions.

  At issue is not just non-U.S. citizens skirting their home countries’ taxes. Treasury also is concerned that massive inflows of capital into secret accounts could become a new channel for criminal money laundering. At least $1.6 trillion in illicit funds are laundered through the global financial system each year, according to a United Nations estimate.

  And most of those funds are now being parked in the US, where a key portal is Rothshild’s Reno, NV office.

  But what makes this particular case of tax evasion particularly abominable is that it is nothing less than a symbiosis between proven and charged tax evaders and a U.S. government which has once again proven it can be bought for pennies on the dollar by banks like Rothschild, and legislate to make sure the bank continues pocketing billions in fees for the foreseeable future.

  We dare readers to read the following several concluding sections without sending their blood pressure to dangerously homicidal levels:

  For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. “is effectively the biggest tax haven in the world.” The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”

   

  Rothschild says it takes “significant care” to ensure account holders’ assets are fully declared. The bank “adheres to the legal, regulatory, and tax rules wherever we operate,” said Rees, the Rothschild spokeswoman.

  Except in cases like Switzerland where it didn’t exactly “adhere to the legal, regulatory, and tax rules.” This time will be different though.

  Penney, who oversees the Reno business, is a longtime Rothschild lawyer who worked his way up from the firm’s trust operations in the tiny British isle of Guernsey. Penney, 56, is now a managing director based in London for Rothschild Wealth Management & Trust, which handles about $23 billion for 7,000 clients from offices including Milan, Zurich, and Hong Kong. A few years ago he was voted “Trustee of the Year” by an elite group of U.K. wealth advisers.

   

  In his September San Francisco talk, called “Using U.S. Trusts in International Planning: 10 Amazing Feats to Impress Clients and Colleagues,” Penney laid out legal ways to avoid both U.S. taxes and disclosures to clients’ home countries.

   

  In a section originally titled “U.S. Trusts to Preserve Privacy,” he included the hypothetical example of an Internet investor named “Wang, a Hong Kong resident,” originally from the People’s Republic of China, concerned that information about his wealth could be shared with Chinese authorities.

  Instead Wang will buy, sight unseen a Manhattan duplex for call it $50 million or whatever amount the seller demands, using a Nevada LLC with which to shield his purchase. In the process Wang’s purchase, under the sage advice of Rothschild’s Mr. Penney, assures that the luxury US housing bubble grows so big, and real estate prices rise so high, not a single law-abiding US citizen can afford to buy any form of luxury real estate.

  Putting his assets into a Nevada LLC, in turn owned by a Nevada trust, would generate no U.S. tax returns, Penney wrote. Any forms the IRS would receive would result in “no meaningful information to exchange under” agreements between Hong Kong and the U.S., according to Penney’s PowerPoint presentation reviewed by Bloomberg.

  Keep in mind: all of this is legal, and with the express permission of a US government, which one can rightly say is as criminal as any of the advisors who are merely explaining to their wealthy clients how to cheat the system best.

  There was a catch: not all western governments are muppets for the Rothschilds of the world:

  “Penney offered a disclaimer: At least one government, the U.K., intends to make it a criminal offense for any U.K. firm to facilitate tax evasion.”

  Of course not the US, even though with that line it makes it very clear that what the US is doing is encouraing the criminal offense of facilitating tax evasion. Or maybe not.

  Rothschild said the PowerPoint was subsequently revised before Penney delivered his presentation. The firm provided what it said was the final version of the talk, which this time excluded several potentially controversial passages. Among them: the U.S. being the “biggest tax haven in the world,” the U.S.’s low appetite for enforcing other countries’ tax laws, and two references to “privacy” offered by the U.S.

   

  “The presentation was drafted in response to a request by the organizers to be controversial and create a lively debate among the experienced, professional audience,” Rees said. “On reviewing the initial draft, these lines were not deemed to represent either Rothschild’s or Mr. Penney’s view. They were therefore removed.”

  And that was that.

  * * *

  While none of the above should come as a surprise to anyone who has been following our series since 2012 showing how US real estate has been used by foreign oligarchs to park illegal cash, what we would find very interesting in the next and final expose in this series, is for Bloomberg’s Jesse Drucker to find how many billions (or maybe only millions – the US government is a very cheap whore) were paid under the table by Rothschild et al to bribe the US government to enable this kind of circular, incestuous legalized tax fraud on US soil, one for which Rothschild will collect billions in financial advisory fees for the indefinite future, and which blatantly steals from those who do pay their taxes: the middle class.

  

  

  

  

  

• China Injects Another $50 Billion Liquidity As Mysterious Panic Buyer Reappears In Offshore Yuan

  The PBOC FX intervention team continue to be busy in offshore Yuan this week as for the 4th time in 3 days, a mysterious panic-buyer lifted CNH between 5 and 10 handles higher for no good reason other than to show George Soros (and Bill Ackman) who is boss (i.e. drive away the shorts). In keeping with the recent "stability" the Yuan fix was flat but another 340bn Yuan was injected – except China CDS pushes to Aug 2015 wides indicating severe stress and suggesting devaluation looms.

   

  Offshore Yuan in all its manipulated glory…It would appear 6.61 is the number to bet against!!

  

  Mystery solved – USD/CNH sold near 6.6160 by large-sized Chinese banks, according to North Asia-based FX traders.

  PBOC to the rescue.

  Stability… or is it artificial (as CDS signals anything but)

  

  But more liquidity…

  • *PBOC TO INJECT 340B YUAN WITH REVERSE REPOS: TRADERS
  • *PBOC TO INJECT 260B YUAN WITH 28-DAY REVERSE REPOS: TRADER
  • *PBOC TO INJECT 80B YUAN WITH 7-DAY REVERSE REPOS: TRADER

  This week’s two auction windows were used to add a net 590 billion yuan, the most since February 2013, data compiled by Bloomberg show.

  We look forward to the post China New Year unwind of all that liquidity.

  You can only hold the big balloon under water for so long…

  

   

  Stocks are not loving the FX intervention. It appears that the PBOC cannot figure out to manipulate both at the same time…

  • *SHANGHAI COMPOSITE INDEX DECLINES 1.3% AT OPEN
  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 0.7% TO 2,909.33

   

  Charts: Bloomberg

  

  

  

  

  

• The Empire Has No Clothes

  Via EconomicNoise.com,

  Hans Christian Andersen told the story of “The Emperor’s New Clothes” as part of his  Fairy Tales Told for Children collection. The tale is almost two hundred years old. Most know how a little boy was the first to announce that the emperor had no clothes. Andersen’s tale is being re-written today and should be entitled “The Empire Has No Clothes.” This story is one occurring around the world.

  Governments are in disrepair and disrepute everywhere. They are increasingly viewed as exploitive, ineffective and catering to privilege. Public interest, the idealistic goal of government, never was real in the sense that it overrode the private needs and wants of officeholders. “Public servants” were never better stewards of public interest than private citizens pursuing their own self-interest. Indeed, once the returns to power increased, self-selection made most politicians inferior in morality and public interest than the typical citizen.

  The discomfort and turn against government occurs not because any of its behavior is new. Government has always been dishonest and a scam. What changed over time is the magnitude of government and its burden on citizens. The pain of tolerating it has apparently reached that threshold where people are no longer willing to ignore it.

  Governments around the world have become leviathans, meddling in the most minute and personal decisions of its citizens. Supporting government in its infancy required no taxation. Today the average citizen pays more than 40% of his production as tribute and support to the empire. Few believe they get much of value in return.

  Even with such confiscatory theft, governments are spending themselves and their citizens into bankruptcy. Capital that entrepreneurs need to start and grow businesses is now consumed by government vote-buying schemes and stupidity. As a result, economic growth cannot occur, jobs are lost and the standard of living declines.

  The current political contest in the United States reflects the attitude of citizens against government. Outsiders are either winning or gaining popularity in the primaries. The public is fed up with government as shown by polls such as this one. The political establishment still has not grasped the real reasons for their unpopularity.

  The Empire

  

  The phrase “limited government” is used to differentiate a so-called government “of, by and for the people” from government that is not limited or “of, by and for the people.” Arguably Abraham Lincoln’s description was the best piece of Statist propaganda ever delivered to the public. It was not true when he said it and it is implausible to even utter such a sentiment today without being ridiculed.

  “Limited government” is a clever phrase that is both untrue and impossible. It is akin to describing cancer as “limited cancer.” Left alone, cancer grows and kills. So too does government. A more accurate but less flattering description of government is “limited tyranny.” Limited government is merely a euphemism for limited tyranny. Unfortunately neither government nor tyranny can be limited.

   

  Power is like cancer. It grows and eventually destroys whatever it preys upon. The only way to constrain power is with greater power. But therein lays the insoluble problem. Government was an attempt to provide order to society. It was granted power over others to keep order. But granting such power and controlling it was not possible. Who was to constrain the power? No entity with power willingly limits its power. Setting up another layer of government or power to do so only worsens the situation. Ultimately all power succumbs to Lord Acton’s undeniable truth:

  Power corrupts and absolute power corrupts absolutely.

  Power granted is always limited yet it always grows and is abused. Power, even in small doses, qualifies as tyranny. Idealists may not recognize it as such until it becomes so great that the tyranny can no longer be denied or ignored. The notion of limited government is fantastical. It is the belief in unicorns, tooth fairies and Santa Claus! Only the young or naive believe in such things.

  History provides no examples of government staying within the bounds granted. All governments grow and become increasingly oppressive. The passage of time and human nature ensure such outcomes.

  Is Civilization At An Inflection Point?

  The current disgust with government is palpable. It is the reason why a braggart like Donald Trump can challenge for and likely win the Republican nomination for president. It is also the reason why a septuagenarian Socialist can challenge an anointed Democrat candidate. Both political contests reflect  hatred toward the political class. The voters are saying STOP! They turn to outsiders out of desperation.

  Is this merely a political phase that can be remedied? Is it merely a normal ebb and flow of the political process? It is easy to answer in the affirmative to both of these questions. History shows few exceptions and the few are usually bloody and violent. It is easy to be influenced by a form of confirmation bias when assessing such conditions. However, my personal judgment is that this dissatisfaction is not something temporary that will self-repair.

  Regardless of who is nominated and elected in the next presidential race, it is my opinion that this outcome is meaningless. This country and likely other so-called advanced democracies seem to be at an inflection or turning point. History is typically not useful in identifying such times.

  If my guess is correct, none of us alive today will see its occurrence. The process will likely be lengthy and contested. It will take decades before a final determination can be made.

  Donald Trump is not a politician although he is likely to be elected. Voting for Donald Trump (or Bernie Sanders) is a protest vote against government. It is the nation’s Howard Beale moment:

  I don’t have to tell you things are bad. Everybody knows things are bad. It’s a depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth, banks are going bust, shopkeepers keep a gun under the counter.

   

  

   

  Punks are running wild in the street and there’s nobody anywhere who seems to know what to do, and there’s no end to it. We know the air is unfit to breathe and our food is unfit to eat, and we sit watching our TV’s while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that’s the way it’s supposed to be. We know things are bad – worse than bad. They’re crazy. It’s like everything everywhere is going crazy, so we don’t go out anymore.

   

  We sit in the house, and slowly the world we are living in is getting smaller, and all we say is, ‘Please, at least leave us alone in our living rooms. Let me have my toaster and my TV and my steel-belted radials and I won’t say anything. Just leave us alone.’ Well, I’m not gonna leave you alone. I want you to get mad! I don’t want you to protest. I don’t want you to riot – I don’t want you to write to your congressman because I wouldn’t know what to tell you to write. I don’t know what to do about the depression and the inflation and the Russians and the crime in the street. All I know is that first you’ve got to get mad. You’ve got to say, ‘I’m a HUMAN BEING, God damn it! My life has VALUE!’ So I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window. Open it, and stick your head out, and yell, ‘I’M AS MAD AS HELL, AND I’M NOT GOING TO TAKE THIS ANYMORE!’ I want you to get up right now, sit up, go to your windows, open them and stick your head out and yell – ‘I’m as mad as hell and I’m not going to take this anymore!’ Things have got to change. But first, you’ve gotta get mad!… You’ve got to say, ‘I’m as mad as hell, and I’m not going to take this anymore!’ Then we’ll figure out what to do about the depression and the inflation and the oil crisis. But first get up out of your chairs, open the window, stick your head out, and yell, and say it: “I’M AS MAD AS HELL, AND I’M NOT GOING TO TAKE THIS ANYMORE!”

  It will be the first shot fired against the Empire. It will be ineffective but will be the first signal that the process of citizens taking back their country has begun.

  Donald Trump (or Bernie) is a sign of how frustrated the electorate has become. Voters don’t know how to stop what is happening to them and their country but they are mad as hell and are not going to take this anymore. The upcoming election will change nothing. The best that the public can hope for is to elect a wrecking ball that will dent or damage some of the government apparatus. That is probably a foolish hope, almost certainly one that will not be fulfilled.

  The ballot box will be ineffective in satisfying the public. Other means will be tried. The Empire will not stand idly by while its power is threatened. It will strike back at any attempt to slow its growth or rate of plunder. It will become truly vicious, not unlike a wounded and cornered animal. Power is never relinquished willingly.

  Government, more properly called The State, has always been dependent on a myth. That myth is that society cannot be orderly without government and that all perceived ills can be solved by it. The reality is that society preceded government and that the State is little more than an Al Capone with better PR and no Eliot Ness.

  

  Our founders did their best with The Constitution. Few believed it could be preserved easily. Thomas Jefferson knew as much when he stated:

  Every generation needs a new revolution.

  I suspect he thinks less of us for not honoring his solution — yet!

  

  

  

  

  

• Former House Majority Leader Claims FBI Is "Ready To Indict" Hillary Clinton

  Submitted by Rachel Blevins via TheAntiMedia.org,

  Democratic presidential candidate Hillary Clinton has been under investigation by the FBI for several months, and former U.S. House Majority leader Tom DeLay said Monday that the FBI is “ready to indict” her for using a private email server to conduct government business.

  During an interview on “The Steve Malzberg Show,” DeLay, a Republican from Texas, said he has friends in the FBI who tell him “they’re ready to indict” the former Secretary of State.

  “They’re ready to recommend an indictment and they also say that if the attorney general does not indict, they’re going public,” DeLay said.

  Clinton’s use of personal email on a private server during her tenure as Secretary of State was revealed in March 2015, and while she has maintained that she never sent or received any classified information on the server, her claims have been contradicted by the Intelligence Community.

  Intelligence Community Inspector General I. Charles McCullough III sent a letter to Congress on Jan. 14, revealing that not only did “several dozen” of Clinton’s emails contain classified information, but some of the information was classified as SAP or “special access programs,” which is beyond top secret.

  “To date, I have received two sworn declarations from one [intelligence community] element,” McCullough wrote. “These declarations cover several dozen emails containing classified information determined by the IC element to be at the confidential, secret, and top secret/sap levels. According to the declarant, these documents contain information derived from classified IC element sources.”

  DeLay said he believes Clinton is “going to have to face these charges” eventually, whether it’s through an FBI indictment or through the “public eye.”

  “One way or another either she’s going to be indicted and that process begins, or we try her in the public eye with her campaign,” DeLay said. “One way or another she’s going to have to face these charges.”

  

  

  

  

  

• DeVry Plunges As FTC Says School Lied About How Many Of Its Students Become Waiters And Bartenders

  “The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with tens of billions of loans they now know can be legally discharged.”

  That’s what we said last May when disgruntled students from the now defunct Corinthian Colleges began to press the Department of Education for debt relief after the government accused the for-profit institution of using fraudulent recruiting practices.

  Long story short, students are entitled to have their debt expunged if they can prove that they’ve been defrauded. When the government forces a school to close its doors, it’s obviously quite difficult to deny students’ claims, which means that if Congress is serious about going after the for-profit college space, they’re effectively setting the stage for a massive taxpayer bailout of the schools’ students.

  At issue are claims the schools make about things like graduation rates and job placements. As WSJ wrote last week, “thousands” of students are now “flooding the government” with appeals to have their loans discharged on the grounds they’ve been the victims of fraud.

  The problem for the government is that the obscure law which allows students to apply for loan relief is short on specifics. That is, it doesn’t spell out what qualifies as “fraud” which means that while there are some clear-cut cases, there’s also quite a bit of ambiguity – especially when it comes to the for-profits.

  “They promised us to get jobs in the field, and most of us ended up at Office Depot,” one former Art Institutes student told the Journal, describing his less than satisfactory experience at the school, where he studied to be a video game designer.

  “In short, it’s just a matter of time before the ‘thousands’ of appeals flooding the Department of Education turn into tens and hundreds of thousands as recent graduates suddenly discover the harsh realities of America’s waiter and bartender economy,” we said.

  Well you can add DeVry students to the list of those who will very shortly be sending the Education Department a mountain of discharge requests because the FTC has now accused the school of deceiving prospective students about the employment success of graduates.

  “The Federal Trade Commission—one of several federal agencies investigating the for-profit school industry—took aim at DeVry advertisements claiming 90% of its graduates who sought jobs found them in their field of study within six months of graduation,” WSJ reports. “In a suit filed in a California federal court, the FTC is asking a judge to provide monetary remedies to allegedly deceived students, including refunds and restitution.”

  Needless to say, shares of DeVry had a rough session:

  

  For its part, the school says the FTC has no legal basis to file the complaint. “DeVry Education Group intends to vigorously contest a complaint filed by the Federal Trade Commission, challenging the employment and earnings outcomes of DeVry University graduates,” a statement from the company reads.

  But again, someone will end up having to pay these students restitution (i.e. their debt will be expunged one way or the other whether it’s through a refund from DeVry or federal debt relief). As a reminder, most students at for-profit schools receive federal aid, which means that if DeVry ends up successfully contesting the idea that it’s responsible for refunding students’ tuition, the students can just appeal to the government for debt relief. After all, it’s not exactly like the Department of Education could refuse after the FTC sued the school for fraud. 

  But the reall punchline is this, again from WSJ: “[The FTC] accuses the school of including workers in low-paying retail jobs as finding work in their field of study, such as a business administration major working as a restaurant server.“

  And there you have it America. The “waiter and bartender recovery” is confirmed … by none other than the US government.

  

  

  

  

  

  

• A Whole New Level Of Moral Hazard: China Will Use Public Funds To Cover Venture Capital Losses

  It should surprise nobody that when it comes to perpetuating the global central bank “put”, China – which is at daily danger of having its house of trillions in non-performing loan card collapse at any moment – has perfected moral hazard better than any western central banker. However, even the staunchest cynics will be stunned by the latest development out of the Shanghai government where starting next month, venture capital firms which invested in high-tech startups since the beginning of 2015 can apply for government compensation if their investment loses money.

  In other words, while until now the government had bailed out corporate bond and bank loan investors, and was actively micromanaging the burst stock bubble (unsuccessfully), it will now enter the venture capital and private equity arena in what may be the grossest misallocation of capital unleashed by China to date.

  The policy is laid out in a regulation dated December 29 that the city’s Science and Technology Commission put on its website on January 21. Under the regulation, if the sale of a VC’s stake in a startup fails to cover its original investment, it can ask the government for a payout amounting to 30 or 60 percent of the shortfall depending on the size and revenue of the firm it backed. 

  The most any VC firm can receive in one year is 6 million yuan. The limit on individual investment projects is 3 million yuan although we are confident both these limitations will be breached grossly and repeatedly.

  Shanghai is not the first Chinese city to implement this lunacy: an investor with a financial institution in Shanghai said the city did not invent the idea of subsidizing high-risk private financial investment. Other local governments in China have implemented similar rules but none of them offer quite as much compensation, he said.

  With other local governments it was more of an ad hoc arrangement, he said. “You go to the government’s public finance bureau, asking for money, and they will tell you to wait as they go over their budget. Usually they’ll return and say there are no funds left, so you’ll have to wait until the next year and see.”

  According to Caixin, the payout offer is intended to encourage private VC investment to support innovation and the development of Shanghai as a global high-tech center, the document says. The policy is to last for two years. 

  Of course, what it will encourage instead is another round of massive fraud, and investing in idiotic projects that have zero hope of recovery let alone return, because when one is spending with a full government backstop – like during episodes of QE – the last thing one cares about is trivial concepts like “risk.” There is only the guarantee of return and as Allan Meltzer put it best, “Capitalism without failure is like religion without sin. It doesn’t work.”

  What it does do is assure that an even greater bust will take place once this particular bubble bursts, however in the process billions in taxpayer funds will be “allocated” to a handful of individuals who will promptly abuse China’s capital controls and end up purchasing luxury apartments in Manhattan.

  Surprisingly, instead of keeping their mouth shut and just accepting the government’s risk-free money, some have dared to speak out against this idea which can only be classified as sheer idiocy:

  The idea will have a “disastrous” impact on the principles of the capital market, said Andrew Y. Yan, managing partner of private equity investment firm SAIF Partners.

   

  “A fundamental principle of the market economy is the match between risk and return,” he said. “VC investments are extremely risky and limited to only a very few people and institutions. The negative consequences of using public money to compensate investment losses will be unimaginable.”

   

  Xie Zuoqiang, vice president of the PE firm Prosperity Investment, said the new policy provides no clear standards and procedures on calculating losses, leaving loopholes that can be abused to cheat tax payers’ money. He also said the two-year life of the regulation creates uncertainties because VC investments often last longer than that. “The policy may be well-intentioned,” he said, “but supporting an industry is a long-term initiative.”

  Actually the policy is beyond idiotic, however it is clearly designed to enrich a handful of “venture capitalists” who like U.S. bankers have purchased local government puppets to do their bidding for them.

  That said, there may be a silver lining: very soon the infamous “zero-corn” Theranos may liquidate in the US only to be reconsistuted in Shanghai, where its fraud will guarantee massive taxpayer funds are spent to boost the bank accounts of every criminal involved.

  

  

  

  

  

• Brazil's Easy-Money Problem

  Submitted by Lukas Vez via The Mises Institute,

  Brazil is undergoing what is considered its worst economic crisis in seventy years, and there is usually no agreement when it comes to the causes of this situation. President Rousseff and the Labor Party say that it was the corollary of the “International Crisis,” a ghost of the 2008 depression created in their minds. The reality, however, is different. Since ex-president Lula Da Silva of the Labor Party entered office in 2003, the government has clung to the typical Keynesian project of growth-by-government-spending. Interest rates were lowered constantly, the amount of loans grew to an unprecedented level, savings per capita dropped, and government spending continued to grow.

  For the advocates of government intervention, the country’s economy was heaven on earth. It should be of no surprise that Paul Krugman, the defender of America’s Quantitative Easing, said that Brazil was not a vulnerable country. However, those policies so strongly defended by some economists and by bureaucrats led the country toward the terrible situation in which it is now.

  From the Brazilian government’s point of view, it could hardly get any worse: the country is facing an economic depression that is likely to last at least two more years, the country’s rating was downgraded to junk by Standard & Poor’s, and a corruption scandal may lead to the impeachment of the country’s president, Dilma Rousseff. We must recognize, however, that even though this was the result of the government’s action, it simply put in practice the most prevalent ideologies of the country, which is a mixture of Marxism in politics and in the universities with Keynesianism in economics. This national ideology praises, in general, a complete dependence of the people on the government. The fact that “Brazil’s tax burden already amounts to 36 per cent of GDP” is held with pride by professors and economists throughout the country, who spread the word that public policies will create jobs and contribute to people’s welfare.

  Brazil and the Austrian Business Cycle Theory

  In order to grasp what is happening to Brazil, and to understand why some economists have long ago predicted the current disaster, it is crucial to understand Austrian business cycle theory, since it yields a concrete critique of government’s involvement with currency and credit expansion — two factors that the Brazilian government used as tools for economic growth — and its misuse is what generated the crisis.

  As Mises pointed out, “the cyclical fluctuations of business are not an occurrence originating in the sphere of the unhampered market, but a product of government interference with business.”

  Indeed, those “boom-bust” cycles, as the one that happened in Brazil, are generated by monetary intervention in the market in the form of bank credit expansion. Thus, they are an outcome of central planning and government intervention, the very opposite of a free market.

  It is, however, important to make the distinction between bank credit expansion in the form of loans to business and other forms of credit expansion. The former is usually a method that government uses to boost the economy of the country, lowering the interest rates “below the height at which the free market would have fixed it,” and this is why it is so important in our analysis.

  On the graph below we can see the absurd rise in the amount of loans (given in millions of reais, the Brazilian currency) made to businesses, especially since 2006 (and reinforced from 2008 on, as a way to “fight” the international crisis) when the government tried to generate an unsustainable boom. (The red line represents the loans given by public banks and the blue line the loans given by private banks.)

  

  Figure 1. Amount of Credit Lent to Business in Brazil Over Time

  This new type of credit that would not be available without the interference of the government generating the so-called “boom.” This boom caused businessmen to, as described by Rothbard in America’s Great Depression, “take their newly acquired funds and bid up the prices of capital and other producers’ goods, and this stimulate[d] a shift of investment from the ‘lower’ (near the consumer) to the ‘higher’ orders of production (furthest from the consumer) — from consumer goods to capital goods industries.”

  This shift of investment from consumer to capital goods is a characteristic mark of the boom and explains, as opposed to other theories, why capital goods’ industries are affected first in the beginning of the depression. We can see on the next graph how those industries were affected in the Brazilian scenario. The green line represents the capital goods industries, and the slump that we see happened during the very early stages of the depression, in the end of 2013.

  

  Figure 2. Index of Industrial Production and Key Components

  It is also worth noticing that this slump happened right after the government started to raise the interest rates again, which occurred after a period of an all-time low in the interest rates of the country. As we can see below the Brazilian government lowered the interest rates to an unprecedented low level, and when the government tried to raise interest rates to curb the inflation generated by its “easy money” policies, the boom came to an end. 

  

  Figure 3. Brazil’s Interest Rates Over Time (Source: Financial Times.)

  As Murray Rothbard observed (again from America’s Great Depression),

  businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption — investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful. Businessmen were led to this error by the credit expansion and its tampering with the free-market rate of interest.

  As observed by Mises in his essay “Middle-of-the-Road Policy Leads to Socialism,” we must pay attention to the fact that “the attempts to lower interest rates by credit expansion generate, it is true, a period of booming business,” which in Brazil’s case occurred mostly between 2006 and 2013. “But the prosperity thus created is only an artificial hot-house product and must inexorably lead to the slump and to the depression. People must pay heavily for the easy-money orgy of a few years of credit expansion and inflation.” The depression that is currently happening in the country is, therefore, not an evil that should be fought against with more and more government policies. The depression is the cure.

  As we have seen, most of what the Austrian business cycle theory described can be well applied to Brazil. It is important to admit that other factors also played important roles, such as the price of the dollar relative to the real and the slowdown of China’s demand on Brazilian commodities, but most of them were usually, and to some extent, only a consequence of the policies that we have already analyzed. The bottom line is that the country went through a major credit and money supply expansion, together with years of low interest rates. It is crucial to note that, contrary to other explanations, “Mises’s theory of the trade cycle … meshes closely with a general theory of the economic system. The Mises theory is, in fact, the economic analysis of the necessary consequences of intervention in the free market by bank credit expansion.”

  Consequently, we can see how Brazil’s current crisis is nothing but an outcome of government’s meddling with the market. The scenario of the country’s economy is indeed scary, but we have reason to believe that Brazil’s intellectual situation is going through a new and promising change. It may be true, as Lord Keynes said, that “in the long run we are all dead,” but if we are to get out of this terrible crisis, to prosper and to enjoy a constant improvement in our standard of living, “it is high time to transform the country’s state capitalism into a free market system.”

  

  

  

  

  

• "Let Them Eat CaQE": Yellen Abandons Markets; Stocks Plunge

  "F'ed Up"

  Fed vs the markets today:

  This A hole. pic.twitter.com/3VtIp9uf6Z

  — People Are Jerks (@Peepsarejerks) January 26, 2016

   

  Let's start with the obvious – The Fed f##ked up… as September is now the next meeting when rates are evenb "maybe" expected to hike.

  

   

  Post-Fed – things did not go well…

  

   

  Nasdaq was the worst today, crushed by AAPL but The Dow was double-whammied by Boeing also… Dow lost 121 points from BA (-77) and AAPL (-44)

  

   

  All those dead cat bubble gains gone from yesterday…

  

   

  Absolute chaos in the volatility complex as The Fed statement hit…

  

   

  It's not over yet…

  

   

  Apple was a de-brainer disaster… biggest single day drop sicne Jan 2014 and lowest close since July 2014… AAPL lost over 3 TWTRs today

  

   

  And Boeing was battered – we're gonna need more Ex-Im Bank…

  

   

  FANGs are FUBAR – NFLX and TSLA are now down 20% year-to-date… FANGs are now down 12.6% from their highs in December

  

   

  Seriously! – once again stocks followed crude… until The fed broke it… Good news – fundamentals matter again, oh wait!

  

   

  Treasury yields collapsed after The Fed statement…

  

   

  The USD Index dropped on The FOMC Statement, extending losses on the week

  

   

  Commodities all rose on the USD weakness but crude and copper slipped after The Fed and PMs rallied…

  

   

  Russia-OPEC discussion pumped oil higher to run stops above yesterday's highs – despite surging inventories…

  

   

  Gold jumped once again, nearing its 200DMA…

  

   

  So in summary – if you have any questions about buying the dip or what to do next…

  Is anyone else confused why the Fed hiked in December when as it admits "economic growth slowed"

  — zerohedge (@zerohedge) January 27, 2016

  Charts: Bloomberg

  Bonus Chart: #DamnItJanet!

  Speaking of Policy Errors pic.twitter.com/vlmAMKnFgt

  — Not Jim Cramer (@Not_Jim_Cramer) January 27, 2016

  

  

  

  

• China Says Soros "Hasn't Done His Homework," May Be "Partially Blind"

  On Tuesday, the People’s Daily laughed at George Soros.

  Literally.

  On the heels of comments Soros made in Davos last week about China’s “hard landing,” the Party mouthpiece ran an “op-ed” that carried the title “Declaring War On China’s Currency? Ha, Ha.”

  It’s not clear that George Soros intends to “declare war” on the RMB. However, he did say he was betting against Asian currencies and because his reputation precedes him when it comes to breaking central banks, the Chinese apparently wanted to get out ahead of what the PBoC assumes will be an attack on the yuan. “Given how people know Soros and what he did in 1992 and during the 1997-1998 Asian crisis, he’s too important to ignore, so China felt that they had to counter any negative comments,” Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking told Bloomberg.“They have to reassure local savers and show them a willingness that the government is looking after them and their savings.”

  “Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt,” the People’s Daily continued, before calling the aging billionaire a “crocodile” and a “predator.”

  As we noted yesterday, “China won’t be able to arrest Soros and beat a confession out of him like Beijing is fond of doing to others suspected of launching ‘malicious’ short attacks, but the brash commentary does indicate that Chinese authorities are becoming increasingly sensitive to suggestions that a steeper RMB devaluation is a foregone conclusion.”

  Of course a steeper RMB depreciation is a foregone conclusion because as we’ve outlined on several occasions, the days of China sitting idly by while the dollar peg saps the country’s export competitiveness are long gone and Beijing now seems determined not only to participate in the ongoing global currency wars, but in fact to win.

  But China is keen on orchestrating a controlled depreciation (despite the fact that getting it over with at once might be the better option if Beijing wants to limit capital flight) which means keeping hold of the narrative and using the captive Chinese media to fight back against those who, like the “crocodile” Soros, would seek to employ “malicious” tactics to spark a panic.

  Against this backdrop we get another hilarious “commentary” piece out of the Politburo on Wednesday, this time via Xinhua. The piece, presented in its entirety below, explains why Soros and the ubiquitous “short-sellers” “make claims that run counter to reality.”

  *  *  *

  From Xinhua

  China has ample reasons to stay confident in face of speculators. Far from some speculators’ claims, China is not a source of trouble but an important engine of global economic growth with its growing demand and investment.

  Here are the numbers. China registered a growth rate of 6.9 percent last year amid a sluggish global economy, contributing more than 25 percent of global economic growth.

  Chinese tourists spent 1.2 trillion yuan (182.4 billion U.S. dollars) overseas, while the country’s investors pumped 735 billion yuan (111.7 billion dollars) into other economies.

  Speculators claimed they see a hard landing for China. It is true that the growth of the world’s second largest economy is experiencing a relative slowdown compared with the blistering growth of the past decade. But as we know, decision makers have now opted for a slower pace in order to make the country’s growth more sustainable in the future.

  Moreover, a growth rate of 6.9 percent is the envy of most other economies. China’s added economic output last year was more than the GDP of Sweden or Argentina.

  George Soros, who recently claimed he saw a hard landing for China at the World Economic Forum in Davos, Switzerland, has made the same prediction several times in the past.

  It’s an exaggeration to say that China increases global deflationary risks. Imagine the world without the demand and growth from China, global economic growth would have been much worse, possibly at higher risk of deflation.

  The world economy is having trouble because of the sluggish growth and slow recovery of many economies. International investor Jim Rogers said recently that the monetary policies of the U.S. Federal Reserve and the expansion of government debt are the original sources of the problems.

  Meanwhile, China’s economic transformation is currently underway.

  Figures show that foreign investment in China’s service sector saw robust growth in 2016, and the country attracted 136 billion U.S. dollars of foreign direct investment.

  Thanks to government policies encouraging innovation and the streamlining of procedures, entrepreneurship is flourishing and bringing fundamental change to Chinese society. In the first half of 2015, the number of newly registered businesses exceeded 10,000 on a daily basis.

  Employment creation is strong too, which, coupled with a sound growth rate and strong capital formation and innovation, means that the world’s second largest economy is unlikely to experience a hard landing.

  So why do speculators make claims that run counter to reality? Analysts said it is because either the short-sellers haven’t done their homework or that they are intentionally trying to create panic to snap profits.

  *  *  *

  Yes, “analysts” say Soros hasn’t done his “homework” and just wants to “create panic” on the way to “snapping profits.” Xinhua also says Soros’ views may indicate he’s “partially” blind.

  Unfortunately for the Chinese, Soros probably has “done his homework” and his claims do not “run counter to reality.” The “reality” here is that China’s economy is decelerating and in all likelihood, the yuan will continue to move lower as the currency shoulders the burden of the hard landing.

  This won’t be the first time Soros squares off against Asian officials over flagging currencies. As Bloomberg also points out, former Malaysian PM Mahathir Mohamad (known as the founding father of modern Malaysia) once called the billionaire a “moron” for helping to trigger the ringgit’s collapse.

  So strap in, because the PBoC is in for a bumpy ride in 2016 as everyone from domestic depositors to nefarious, predatory, “speculators” bets on continued yuan weakness. 

  We close with a quote from Michael Every, head of financial markets research at Rabobank in Hong Kong:  

  “They can write as many op-eds as they want, but two plus two doesn’t make five.”

  

  

  

  

  

• How Do You Know When Your Society Is In The Midst Of Collapse?

  Submitted by Brandon Smith via Alt-Market.com,

  As economic turmoil worldwide becomes increasingly apparent, I have been receiving messages from readers expressing some concerns on the public “perception” of collapse. That is to say, there are questions on the average person’s concept of collapse versus the reality of collapse. This is a vital issue that I have discussed briefly in the past, but it deserves a more in-depth analysis.

  What is collapse? How do we define it? And, are some of the notions of collapse in the public consciousness completely wrong?

  It’s funny, because skeptics opposed to the idea of a U.S. collapse in particular will most often retort with a question they think I cannot or will not answer – “So, Mr. Smith, when specifically is this supposed collapse going to take place? What day and time?”

  My response has always been – “We’re in the middle of a collapse right now; you really can’t see it right in front of your sneering face?”

  The reason these people are incapable of grasping this kind of answer is in large part due to the popular mainstream conceptions of systemic collapse. These are conceptions that are for the most part delusional and not in line with the facts. The public idea of collapse comes predominantly from Hollywood, and not from personal experience. For the masses (and some preppers, unfortunately), a collapse is an “event” that happens visibly and usually swiftly. You wake up one morning and behold; the television and phones don’t work anymore and zombies are at your doorstep! Yes, it’s childish and cartoonish, but anything less than a Walking Dead/Mad Max scenario and many people act as if all other threats are benign.

  This is the driving reason why many Americans are absolutely oblivious to the economic instability that is rampant and blatant within our system the past few months. They might see the same signals that alternative analysts see, but these signals do not register in their brains as dangers.

  Look at it this way; say you told a person their whole life that a tiger is a 10-foot tall behemoth with four heads that breath fire while urinating flesh-rending acid. Say you make movies and TV shows about it and they never have any experience to the contrary. When they finally come across a real tiger, they might try to pet the damn thing instead of running in terror or searching for a means of defense.

  To use another vicious animal analogy, when I encounter skeptics with false assumptions of what a collapse actually is, I am often reminded of that woman in Anchorage, Alaska who jumped an enclosure fence at the zoo to get a closer picture of Binky the polar bear. These people have been made so inept when it comes to identifying threats that they will continue arguing with you as the animal takes a football-sized bite out of their meaty thigh.

  So what is the root of the problem beyond Hollywood fantasies? Well, the problem is that social and economic collapse is not a singular event, it is a PROCESS. Collapse is a series of events that sometimes span years. Each event increases in volatility over the last event, but as time goes on these events tend to condition the masses. The public develops a normalcy bias towards crisis (like the old “frog in a boiling pot” analogy). They lose all sense of what a healthy system looks like.

  It is not uncommon for a society to wade through almost a decade or more of violent decline before finally acknowledging the system is imploding on a fundamental level. It is also not uncommon for societies to endure years of abuse by corrupt governments before either organizing effectively to rebel, or caving in and submitting to totalitarianism.

  But how does one recognize a failing system? How does a person know if they are in the middle of a collapse rather than on the “verge” of collapse? Here are some signals I have derived from research of various breakdowns in modern nations and why they indicate we are experiencing collapse right now…

  The Criminals Openly Admit To Their Crimes

  The surest way to know if your society is in the midst of disintegration is to see if the criminals who created the instability in the first place are openly discussing a collapse scenario or warning that one is imminent.

  A year ago, central bankers presented little more than a chorus of recovery propaganda. Today, not so much. The Royal Bank of Scotland is now warning investors to “sell everything” ahead of a “cataclysmic” year in markets.

  The Federal Reserve’s Richard Fisher has admitted that the Fed “frontloaded” (manipulated) stock markets into a bubble and that payment is about to come due in the form of severe economic volatility (up to 20% crash in equities).

  The Bank for International Settlements, the central bank of central banks, has a track record of warning the public about collapse conditions – right before they happen, leaving little or no time for people to prepare. They have followed their habit by warning in September and December that a Fed rate hike would “shatter” the uneasy calm in markets.

  The former Chief Economist of the BIS now says the economy is in worse shape than it was in 2008 and is headed for a larger fall.

  What happened between last year and this year and why are these internationalists suddenly so forthcoming about our economic reality? The fact that central bankers are the cause of our current collapse leads me to believe that such admissions are designed to deflect guilt. If they put out a few warnings now, they can then later claim they are prognosticators rather than culprits, and that they were trying to “help us.” Beyond that, the reality is that our situation was just as dire in 2014/2015 as it is today; the difference is that now we are about to enter a new phase in the ongoing collapse, a much more detrimental phase, but still a phase of a breakdown that has been progressing since at least 2008.

  The Fundamentals Break Through The Manipulation Barrier

  Governments and central banks do not have the capacity to artificially create demand for goods or a supply of well-paying jobs in a crashing economy. What they can do, though, is hide the visible problems in supply and demand with false numbers.

  I examined such false economic statistics in great detail last year in a six-part series titled “One Last Look At The Real Economy Before It Implodes.” I will not cover them all again here. I would only point out that recently the fundamentals of supply and demand have begun to break through the deceit of manipulated numbers, and this is a sign that the collapse is about to move from one stage to the next.

  With global shipping and trucking freight in steep decline, with retail inventories in stasis and current oil consumption falling to levels not seen since 1997 despite a larger population, the mainstream can no longer deny that consumer demand is crumbling. If demand is falling dramatically, then the financial system is in the middle of falling dramatically; there is simply no way around this truth.

  Stocks And Commodities Become Violently Erratic

  Let's be clear, if stock markets represent anything at all, they are merely lagging indicators of economic instability.  Stock markets are NOT predictive indicators of anything useful.  Therefore, any person who does nothing but track equities each day is going to be completely oblivious to the bigger picture behind the economy until it is too late.  They will be so mesmerized by the green numbers and red numbers and lines on minute-to-minute graphs that they will lose all sense of reality.

  Violent swings in stocks are a sign of a financial system that is at the middle or end of the collapse process, not the beginning.

  It is also important to note that extreme shifts in stocks and commodity values to the upside are just as much a signal of instability as shifts to the downside.  For instance, if you witnessed the recent 9% explosion in oil markets and thought to yourself "Ah, the markets are being stabilized again and nothing is different this time…", then you are an idiot.

  Of course, the next day oil markets lost almost all of the gains they made the day before.  And this is how markets behave when they are about to die; they expand and implode chaotically each day on nothing more that meaningless news headlines rather than hard data.  This heart attack in equities inevitably trends downwards as the weeks and months pass.  Keep in mind, equities are down nearly 10% from their recent highs, and oil is down approximately 50% in the past six months.  Every time there is a dead cat bounce in stocks skeptics come out of the woodwork to call alternative analysts "doomers", yet they are nowhere to be found when markets come crashing back down.  They are not looking at the overall trend because their short attention spans hinder them.  Again, extreme swings in markets, whether up or down, are a sign of progressing collapse.

  Deterioration Of Cultural Values, Heritage And Identity

  I have written extensively over the years about the Cloward-Piven strategy; a strategy used by collectivists to destabilize social systems by dumping overt numbers of foreign immigrants into the population without demand for integration. This process has been obvious in the U.S. and Europe for quite some time, but only now is it peaking to the point that collapse is seen as an inevitable result by the public. Europe is worse off than the U.S. in this regard as millions upon millions of Muslim immigrants are injected into the EU’s already dying body; immigrants that intend to transplant their culture from their own failed societies rather than adopting the values and principles of the societies that have invited them in.

  Natural-born Americans and legal immigrants with aspiration of integration appear to be fighting back against the Cloward-Piven strategy with some success by holding onto traditional American values despite being labeled “barbarians” and “racists.” Illegal immigration, though, is still completely unchecked.

  In the EU, the long campaign of cultural Marxism has made natural-born Europeans perhaps the most self-hating people on the planet as well as the most passive and weak. Organized opposition to massive immigration programs in the EU should have taken place years ago. Now it is far too late, and the European system is finishing a social implosion which should have already been obvious to average citizens.

  Open Discussion Of Totalitarian Measures

  When corrupt leadership moves from quiet totalitarianism to more open totalitarianism, your society is in the FINAL stages of collapse, not the beginning of a collapse. The U.S. in particular has been slowly strangled with subversive legal directives and political policies ever since the so called “War on Terror” began. However, there are now multiple signals of a much deeper and open tyranny in the works.

  A few recent examples stand out, including Barack Obama’s insistence that the office of the president has the legal authority to issues executive orders that affect constitutional protections such as the 2^nd Amendment. As many liberty movement activists are aware, there is absolutely no constitutional precedent for the use of executive orders and such powers are not mentioned anywhere in the document. They were simply created out of thin air to be used by the federal government and sometimes state governments to supersede normal checks and balances.

  While numerous presidents have issued executive orders, including some that were outright tyrannical, like Franklin Delano Roosevelt’s unconstitutional internment of Japanese Americans into concentration camps, George W. Bush and Barack Obama have been the most subversive in their bypassing of the Constitution. Obama, in particular, has tried to hide the number of executive actions he has taken by issuing hundreds of “presidential memorandums,” which are basically the same dirty play by another name.

  These actions have been progressively setting the stage for the removal of checks and balances entirely in the name of crisis management. They are so broad in their nature and vague in their definitions and applications that they could be interpreted by federal authorities to mean just about anything in any given situation.

  If executive actions are not scary enough, corrupt politicians are now becoming blunt in their demands for dominance. Two Republican Senators, Mitch McConnel and Lindsay Graham, are calling for unlimited AUMF-style (authorization of use of military force) war powers to be given to the president. Such powers would allow the president to project U.S. military forces anywhere in the world for any reason without review or time limits. This includes the use of military forces on U.S. soil.

  The rationale for this is, of course, the threat of ISIS. The same group of terrorists the U.S. government helped to create.

  And finally, if you want perhaps the most nonchalant admission of future tyranny in recent days, check out former General Wesley Clark’s call for “disloyal” Americans to be placed in internment camps through the duration of the war on terror, a war that could ostensibly go on forever.

   

  One could argue that all of these measures are meant only to deter “Islamic extremism.” I would point out that government officials could have stemmed that tide at any time by enforcing existing immigration laws, or, by stopping all immigration for a period of years until the problem is handled. Instead, they have allowed open borders to remain, and have even imported potential terrorists while focusing Department of Homeland Security efforts more on evil white guys with guns.

  If we accept the violation of the constitutional rights of any group of citizens, if we allow the concept of "thought crime" to become commonplace, then we leave the door open to the violation of our own rights someday. And that is how tyrants trick populations through incremental collapse; by applying despotism to a claimed dangerous minority, then expanding it to everyone else.

  America is sitting near the end of the spectrum in terms of economic collapse and in the middle of the spectrum in terms of social collapse.  While more violent events are certainly gestating and are likely to be triggered in the near term, we should not overlook the reality that collapse is happening in stages all around us.  This process gives us at least some time.  All is not lost yet, and the steps we take to organize and prepare today will affect how the collapse process unfolds tomorrow. People who continue to ignore the outright evidence of collapse based on false assumptions of what collapse should look like are only preventing themselves from taking proper action until it is too late. Make no mistake, our system is dying. We cannot allow our false perceptions of this death to cloud the reality of it, or our response to it.

   

  

  

  

  

  

• These Two Commodity "Experts" May Not Have Long To Live

  There is reason for the saying “never say never”, as demonstrated vividly by these two energy experts:

  Mark Fisher:

  

   

  And Dennis Gartman:

  

   

  Perhaps it is not too late to buy life insurance on behalf of one – or both – of these world-renowned commodity gurus? If so, hurry because according to the oil strip, Gartman’s expiration date is Summer 2018.

  

  h/t @GreekFire23

  

  

  

  

  

• Refugee Murders 22-Year-Old Swedish Woman In Knife Attack

  As you might have heard, the European Union is on the brink of collapse.

  The bloc has been inundated with asylum seekers from the war-torn Mid-East and the influx of refugees now threatens to shatter the Schengen dream. Some European officials (most notably Angela Merkel) are fighting to preserve Europe’s open borders but others have reached their breaking point with what they see as a hostile foreign invasion.

  Far-right Dutch politician Geert Wilders even went so far as to call Arab migrants “Islamic testosterone bombs” who need to be “locked” in asylum centers to prevent them from waging a “sexual jihad” on Dutch women.

  Wilders was referencing widespread reports of sexual assaults allegedly perpetrated by men and male teenagers “of Arab origin.” These attacks began to make international headlines after eyewitnesses in Cologne, Germany went public with accounts of an apparent sexual melee that unfolded in the city center on New Year’s Eve. Women, the reports indicated, were assaulted by “gangs” of refugees who groped them and in some cases robbed them.

  Once the Cologne attacks became big news, Nyheter Idag released an investigative report alleging prominent Swedish daily Dagens Nyheter sought to conceal from the public a wave of sexual assaults at a youth festival and concert in central Stockholm’s Kungsträdgården last August. Dagens Nyheter denied the allegations, saying it was in fact Swedish police that were responsible for the coverup.

  Swedish politicians promised a thorough investigation into the matter and voiced their disgust for the alleged attacks.

  “This is a very big problem for those affected and for the whole of our country,” Prime Minister Stefan Löfven said. “We will not budge an inch, and we should not look away.”

  Well if Löfven thought roving gangs of teenage refugees groping girls at concerts was a “big problem,” he has an even bigger issue now because on Monday, 22-year-old Alexandra Mezher was stabbed to death by a 15-year-old migrant at an asylum center.

  “Mezher began working at an asylum center in the city of Molndal, helping unaccompanied minor migrants adapt to life in their adopted home,” The Washington Post writes. “She was killed by one of those young migrants.”

  

  “It is so terrible. She was a person who wanted to do good,” Mezher’s cousin said “And then he murdered her when she was doing her job.”

  She had only worked at the center for “a few months” according to Expressen, who adds that “the company that runs [the Molndal house] has many similar places throughout western Sweden.” Here’s more the Daily Mail:

  Alexandra, of Lebanese Christian origin, lived with her parents Boutros, 46, and Chiméne Mezher, and her two younger brothers in Borås, some 40 miles from Molndal. 

   

  Her father came to Sweden from Beirut, Lebanon, in 1989 and her mother moved there three years later. 

   

  It has now emerged that Miss Mezher had been working alone at the housing in Mölndal, which is home to ten unaccompanied minors.

   

  Despite rules that the staff should work in pairs, Miss Mezher had been working a night shift all by herself and was attacked just half an hour before daytime staff were due to take over, it is claimed. 

   

  
  

   

  A colleague speaking on condition of anonymity said that staff had previously complained about having to work alone overnight.

   

  ‘Everyone cried and someone said that this was something we had brought up before, that no one should work alone.’

   

  The teenage migrant accused of murdering a young Swedish social worker at a refugee centre will stand trial as an adult, MailOnline has learnt.

   

  Authorities in Sweden have taken the unusual step of keeping the 15-year-old suspect in police custody due to the serious nature of the crime. 

   

  Youngsters are normally sent to a secure children’s home following arrest, but the teenager is being held behind bars due to public outrage follow the brutal knife killing of Alexandra Mezher.

   

  And he will be held in an adult prison until he goes on trial.

   

  ‘A person is criminally responsible when they reach 15-years-old in Sweden,’ a Gothanburg Police spokesman told MailOnline.

   

  ‘The boy is being held at the police station.

   

  ‘But it is very unusual that children to be kept in custody by the police.

   

  ‘However the public prosecutor has deemed this as a special case due to the nature of the crime and will ask for the boy to be held in prison until he goes to trial.’

  
  This is a “terrible crime” PM Löfven said, after visiting the scene. “It was messy, of course, a crime scene with blood,” police spokesman Thomas Fuxborg recalled. 

  

  

  

  “The symbolism of Mezher’s slaying was not lost on the country’s politicians,” WaPo continues, noting that Löfven took to the air waves following the young woman’s death to acknowledge the country’s growing disaffection with the refugee situation. “I believe that there are quite many people in Sweden who feel a lot of concern that there can be more cases of this kind,” he told Radio Sweden.

  Yes Mr. Löfven, we “believe” that you are correct and make no mistake, if European politicans do not find an effective way to get the situation under control, the public will remove them – either with the ballot or with the torches and pitchforks. 

  On that note we close with one more quote from Mezher’s relatives:

  “It is the Swedish politicians’ fault that she is dead.”

  

  

  

  

  

• Is China About To Drop A Devaluation Bomb?

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  Though she had no intention of being funny, we laughed out loud, as undoubtedly many did with us, when incumbent and wannabe IMF head Christine Lagarde said last week in Davos that China has a communication issue. Of course, Lagarde knows full well that Beijing has much bigger problems than communication ‘with the market’. Or, to put it differently, if Xi and Li et al would ‘improve’ their communication by telling the truth about their economy, nobody would be talking about communication anymore.

  Mixed signals from China, which is attempting to shift its economy away from exports and investment to a consumer-driven model, have deepened concerns about the outlook for world growth, she said. Uncertainty is “something that markets do not like”, Ms Lagarde told a panel of business leaders and economic regulators in the snow-blanketed Swiss ski resort. Investors have struggled with “not knowing exactly what the policy is, not knowing exactly against what the renminbi is going to be valued”, she said, referring to China’s currency. “I think better and more communication will certainly serve that transition better.”

   

  The world’s second-largest economy this week announced its 2015 GDP growth as 6.9%, its slowest in a quarter of a century. The figure cast a shadow over the summit, where IHS chief economist Nariman Behravesh told AFP that Chinese policymakers had “fumbled” and had “added to the uncertainty and the volatility by their behaviour”. Mr Fang Xinghai, the vice-chairman of China’s securities regulator, said at the same panel that “in terms of communication, we should do a better job”. “We have to be patient because our system is not structured in a way that is able to communicate seamlessly with the market,” he added.

  The real issue is what people would think if Beijing announced a more realistic 2% or less GDP growth number. The thought alone scares Lagarde as much as anyone, including the Politburo. The sole option seems to be to keep lying as long as you can get away with it. But how and where the yuan will be valued by China itself has become entirely inconsequential compared to how markets value the currency.

  The PBoC spent a fortune trying to straighten the offshore and onshore yuan(s), only to see the two diverge sharply again, as Shanghai stocks posted the biggest loss on Tuesday, at 6.4%, since the ‘unfortunate’ circuit breaker incident. That puts additional pressure on the Hong Kong dollar peg, and ultimately on the mainland China peg to whatever it is they’re trying to peg to.

  Beijing might solve some of these problems by devaluing the yuan by 30%, or even 50%, but it would invite a large amount of other problems in the door if it did. Like a full-blown currency war. Still, it’s just a matter of time till Xi and Li either do it voluntarily or are forced to by ‘the market’.

  What they are trying very hard NOT to communicate is how much pain their Ponzi debt burden has put them in. It’s not even fully clear to what extent Xi himself is aware of this, but he knows at least enough to keep his mouth shut on the topic. It’s quite possible that some of his top aides dare not reveal the real tally to their boss for fear of their jobs and heads.

  In concert with denial and obfuscation, pride and hubris may be clouding the image the Chinese have of themselves and their economy. The rest of the world has followed them in that to a large degree, but it’s got to wake up at some point. If what the WSJ quotes a Beijing-based investor as saying is halfway true, and Xi realizes the opportunity it provides him, a huge devaluation may be imminent after all, if Shanghai shares keep falling the way they are.

  Yuan’s Fall Is Just ‘Noise’ Amid Deeper China Woes

  The country is already littered with “zombie” factories, empty apartment blocks that form ghostly suburbs, mothballed power stations and other infrastructure that nobody needs. But yet more wasteful projects are in the pipeline, even as the government talks about cutting industrial overcapacity. “That’s the misalignment—everything else is noise,” says Rodney Jones, the Beijing-based principal of Wigram Capital Advisors, who was a partner at Soros Fund Management during the 1990s. If debt keeps piling up at the current rate, China faces an eventual financial crisis, perhaps leading to years of subpar growth, mirroring the fate of Japan after its bubble burst in the early 1990s.

   

  Mr. Jones argues that global equity markets haven’t property adjusted to this risk, even after a 16% decline in U.S. dollar terms from their May peak. “The world will have to learn to live without demand from China,” he says. “It’ll come as a shock.” A sharp devaluation won’t fix these distortions, and might even make matters worse if, as likely, it were to trigger financial mayhem in China’s trading partners. An alternative—further clamping cross-border currency controls—would be a humiliating retreat from Beijing’s policy of making the yuan more international.

  If China imports continue to fall the way they have recently, a development that has already relentlessly hammered global commodities markets and exporting emerging nations, the advantages of a large devaluation could become irresistible even for a proud president. With capital flight in 2015 estimated at $1 trillion, and a roughly equal chunk of foreign reserves thrown at attempts to ‘stabilize’ the yuan, that pride is getting costly.

  

  ..

  

  But it occureed to me today that perhaps I simply haven’t been cynical enough yet when pondering the matter. The support for a strong yuan, the one thing that is constantly ‘communicated’ to the world, may be just another facade. Beijing may have long decided to go for the jugular. China will have to adjust to the popping of its growth fairy tale and Ponzi economy no matter what it tries to do to prevent it.

  Might as well swallow the bitter pill in one go then and get it over with?! It would make exports much more attractive at a time when more expensive imports are much less of an issue. As nice example is the very disappointing sales of iPhones in the country, prompting this comment from Apple CEO Tim Cook today: “We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look.” I think he might want to consider that what happened before was extreme, not what is now.

  Beijing did a few things recently that triggered my cynicism radar. First, they targeted George Soros.

  China Accuses George Soros Of ‘Declaring War’ On Yuan

  Chinese state media has stepped up a salvo of biting commentaries against George Soros and other currency traders as the yuan comes under pressure, with the billionaire investor accused of “declaring war” on the unit. At the annual World Economic Forum in Davos last week, Soros told Bloomberg TV that the world’s second-largest economy was heading for more troubles. “A hard landing is practically unavoidable,” he said. Soros [..] pointed to deflation and excessive debt as reasons for China’s slowdown.

   

  [..] Soros “publicly ‘declared war’ on China”, the paper said, citing the 85-year-old as saying that he had taken positions against Asian currencies. But some readers questioned whether the official rhetoric could fuel Chinese investors’ fears. “They say a lot of loud slogans, but do official media even know that Chinese investors are in hell?” said one poster on social media network Weibo. “I’m afraid that Chinese investors will die in a stampede before Soros even shows his hand.”

  And I’m thinking: why should you go after Soros in a very public way when you know the whole world will take note and there’s nothing you can do other than stomp your feet and thump your chest? “Look, everyone, the world’s most notorious and successful short seller is after us, but we’re so much smarter!” Maybe they think Chinese mom and pop investor juggernauts will fall for their ‘whatever it takes’ tale, but they have to deal with the entire planet here.

  Could this be simple stupidity? At a certain point that gets hard to believe. An even better example, and one that is really brow-raising, was the announcement of an inquiry into China’s statistics chief:

  Head Of China’s Statistics Bureau Investigated For Corruption

  The head of China’s statistics bureau is being investigated for corruption, the country’s watchdog said on Tuesday. “Wang Baoan is suspected of severe disciplinary violations, he is currently under investigation,” the Central Commission for Discipline Inspection said in a one-line statement on its website, using a phrase that is usually used to refer to corruption. The announcement came just hours after Wang appeared at a media briefing in Beijing on China’s economy in 2015. Last week the National Bureau of Statistics released data that showed China’s economy grew at the slowest pace in 25 years. Wang reiterated on Tuesday that the country’s GDP calculations were reliable, Chinese media reported, despite widespread criticism of the data.

  Here’s a guy seeking to soothe his audience, which in present circumstances includes the whole globe, and you cut him off at the knees just hours after? He says all’s fine, and then you sent a message to the world that he can’t be trusted?

  The timing seems crucial here. They could have waited a week, or two, so the connection between the two events (Wang’s statement and the inquiry announcement) would have been much less obvious. They could also, of course, have had the inquiry but kept it hush-hush. Instead, as in the Soros case, there’s a big public declaration.

  Wang is head of a statistics bureau that, says the NYT, is tasked with:

  Inquiry in China Adds to Doubt Over Reliability of Economic Data

  The statistics bureau has a variety of responsibilities that are hard to balance even in the best of times. The bureau is supposed to provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses, even while reassuring the public about growth and maintaining consumer confidence. It is also supposed to release enough detailed and accurate information for investors and corporate leaders to make sound decisions about economic and financial prospects.

  That leads us right back to the start of this article. Wang must provide “enough detailed and accurate information” for investors”, but how can he do that if the real numbers are as bad as I strongly think they are? In that case, accurate information would drive most investors away and drive others towards shorting the yuan.

  He must also “provide China’s leaders with an unvarnished assessment of the country’s economic strengths and weaknesses”, and perhaps he screwed up there (too much varnish). Xi may have found out something real bad that Wang didn’t tell him about. But even then, the fact stands that Xi risks triggering exactly what he pretends to want to prevent, by taking this to the press.

  To summarize: yes, it’s possible that Beijing has a communication problem. I’ve never had the idea that Xi understands that now his power dream has come true, he finds that power is not absolute, if and when he wishes to have a financial market that allows for China to get richer through trade. That he realizes the price to pay for that is having much less than total control.

  Still, after glancing through this stuff, I wouldn’t be at all surprised if the decision for a very substantial devaluation of the yuan has already been taken. It would be a panic move, with largely unpredictable consequences, but then Beijing has plenty to panic about.

  And I can’t wait to see what Lagarde has to say when she figures out her new currency basket baby turns around to bite her in the ass.

  PS: Something I scribbled last week: Time and again, I see ‘experts’ claim that the fact that the Chinese services sector now makes up half of GDP, is a positive. But, even if we forget for now that much of its growth is due to financial services, the real meaning is the opposite. The services sector has been able to become so important simply because the manufacturing sector is plunging as badly as it is.

  

  

  

  

  

• Beating A Dead Unicorn: Theranos Lab Poses "Immediate Jeopardy To Patient Safety" CMS Warns

  Confirming what we detailed earlier this week, queen of the unicorns Elizabath Holmes is in big trouble…

  

  • *THERANOS 'NOT IN COMPLIANCE' WITH GOVERNMENT RULES, AGENCY SAYS
  • *CENTERS FOR MEDICARE AND MEDICAID SERVICES COMMENTS IN LETTER
  • *THERANOS HAD 'DEFICIENT PRACTICES' AT LABORATORY, CMS SAYS
  • *PRACTICES POSED 'JEOPARDY TO PATIENT HEALTH AND SAFETY'

  As Bloomberg reports,

  Deficiencies at a laboratory run by medical testing startup Theranos Inc. “pose immediate jeopardy to patient health and safety,” U.S. government regulators said in a letter to the company released Wednesday.

   

  Theranos violated at least five regulations governing clinical laboratories that operate medical diagnostics used to do things like test blood levels or assess disease, the U.S. said in the letter, which is dated Jan. 25.

   

  Theranos has 10 days to show the Centers for Medicare and Medicaid Services it is taking action to immediately fix the issues.

  Full CMS statement below:

  *  *  *

  This deficiency report is critical to Theranos future relationship with its main retail partner Walgreens Boots Alliance,

  The drugstore operator has 41 blood-drawing “wellness centers” in stores in Arizona and California, which are Theranos’s primary access to consumers. Walgreens had aimed to expand the sites nationwide but has suspended those plans until Theranos answers questions about its technology, said the people familiar with the matter.

   

  In recent weeks, Walgreens has debated whether to close the wellness centers, and the results of the latest inspection by CMS could lead the retailer to take an even harder look at what remains of its partnership with Theranos, these people said.

   

  Since October, Walgreens representatives have met a number of times with Theranos Chief Executive Elizabeth Holmes and her executive team but were dissatisfied with their responses, the people added.

   

  An earlier review of the contract led Walgreens officials to conclude that it would be difficult to exit the agreement, but the inspection findings could alter that conclusion, according to people familiar with the matter.

  Just what does this say about the following 12 members of the Theranos board?

  

   

  Or perhaps that was the idea…

  This is a board that may have made sense (twenty years ago) for a defense contractor, but not for a company whose primary task is working through the FDA approval process and getting customers in the health care business. (Theranos does some work for the US Military, though like almost everything else about the company, the work is so secret that no one seems to know what it involves.)

   

  The only two outside members that may have had the remotest link to the health care business were Bill Frist, a doctor and lead stockholder in Hospital Corporation of America, and William Foege, worthy for honor because of his role in eradicating small pox. My cynical reaction is that if you were Ms. Holmes and wanted to create a board of directors that had little idea what you were doing as a business and had no interest in asking, you could not have done much better than this group of septuagenarians.

   

  

  

  

  

• Mainstream Media, Economists Mock "Cash Hoarding" Canadian 'Savers'

  With grocery prices surging, amid the collapsing currency, the powers that be appear to have turned to their mainstream media puppets to initiate the 'mocking' propaganda of the banks against an increasingly fearful Canadian citizenry (especialy those under 35) who are hoarding cash.

   

  With the Canadian people losing faith in their government's ability to save their corner of the world as their currency loses value by the day, it is perhaps unsurprising that the always supportive of the status quo media comes out with a somewhat mocking "cash hoaring on the sidelines is foolish" puff piece… (via Financial Post)

  

   

  Cash positions have been rising since the 2008 recessions, so the recent increase comes on top of what Canadians were already sitting on in their portfolios.

  The result is the largest hoarding of cash in Canadian history.

  

   

  So, FinancialPost explains, if you are holding on to that cash out of fear rather than need, you should consider jumping back in and benefiting from what is essentially a 20 per cent discount on stock prices.

  But what if you need cash right now, because you’ve just hit your retirement years, or you need to liquidate some of your registered education savings plans because your child will soon be starting a university or college program?

  The short answer is that you should have planned ahead: You want to have a certain amount of cash in your portfolio to meet more immediate needs so you’re not cashing out your investments at the bottom of the market.

  It appears Canadians are ignoring the "sage" advice of CIBC World Markets: "While holding cash can guard against short-term spikes in volatility, it’s certainly a long-term drag on portfolio returns," and moving to cash rather than have their capital destroyed by unwinding carry trades and deflating bubbles blown by their central bank overlords…

  

   

  CIBC World Markets economists Benjamin Tal and Royce Mendes note that while they don't have a crystal ball for when markets will recover, but says that by the time they do,  “it will be way too late” for Canadians on the sidelines to take advantage, because most recoveries happen in the early stages.

  *  *  *

  There – do you get the message Canadians – pile all that cash into the stock market – fear is for losers.

  

  

  

  

  

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• Nationalism & Its Discontents: A Deep Rumination On The Meaning Of Trump

  Submitted by Justin Raimondo via AntiWar.com,

  At the end of the cold war, a cadre of neoconservative intellectuals surveyed the debris of the fallen Soviet colossus and boldly proclaimed “the end of history.” The West, said Francis Fukuyama, writing in The National Interest, had won not only the cold war but also the war of ideas –   for all time. We were inevitably embarked on a pathway to a “universal homogenous state,” and although the pageant of History (always capitalized!) would continue to “unfold” along a rather bumpy road, in the end it would prove to be a highway to US hegemony over the entire earth. In a symposium commenting on Fukuyama’s thesis, the ever-practical Charles Krauthammer nevertheless insisted that it would be necessary for the United States to hurry History along by force of arms. In a subsequent polemic in Foreign Affairs, he argued that we ought to take advantage of “the unipolar moment” to “integrate” the US, Japan, and Europe into a “super-sovereign” global empire united by a “new universalism” – which, he averred, “is not as outrageous as it sounds.”

  Blinded by hubris, enthralled by the possibilities of unlimited power, the neocons – and their liberal internationalist doppelgangers on the other side of the political spectrum – didn’t see the nationalist backlash coming.

  That rebuke was prefigured by a stinging rebuttal from the pen of Patrick J. Buchanan in the pages of The National Interest, who wrote that Krauthammer’s vision was “un-American,” pure and simple. In Buchanan’s view, this militarized universalism was nothing less than treason. Invoking the Founders, he wrote that this globalist fantasy failed “the fundamental test of any foreign policy: Americans will not die for it.” A nation’s purpose, he added, cannot be ascertained “by consulting ideologies, but by reviewing its history, by searching the hearts of its people.” So what, if not the “benevolent global hegemony” dreamt of by the neocons, would and should Americans fight for? Buchanan’s answer was to quote these stanzas from Lord Macaulay:

  “And how can man die better
  That facing fearful odds,
  For the ashes of his fathers,
  And the temples of his gods?”

  Buchanan’s answer to Krauthammer’s globalism was a foreign policy of “enlightened nationalism”: “total withdrawal of US troops from Europe,” and a rejection of the idea – nowhere authorized in the Constitution – that the President and/or Congress has the power to sacrifice its sons on the altar of some crazed crusade for “global democracy.” Prophesizing the declaration of President George W. Bush some fifteen years later that we would seek to “end evil” in the world, Buchanan raised the banner of non-interventionism in the pre-9/11 world: that is, in a country that was primed to hear his message.

  He took that message to the Republican party, and the country, in three campaigns for the White House, all the while warning that the “unipolar world” dreamed of by Krauthammer and his fellow neocons was a dangerous fantasy, and that the rising tide of nationalism, from Beijing to Biloxi, would make short work of it. A multi-polar world was on the horizon, and the best we could hope for was to adapt to the new reality by tending to our own garden, which had – after a long global struggle with the (alleged) Soviet threat – by this time become choked with weeds and in need of emergency care.

  The same nationalist tides that were sweeping the post-cold war world in Europe and Asia were roiling the waters in America, but they took on a different shape and coloration in the wake of the 9/11 attacks. Whereas Buchananism was inward-looking, anti-interventionist, and anti-globalist, the ultra-nationalism utilized by the neocons to mobilize the American people behind a crusade to transform the Middle East was and is aggressive, militaristic, and explicitly hegemonist – a bid to create the “unipolar world” of Krauthammer’s Napoleonic imagination.

  This interrupted and in effect reversed the natural tendency to return to normalcy after the decades-long cold war struggle, and at a huge price in blood and treasure. And yet eventually the pendulum swung back again, as exhaustion – both emotional and financial – set in. America elected a President who vowed to end the wars, and deal with our festering home front crisis: that promise, however was not kept, and Barack Obama will leave office with the US once again in the middle of at least three wars, and with a hand in several others on their periphery. Yet the nationalist impulse – which is, in part, an “isolationist” impulse – is stronger than ever, laying just beneath the surface of the American political landscape, waiting for someone to pick up its banner.

  That someone turned out to be Donald Trump.

  I have many disagreements with Trump, but unlike his many enemies on the left and especially on the right I understand that his nationalism contains elements that are  useful, instructive, and even admirable. Unlike Buchanan, he is certainly no intellectual, but then again the last intellectual to inhabit the White House – Woodrow Wilson – was an unambiguous disaster for the cause of peace and liberty, and so I don’t hold that against The Donald. There is surely a demagogic element to his astonishing rise, which his opponents – particularly those on the right – make much of. The recent jeremiad against him launched by the neocons over at National Review was filled with comparisons to Mussolini, Juan Peron, Hitler (of course!), and even Andrew Dice Clay, this latter barb a direct appeal to the smug snobbery that characterizes our urban elites. “He’s “vulgar,” he’s “rude,” etc. etc., and those were some of the gentler ways they characterized him personally.

  Yet demagoguery didn’t bother them when it was deployed by George W. Bush as he marched us off to a disastrous war – a war Trump opposed, and continues to denounce today – and implied that his critics were in league with America’s enemies. “You’re either with us or you’re with the terrorists” – remember that one? Do you recall how Bush’s partisans over at National Review tried to tar conservative and libertarian opponents of the Iraq war – including this writer – as having “turned their backs on their country”? Demagoguery in the service of mass murder is fine with them: it’s only when their own methods are turned against them that the War Party starts to get religion.

  Yes, Trump rose to prominence initially on the strength of his anti-immigration and protectionist stance – views he holds in common with his predecessor, Buchanan – but this doesn’t account for the hysterical opposition to his candidacy coming from the neoconservatives. National Review has been a veritable fount of anti-Muslim propaganda, with the writings of Andrew McCarthy, Mark Steyn, Kevin Williamson, and a host of others all polemicizing against the idea that terrorism is primarily due to US actions abroad and holding that the roots of Bin Ladenism lie in the nature of Islam per se. Given the logic of their longstanding position, how can they object to Trump’s proposal to temporarily ban Muslim immigration? Yet there they were, breaking Godwin’s Law and claiming that we’d be facing an American Kristallnacht if Trump gets in the White House. What chutzpah!

  No, the real motive behind the neoconservative holy war against Trump is rooted in his foreign policy positions, which the neocons rightly view as a direct threat to their internationalist project. Chris Matthews is on to their game: please watch his confrontation with a neocon journalist below.

  Discussing the special we-hate-Trump issue of National Review, Matthews cornered poor NR writer Eliana Johnson, who was reduced to stuttering incoherence as he hammered her on what he rightly perceived as the overarching point of unity in “that crowd” on the Trump question: “that’s why they don’t like Trump, because he’s the only guy on the right wing who said [the Iraq war was] a stupid war.” When Johnson denied this, he demanded to know who among the long list of anti-Trump “intellectuals” wasn’t a war-hawk. “Can you answer me?” he persisted. “Who is not a hawk in that group?”

   She couldn’t come up with one (although she might have stopped him by mentioning David Boaz, of the Cato Institute).

  Boaz’s brief polemic, by the way, didn’t mention foreign policy: he confined his critique to references to Mussolini, George Wallace, and other comparisons seemingly ripped from the pages of Salon.com. Yet other contributors made no secret of the source of their animus. Neocon Mona Charen was appalled by Trump’s suggestion that “we let Russia fight ISIS.” Trump is “oblivious” to the “global jihad,” fumed Andrew McCarthy, angered by Trump’s vow to “stay out of the [Syrian] fray (leaving it in Vladimir Putin’s nefarious hands).” Bill Kristol was one of the signers, a man whose key role in ginning up the Iraq war is well-known to my readers.

  A recent piece in Politico was more explicit about the danger Trump poses to the internationalist-interventionist consensus that reigns supreme in the Washington Beltway:

  “One of the most common misconceptions about Donald Trump is that he is opportunistic and makes up his views as he goes along. But a careful reading of some of Trump’s statements over three decades shows that he has a remarkably coherent and consistent worldview, one that is unlikely to change much if he’s elected president. It is also a worldview that makes a great leap backward in history, embracing antiquated notions of power that haven’t been prevalent since prior to World War II.

   

  “It is easy to poke fun at many of Trump’s foreign-policy notions – the promises to “take” Iraq’s oil, to extract a kind of imperial ‘tribute’ from U.S. military allies like South Korea, his eagerness to emulate the Great Wall of China along the border with Mexico, and his embrace of old-style strongmen like Vladimir Putin. But many of these views would have found favor in pre-World War II – and even, in some cases, 19th century – America.

   

  ”In sum, Trump believes that America gets a raw deal from the liberal international order it helped to create and has led since World War II. He has three key arguments that he returns to time and again over the past 30 years. He is deeply unhappy with America’s military alliances and feels the United States is overcommitted around the world. He feels that America is disadvantaged by the global economy. And he is sympathetic to authoritarian strongmen. Trump seeks nothing less than ending the U.S.-led liberal order and freeing America from its international commitments.”

  All this is heresy in the circles in which the author – Thomas Wright, director of the Project on International Order and Strategy at The Brookings Institution – travels. Brookings is in hock to the Gulf emirate of Qatar to the tune of $14.8 million, according to the New York Times. This accounts for Wright’s discomfort with The Donald’s view of America’s expensive and often tragic commitments to defending other nations “that would be wiped off the face of the earth if not for us,” as the former real estate mogul puts it.

  Wright’s characterization of Trump’s attitude toward Putin as an “embrace” is a typical ploy by the War Party, which always portrays a non-belligerent stance as a love affair: what Trump actually said, however, is that “I could get along with Putin” – a definite no-no in Washington, where the new cold war is raging on both sides of the aisle. Contrast this with the position taken by most of the other GOP candidates, such as Christie, Rubio, and Bush, who proudly proclaim they’d confront Russian planes in the skies over Syria, risking World War III.

  Examining Trump’s foreign policy pronouncements over the years – the GOP frontrunner wonders why we are stationing 28,000 troops in South Korea, complains that we’re defending Japan while they slap tariffs on our products, and says we have no business stationing tens of thousands of soldiers in Europe, which can damn well take care of itself – Wright trots out the hate figures interventionists love to excoriate. Trump is like Robert A. Taft, who didn’t want us to join NATO: he’s like Charles Lindbergh, a leader of the anti-interventionist America First Committee, a particular hate-figure of the interventionist-neocon foreign policy Establishment. And, of course, Trump is an “isolationist,” because he’s sick of coddling our shiftless “allies” while they rip us off and laugh at us behind our back, all the while huddling under the protective wingspan of the American eagle.

  All of this is no doubt reassuring to Wright’s Qatari paymasters, who have a lot to lose if Trump should win the White House and present them with a bill for services rendered. But in reading Wright’s list of Trumpist foreign policy heresies, one can’t help but think that the average American would agree with each and every one of The Donald’s complaints about the profligate paternalism involved in maintaining this precious “international order” Wright would have us enforce for free. He maintains that “those alliances also work to America’s benefit by providing it with prepositioned forces and regional stability. It would actually cost more to station troops in the United States and have to deploy them overseas in a crisis.” But his rationale is a classic example of circular reasoning: he assumes it is our sacred duty to intervene everywhere. A “crisis,” for him, is the possibility that the Emir of Qatar will lose his throne, or that the Saudis will one day be confronted with the consequences of their inveterate barbarism. Ordinary Americans – i.e. Trump supporters – would consider that turn of events a comeuppance waiting to happen.

  “Tax these wealthy nations,” says Trump, “not America” – a prospect that no doubt horrifies Wright and his foreign sponsors, but delights Americans to no end. Which is precisely why Trumpian nationalism has such resonance this election season.

  In Wright’s view, Trump is not only unduly rude to our alleged “friends,” he is far too friendly to our alleged enemies, i.e. Russia and China. Wright admits, parenthetically, that these two pose no threat to the American homeland, but rather to “the US-led order,” i.e. the albatross of our global empire, where – as the Old Right writer Garet Garrett put it – “everything goes out and nothing comes in.”

  As is routine for our war propagandists, Wright accuses Trump of having a soft spot for authoritarian leaders. Since Trump doesn’t want to threaten Putin and the Chinese with regime-change, this must mean he admires – and even wants to emulate – their domestic policies. It’s an absurd position to take, and, not coincidentally, the very same illogic that led to the Iraq war. “He’s killing his own people,” went the refrain about Saddam Hussein – and if you didn’t favor regime-change in Iraq, that must mean you approved of Saddam’s dictatorship. We can see where that line “reasoning” led, but Wright and his fellow policy wonks haven’t learned that lesson even if the American people have.

  Wright gleefully cites Putin’s comments on Trump:

  “He says he wants to move on to a new, more substantial relationship, a deeper relationship with Russia, how can we not welcome that? Of course we welcome that.”

  This horrifies Wright, but what is wrong with getting along with the leader of the Russian state – a person who has at his command thousands of nuclear weapons and has often expressed wonderment at Washington’s rebuke of every attempt at rapprochement? With the threat of a new arms race looming large and a new cold war on the horizon, the biggest danger to international peace is our deteriorating relations with Russia. Trump realizes this: Wright, not so much. And the American people are behind Trump in this: asked by pollsters if we should get involved in a dispute with Russia over Ukraine, the overwhelming answer was a resounding “No!”

  “It’s not hard to imagine these two men sitting down to cut a deal,” says Wright, but surely cutting a deal to reduce the nuclear arsenals of both nations and resume cooperation in tracking down “loose nukes” floating around the former Soviet Union is a good thing. Except it isn’t a good thing as far as our new Cold Warriors are concerned. Wright derides Putin and Trump for holding an “antiquated” view of world politics, but what could be more antiquated than launching another cold war with Russia – a quarter century after the fall of the Soviet Union?

  As for China, Wright is at his wit’s end because Trump seems unconcerned with “its attempts to blunt US power projection capabilities or its repression at home.” And yet “power projection” is just another word for military aggression, which is bound to provoke a response from the highly nationalistic Chinese. Are we supposed to go to war over the Spratly Islands and a collection of artificial atolls in the South China Sea – thousands of  miles away from American shores? Seriously? Wright pretends to be concerned about China’s repressive domestic policies, but threatening behavior on our part will only empower the sclerotic leaders of the Chinese Communist Party and strengthen their position domestically. Wright fails to understand the power of rising nationalism abroad, just as he disdains its manifestations here in America.

  It’s almost funny how Wright portrays the threat to his treasured “US-led order”:

  “There will be massive uncertainty around America’s commitments. Would Trump defend the Baltics? Would he defend the Senkaku Islands? Or Saudi Arabia? Some nations will give in to China, Russia and Iran. Others, like Japan, will push back, perhaps by acquiring nuclear weapons. Trump may well see such uncertainty as a positive. Putting everything in play would give him great leverage. But by undoing the work of Truman and his secretary of state, Dean Acheson, it would be the end of the American era.”

  The idea that Putin is raring to gobble up the Baltics is one of the cold warriors’ talking points, but it is absurd on its face: does he really think Putin is dumb enough to replicate the US invasion of Iraq in a European setting? Don’t make me laugh. Crimea wanted union with Russia, and that’s what the Crimeans got: given the way Ukraine is being governed, who can blame them? But it is sheer fiction to imagine that Putin wants to recreate the Warsaw Pact: he is playing defense to NATO’s game of offense.

  As for the Senkaku Islands – what in the name of all that’s holy is the US interest in defending these useless atolls? Are we supposed to go to war with China over these five uninhabited specks – which are also claimed by Taiwan, our ally? Let’s take a national poll over that burning question: I can guarantee you the answer in advance.

  “To understand Trump, in the end, we have to go back to Taft and Lindbergh,” avers Wright, and in this he is absolutely correct. It’s a pity some of my libertarian friends fail to see this, but they are blinded by cultural factors and held captive by political correctness: immigration matters more to them than foreign policy. What they don’t understand is that the question of war and peace is the central issue of modern times. They fail to appreciate the foreign policy paradigm shift represented by Trump’s political success. However, Wright does understand it, along with his neoconservative comrades over at National Review and the Weekly Standard.

  For Wright, Trump is Taft and Lindbergh all rolled up into one:

  “The difference is that, unlike Trump, Taft was not outside the mainstream of his time. Many people believed America was safe and that it did not matter who ran Europe. Also, unlike Trump, Taft was boring and struggled to break through the noise in several nomination battles. The more bombastic and controversial figure was Lindbergh, the man who became a household name as the first person to fly across the Atlantic. Lindbergh led a national movement that was divisive, xenophobic and sympathetic to Nazi Germany.”

  Of course, the America First antiwar movement, which opposed US entry into the European war, reflected the overwhelming majority sentiment of the American people, who opposed intervention before Pearl Harbor. So what Wright is saying is that most Americans in the year 1940 were “sympathetic to Nazi Germany.” This was the line of the Communist Party at the time, which – along with the Party’s liberal-left fellow-travelers – was eager to see us get into the war in order to save Stalin’s bacon. That this nonsense is now gospel among the foreign policy mavens who inhabit the corridors of power in Washington should tell us everything we need to know about what’s wrong in the Imperial City.

  What scares Wright – and the Establishment of both parties – is that Trump is changing what it means to be “mainstream.” When Lindsey Graham, who wants to invade Syria, Iraq, Iran, and Ukraine – for a start – gets less than 1 percent in the polls, and Trump gets 40 percent, the War Party panics. As well they should. I for one take enormous pleasure in imbibing the naked fear Wright and his fellow warmongering wonks exude as the triumph of Trump approaches. Here is Wright, shaking in his boots:

  “The Republican primary of 2016 is shaping up to be the most important party primary since 1940. Lindbergh did not run, of course. But Taft was in with a strong chance. Only the fact that the field was badly divided created an unexpected opening for Wendell Willkie, an internationalist, to emerge as the nominee at the convention. Some of Roosevelt’s advisers were so relieved at Willkie’s nomination that they advised their boss he no longer had to run for an unprecedented – and controversial – third term.”

  Ah, but this time there will be no Wilkie – imposed by the Eastern Establishment after Taft’s delegates were disqualified by party bosses – to save the internationalists from the fate they so richly deserve. And that’s what has Wright in a panic:

  “The reason we must revisit 1940 is that Republicans have struggled to find a new north star after Iraq. Except for Rand Paul – whose own brand of libertarian isolationism, unlike Trump’s, didn’t sit well with voters – the establishment candidates were not sure whether they still supported Bush 43’s strategy or opposed it. Most tried to muddle through with a critique of President Barack Obama. Marco Rubio stuck to the ambitious Bush 43 approach but found a declining market. Some, like Ted Cruz, tried to deal with the shift in sentiment by cozying up to pro-American dictators and abandoning support for democracy promotion. Cruz even used the isolationist term America First to describe his foreign policy. But Cruz seems to have thought little and said even less about America’s global role outside the Middle East. Ironically for someone with the reputation of being exceptionally smart, he lacks Trump’s detail and substance.”

  Poor Wright! The combined poll numbers of the two top candidates for the GOP presidential nomination – one of whom is hated by the neocons, and the other who has openly attacked the neocons – equal over half of Republican primary voters. And the most consistently “isolationist” of the top two is the frontrunner, with his poll numbers rising with every effort to dislodge him. You’ll pardon me if I indulge the temptation to chortle in print: I haven’t had this much fun since Buchanan toppled King George off his pedestal in New Hampshire and declared war on the “New World Order.”

  “It is in this vacuum that the long-dormant Taftian foreign policy has made an unexpected comeback in the hands of Trump,” says Wright, in despair. “What happens next is anybody’s guess.”

  What’s an internationalist to do when the rising tide of American nationalism washes over his foreign-subsidized sandcastle? Cry? Write long articles for Politico? Perhaps both.

  I have to say, however, that Trump is hardly the consistent “isolationist” Wright portrays in his piece. He is flighty, and therefore unpredictable. Although his views on trade limn (somewhat) those of the late Chalmers Johnson, who saw the American empire as a tradeoff between Washington and its overseas clients – we would lift trade barriers if they allowed us to station troops on their soil – Trump lacks Johnson’s intellectual solidity, to say the least. Slapping tariffs on Chinese goods would start a trade war that would be disastrous for us, and the world. In short, I don’t give one iota of political support to Trump because he is simply not to be trusted. If he overcomes the odds and does win the White House, “what happens next is anybody’s guess,” as Wright puts it.

  Yet Trump’s personal shortcomings are beside the point. The lesson to be taken from this episode is the centrality of foreign policy in the political life of our country. The doggedness with which the internationalists are attacking Trump, the nature of their criticisms, and the viciousness of their tactics is an indication of how hard it will be to dislodge them – just as Trump’s popularity shows how eager Americans are to hear someone tell them that we don’t have to continue being the policeman of the world, and that we’re paying through the nose for something that doesn’t benefit us in the least (although it does benefit outfits like the Brookings Institution, which takes in millions from its foreign sponsors). No matter how inconsistent and even obnoxious Trump may be – and his crazy plan to deport millions of undocumented immigrants is certainly a noxious fantasy that will never happen no matter who is elected – it would be a mistake to dismiss him as a random anomaly, or as a “fascist” demagogue as some of the more brainless libertarians have done.

  The meaning of Trumpism is that Americans want to rid themselves of the burden of empire: Wright is right about that. Trump’s rise augurs a seismic shift in the foreign policy debate in this country, marking the end of the interventionist consensus that dominates both parties. And it certainly means the final defeat and humiliation of the neoconservatives, who are busy spewing vitriol at him and his “plebeian” supporters. And that alone is worth whatever price we have to pay for the triumph of Trump. For the neocons are the very core of the War Party: their demise as a politically effective force inside the GOP is an event that every person who wants a more peaceful world has been longing for and should celebrate.

  When the Republican-controlled Congress in the Clinton era threatened to pull the funding from Bill Clinton’s war in the former Yugoslavia, Bill Kristol threatened to walk out of the GOP. Today, as Trump appears to be the likely Republican presidential nominee, Kristol is threatening to start his own party. Which strikes me as a brilliant ploy: let him run Lindsey Graham as the candidate of the aptly-named War Party – and when America’s foremost warmonger does worse than he did in the primaries, let the chickenhawk-in-chief contemplate the majesty of cosmic justice.

  

  

  

  

  

• 25 Years Of Fed Fueled M&A – The Enabling Of A Banking Oligopoly

  The “Big Four” retail banks in the United States collectively hold 45% of all customer bank deposits for a total of $4.6 trillion.

  The fifth biggest retail bank, U.S. Bancorp, is nothing to sneeze at, either. It’s got 3,151 banking offices and employs 65,000 people. However, it still pales in comparison with the Big Four, holding only a mere $271 billion in deposits.

  Today’s visualization from VisualCapitalist.com's Jeff Desjardins, looks at consolidation in the banking industry over the course of two decades. Between 1990 and 2010, eventually 37 banks would become JP Morgan Chase, Bank of America, Wells Fargo, and Citigroup.

   

  

  Courtesy of: Visual Capitalist

   

  Of particular importance to note is the frequency of consolidation during the 2008 Financial Crisis, when the Big Four were able to gobble up weaker competitors that were overexposed to subprime mortgages. Washington Mutual, Bear Stearns, Countrywide Financial, Merrill Lynch, and Wachovia were all acquired during this time under great duress.

  The Big Four is not likely to be challenged anytime soon. In fact, the Federal Reserve has noted in a 2014 paper that the number of new bank charters has basically dropped to zero.

  

  From 2009 to 2013, only seven new banks were formed.

  “This dramatic reduction in new bank charters could be a concern for policymakers, if as some suggest, the decline has been caused by increased regulatory burden imposed in response to the financial crisis,” the authors of the Federal Reserve paper write.

  Competition from small banks has dried up as a result. A study by George Mason University found that over the last 15 years, the amount of small banks in the country has decreased by -28%.

  

  Big banks, on the other hand, are doing relatively quite well. There are now 33% more big banks today than there were in 2000.

  

  

  

  

  

• The Luxury Housing Bubble Pops

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  It appears the music may have finally stopped for one of the world’s largest luxury real estate bubbles: London.

   

  It’s well known that foreign oligarchs love London real estate as a means to launder funds, typically “earned” by soaking their host countries dry via corruption and fraud. This has caused absurd and irrational spikes in high-end residential real estate in the English capital, as well as a flood of new construction.

   

  With emerging markets now completely collapsing, the seemingly endless flood of foreign money is drying up, and with it, London real estate.

   

  So has the London real estate bubble popped? Probably.

   

  – From the September 9, 2015 article: Luxury London Home Sales Plunge 26% – Has this Mega Real Estate Bubble Finally Burst?

  The first real signs that the global luxury home price bubble had popped emerged last fall in the world’s capital of oligarch money laundering: London.

  Since then, we have seen weakness in high end Manhattan real estate, but the trend has now spread and is starting to make itself apparent all over the place.

  Yesterday’s Bloomberg article titled,The Surge in U.S. Mansion Prices Is Now Over, is really interesting. Here are a few choice excerpts:

  The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to real estate agent Kanney Zhang.

   

  Not now.

   

  Zhang is shopping it for a discounted $3.68 million, but nobody’s biting. Her clients, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.

   

  Prices for the top 5 percent of U.S. real estate transactions remained flat in 2015 while all other houses gained 4.9 percent, according to data from Redfin Corp., a real estate brokerage and data provider.

  Pretty powerful chart:

  

  In the Los Angeles suburb of Arcadia, where Zhang is struggling to sell the six-bedroom home, dozens of aging ranch houses were demolished to make way for 38 mansions built with Chinese buyers in mind. They have manicured lawns and wok kitchens and are priced as high as $12 million. Many of them sit empty because the prices are out of the range of most domestic buyers, said Re/Max broker Rudy Kusuma, who blames a crackdown by the Chinese on large sums leaving the country.

  Arcadia…where have we heard that before. Oh yeah: Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash

  The stronger dollar is driving South American buyers away from the 23,000 condos in the pipeline for Miami’s downtown area, said Peter Zalewski, owner of South Florida development tracker CraneSpotters.com. Buyers signed about one-fourth fewer pre-construction contracts last year than in 2014, according to Anthony M. Graziano, senior managing director at Integra Realty Resources Inc., which tracks condo data for the Miami Downtown Development Authority.

   

  In nearby Sunny Isles, Florida, faraway currency fluctuations are endangering the sale of a $3.7 million condominium. A Colombian woman who put down a 50 percent deposit is fretting over how she’ll cover the other half over the next year, said her agent, Mauricio Rojas. The Colombian peso, dragged down by the commodity slump, has lost about 30 percent of its value since she signed the contract in December 2014.

   

  In Houston, the plunge in oil prices to a 12-year low is killing the luxury boom. Sales for homes priced at $500,000 or more dropped 17 percent in December from a year earlier, according to the Houston Association of Realtors.

   

  Manhattan resale prices for the top 20 percent of the market peaked in February and have fallen every month since, according to an analysis through October by listings website StreetEasy.

  I covered the emerging weakness in Manhattan a couple of weeks ago.

  See: Manhattan Luxury Real Estate Peaked Last February – Prices Now Down 8 Months in a Row.

  The economic turmoil, along with new regulations, slowed demand around the world. In London, the market weakened after the government increased a stamp-duty sales tax and Russians and Chinese buyers began pulling back. Luxury prices in London rose only 1 percent last year after jumping 5.1 percent in 2014, according to Knight Frank research.

  Here are three previously published  articles on London:

  Tens of Thousands of Properties to Be “Dumped” on London Real Estate Market by 2017

  Luxury London Real Estate Prices Plunge 11.5% Year-Over-Year

  Luxury London Home Sales Plunge 26% – Has this Mega Real Estate Bubble Finally Burst?

  Considering the global luxury real estate market is one of the most inflated asset bubbles on earth, current weakness could pretty quickly turn into a crash.

  

  

  

  

  

  

• US, China Stocks Tumble After Industrial Profits Plunge

  Dow futures are down 100 points and Chinese stocks are pressing new 14-month lows, extending last night’s carnage after Chinese Industrial Profits tumbled. With a dismal 4.7% drop year-over-year, led by a near 60% collapse in the mining industry, early strength (after some jawboning from Abe) gave way to fresh lows and US equity futures are also responding. Offshore Yuan refuses to drop since Xinhua wrote a 3rd hit piece against George Soros and his “speculative snap profits.”

   

  

   

  This year is just getting uglier…

  

   

  Offshore Yuan has been interfered with twice now in the last 24 hours as Xinhua unleahes its 3rd hit piece against George Soros and his speculative ilk…

  So why do speculators make claims that run counter to reality? Analysts said it is because either the short-sellers haven’t done their homework or that they are intentionally trying to create panic to snap profits.   

  However, it seems the selling pressure is persisting no matter how hard they try to hold it…
  

  

  US equity futures are also under pressure as early oil weakness coupled with AAPL’s plunge after hours was not helped by China weakness…

  

  

  

  

  

  

• 36 WTF Quotes From The Davos Bubble Chamber

  As the deaf, dumb, and blind kids of the world's elite gathered in Davos to mutually masturbate over their own success, and generously drop some breadcrumbs of hope for the rest of the world, The World Economic Forum unleashed the followingg 36 quotes to sum it all up…

  Session: The Global Economic Outlook

  

  Session: The Future of Growth: Technology-Driven, Human-Centred

  

  Session: The Transformation of Tomorrow

  

  Session: The Canadian Opportunity

  

  Session: A New Climate For Doing Business

  

  Facebook Live Chat: Questions to John Green From Davos

  

  Session: Press Conference with the Co-Chairs of the Annual Meeting 2016

  

  Session: The Transformation of Tomorrow

  

  Session: The Digital Transformation of Industries

  

  Session: The Digital Transformation of Industries

  

  Session: Press Conference with the Co-Chairs of the Annual Meeting 2016

  

  Session: The Transformation of Finance

  

  Session: The 21st-Century Dream

  

  Session: The Future of Europe

  

  Session: Where is the Chinese Economy Heading?

  

  Session: Reuniting Cyprus

  

  Session: Reuniting Cyprus

  

  Session: The Future of Europe

  

  Session: Britain in the World

  

  Session: Special Conversation with Benjamin Netanyahu

  

  Session: The New Climate and Development Imperative

  

  Session: The New Climate and Development Imperative

  

  Session: How to Reboot the Global Economy?

  

  Session: What If: Robots Go to War?

  

  Session: The New Climate and Development Imperative

  

  Session: Where Is the Chinese Economy Heading?

  

  Session: The Canadian Opportunity

  

  Session: Progress towards Parity

  

   

  

  Session: An Insight, An Idea with Kevin Spacey

  

  Blog: Emma Watson in Davos

  

  Session: Securing the Middle East and North Africa

  

  Session: Europe at a Tipping Point

  

  Session: Special Address with John F. Kerry

  

  Session: What If: Your Brain Confesses?

  

  Session: The Global Security Outlook

  

   

  *  *  *

  So in summary: rose-colored glasses, better times ahead, inequality, women, internet of things, and volatility is good (as is greed).

  

  

  

  

• Capital Controls Are Coming

  Submitted by Nick Giambruno via CaseyResearch.com,

  The carnage always comes by surprise, often on an otherwise ordinary Saturday morning…

  The government declares a surprise bank holiday. It shuts all the banks. It imposes capital controls to stop citizens from taking their money out of the country. Cash-sniffing dogs, which make drug-sniffing dogs look friendly, show up at airports.

  At that point, the government is free to help itself to as much of the country’s wealth as it wants. It’s an all-you-can-steal buffet.

  This story has recently played out in Greece, Cyprus, Argentina, and Iceland. And those are only a few recent examples. It’s happened in scores of other countries throughout history. And I think it’s inevitable in the U.S.

  I believe the U.S. dollar will lose its role as the world’s premier reserve currency. When that happens, capital controls are sure to follow.

  This is why it’s crucial to your financial future to understand what capital controls are, how they are used, and what you can do to protect yourself.

  Why Governments Impose Capital Controls

  Think of the government as a thief trying to steal your wallet as you (understandably) try to run away. With capital controls, the thief is trying to block all the exits so you can’t reach safe ground.

  A government only uses capital controls when it’s desperate…when it can no longer borrow, inflate the currency, tax, or steal money in one of the “normal” ways.

  In most cases, governments use capital controls in severe crises. Think financial and banking collapses, wars, or chronic economic problems. In other cases, they’re just a way to control people. It’s much more difficult to leave a country when you can’t take your money with you.

  Regardless of the initial catalyst, capital controls help a government trap money within its borders. This way, it has more money to confiscate.

  As strange as it sounds, capital controls are often politically popular. For one, they are a way for a government to convince people it’s “doing something.” The average person loves that.

  Two, a government can usually convince people that moving money offshore or investing in foreign assets is only for rich tax evaders or the unpatriotic. If freedom and private property matter to you at all, you know that’s obviously false.

  How It Happens

  For the unprepared, it’s like a mugging…

  To be effective, capital controls have to be a surprise. Alerting people in advance would defeat the purpose. Weekends and holidays are the perfect time to catch people off guard.

  Here are the four most common forms of capital controls:

  1. “Official” Currency Exchange Rates

  The government’s official rate for converting foreign currency to local currency is always less favorable than the black market rate (more accurately called the free market rate).

   

  This applies to official prices for gold, too.

   

  Getting the more favorable black market rate usually involves informal transactions on the street. Of course, this is technically illegal.

   

  However, should you follow the law and exchange money at the official rate, it amounts to a wealth transfer from you to the government. The wealth transfer equals the difference between the free market rate and the official rate. It’s a form of implicit taxation.

   

  2. Explicit Taxation

  A government might impose explicit taxes to discourage you from buying foreign investments, foreign currencies, or gold. India tried this a few years ago by imposing a 10% tax on gold imports.

   

  Another tactic is taxing money transfers out of the country…say 20% on any amount transferred to a foreign account. In this case, you could still move your money, but it would cost you.

  Governments want you to hold your wealth inside the country and in the local currency. Ultimately, this makes it easier for them to tax, confiscate, or devalue with inflation.

   

  3. Restrictions and Regulations

  A government might restrict how much foreign currency or gold you can own, import, or export. It might require you to get permission to take a certain amount of money out of the country. The cap is often only a couple thousand dollars.

   

  4. Outright Prohibition

  This is the most severe form of capital control. Sometimes a government explicitly prohibits the ownership of foreign currencies, foreign bank accounts, foreign assets, or gold, or the moving of any form of wealth outside the country.

  Capital Controls in the U.S.

  The U.S. government has used capital controls before. In 1933, through Executive Order 6102, President Roosevelt forced Americans to exchange their gold for U.S. dollars. It’s no surprise that the official government exchange rate was unfavorable. The U.S. government continued to prohibit private ownership of gold bullion until 1974.

  Today, with no conceivable end to the U.S. government’s runaway spending, sky-high debt, and careless money printing, I think it’s only a matter of time until the government decides capital controls are the “solution.” There’s no doubt statist economists like Paul Krugman would cheer it. All it would take is the stroke of the president’s pen on a new executive order.

  Whatever the catalyst, it’s critical to prepare while there’s still time.

  What Could Happen if You’re Too Late

  Capital controls are almost always a prelude to something worse. It might be a currency devaluation, a so-called “stability levy,” or a bail-in.

  Whatever the government and mainstream media call it, capital controls are a way to trap your money so it is easier to steal. Anything they don’t steal immediately, they box in for future thefts.

  What You Can Do About It

  The solution is simple.

  Place some of your savings outside your home country by setting up a foreign bank account.

  That way, no one can easily confiscate, freeze, or devalue your savings at the drop of a hat. A foreign bank account will help ensure that you have access to your money when you need it the most.

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

  It’s becoming harder and harder to open a foreign bank account. Soon, it could be impossible. It’s important to act sooner rather than later – even if you don’t plan to use the account immediately.

  Even without capital controls, it still makes sense to move some of your savings to a foreign bank where it can be kept safe.

  Be sure to check out our comprehensive video on foreign bank accounts, where we share our favorite banks and jurisdictions. The video includes crucial information on the few jurisdictions that still accept American clients and allow them to open accounts remotely with small minimums.

   

   

  

  

  

  

  

• Something Snapped At The Comex

  There had been an eerie silence at the Comex in recent weeks, where after registered gold tumbled to a record 120K ounces in early December nothing much had changed, an in fact the total amount of physical deliverable aka “registered” gold, had stayed practically unchanged at 275K ounces all throughout January.

  Until today, when in the latest update from the Comex vault, we learn that a whopping 201,345 ounces of Registered gold had been de-warranted at the owner’s request, and shifted into the Eligible category, reducing the total mount of Comex Registered gold by 73%, from 275K to just 74K overnight.

  

   

  This took place as a result of adjustments at vaults belonging to Scotia Mocatta (-95K ounces), HSBC (-85K ounces), and Brink’s (-21K ounces).

  Meanwhile, the aggregate gold open interest remained largely unchanged, at just about 40 million ounces.

  

   

  This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the “coverage ratio” that shows the total number of gold claims relative to the physical gold that “backs” such potential delivery requests, – or simply said  physical-to-paper gold dilution – just exploded.

  As the chart below shows – which is disturbing without any further context – the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday’s close there was a whopping 542 ounces in potential paper claims to every ounces of physical gold. Call it a 0.2% dilution factor.

  

   

  To be sure, skeptics have suggested that depending on how one reads the delivery contract, the Comex can simply yank from the pool of eligible gold and use it to satisfy delivery requests despite the explicit permission (or lack thereof) of the gold’s owner.

  Still, the reality that there are just two tons of gold to satisfy delivery requsts based on accepted protocols should in itself be troubling, ignoring the latent question why so many owners of physical gold are de-warranting their holdings.

  Considering there are now less than 74,000 ounces of Registered gold at the Comex, or just over 2 tonnes, we may be about to find out how right, or wrong, the skeptics are, because at this rate the combined Registered vault gold could be depleted as soon as the next delivery request is satisfied. Or isn’t. 

  

  

  

  

  

• The Best Performing 'Currency' Of The 21st Century Is…

  Since the beginning of the 21st Century, as people awoke to Y2K that did not end the world, there has been one 'currency' that has outperformed all its peers in terms of preserving wealth and maintaining purchasing power…

  The barbarous relic…

  

   

  

  

  Source: Sharelynx

  

  

  

  

  

• Oil Prices In 2016 Will Be Determined By These 6 Factors

  Submitted by Allen Gilmer via OilPrice.com,

  The one given in this industry is that the analyst community is consistently wrong about where the price of oil is going in the near to mid-term. Just as $100 oil was a sentiment driven price that baked in the risk of every potential negative impact on the supply chain, $28, $30 or $40 dollars is equally sentimental, assuming that any and all incremental barrels are and will be available AND demand will slow or stop.

  

  2013 and 2015 forecasts. (forecasting sentiment is hard) Image Sources: EIA

  So let’s just step away from the current noise and focus on a non-controversial outcome… that oil will be much more valuable in the future than it is today. What, exactly, will that future look like?

  Today’s pricing sentiment is driven by a global economic “Pick 6” today…

  

   

  1. US production rates,

  2. Saudi Arabia’s ability to grow production,

  3. Iran’s latent ability to produce more oil,

  4. Chinese economic slowdown and its impact on consumption,

  5. Russia’s ability to add global production, and

  6. OPEC’s inscrutable strategy.

  *  *  *

  Let’s stipulate a couple of assumptions.

  First, people will produce existing wells at rates that aren’t sustainable to preserve cash flow or compete for market share, because the cost to drill and bring online is already sunk. Second, new wells will not be drilled if there isn’t at least an outlook to breakeven producing them. That means an expectation of a sustained price over 1-3 years or until the well has been paid out.

  U.S. Production Rates

  

  Image Source: Drillinginfo Production Report for Unconventional U.S. Onshore Plays (Combined MBOE 20:1) over last six years. Note the lag in production reporting means Q42015 and even some Q32015 reports are not finalized.

  First, let’s look at the U.S., the simplest and most transparent of the “Pick 6” issues bandied about as a price driver. Certainly the unconventional revolution has been a huge factor in global production increases over the last 6 years. The item NOT generally recognized is that production typically lags drilling by some 5 months, thus the drilling in December 2014 is discernible in production records in April 2015. That analysts were alarmed at increasing production and supply during the 1st half of the year suggested that they did not understand this dynamic, nor did the business press. We predicted in April that monthly production would peak in May and then jump around between -100 mbpd and -350 mbpd for the rest of the year. When looking at additional production month over month, it is important to remember that it is building on a sloping foundation of natural decline.

  For instance, in 2014, as the U.S. added some million barrels of daily production, it had to produce 2.2 million new barrels of production to do so. The slope of that foundation required 1.2 million new barrels to just flatten it out. First year production in the U.S. has had a blended annual decline that has increased from 41 percent in for 2010 era wells to 47 percent for 2013 era wells. Therefore, 2014 era wells were likely to have declined 49 percent and 2015 by 51 percent in their first year. Second year declines show less of a pattern, ranging from 10-20 percent decline from the end of the prior year. In other words, we will see real production declines in 2016 as the full impact of 2015 drilling reductions are cycled through. Depending on the variability of the second year declines, this could range from -400 mbpd to well over -1MM bpd. So, the U.S. isn’t going to be the bringer of oil glut news going forward. In fact, the U.S. oil patch has severely damaged its capacity to rebound from an oil field services point of view, with companies foregoing normal maintenance to just survive. This deferred maintenance will have permanent consequences. Score: NOT a driver.

  Saudi Arabia’s Ability To Grow Production

  Whereas Saudi’s rig count is up, so is its production. They are producing record amounts and most analysts believe that there is little if any behind valve production. SCORE: NOT a driver

  Iran’s Latent Ability To Produce More Oil

  When sanctions hit Iran, they immediately dropped 600 mbpd from their official production levels. That they report the same production to the barrel since cause their official number to be quite suspect. Iran has not been investing in their infrastructure and they require outside dollars to reinvest in existing production, ranging from $30 billion to $500 billion over the next 5 years, depending on the source to maintain what they have. $30 oil is not an environment amenable to outside tender offers. Some claim that there will be no net new production in the near term, that Iran will merely start to recognize the production of oil it has sold in the black market. In any case, 500 mbpd ‘new’ production are baked in as of last week. SCORE: NOT a driver

  Chinese Economic Slowdown And Its Impact On Consumption

  As the year has progressed, the Chinese economy exhibits signs of extreme duress, suggesting that demand growth could weaken materially. Imports of metals and building materials are down substantively. Oil is not. China continues to import crude oil at increasing rates, most likely taking advantage of the low price environment to strengthen strategic reserves. China’s growing “guns vs butter” investment shift isn’t likely a bearish sign for crude oil, either. The IEA and EIA’s production growth estimates both suggest that the market isn’t going to elastically respond to lower crude prices, in essence saying that lower price will not drive higher consumption for the first time ever and despite the surprise increase in consumption in 2015 SCORE: NOT a driver.

  Russia’s Ability To Add Global Production

  Russia found itself in a fun position in 2015 as economic sanctions hammered the ruble down 50%. Essentially, Russia had a half price drilling environment and was effectively hedged by its cratering currency because it pays for new wells in rubles and sells its crude in dollars. This advantage doesn’t exist at commodity prices this low. Russia isn’t likely to spend a buck to get back 20 cents in the first year. SCORE: NOT a driver.

  OPEC’s Inscrutable Strategy

  Forget all the rest of the “Pick 6”. If anyone assumed OPEC wasn’t in charge of global oil prices, they were dead wrong. And by OPEC, let’s be honest and say Saudi Arabia. Only Russia, Saudi Arabia, and the U.S. technically have the production base to unilaterally affect the price of crude without completely undermining their net production rates, and the U.S. regulatory environment is focused on efficiency and safety and not price, because, alone of these three, the U.S. until recently was thought to be a net beneficiary of low priced crude oil.

  Saudi Arabia, tired of being the only player ceding market share in an organization comprised of members that continually and habitually cheat on their production allotments, is flexing their global geopolitical muscle to enforce their control over the organization and to affect the amount of money available to global E&P projects in light of the new beta in crude oil pricing that is recognized today. So, as a result, the U.S. finally sees production declines of the celebrated unconventionals; Iran and Russia are starved of cash, along with the rest of the OPEC members, some to the point of existential crisis. How big a stick does Saudi Arabia wield right now? Very big, I think.

  *  *  *

  So what about the U.S. oil patch? The global price of crude is as ridiculously priced today as it was at $120 per barrel. A 2 percent oversupply in a world where we cannot even measure within 5 percent with any certainty drops the price of crude over 70 percent and has every analyst that claimed just 2 years ago that we would never see crude below $100 again now claiming that we won’t see oil above $40 anytime soon. They were wrong then, and they are wrong now.

  

  Image Source

  What is different is that the cost of capital in the U.S. has gotten much higher. That won’t be changing soon. Banks and other lenders have already started changing the cost of capital. Warrants are being demanded at closings. Even when oil recovers, this will not change rapidly. Watch the industry get a lot better, because their breakeven for cost of capital will have gotten worse. The oilfield service sector has suffered more than a glancing blow. It will not be able to ramp up as quickly as it was laid down. A lot of its equipment is shot for lack of proper maintenance.

  The Fed is reported to be advising banks to push for asset liquidation in lieu of bankruptcy. This is actually a good idea if the point is to preserve value for lenders and equity holders. There is nothing more damaging to producing oil and gas assets as a bankruptcy trustee. Great for the eventual acquirer, bankruptcy trustees know how to make sows ears from silk purses by their reluctance to fund what Texas Independent Producers and Royalty Owners (TIPRO) chairman Raymond Welder calls the “recurring, non-recurring” expenses such as workovers necessary and common in the oilfield.

  

  

  

  

  

• Inside China's Dying, Abandoned Factories

  By now, the China narrative should be familiar to most regular readers. Indeed, anyone who pays attention to global macro should by all rights be able to recount the entire story off the top of their head.

  Massive credit expansion (from just a little over $7 trillion in 2007 to a staggering $28 trillion and climbing today) allowed the country to sidestep the economic malaise that followed the financial crisis. To whatever degree global demand and trade “recovered”, that recovery was underwritten by the Chinese, whose insatiable demand for raw materials buoyed commodity producers from Australia to Brazil.

  Unfortunately for the global economy, China was sowing the seeds for its own (and everyone else’s) economic demise. Beijing built, and built, and built, creating pockets of acute overcapacity throughout the country’s industrial complex and erecting sprawling ghost cities and other monuments to the idea that “if you build it, they will come”.

  When the debt bonanza finally begin to taper off and China stepped back to assess the monster it had created, it was too late. Commodity producers the world over had come to depend on a perpetual bid from China. When demand began to slump as China set off down the long road towards creating a consumption and services-led economy, the world was caught flat footed. A global deflationary supply glut for commodities was born and the more quickly China’s economy decelerated, the larger it became.

  As for China itself, authorities are reluctant to allow the market to purge uneconomic productive capacity for fear of sparking social upheaval. That means perpetually bailing out companies that find themselves in trouble, thus preserving unwanted supply and fueling the disinflationary impulse.

  Or, as we put it back in October: “The cherry on top is that China itself is now trapped: it simply can’t afford to let anyone default, as one bankruptcy would cascade across the entire bond market and wipe out countless corporations leaving millions of angry Chinese workers unemployed, and is therefore forced to keep bailing out insolvent companies over and over. By doing so, it is adding even more deflationary capacity and even more production into the market, which leads to even lower prices, and even greater bailouts!”

  But even as the Politburo struggles to prevent the entire house of cards from collapsing on itself, signs of the country’s deceleration are readily apparent and Beijing’s anti-pollution campaign has only served to put further pressure on the industrial complex. Below, find a series of images which depict forlorn, abandoned brick factories and worker dormitories in Chaomidian on the outskirts of Beijing, shuttered because they belched too much pollution and because, presumably, the country has all the bricks it needs. 

  

  

  

  

  

  

  

  

  

  

  

  

  More here from Reuters

  

  

  

  

• The Rejection Election – A Leap Into The Dark

  Submitted by Patrick Buchanan via Buchanan.org,

  With the Iowa caucuses a week away, the front-runner for the Republican nomination, who leads in all the polls, is Donald Trump.

  The consensus candidate of the Democratic Party elite, Hillary Clinton, has been thrown onto the defensive by a Socialist from Vermont who seems to want to burn down Wall Street.

  Not so long ago, Clinton was pulling down $225,000 a speech from Goldman Sachs. Today, she sounds like William Jennings Bryan.

  Taken together, the candidacies of Trump, Sanders, Ben Carson and Ted Cruz represent a rejection of the establishment. And, imitation being the sincerest form of flattery, other Republican campaigns are now channeling Trump’s.

  This then is a rejection election. Half the nation appears to want the regime overthrown. And if spring brings the defeat of Sanders and the triumph of Trump, the fall will feature the angry outsider against the queen of the liberal establishment. This could be a third seminal election in a century.

  In the depths of the Depression in 1932, a Republican Party that had given us 13 presidents since Lincoln in 1860, and only two Democrats, was crushed by FDR. From ’32 to ’64, Democrats won seven elections, with the GOP prevailing but twice, with Eisenhower. And from 1930 to 1980, Democrats controlled both houses of Congress for 46 of the 50 years.

  The second seminal election was 1968, when the racial, social, cultural and political revolution of the 1960s, and Vietnam War, tore the Democratic Party asunder, bringing Richard Nixon to power. Seizing his opportunity, Nixon created a “New Majority” that would win four of five presidential elections from 1972 through 1988.

  What killed the New Majority?

  First, the counterculture of the 1960s captured the arts, entertainment, education and media to become the dominant culture and convert much of the nation and most of its elite.

  Second, mass immigration from Asia, Africa and especially Latin America, legal and illegal, changed the ethnic composition of the country.

  White Americans, over 90 percent of the electorate in 1968, are down to 70 percent today, and about 60 percent of the population.

  And minorities vote 80 percent Democratic.

  Third, Republicans in power not only failed to roll back the Great Society but also collaborated in its expansion. Half the U.S. population today depends on government benefits.

  Consider Medicare and Social Security, the largest and most expensive federal programs, critical to seniors and the elderly who give Republicans the largest share of their votes.

  If Republicans start curtailing and cutting those programs, they will come to know the fate of Barry Goldwater.

  Still, whether we have a President Clinton, Trump, Sanders or Cruz in 2017, America appears about to move in a radically new direction.

  Foreign policy retrenchment seems at hand. With Trump and Sanders boasting of having opposed the Iraq war, and Cruz joining them in opposing nation-building schemes, Americans will not unite on any new large-scale military intervention. To lead a divided country into a new war is normally a recipe for political upheaval and party suicide.

  Understandably, the interventionists and neocons at National Review, Commentary, and the Weekly Standard are fulminating against Trump. For many are the Beltway rice bowls in danger of being broken today.

  Second, Republicans will either bring an end to mass migration, or the new millions coming in will bring an end to the presidential aspirations of the Republican Party.

  Third, as Sanders has tabled the issue of income equality and wage stagnation, and Trump has identified the principal suspect — trade deals that enrich transnational companies at the cost of American prosperity, sovereignty and independence — we are almost surely at the end of this present era of globalization.

  As in the late 19th century, we may be at the onset of a new nationalism in the United States.

  A vast slice of the electorate in both parties today is angry — over no-win wars, wage stagnation and millions continuing to pour across our bleeding borders from all over the world. And that slice of America holds both parties responsible for the policies that produced this.

  This is what America seems to be saying.

  Thus, given the deepening divisions within, as well as between the parties, either an outsider prevails this year, or Balkanization is coming to America, as it has already come to Europe.

  For the Sanders, Trump, Cruz and Carson voters, the status quo seems not only unacceptable, but intolerable. And if their candidates and causes do not prevail, they are probably not going to accept defeat stoically, and go quietly into that good night, but continue to disrupt the system until it responds.

  Unlike previous elections in our time, save perhaps 1980, this appears to be something of a revolutionary moment.

  We could be on the verge of a real leap into the dark.

  Where are we going? One recalls the observation of one Democrat after the stunning and surprise landslide of 1932:

  “Well, the American people have spoken, and in his own good time, Franklin will tell us what they have said.”

  

  

  

  

  

• This Is What "Stress Levels" Looked Like Two Months Before The Last Three Market Crashes

  Yesterday, courtesy of Bank of America, we showed an extensive catalog of how a trader could, in case the market “were to crash tomorrow”, hedge said crash risk crash using the cheapest derivative instruments.

  But the real question of course is whether a crash is indeed coming?

  As Bank of America notes, a traditional telltale sign of crashes is a surge in correlation among various otherwise uncorrelated assets.

  

  Which is notable because as we showed earlier, the correlation among two key asset classes, namely stocks and oil, have soared to record highs…

  

   

  … while the respective vol correlations is likewise surging, as one would expect, soaring.

  This, to many traders, is the first clear sign that something is seriously wrong and a broad selloff may either be imminent or necessary to short circuit a market in which all correlations are converging.

  And yet, as BofA shows with the chart below, option markets always underestimate the severity of market shocks, and to different degrees. In 2008, currency and equity vols were the most optimistic ahead of the Lehman crisis and the most surprised after. This time around equity vol is modestly elevated, but it is rate vol – the vol which many say is at the core of the entire financial system – that is surprisingly depressed.

  

   

  So for those who are inching closer to the “crash is imminent” camp, we suggest taking a look at the chart below showing the stress levels, or rather lack thereof, 2 months prior to every major crash in the past decade, and extrapolating how far said “stress” may soar to in the coming 8 weeks if, as Citi, JPMorgan and Deutsche Bank today suggest, central banks are on the verge of losing control…

  

  

  

  

  

• "Sweden Could Be At War Within A Few Years", Top General Warns

  On Monday we brought you the latest from the main train station in Stockholm, where “gangs” of Moroccan migrant children have “taken over” the terminal.

  If you believe The Daily Mail, dozens of children, ages nine to 18, are dug in at the station where they wonder about in a drunken stupor attacking security guards, “groping” girls, and “slapping women in the face.”

  This rather surreal development comes as Europeans struggle to cope with what they view as the disintegration of polite, Christian society in the face of a deluge of Arab asylum seekers fleeing the war-torn Mid-East.

  Many Europeans feel as though their countries have been invaded, for lack of a better word.

  Well according to Sweden’s Major General Anders Brännström, being overrun by refugees isn’t the only invasion Swedes need to concern themselves with.

  “The global situation we are experiencing and which is also made clear by the strategic decision leads to the conclusion that we could be at war within a few years,” Brännström is quoted as saying in a brochure for representatives attending an annual Armed Forces conference in Boden next week.

  

  (Brännström)

  “Since the end of the Cold War the Swedish Armed Forces have focused mainly on providing assistance to international missions abroad, but according to Brännström the strategy has now changed to ‘capability of armed battle against a qualified opponent’”, The Local reports, adding that “Sweden has made moves towards stepping up its military capability in the past year, with Defence Minister Peter Hultqvist extending cooperation with other neighbouring countries as well as Nato allies in the face of rising tensions in the Baltic region.”

  Of course by “rising tensions in the Baltic region,” The Local means rising tensions between Russia and the West. “Sweden’s Security Service Säpo said last year that the biggest intelligence threat against Sweden in 2014 came from Russia [and] its stern words are largely credited with sparking increased Nato support in the traditionally non-aligned Nordic country.”

  Defence Committee chairman Allan Widman echoed Brännström’s sentiments. “My take is that the situation is now so serious that even Sweden, with more than 200 years of peace, must prepare themselves mentally that we can get violent conflicts in our neighborhood and conflicts involving us,” he tells Expressen before delivering the following assessment of Vladimir Putin and Russian “aggression”:

  It will come sooner or later a time when Putin becomes pressured politically. The question is what he does in that state – if he apologizes and runs from the Crimea, or if he takes other measures. We’ll have to prepare ourselves for him to take different actions he has shown himself capable of before.

  Earlier this month, a poll in Dagens Nyheter showed nearly three quarters of Swedes support reintroducing compulsory military service. “The Swedish Armed Forces are currently short of around 7,500 soldiers, sailors and officers – around half of the total organization – despite running large recruitment campaigns with television ads and billboards in the past few years,” The Local said.

  If Brännström is to be believed, Sweden may need the soldiers.”One can draw parallels to the 1930s,” he later told Aftonbladet, before adding that although Sweden “managed to stay out” of World War II, “it is not at all certain that the country would succeed this time.”

  

  

  

  

  

• Peter Schiff On The End Of The Illusion Of Recovery

  Submitted by Peter Schiff via Euro Pacific Capital,

  Making their annual pilgrimage to the exclusive Swiss ski sanctuary of Davos last week, the world's political and financial elite once again gathered without having had the slightest idea of what was going on in the outside world. It  appears that few of the attendees, if any, had any advance warning that 2016 would dawn with a global financial meltdown. The Dow Jones Industrials posted the worst 10 day start to a calendar year ever, and as of the market close of January 25, the Index is down almost 9% year-to-date, putting it squarely on track for the worst January ever. But now that the trouble that few of the international power posse had foreseen has descended, the ideas on how to deal with the crisis were harder to find in Davos than an $8.99 all-you-can-eat lunch buffet.

   

  The dominant theme at last year's Davos conference, in fact the widely held belief up to just a few weeks ago, was that thanks to the strength of the American economy the world would finally shed the lingering effects of the 2008 financial crisis. Instead, it looks like we are heading straight back into a recession. While most economists have been fixated on the supposed strength of the U.S. labor market (evidenced by the low headline unemployment rate), the real symptoms of gathering recession are easy to see: plunging stock prices and decreased corporate revenues, bond defaults in the energy sector  and widening spreads across the credit spectrum, rising business inventories, steep falls in industrial production, tepid consumer spending, a deep freeze of business investments and, of course, panic in China. The bigger question is why this is all happening now and what should be done to stop it.

   

  As for the cause of the turmoil, fingers are solidly pointing at China and its slowing economy (with very little explanation as to why the world's second largest economy has just now come off the rails). And since everyone knows that Beijing's policymakers do not take advice from the Western financial establishment, the only solutions that the Davos elite can suggest is more stimulus from those central banks that do listen.

   

  Interviewed on an investment panel in Davos, American multi-billionaire and hedge fund manager, Ray Dalio, perhaps spoke for the elite masses when he said, "…every country in the world needs an easier monetary policy." In other words, despite years (decades in Japan) of monetary stimulus, in the form of low, zero, and, in some cases, negative interest rates, and trillions of dollars in purchases of assets through Quantitative Easing (QE) programs, what the world really needs is more of the same. Lots more. Despite the fact that no country that has pursued these policies has yet achieved a successful outcome (in the form of sustainable growth and a subsequent return to "normal" monetary policy), it is taken as gospel truth that these remedies must be administered, in ever-greater dosages, until the patient improves. No one of any importance in Davos, or elsewhere for that matter, seems willing to question the efficacy of the policies themselves. And since the U.S. Federal Reserve is the only central bank officially considering policy tightening at present, Dalio's comments should be seen as squarely addressing the Fed. But apparently they were not.

   

  While economists are calling for central banks in Brussels, Beijing, and Tokyo to pull out more of the monetary stops, few have called for the Federal Reserve in Washington to do the same. Most on Wall Street are, publicly at least, supporting rate increases from the Fed, albeit at a slower pace than what was envisioned just a few months, or even weeks, ago. As many economists were very public in excoriating the Fed for moving too slowly in 2015, perhaps they are unwilling to admit that their confidence was misplaced. Many also may realize the colossal embarrassment that would await Fed policymakers if they were to reverse policy so quickly. To have waited nearly 10 years to raise interest rates in the U.S., only to cut rates less than three months later would be to admit that the Fed was both clueless AND ineffective. This could cause an even greater panic as investors became aware that there is no one flying the plane.

   

  But perhaps the main reason other central bankers are reluctant to urge the Fed to ease is that the United States is supposedly the poster boy that proves quantitative easing actually works. After all, the rest of the world is being told to emulate the successes that were achieved in the U.S. Ben Bernanke had the courage to act while European central bankers were too timid, and the result was not only full employment and a recovery strong enough to withstand higher rates in the U.S., but a best-selling book and magazine covers for Bernanke. The world's central bankers are not quite ready to consign Bernanke's book to the fiction section where it rightfully belongs, as it would call into question their own commitment to following a failed policy.

   

  But some doubt is starting to creep in publicly. An underlying headline in a January 25 story in the Wall Street Journal finally said what most mainstream pundits have refused to say: "Fed is a key reason markets have plunged and risk of recession is rising." But even in that article, which analyzes why six years of zero percent interest rates created bubble-like conditions that were vulnerable to even the small pin that a 25-basis point increase would provide, the Journal was reluctant to say that the Fed should begin to ease policy. At most, they seemed to urge the Fed to call off any future increases until the market could adjust and digest what has already happened.

   

  However, George Soros, another legendary hedge fund billionaire (with a well-known political agenda), is dipping his toes in that controversial pool, by nearly telling the Fed that the time had come to face the music and eat some humble pie. In an interview with Bloomberg Television's Francine Lacqua on January 17, Soros claimed that the Fed's decision to raise rates in December was "a mistake" and that he "would be surprised" if the Fed were to compound the mistake by raising rates again. (Officially the Fed has forecast that it is likely to boost rates four times in 2016). When pressed on whether the Fed would actually do an about-face and cut rates, Soros would simply say that "mistakes need to be corrected and it [a Fed reversal] could happen." Look for many more investors to join the crowd and call for a reversal, regardless of the loss of credibility it would cause Janet Yellen and her crew.

   

  But when I publicly made similar statements months ago, saying that if the Fed were to raise rates, even by a quarter point, the increase would be sufficient to burst the stock bubble and tip the economy into recession, my opinions were considered completely unhinged. My suggestion that the Fed would have to later reverse policy and cut rates, after having raised them, was looked at as even more outrageous, akin to predicting that the U.S. would be invaded by Canada. Now those pronouncements are creeping into the mainstream.

   

  I was able to see through to this scenario not because I have access to some data that others don't, but because I understood that stimulus in the form of zero percent interest rates and quantitative easing is not a means to jump start an economy and restore health, but a one-way cul-de-sac of addiction and dependency that pushes up asset prices and creates a zombie economy that can't survive without a continued stimulus. In the end, stimulus does not create actual growth, but merely the illusion of it.

   

  This is consistent with what is happening in the global economy. China is in crisis because commodities and oil, which are priced in dollars, have sold off in anticipation of a surging dollar that would result from higher rates. The financial engineering that has been made possible by zero percent interest rates is no longer available to paper over weak corporate results in the U.S. Our economy is addicted to QE and zero rates, and without those supports, I feel strongly we will spiral back into recession. This is the reality that the mainstream tried mightily to ignore the past several years. But the chickens are coming home to roost, and they have a great many eggs to lay.

   

  Investors should take heed. The bust in commodities should only last as long as the Fed pretends that it is on course to continue raising rates. When it finally admits the truth, after its hand is forced by continued market and economic turmoil, look for the dollar to sell off steeply and commodities and foreign currencies to finally move back up after years of declines. The reality is fairly easy to see, and you don't need an invitation to Davos to figure it out.

   

  

  

  

  

  

• France's Highways Descend Into "Chaos & Lawlessness"

  Via GEFIRA,

  While the media attention is directed to the refugee crisis in Germany, France’s highways in Normandy are descending into complete chaos and lawlessness.

  France’s rule of law has ceased to exists in the area around Calais. In Europe highways used to be inaccessible to pedestrian traffic. Nowadays in France immigrants are wandering on the highways, and trucks are being stormed, which has become the “new normal”. As the events are unfolding in France, European mainstream media are ignoring them. Calais has had a migrant problem for more than 10 years, but since last year the situation has been deteriorating rapidly. The governments in Paris, London and Brussels have completely lost control, they are not able to maintain the rule of law and they are miserably failing to protect their citizens.

  European and especially English politicians have tried to solve the problem by punishing the victims. European truckers, already at the bottom of the earning pyramid, can be fined up to half of their annual salary when refugees manage to get aboard their trucks.

  According to the Telegraph:

  “In one case, a lorry driver was issued with a £19,500 fine, despite calling police when he discovered around a dozen people inside his trailer while driving on the M25.

   

  The number of fines issued to hauliers for “clandestine entrants” has more than tripled in just three years, new figures show, with drivers facing on the spot fines of up to £2,000 for each person found inside their vehicles.”

  Thanks to the endless spots on youtube those who live outside France can get an idea of what is going on:

  The situation on the highways in Normandy, France, December 2015 and January 2016.

  December 2015
  

  December 2015

  December 2015

  January 2016

  January 2016

  January 2016
  

  

  

  

  

• Gold Up, Stocks Up, Oil Up, Bonds Up, Fed Up

  Crude is contained…

  But Reuters summed it up nicely…

  

   

  China carnaged overnight…

  

   

  But US Stocks saw an exuberant pre-FOMC rally today as it is clear that Fed policy error admissions are coming…

  

   

  As the divergence grows since the Dec Fed rate hike…

  

   

  But today was all about oil… and bullshit Production Cut rumors…

  Oil ripped higher today, dragging stocks with it once again… and dragging it back down after NYMEX closed…

  SPOT THE DIFFERENCE…

  

   

  On the day, Trannies love higher oil prices!!??

  

   

  Futures show the stick save with production cut comments rescuing stocks from China's pain…

  

   

  Notably – S&P Futs were unable to run yesterday's high stops today…

  

   

  AAPL dropped into the close for the 3rd day ahead of tonight's earnings…

  

   

  But bonds & stocks were bid as we head into tomorrow's praying-for-doves FOMC meeting…

  

   

   

  Treasury yields ended the day lower – despite the equity exuberance…

  

   

  The USD Index slipped lower today on commodity currency strength (despite a big drop in swissy)…

  

   

  Amid the modest weakness in the USD, commodities all gained growund with oil best but gold and silver continued to surge…

  

   

  We overheard someone on CNBC saying how oil had "stabilized" – which we suspect means something different in his world – since the last 3 weeks have seen 4 10-15% swings… but still…How long until we get a denial of oany intent to cut production?

  

   

  Seems like Oil Vol is not buying the bounce….

  

   

  The bottom line – this had the look and feel of a normal pre-Fed ramp day in stocks with the algos juiced off oil for now. Will Janet lose face and admit she screwed up? And is that really what the market wants?

   

  Charts: Bloomberg

  

  

  

  

• AAPL Earnings Beat Despite Missing Sales, iPhone Expectations; US Revenues Decline

  Expectations were hardly sky high for AAPL heading into a quarter in which most of its suppliers had already announced iPhone sales would be disappointing, and moments ago AAPL validated many of these concerns when while beating on the bottom line, with an EPS of $3.28 compared to expectations of a $3.22 print, it missed not only on the top line, with revenue coming shy of the $76.5 billion expected at $75.9 billion, but across every single product line, most notably iPhones, of which AAPL sold 74.78 million in the quarter, below the 75 million expected.

  iPad and Mac sales also came in below expectations, at 16.12mm vs Exp. 17.3mm, and 5.31mm vs 5.8mm expected.

  Also of note: US sales of $29.3 billion were an actual decline of 4% compared to the $30.6 billion in US revenue one year ago.

  The good news, as little as it may be is that AAPL did not post a year over year decline in revenue as some had feared, with the top line printing a little over $1.2 billion higher compared to a year ago, while the margins of 40.1% also beat the 39.9% expected, and reported one year ago.

  There was some more bad news, however, in the company’s guidance which came as follows:

  • revenue between $50 billion and $53 billion, below the consensus estimate of $55.5 billion, and a steep drop compared to $58 billion the quarter prior suggesting a dramatic slowdown in iPhone sales.
  • gross margin between 39 percent and 39.5 percent, below the estimate of 40%
  • tax rate of 25.5 percent

  Worse, as the FT notes, Apple signalled that the iPhone would see its first ever decline in sales in the current quarter, as a slowing smartphone market and wider economic pressures finally began to take their toll after almost a decade of expansion.

  So overall a muted quarter, with perhaps the last saving grace being China’s sales of $18.4 billion, an increase of 14% y/y which at least superficially confirms that China sales are not crashing.

  A breakdown by some of the key charts:

  Revenue:

  

   

  Gross Margin:

  

   

  Sales by product line: each one missed expectations:

  

   

  Sales by geography: China stepped up to compensate for the US sales decline:

  

   

  And finally, AAPL’s cash rose to $215.7 billion in the quarter on a gross basis:

  

   

  While cash net of debt remains virtually unchanged for the past three years:

  

   

  And the result is a lot of sound “but but but” and fury in the stock after hours…

  

  

  

  

  

  

• Crude Plunges After API Reports Biggest Inventory Build Since 1996

  After a day of exuberant hope from rumors of production cuts, WTI crude is plunging back to reality as API reports a stunning 11.4 million barrel inventory build. This is the biggest weekly build since May 1996.

  When moar is not better…

  

   

  Of course – after 3 weeks of massive builds in gasoline inventories, this should be no surprise.

   

  

  And the reaction…

  

   

  Let’s hope that stocks can decouple from oil’s harsh reality or all that dead cat bubble bounce will be gone before Janet gets to unleash her statement.

  

  

  

  

  

• China Warns Soros Against Starting A Currency War: "You Cannot Possibly Succeed, Ha, Ha"

  George Soros may have broken the BOE and may well have been at least partially to blame for the Asian Financial Crisis, but he will not win an FX battle with the PBoC. At least that’s Beijing’s message to the billionaire, as conveyed via a characteristically hilarious “op-ed” in the People’s Daily entitled “Declaring war on China’s currency? Ha ha”

  Yes, “ha, ha.” Although there’s nothing funny about the $1 trillion in capital that fled the country in 2015 on the heels of the PBoC’s bungled effort to “manage” a controlled devaluation of the yuan.

  Although Soros didn’t specifically mention either the RMB or the HKD, he did indicate he is betting against Asian currencies in an interview with Bloomberg TV last week and that, apparently, was cause for Beijing to issue a stern warning.

  “Soros’s war on the renminbi and the Hong Kong dollar cannot possibly succeed — about this there can be no doubt,” the People’s Daily says, after calling Soros “the financial crocodile,” and blaming the billionaire for “increasing volatility in already unstable financial markets.”

  Perhaps Beijing knows something everyone else doesn’t, or perhaps the PBoC simply assumes that when Soros mentions “hard landing” and betting against Asian currencies in the same breath it probably means he’s short the yuan, but whatever the case, Chinese authorities have ramped up the rhetoric in the past several days.

  “Reckless speculations and vicious shorting will face higher trading costs and possibly severe legal consequences,” Xinhua wrote over the weekend. “And just as proved in the yuan exchange rate case, the Chinese government has sufficient resources and policy tools to keep the overall economic situation under control and cope with any external challenges.”

  The ironic thing about the latter passage there is that Soros actually echoed that sentiment in the interview China appears to be referencing. “China can manage it. It has resources and greater latitude in policies, with $3tn in reserves,” he said.

  Of course China won’t be able to arrest Soros and beat a confession out of him like Beijing is fond of doing to others suspected of launching “malicious” short attacks, but the brash commentary does indicate that Chinese authorities are becoming increasingly sensitive to suggestions that a steeper RMB devaluation is a foregone conclusion.

  As we’ve noted on a number of occasions, capital flight is as much about perception as it is about reality. If people believe there’s a problem, they’ll act first and ask questions later and when a voice as influential as Soros says the “hard landing” is upon us, it has the potential to trigger more outflows at a time when more than a hundred billion per month is exiting the country for the safety of foreign assets like high-end real estate. 

  Also on Tuesday, China said the head of the country’s statistics bureau Wang Baoan is now under investigation for “serious violations of discipline.” The news comes just hours after Wang criticized Soros’ hard landing call. 

  Hours after dismissing George Soros’ bearish views on China, stats bureau chief Wang Baoan arrested for corruption

  — gabriel wildau (@gabewildau) January 26, 2016

  NBS chief says George Soros’s claim of hard landing is only his personal opinion.
  China still has great potential. pic.twitter.com/LdhAG8nejQ

  — Eddie Du (@Edourdoo) January 26, 2016

  Coincidence? Perhaps.

  We anxiously await the word on what exactly Wang is accused of doing wrong considering the NBS is the body responsible for habitually reporting GDP figures that never deviate materially from the Party’s 7% target. 

  *  *  *

  Full People’s Daily piece

  Original title: a declaration of war to the Chinese currency? “Ha ha”

  Source: People’s Daily Overseas Edition

  From last year to this year, the “financial predators,” said Soros, the man of the hour for two consecutive years as one of the World Economic Forum in Davos the most interesting. Last year, he used the platform to announce the “permanent retirement”, no financial investment involved in the political arena and instead focus on its so-called “political charity”; this year, is also on this platform, he was open to China “declaration of war”, claiming that We have generous short Asian currencies. Because of his influence, fluctuations in the international financial markets has intensified already existing Asian currencies obviously feel greater pressure speculative attacks.

  However, Soros challenge for the renminbi and the Hong Kong dollar is unlikely to succeed – this, no doubt.

  Although China’s economic growth downward since last year, stock market volatility, the yuan against the dollar, but in this period of global slowdown in economic growth, China’s economic fundamentals are relatively good among the great powers: economic growth last year, equivalent to the US growth twice; China in 2015, although exports fell 1.8%, but the global trade decreased by 10% over the same period; China continues to upgrade industrial structure, advanced manufacturing and emerging new services is still growing, and has begun more and more field line leading world ……

  These show that China’s macro-economic stability is far better than the other BRIC countries and most developed countries, economic shocks can not simply overturn China, China is still able to maintain a global economic power in relatively good condition. Meanwhile, the ethnic composition and cultural tradition unity and other factors also gives a higher high social stability of China.

  Specific to the RMB exchange rate is concerned, since the middle of last year the RMB against the US dollar depreciated slightly indeed, but market participants will also be seen that the average annual exchange rate of RMB measure, from $ 1 in 1994 against 8.6187 yuan to one US dollar in 2014 against 6.1428 yuan, the appreciation of the RMB against the US dollar has been for nearly 20 years, only a slight repeated in 2000. The continued appreciation of one currency against the US dollar so long time, amplitude so large is rare, a slight pullback now is normal. Moreover, China has become the world’s second largest economy, the yuan pegged to the dollar is not always in fact – in the capital is highly mobile world, in order to achieve the independence of monetary policy, China is willing and able to withstand the temporary exchange rate, slightly volatility, market participants will sooner or later realize that and get used to this, thereby reducing the current over-reaction so.

  Background from a larger perspective, the current strength of the dollar against most other emerging market currencies may continue for a long time, but the renminbi is difficult to do this. Because China’s trade balance surplus remained sustained, and surplus is still expanding; the US economy is already in deep financial “Dutch disease” (a sector booms caused by the decline of other sectors) and escape.Although the United States want to re-consolidate the economic foundation in fact, the body, the “re-industrialization” momentum almost but difficult to continue, resulting in the goods trade balance continued to deteriorate as the economy recovers. This one US dollar against the yuan temporarily strong, will certainly be the aforementioned “Triffin dilemma” (confidence and liquidity dilemma) interrupted, and it can be expected that this time may not be too long.

  From another perspective, Soros to Asian currencies “declaration of war”, but also for China to create a deepening of financial cooperation in East Asia as well as “all the way along the” opportunity of financial cooperation. International monetary cooperation from low to high is divided into international financing cooperation, joint intervention in currency markets, macroeconomic policy coordination, joint exchange rate mechanism, the single currency five levels – direct power of its deepening, usually pressure from speculative currency attacks.

  The current monetary cooperation in East Asia, is still in currency swaps and repurchase network level marked by cooperation in the area of ??financing. Now, emerging market currencies volatility, Soros started speculative attacks on Asian currencies starting gun for the Chinese and other East Asian economies, to achieve cooperation from international financing to carry out joint intervention in currency markets and even upgrade macroeconomic coordination, is not a Opportunities do? 

  

  

  

  

  

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• Presidential Crimes Then And Now

  Authored by Paul Craig Roberts,

  Are Nixon’s and the Reagan administration’s crimes noticable on the scale of Clinton’s, George W. Bush’s, and Obama’s?

  Not much remains of the once vibrant American left-wing. Among the brainwashed remnants there is such a hatred of Richard Nixon and Ronald Reagan that the commitment of these two presidents to ending dangerous military rivalries is unrecognized. Whenever I write about the illegal invasions of other countries launched by Clinton, George W. Bush, and Obama, leftists point to Chile, Nicaragua and Grenada and say that nothing has changed. But a great deal has changed. In the 1970s and 1980s Nixon and Reagan focused on reducing Cold War tensions. Courageously, Nixon negotiated nuclear arms limitation agreements with the Soviet Union and opened to China, and Reagan negotiated with Gorbachev the end of the dangerous Cold War.

  Beginning with the Clinton regime, the neoconservative doctrine of the US as the Uni-power exercising hegemony over the world has resurrected tensions between nuclear-armed powers. Clinton trashed the word of the Reagan and George H.W. Bush administrations and expanded NATO throughout Eastern Europe and brought the military alliance to Russia’s border. The George W. Bush regime withdrew from the anti-ballistic missile treaty, revised US war doctrine to permit pre-emptive nuclear attack, and negotiated with Washington’s East European vassals to put anti-ballistic missiles on Russia’s borders in an effort to neutralize Russia’s nuclear deterrent, thus bringing major security problems to Russia. The Obama regime staged a coup against a government allied with Russia in Ukraine, traditionally a part of Russia, and imposed a Russophobia government as Washington’s vassal. Turning to China, Washington announced the “pivot to Asia” with the purpose of controlling shipping in the South China Sea. Additionally, the Clinton, George W. Bush, and Obama regimes fomented wars across a wide swath of the planet from Yugoslavia and Serbia through the Middle East and Africa to South Ossetia and now in Ukraine.

  The neoconservative ideology rose from the post-Reagan collapse of the Soviet Union. The doctrine met the need of the US military/security complex for a new enemy in order to avoid downsizing. Washington’s pursuit of empire is a principal danger to life itself for everyone on the planet.

  Unlike Clinton, George W. Bush, and Obama, Nixon and Reagan went against the military/security complex. Nixon opened to China and made arms reduction agreements with the Soviets. Reagan negotiated with Gorbachev the end of the Cold War. The military/security complex was displeased with these presidential initiatives. Both left and right accused Nixon and Reagan of nefarious machinations. Right-wing Republicans said that Nixon and Kissinger were selling America out to the communists and that the scheming Soviets would take advantage of Reagan, the old movie actor. “Communists,” we were assured, “only understand force.”

  Nixon and Reagan focused on eliminating dangerous rivalries, and the three stooges—Clinton, Bush, and Obama—have resurrected the rivalries. Those who cannot see the astonishing difference are blinded by prejudices and their brainwashing.

  In this article, I describe unappreciated aspects of the Nixon and Reagan presidencies. What I provide is neither a justification nor a denunciation, but an explanation. Here is what Patrick Buchanan, who was in the White House with both presidents, wrote to me in response to my explanation:

  “Craig, you are dead on in what you write about both Nixon and Reagan and what they sought in their presidencies. Reagan often talked of those ‘godawful weapons,’ meaning nukes. I was at Reykjavik with him, and was stunned at Hofde House to learn that Ronald Reagan pretty much wanted to trade them all away. And when, years later, Tom Wicker wrote favorably about the Nixon presidency, he accurately titled his book One of Us. All his life Nixon sought the approbation of the [pre-neocon] Establishment. Am deep into a new book, based on my experiences and my White House files, and all through it I am urging him [Nixon] to be and to become the kind of conservative president I wanted, but he never was. My thanks for bringing in The Greatest Comeback, which covered the period when I was closest to Nixon. All the best, Pat.”

  Writing for Americans is not always an enjoyable experience. Many readers want to have their prejudices confirmed, not challenged. Emotions rule their reason, and they are capable of a determined resistance to facts and are not inhibited from displays of rudeness and ignorance. Indeed, some are so proud of their shortcomings that they can’t wait to show them to others. Some simply cannot read and confuse explanations with justifications as if the act of explaining something justifies the person or event explained. Thankfully, all readers are not handicapped in these ways or there would be no point in trying to inform the American people.

  In a recent column I used some examples of Clinton-era scandals to make a point about the media, pointing out that the media and the American people were more interested in Clinton’s sexual escapades and in his choice of underwear than in the many anomalies associated with such serious events as the Oklahoma City bombing, Waco, the mysterious death of a White House legal counsel, US sanctions on Iraq that took the lives of 500,000 children, and illegal war against Serbia.

  Reaganphobes responded in an infantile way, remonstrating that the same standards should be applied to “your dear beloved Ray-Gun” as to Clinton. Those readers were unable to understand that the article was not about Clinton, but about how the media sensationalizes unimportant events in order to distract attention from serious ones. Examples from the Clinton era were used, because no question better epitomizes the level of the American public’s interest in political life than the young woman’s question to President Clinton: “boxers or briefs?”

  It is doubtful that journalists and historians are capable of providing accurate understandings of any presidential term. Even those personally involved often do not know why some things happened. I have been in White House meetings from which every participant departed with a different understanding of what the president’s policy was. This was not the result of lack of clarity on the president’s part, but from the various interests present shaping the policy to their agendas.

  Many Americans regard the White House as the lair of a powerful being who can snap his fingers and make things happen. The fact of the matter is that presidents have little idea of what is transpiring in the vast cabinet departments and federal agencies that constitute “their” administration. Many parts of government are empires unto themselves. The “Deep State,” about which Mike Lofgren, formerly a senior member of the Congressional staff has written, is unaccountable to anyone. But even the accountable part of the government isn’t. For example, the information flows from the cabinet departments, such as defense, state, and treasury, are reported to Assistant Secretaries, who control the flow of information to the Secretaries, who inform the President. The civil service professionals can massage the information one way, the Assistant Secretaries another, and the Secretaries yet another. If the Secretaries report the information to the White House Chief of Staff, the information can be massaged yet again. In my day before George W. Bush and Dick Cheney gave us the Gestapo-sounding Department of Homeland Security, the Secret Service reported to an Assistant Secretary of the Treasury, but the Assistant Secretary had no way of evaluating the reliability of the information. The Secret Service reported whatever it suited the Secret Service to report.

  Those who think that “the President knows” can test their conviction by trying to keep up with the daily announcements from all departments and agencies of the government. It is a known fact that CEOs of large corporations, the relative size of which are tiny compared to the US government, cannot know all that is happening within their organizations.

  Nixon: Villain or Centrist Reformer?

  I am not particularly knowledgeable about the terms of our various presidents. Nevertheless, I suspect that the Nixon and Reagan terms are among the least understood. Both presidents had more ideological opponents among journalists and historians than they had defenders. Consequently, their stories are distorted by how their ideological opponents want them to be seen and remembered. For example, compare your view of Richard Nixon with the portrait Patrick Buchanan provides in his latest book, The Greatest Comeback. A person doesn’t have to agree with Buchanan’s view of the issues of those years, or with how Buchanan positioned, or tried to position, Nixon on various issues, to learn a great deal about Nixon. Buchanan can be wrong on issues, but he is not dishonest.

  For a politician, Richard Nixon was a very knowledgeable person. He travelled widely, visiting foreign leaders. Nixon was the most knowledgeable president about foreign policy we have ever had. He knew more than Obama, Bush I and II, Clinton, Reagan, Carter, Ford, and Johnson combined.

  The liberal-left created an image of Nixon as paranoid and secretive with a long enemies list, but Buchanan shows that Nixon was inclusive, a “big tent” politician with a wide range of advisors. There is no doubt that Nixon had enemies. Many of them continue to operate against him long after his death.

  Indeed, it was Nixon’s inclusiveness that made conservatives suspicious of him. To keep conservatives in his camp, Nixon used their rhetoric, and Nixon’s rhetoric fueled Nixon-hatred among the liberal-left. The inclination to focus on words rather than deeds is another indication of the insubstantiality of American political comprehension.

  Probably the US has never had a more liberal president than Nixon. Nixon went against conservatives and established the Environmental Protection Agency (EPA) by executive order. He supported the Clean Air Act of 1970. Nixon federalized Medicaid for poor families with dependent children and proposed a mandate that private employers provide health insurance to employees. He desegregated public schools and implemented the first federal affirmative action program.

  Declaring that “there is no place on this planet for a billion of its potentially most able people to live in angry isolation,” Nixon engineered the opening to Communist China. He ended the Vietnam War and replaced the draft with the volunteer army. He established economic trade with the Soviet Union and negotiated with Soviet leader Brezhnev landmark arms control treaties—SALT I and the Anti-Ballistic Missile Treaty in 1972, which lasted for 30 years until the neoconized George W. Bush regime violated and terminated the treaty in 2002.

  These are astonishing achievements for any president, especially a Republican one. But if you ask Americans what they know about Nixon, the response is Watergate and President Nixon’s forced resignation.

  In other words, here is more proof that all the American media does is to lie to us. The US media is no longer independent. It is a servile captive creature that turns lies into truths via endless repetitions.

  I am convinced that Nixon’s opening to China and Nixon’s arms control treaties and de-escalation of tensions with the Soviet Union threatened the power and profit of the military/security complex. Watergate was an orchestration used to remove the threat that Nixon presented. If you read the Watergate reporting by Woodward and Bernstein in the Washington Post, there is no real information in it. In place of information, words are used to create an ominous presence and sinister atmosphere that is transferred to Nixon.

  There was nothing in the Watergate scandal that justified Nixon’s impeachment, but his liberal policies had alienated conservative Republicans. Conservatives never forgave Nixon for agreeing with Zhou Enlai that Taiwan was part of China. When the Washington Post, John Dean, and a missing segment of a tape got Nixon in trouble, conservatives did not come to his defense. The liberal-left was overjoyed that Nixon got his comeuppance for supporting the exposure and prosecution of Soviet spy Alger Hiss two decades previously.

  I do not contend that the left-wing has no legitimate reasons for hostility against Nixon. Nixon wanted out of Vietnam, but “with honor” so that conservatives would not abandon him. Nixon did not want to become known as the President who forced the US military to accept defeat. He wanted to end the war, but if not with victory then with a stalemate like Korea. He or Kissinger gave the US military carte blanche to produce a situation that the US could exit “with honor.” This resulted in the secret bombing in Laos and Cambodia. The shame of the bombings cancelled any exit with real honor.

  The Reagan era is also misunderstood. Just as President Jimmy Carter was regarded as an outsider by the Democratic Washington Establishment, Ronald Reagan was an outsider to the Republican Establishment whose candidate was George H. W. Bush. Just as Carter’s presidency was neutered by the Washington Establishment with the frame-up of Carter’s Budget Director and Chief of Staff, Reagan was partially neutered before he assumed office, and the Establishment removed in succession two national security advisors who were loyal to Reagan.

  Reagan’s Priorities and the Establishment’s Agenda

  When Reagan won the Republican presidential nomination, he was told that although he had defeated the Establishment in the primaries, the voters would not be able to come to his defense in Washington. He must not make Goldwater’s mistake and shun the Republican Establishment, but pick its presidential candidate for his vice president. Otherwise, the Republican Establishment would work to defeat him in the presidential election just as Rockefeller had undermined Goldwater.

  As a former movie star, Nancy Reagan put great store on personal appearance. Reagan’s California crew was a motley one. Lynn Nofziger, for example, sported a beard and a loosely knotted tie if a tie at all. He moved around his office in sock feet without shoes. When Nancy saw Bush’s man, Jim Baker, she concluded that the properly attired Baker was the person that she wanted standing next to her husband when photos were made. Consequently, Reagan’s first term had Bush’s most capable operative as Chief of Staff of the White House.

  To get Reagan’s program implemented with the Republican Establishment occupying the chief of staff position was a hard fight.

  I don’t mean that Jim Baker was malevolent and wished to damage Reagan. For a member of the Republican Establishment, Jim Baker was very intelligent, and he is a hard person to dislike. The problem with Baker was two-fold. He was not part of the Reagan team and did not understand what we were about or why Reagan was elected. Americans wanted the stagflation that had destroyed Jimmy Carter’s presidency ended, and they were tired of the ongoing Cold War with the Soviet Union and its ever present threat of nuclear Armageddon.

  It is not that Baker (or VP Bush) were personally opposed to these goals. The problem was that the Establishment, whether Republican or Democratic, is responsive not to solving issues but to accommodating the special interest groups that comprise the Establishment. For the Establishment, preserving power is the primary issue. As The Saker makes clear, in both parties the Anglos of my time, of which George H. W. Bush was the last, have been replaced by the neocons. The neocons represent an ideology in addition to special interest groups, such as the Israel Lobby.

  The Republican Establishment and the Federal Reserve did not understand Reagan’s Supply-Side economic policy. In the entire post World War II period, reductions in tax rates were associated with the Keynesian demand management macroeconomic policy of increasing aggregate demand. The Reagan administration had inherited high inflation, and economists, Wall Street, and the Republican Establishment, along with Reagan’s budget director, David Stockman, misunderstood Reagan’s supply-side policy as a stimulus to consumer demand that would cause inflation, already high, to explode. On top of this, conservatives in Congress were disturbed that Reagan’s policy would worsen the deficit—in their opinion the worst evil of all.

  Reagan’s supply-side economic policy was designed not to increase aggregate demand, but to increase aggregate supply. Instead of prices rising, output and employment would rise. This was a radically new way of using fiscal policy to raise incentives to produce rather than to manage aggregate demand, but instead of helping people to understand the new policy, the media ridiculed and mischaracterized the policy as “voodoo economics,” “trickle- down economics,” and “tax cuts for the rich.” These mischaracterizations are still with us three decades later. Nevertheless, the supply-side policy was partially implemented. It was enough to end stagflation and the policy provided the basis for Clinton’s economic success. It also provided the economic basis that made credible Reagan’s strategy of forcing the Soviets to choose between a new arms race or negotiating the end of the Cold War.

  Ending the Cold War and Bad CIA Advice

  President Reagan’s goal of ending the Cold War was upsetting to both conservatives and the military/security complex. Conservatives warned that wily Soviets would deceive Reagan and gain from the negotiations. The military/security complex regarded Reagan’s goal of ending the Cold War as a threat comparable to Nixon’s opening to China and arms limitations treaties with the Soviet Union. President John F. Kennedy had threatened the same powerful interests when he realized from the Cuban Missile Crisis that the US must put an end to the risk of nuclear confrontation with the Soviet Union.

  With the success of his economic policy in putting the US economy back on its feet, Reagan intended to force a negotiated end to the Cold War by threatening the Soviets with an arms race that their suffering economy could not endure. However, the CIA advised Reagan that if he renewed the arms race, he would lose it, because the Soviet economy, being centrally planned, was in the hands of Soviet leaders, who, unlike Reagan, could allocate as much of the economy as necessary to win the arms race. Reagan did not believe the CIA. He created a secret presidential committee with authority to investigate the CIA’s evidence for its claim, and he appointed me to the committee. The committee concluded that the CIA was wrong.

  Reagan always told us that his purpose was to end, not win, the Cold War. He said that the only victory he wanted was to remove the threat of nuclear annihilation. He made it clear that he did not want a Soviet scalp. Like Nixon, to keep conservatives on board, he used their rhetoric.

  Curing stagflation and ending the Cold War were the main interests of President Reagan. Perhaps I am mistaken, but I do not think he paid much attention to anything else.

  Grenada and the Contras in Nicaragua were explained to Reagan as necessary interventions to make the Soviets aware that there would be no further Soviet advances and, thus, help to bring the Soviets to the negotiating table to end the nuclear threat. Unlike the George W. Bush and Obama regimes, the Reagan administration had no goal of a universal American Empire exercising hegemony over the world. Grenada and Nicaragua were not part of an empire-building policy. Reagan understood them as a message to the Soviets that “you are not going any further, so let’s negotiate.”

  Conservatives regarded the reformist movements in Grenada and Nicaragua as communist subversion, and were concerned that these movements would ally with the Soviet Union, thus creating more Cuba-like situations. Even President Carter opposed the rise of a left-wing government in Nicaragua. Grenada and Nicaragua were reformist movements rather than communist-inspired, and the Reagan administration should have supported them, but could not because of the hysteria of American conservatives. Reagan knew that if his constituency saw him as “soft on communism,” he would lack the domestic support that he needed in order to negotiate with the Kremlin the end of the Cold War.

  America Playing the Foreign Policy Game

  Today Western governments support and participate in Washington’s invasions, but not then. The invasion of Grenada was criticized by both the British and Canadian governments. The US had to use its UN Security Council veto to save itself from being condemned for “a fragrant violation of international law.”

  The Sandinistas in Nicaragua were reformers opposed to the corruption of the Somoza regime that catered to American corporate and financial interests. The Sandinistas aroused the same opposition from Washington as every reformist government in Latin America always has. Washington has traditionally regarded Latin American reformers as Marxist revolutionary movements and has consistently overthrown reformist governments in behalf of the United Fruit Company and other private interests that have large holdings in countries ruled by unrepresentative governments.

  Washington’s policy was, and still is, short-sighted and hypocritical. The United States should have allied with representative governments, not against them. However, no American president, no matter how wise and well- intentioned, would have been a match for the combination of the interests of politically-connected US corporations and the fear of more Cubas. Remember Marine General Smedley Butler’s confession that he and his US Marines served to make Latin America safe for the United Fruit Company and “some lousy investment of the bankers.”

  Information is Power

  Americans, even well informed ones, dramatically over-estimate the knowledge of presidents and the neutrality of the information that is fed to them by the various agencies and advisors. Information is power, and presidents get the information that Washington wants them to receive. In Washington private agendas abound, and no president is immune from these agendas. A cabinet secretary, budget director, or White House chief of staff who knows how Washington works and has media allies is capable, if so inclined, of shaping the agenda independently of the president’s preferences.

  The Establishment prefers a nonentity as president, a person without experience and a cadre of knowledgeable supporters to serve him. Harry Truman was, and Obama is, putty in the hands of the Establishment. If you read Oliver Stone and Peter Kuznick’s The Untold History of the US, you will see that the Democratic Establishment, realizing that FDR would not survive his fourth term, forced his popular Vice President Henry Wallace off the ticket and put in his place the inconsequential Truman. With Truman in place, the military/security complex was able to create the Cold War.

  From Bad to Worse

  The transgressions of law that occurred during the Nixon and Reagan years are small when compared to the crimes of Clinton, George W. Bush and Obama, and the crimes were punished. Nixon was driven from office and numerous Reagan administration officials were prosecuted and convicted. Neither Nixon nor Reagan could have run roughshod over both Constitution and statutory law, setting aside habeas corpus and due process and detaining US citizens
  indefinitely without charges and convictions, authorizing and justifying torture, spying without warrants, and executing US citizens without due process of law.

  Moreover, unlike the Clinton, Bush, and Obama regimes, the Reagan administration prosecuted those who broke the law. Assistant Secretary of State Elliott Abrams was convicted, National Security Advisor Robert McFarlane was convicted, Chief of CIA Central American Task Force Alan Fiers was convicted, Clair George, Chief of the CIA’s Division of Covert Operations was convicted. Richard Secord was convicted. National Security Advisor John Poindexter was convicted. Oliver North was convicted. North’s conviction was later overturned, and President George H.W. Bush pardoned others. But the Reagan Administration held its operatives accountable to law. No American President since Reagan has held the government accountable.

  Clair George was convicted of lying to congressional committees. Richard Secord was convicted of lying to Congress. John Poindexter was convicted of lying to Congress. Alan Fiers was convicted of withholding information from Congress. Compare these convictions then with James R. Clapper now. President Obama appointed Clapper Director of National Intelligence on June 5, 2010, declaring that Clapper “possesses a quality that I value in all my advisers: a willingness to tell leaders what we need to know even if it’s not what we want to hear.” With this endorsement, Clapper proceeded to lie to Congress under oath, a felony. Clapper was not indicted and prosecuted. He was not even fired or forced to resign. For executive branch officials, perjury is now a dead letter law.

  The destruction of the rule of law and accountable government has extended to state and local levels. Police officers no longer “serve and protect” the public. The most dangerous encounter most Americans will ever experience is with police, who brutalize citizens without cause and even shoot them down in their homes and on their streets. A police badge has become a license to kill, and police use it to the hilt. During the Iraq War, more Americans were murdered by police than the military lost troops in combat. And nothing is done about it. The country is again facing elections, and the abuse of US citizens by “their” police is not an issue. Neither are the many illegal interventions by Washington into the internal affairs of other sovereign countries or the unconstitutional spying that violates citizens’ privacy.

  The fact that Washington is gearing up for yet another war in the Middle East is not an important issue in the election.

  In the US the rule of law, and with it liberty, have been lost. With few exceptions, Americans are too ignorant and unconcerned to do anything about it. The longer the rule of law is set aside, the more difficult it is to reestablish it. Sooner or later the rule of law ceases even as a memory. No candidate in the upcoming election has made the rule of law an issue.

  Americans have become a small-minded divided people, ruled by petty hatreds, who are easily set against one another and against other peoples by their rulers.

  

  

  

  

  

• Gold Fund Manager Laments The Big Payoff "Will Not Be Cause For Celebration"

  Dreams don't always come true for TV singing show contestants or gold enthusiasts. As Santiago Capital's Brent Johnson explains, precious metals remain in a long and painful bear market… so why continue to own gold? Simply put, despite all the cries of "you suck" and feelings of loneliness and depression, "if you have done your homework" this will lead to conviction because all the reasons to own gold are still there and are now even more compelling…

  Contrarians, by definition, spend most of their time bring wrong "until the moment they are not and the big pay off comes."

  

   

  Brent Johnson explains "you don't get to make the big money and have it be easy…"

   

  

  The Party In The Global Equity Markets Is Winding Down and "Our moment is coming.. and when that happens we can be humble and gracious or pompous rockstars. When this position – which has been so painful for so long – pays off, the urge to say 'I told you so' will be almost impossible to resist… but please don't say it."

  "Our winnings are not going to come from the backs of politicians who sold out their constituents in mountains of debt; it's not going to come from the bankers who loaded up their balance sheets with trillions of dollars of derivatives; it's not going to come at the expense of the celebrities in Hollywood or rockstars of New York. Our winnings will come on the backs of innocent people around the world whose prices will rise as their wages fall.. it's going to come from the people who wake up one morning to find their savings have been devalued or bailed-in… it's going to come from the pension funds of teachers and firefighters. The irony is that when gold finally pays off – it will not be a cause for celebration."

  

  

  

  

  

• Apple in the Seventies

  From the Slope of Hope: It’s time for me to travel to the place I always prefer: way out on a limb.

  My Apple credentials are sound. I bought my first Macintosh in early 1984. I worked at Apple headquarters for several years in the late 1980s. When did I buy my first iPhone? The day it came out. First iPad? The day it came out. I even wrote a few books about the Macintosh. And some of you know the videos I’ve done about that Silicon Valley deity, Mr. Steven Paul Jobs. So I don’t have any anti-Apple ax to grind.

  Having said all that, I think Apple’s best days are behind it. The fat and happy executive staff, led by the charisma-free Tim Cook, is sitting on top of the most valuable company on the planet. Subtly and slowly, though, Apple has already lost one-quarter of its entire market cap.

  Tuesday, of course, is when Apple reports their earnings, after the close. I have no clue about Apple’s fundamentals, but I’ve seen a chart or two in my life, and this long-term chart of Apple looks jumping-up-and-down bearish.

  

  Looking a bit closer, there is a massive topping pattern which I’ve helpfully shaded in green for you. The strength we had late last week pushed up right back toward all that overhead supply, and early on Monday, I shorted the stock at what I hope is a price I’ll be pleased with.

  

  Now here’s the going-out-on-a-limb part: I suspect that Apple is more likely to be down on Wednesday than up. I further think that, in the months ahead, Apple is going to find itself at a place no one dare imagine: in the 70s. I have tinted in area below which shows a suggested target, which just so happens to also close a gap beautifully set before a massive roar higher in the price a couple of years ago.

  

  I had some lunatic things to say about oil late in 2014, although I held my tongue about some price projections since they seemed so preposterous. I’m not going to offer Apple this courtesy. I think the 25% drop they’ve seen is going to blossom into a nearly 50% drop. I suspect ol’ Cookie is going to be checking out his ridiculous Apple Watch sooner or later to see when it’s time for him to finally leave and enjoy the vast personal fortune he acquired from Jobs’ genius.

  

  

  

  

  

• Gold Price May Lead Gold Mining Stocks – Latest Research

  Gold Price May Lead Gold Mining Stocks – Latest Research

  Dr Brian Lucey and Dr Fergal O’Connor have just published some interesting research on the correlations of the gold price and gold mining indices.

  

  In ‘Are Gold Bugs Coherent?’, the academics use wavelet models to surface the relationship between gold miners stock prices and the price of gold. Specifically, they examine the relationship between the gold price and the NYSE ARCA Gold Bugs index of gold miner share prices over a 17 year period using wavelet analysis.

  They find that

  “that there is little relationship in the short run but some significant and long standing long run relationships and that gold prices appear to lead gold miner stock prices.”

  There is now a large body of academic research which shows that gold is a safe haven asset and a hedging instrument and can play a “useful role in reducing a portfolio’s risk.”

  This has again been seen in recent weeks with gold having risen by more than 4% year to date, while leading stock indices such as the S&P 500 are down by more than 7%.

  The research entitled ‘Are Gold Bugs Coherent?’ can be accessed here

  

  LBMA Gold Prices

  25 Jan: USD 1,103.70, EUR 1,020.29 and GBP 773.96 per ounce
  22 Jan: USD 1,097.65, EUR 1,012.55 and GBP 769.63 per ounce
  21 Jan: USD 1,096.80, EUR 1,006.98 and GBP 774.99  per ounce
  20 Jan: USD 1,093.20, EUR 999.73 and GBP 771.08 per ounce
  19 Jan: USD 1,087.00, EUR 999.77 and GBP 759.79 per ounce

  Breaking Gold News and Commentary Today – Click here

  

  

  

  

• The "Real" Donald Trump – A Fascinating Interview From 1990

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  In 1990, Donald Trump conducted a lengthy interview with Playboy Magazine. It provides an absolutely fascinating window into the man’s mind, which I suggest everyone read in full. Unexpectedly, I came away with a more informed and nuanced perspective on the man. While it didn’t change my opinion of him as President, I do have a much greater appreciation for Donald Trump as a person, specifically how his mind works and what drives him.

  I originally came across this interview after seeing a tweet referencing a 25 year old interview during which Trump expressed admiration for how strongly Chinese authorities cracked down on dissent in Tiananmen Square in 1989. I immediately thought to myself that this would be the perfect fodder to further elucidate the kind of cold, brutal, authoritarian leader Trump undoubtably would be as President.

  While that particular quote didn’t disappoint, I decided to read further and came away with many additional observations. I think these observations are worth sharing since I think there’s a very real chance Trump will be elected President within the next ten years. His chances ride on the fact that the current system is terminally corrupt, as well as socially and economically bankrupt. It will crash and burn, whether in slow motion like the past eight years, or very rapidly over the next several. Someone will likely step in to fill this void, and Trump has the personality type and understanding of human nature to possibly propel himself into the position when the timing is right. Is the time right in 2016? Probably not, but a President Trump is far more likely to occur in our lifetimes than many of us want to admit.

  So with that out of the way, let me share some of the things I learned from the interview. First, I think Trump is far less materialistic than people presume, which sounds like a contradiction considering he is unquestionably one of the biggest showoffs on planet earth. While this is true, the motivation behind his ostentatious public persona is primarily to further his brand. As he says repeatedly in the interview, it’s all a show. In other words, he claims it’s pure marketing and I believe him.

  What motivates Trump isn’t the collection of material things, rather, it’s a constant need to stroke his enormous ego and stoke his narcissism. Life is merely a giant game for Trump. A game in which the winners collect lots of fame and money, and the losers don’t. He doesn’t simply want to win this game, coming out on top is his entire life’s purpose. The idea of not winning isn’t even an option.

  So with this in mind, is the Presidency just the ultimate prize for Trump? Does he want it simply because it is one of the few “wins” he has yet to collect? I think so. Deep down, I think Trump can’t truly envision himself as life’s ultimate winner without the Presidency. This is not to say I think Trump isn’t genuine when he says America is going down the toilet. Indeed, he was hitting on many of the exact same themes back in 1990. In fact, it gives you the impression that Trump has thought America was lacking his entire life, precisely because Trump had yet to be named the country’s CEO.

  Trump believes in winning, and he thinks he and America are one in the same. In that sense, I genuinely believe that as President he would do what he thinks is best for America. In that sense, he’s not the typical detached, corrupt, greedy, globalist U.S. President we’ve become so accustomed to. This is precisely what his supporters are picking up on and why they love him.

   

  From this angle alone, he might actually have the chops to be a very good President. This is because for a man with his disposition, being President might still not be enough of an accomplishment. His ego will require that history remember him not just as a billionaire and President, but as the man who “Made America Great Again,” the ultimate motivator for a man who never rests until he gets what he wants. So it’s true that he really wouldn’t be unduly influenced by billionaires and large corporations if he felt they were getting in the way of his making America great (and himself greater). Those are the positives.

  As such, the establishment really is scared because Trump actually is an uncontrollable wildcard. This is certainly bad for them, but it isn’t necessarily good for “we the people.” The problem arises when it comes to Trump’s definition of greatness. From my chair, he doesn’t seem to think liberty, freedom and the Constitution play much of a role. Indeed, you can get a pretty good sense of his definition of “great” by looking at his buildings and the sorts of accomplishments he prides himself on. He loves the shock factor and big expensive toys. He likes them because they impress others and help his brand. There’s more swagger than substance to the things he prioritizes, at least publicly. Indeed, it’s not surprising that the casino business would have a particular appeal to him. It’s a world in which customers indulge themselves in a fantasy until they run out of money or get bored, and by the time they leave, Trump’s bank account is far bigger than it was before. He wins again.

  Trump supporters see this and think this is how he’s going to deal with foreign leaders and that this is a good thing. They think that he’ll simply outsmart them. Maybe he will and maybe he won’t, who knows. Personally, I’m far more concerned about how he would deal with domestic dissent.

  To that end, I think one thing is clear. I think he’d take George W. Bush’s “you are either with us, or you are with the terrorists” and change it to something like “you are either with me, or you hate America.” In a collapsed economy, this sort of slogan could appeal to a lot of people, and with an outraged public behind him, President Trump has the capacity to be incredibly cruel and vicious to American citizens he think stand in the way of his “Making America Great.”

  Without any obvious respect for the Constitution or Bill of Rights, a President Trump could very quickly transform himself into a very dangerous strongman, all the while believing that he is merely doing what is necessary to make America great. This attitude has become painfully clear to me during the campaign as I’ve watched him intentionally stir up anger and hate by demonizing minorities such as Muslims and Mexicans. Do I think it’s possible he doesn’t really stand behind his own hateful statements and is merely telling groups of frustrated people what they want to hear to get elected? Perhaps, but such a willingness tells you a lot about the lengths he would go to win, and shines a light on the things he’s capable of doing in order to solidify and expand his power once he’s won.

  Which brings me to the final point. Many of Trump’s personality traits are more admirable, or at least appear less nefarious than I previously thought. Nevertheless, it is extremely crucial to understand that the traits that make someone an incredible showman and billionaire are not the same traits needed in a President to restore a Constitutional Republic. Not that I think that’s high on Trump’s list of priorities in any event.

  Now here are some of the more interesting excerpts of the interview. Read the entire thing here.

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

   

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

   

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

   

  What do you do to stay in touch with your employees?
  I inspect the Trump Tower atrium every morning. Walk into it … it’s perfect; everything shines. I go down and raise hell in a nice way all the time because I want everything to be absolutely immaculate. I’m, totally hands-on. I get along great with porters and maids at the Plaza and the Grand Hyatt. I’ve had bright people ask me why I talk to porters and maids. I can’t even believe that question. Those are the people who make it all work …. If they like me, they will work harder … and I pay well.

   

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

   

  Why?
  I am very skeptical about people; that’s self-preservation at work. I believe that, unfortunately, people are out for themselves. At this point, it’s to many people’s advantage to like me. Would the phone stop ringing, would these people kissing ass disappear if things were not going well? I enjoy testing friendship …. Everything in life to me is a psychological game, a series of challenges you either meet or don’t. I am always testing people who work for me.

   

  How?
  I will send people around to my buyers to test their honesty by offering them trips and other things. I’ve been surprised that some people least likely to accept a trip from a contractor did and some of the most likely did not. You can never tell until you test; the human species is interesting in that way. So to me, friendship can be really tested only in bad times. I instinctively mistrust many people. It is not a negative in my life but a positive. Playboy wouldn’t be talking to me today if I weren’t a cynic. So I learned that from Fred, and I owe him a lot. . . . He could have ultimately been a happy guy, but things just went the unhappy way.

   

  And the Pope?
  Absolutely. Nothing wrong with ego. People need ego, whole nations need ego. I think our country needs more ego, because it is being ripped off so badly by our so-called allies; i.e., Japan, West Germany, Saudi Arabia, South Korea, etc. They have literally outegotized this country, because they rule the greatest money machine ever assembled and it’s sitting on our backs. Their products are better because they have so much subsidy. We Americans are laughed at around the world for losing a hundred and fifty billion dollars year after year, for defending wealthy nations for nothing, nations that would be wiped off the face of the earth in about fifteen minutes if it weren’t for us. Our “allies” are making billions screwing us.

   

  You’re opposed to Japanese buying real estate in the U.S.?
  I have great respect for the Japanese people and list many of them as great friends. But, hey, if you want to open up a business in Japan, good luck. It’s virtually impossible. But the Japanese can buy our buildings, our Wall Street firms, and there’s virtually no.thing to stop them. In fact, bidding on a building in New York is an act of futility, because the Japanese will pay more than it’s worth just to screw us. They want to own Manhattan. Of course, I shouldn’t even be complaining about it, because I’m one of the big beneficiaries of it. If I ever wanted to sell any of my properties, I’d have a field day. But it’s an embarrassment! I give great credit to the Japanese and their leaders, because they have made our leaders look totally second rate.

   

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

   

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

   

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

   

  Wait. Doesn’t it seem that with all your influence in Atlantic City you could do more to combat crime and corruption and put something back into the community?
  Well, crime and prostitution go up, and Atlantic City administrations are into very deep trouble with the law, and there are lots of problems there, no question about it. But there is a tremendous amount of money going to housing from the profits of the casinos. As somebody who runs hotels, all I can do, when you get right down to it, is run the best places, bring in as much money as possible, which in turn goes out for taxes. I contribute millions a year to various charities. Finally, by law, I’m not allowed to have Governmental influence; but if they passed legislation that allowed me to get more involved, I’d be very happy to do it. In the meantime, I have the most incredible hotels in the world in Atlantic City. The Taj Mahal will be beyond belief. And if I can awaken the government of Atlantic City, I have performed a great service.

   

  What were your other impressions of the Soviet Union?
  I was very unimpressed….Russia is out of control and the leadership knows it. That’s my problem with Gorbachev. Not a firm enough hand.

   

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

   

  Besides The real-estate deal, you’ve met with top-level Soviet officials to negotiate potential business deals with them; how did they strike you?
  Generally, these guys are much tougher and smarter than our representatives. We have people in this country just as smart, but unfortunately, they’re not elected officials. We’re still suffering from a loss of respect that goes back to the Carter Administration, when helicopters were crashing into one another in Iran. That was Carter’s emblem. There he was, being carried off from a race, needing oxygen. I don’t want my President to be carried off a race course. I don’t want my President landing on Austrian soil and falling down the stairs of his airplane. Some of our Presidents have been incredible jerk-offs. We need to be tough.

   

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

   

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

   

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

   

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

   

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

   

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

   

  More locally, one of your least favorite political figures was Mayor Ed Koch of New York. You two had a great time going after each other: He called you “piggy, piggy, piggy” and you called him “a moron.” Why do you suppose he lost the election?
  He lost his touch for the people. He became arrogant. He not only discarded his friends but was a fool for brutally criticizing them. The corruption was merely a symptom of what had happened to him: He had become extremely nasty, mean spirited and very vicious, an extremely disloyal human being. When his friends like Bess Myerson and others were in trouble, he seemed to automatically abandon them, almost before finding out what they’d done wrong. He could think only about his own ass-not the city’s. That was dumb: The only one who didn’t know his administration was crumbling around him was him. Power corrupts.

   

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

   

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

   

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

   

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

   

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

   

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

   

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

   

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

  The big concern as relates to Trump as President would be his strongman type of personality coupled with a cult of personality worship amongst his followers. This worship is something that Trump himself is well aware of, and it makes him all the more dangerous. For example, he recently said the following in Iowa:

  Donald Trump boasted Saturday that support for his presidential campaign would not decline even if he shot someone in the middle of a crowded street.

   

  “I could stand in the middle of 5th Avenue and shoot somebody and I wouldn’t lose voters,” Trump said at a campaign rally here.

  The scary part is, I think he’s right.

  

  

  

  

  

• Offshore Yuan Drops To 3-Week Lows As China Injects Another $70 Billion Liquidity

  Following the afternoon weakness in US equities, Offshore Yuan has been limping lower into the fix, not helped by comments from a MOFCOM researcher that "China is able to withstand currency fluctuations" implicitly warning carry traders to stay away and suggesting the dollar's dominance would not last long. CNH is now at 3-week lows against CNY, over 300pips cheap – which prompted the major short squeeze last time. Chinese stocks are modestly lower but more worrying is the 7-day slide in Chinese corporate bond yields – the most in 2 months – hinting perhaps that the last bubble standing is bursting.

  Having dismissed calls for large scale stimulus, the Year-end liquidity spigot is wide open…

  • *PBOC TO INJECT 440B YUAN WITH REVERSE REPOS: TRADERS

  Consisting of 360bn 28-day and 80bn 7-day reverse repo.

  As PBOC held the Yuan Fix "stable" for the 13th day in a row.

  Offshore Yuan continues to weaken and diverge from the "relative" stability of onshore Yuan as MOFCOM resercher Mei Xinyu writes that China is willing and able to stand temporary fluctuations in currency rates to gain independence of its monetary policy,. adding that the Yuan couldn’t be pegged to dollar perpetually since China is the 2nd largest economy in world and a strong position of dollar won’t last long.

  

   

  Is it us or does that sound a little more like a threat to dollar hegemony than a warning about volatility?

  Chinese CDS continue to confirm Offshore Yuan's implied weakness – the last time CNY remained "stable" in the face of devaluation stress like this was in the pre-amble to August's collapse…

  

  Finally, we draw attention to the fact that the "last bubble standing" – Chinese corporate bonds – appear to be cracking, having seen yields increase for the last 7 days – the most since mid November…

  

  As Chinese stocks stumble:*HONG KONG'S HANG SENG INDEX FALLS 1.4% IN PREMARKET

   

  None of which should surprise anyone, as BofAML's David Cui (chief China equity strategist) warned so succinctly:

  I expect higher volatility in the markets and a much higher chance of financial system instability in China – debt/GDP ratio will be higher, growth will be slower and there will likely be more shocks to the system. Whether the financial system breaks down or not, I expect the risk of such a breakdown to be the dominant theme for China markets this year.

   

  It’s true that since 2011 every year there had been a round of debates about this, and so far, the financial system has held up reasonably well (even though there had been scares from time to time). Many view the absence of any severe disturbance over the past few years as proof that the government is on top of things and believe that the risk has diminished over time. I think the opposite is true: the government has maintained a superficial stability largely by debt-funded stimulus and ever-greening of bad debts. We believe these have strengthened various implicit guarantees that have in turn generated  powerful destabilizing forces beneath the surface – a classic case of short term stability breeding long term instability.

   

  I think there are at least five: the guarantee on GDP growth, on RMB stability, on no sharp fall of the A-share market, on no major debt default and on no large housing price drop. A break of any of these guarantees may potentially destabilize the system in my view. And it’s a matter of time when some of these guarantees will be broken because they are inherently conflicting. For example, to hold up growth, the government has to run fairly loose monetary policy and very aggressive fiscal policy which means that RMB will increasingly come under pressure. The same is true with holding up the A-share market. The government has to borrow money from banks to buy A-shares, which boosts money growth and adds to asset bubble and RMB problems. If it reduces loans elsewhere to compensate, growth and debt may suffer. These are just two examples.

  Leading him to forecast that it’s going to be tougher for China’s equity markets this year than last year.

  We forecast SHCOMP to decline by about 30% to around 2,600 by yearend, and HSCEI to decline by about 7% to around 9,000.

   

  Our year-end targets had not factored in a credit crunch scenario because the timing of which is difficult to predict. Should it occur, we expect the indices to end below the low bounds of our expected trading ranges, possibly way below (2,200 for SHCOMP and 7,400 for HSCEI).

  None of which spell anything but contagion concerns for global levered carry trades.

  *  *  *

  And what would a night in Asia be without the Japanese spewing forth more muppetry monetary policy magic…

  The Japanese continue to desperately try to jawbone some momentum back into their markets, following this morning's spurious midnight Japane time headline, here is another:

  • *EX-BOJ DEPUTY IWATA SEES CHANCE FOR EASING THIS WEEK: ASAHI

  Which popped USDJPY back higher after some early weakness

  

   

  And then this:

  • *AMARI SAYS GOVT SHOULDN'T GUIDE MONETARY POLICY

  And here's why it matters – the correlatiob between USDJPY and world stocks has never been higher…

  

   

  Well done Central Planners.

  

  

  

  

  

• Is There A "Fourth Revolution" On The Horizon In America?

  Submitted by Lawrence Kadish via The Gatestone Institute,

  • The current political cycle reveals that many Americans are demanding unprecedented accountability from their elected leaders concerning wasteful spending and policies that have labeled our nation "The United Give Me States of America."

  • A growing majority of citizens want economic growth, job creation, national security and many insist on an end to policies of political correctness that prevent the education of our citizenry and, as they believe, is unraveling our basic right of freedom of speech.

  • Of equal concern are the prospects of ongoing terrorist acts against our nation and our allies, the unimaginable threat of a nuclear 9/11 or the global upheaval from a bankrupt America triggered by a default on our nation's unsupportable $19 trillion national debt.

  In a recent conference entitled, "How to Think about Inequality," author James Piereson discussed key topics explored in his books, Shattered Consensus and The Inequality Hoax.

  In Shattered Consensus, Piereson suggested that America is on the abyss of a new and historic phase of economic and political upheaval he calls the "Fourth Revolution."

  He cites three prior turning points in our nation's history: Jefferson's "Revolution of 1800," which created popular political parties as we know them, the Civil War and the New Deal.

  Piereson said he doesn't know when The "Fourth Revolution" will occur or what form it will take.

  But as today's electorate respond to the rhetoric of current Presidential hopefuls one could argue that Piereson may be wrong in his timing. Between our dangerously unsustainable debt and the raw emotions of primary voters so evident in their passion for their respective candidates, we are far from the edge of Piereson's Fourth Revolution. We are in the midst of it.

  James Piereson, author of the books Shattered Consensus and The Inequality Hoax.

  The current political cycle reveals that many Americans are demanding unprecedented accountability from their elected leaders concerning wasteful spending and policies that have labeled our nation "The United Give Me States of America."

  A growing majority of citizens want economic growth, job creation, national security and many insist on an end to policies of political correctness, as they believe it is unraveling our basic right of freedom of speech.

  Of equal concern are the prospects of ongoing terrorist acts against our nation and our allies, the unimaginable threat of a nuclear 9/11 or the global upheaval from a bankrupt America triggered by a default on our nation's unsupportable $19 trillion national debt. As stated previously:

  In stark but simple terms, unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained.

   

  Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.

  When there is no food on the table, when the dollar has no value, that is when demagogues like Hitler get into power.

  That "Fourth Revolution" envisioned by Mr. Piereson would also need to include those in America who would seek to have our nation become a socialist state.

  

  

  

  

  

• Billion Dollar Baby Bye Bye – Theranos Lab Found "Deficient"

  It seems billion dollar baby of Silcon Valley, Elizabeth Holmes, is facing yet another unicorn-slaying moment as the fairy-take ending for Stanford drop-out looks increasingly distant after a WSJ report that U.S. health inspectors have found serious deficiencies at Theranos Inc.’s laboratory in Northern California, according to people familiar with the matter. With a board full of big swinging dicks about to be exposed for the greater fools they truly are, failing to fix the problems could put the Theranos lab at risk of suspension from the Medicare program.

  We reported on the beginning of the end of the multi-billion dollar dream here, when its core "new technology" – known as a Capillary Tube Nanocontainer (CTN) – was exposed as essentially unacceptable for use.

  And now, as The Wall Street Journal reports, U.S. health inspectors have found serious deficiencies at Theranos Inc.’s laboratory in Northern California, according to people familiar with the matter.

  The problems were found during an inspection by the Centers for Medicare and Medicaid Services, the chief federal regulator of clinical labs, at the blood-testing company’s facility in Newark, Calif. Failing to fix the problems could put the Theranos lab at risk of suspension from the Medicare program.

   

  The inspection results are expected to be publicly released soon, these people said. A spokesman for the agency said it “can’t confirm any survey conclusions or results at this time.”

   

  Theranos spokeswoman Brooke Buchanan said the company “does not have the report from last year’s regularly scheduled CMS audit of its California lab.”

   

  The problems observed by regulators were far more severe than those cited by CMS following its last inspection of the same lab in December 2013, according to the people familiar with the matter. The previous inspection cited infractions that Theranos said it promptly resolved.

  This deficiency comes just days before a CMS inspection report critical to Theranos future relationship with its main retail partner Walgreens Boots Alliance,

  The drugstore operator has 41 blood-drawing “wellness centers” in stores in Arizona and California, which are Theranos’s primary access to consumers. Walgreens had aimed to expand the sites nationwide but has suspended those plans until Theranos answers questions about its technology, said the people familiar with the matter.

   

  In recent weeks, Walgreens has debated whether to close the wellness centers, and the results of the latest inspection by CMS could lead the retailer to take an even harder look at what remains of its partnership with Theranos, these people said.

   

  Since October, Walgreens representatives have met a number of times with Theranos Chief Executive Elizabeth Holmes and her executive team but were dissatisfied with their responses, the people added.

   

  An earlier review of the contract led Walgreens officials to conclude that it would be difficult to exit the agreement, but the inspection findings could alter that conclusion, according to people familiar with the matter.

  Finally, as Aswath Damodaran chastened just a few months ago, looking back at the build up and the let down on the Theranos story, the recurring question that comes up is how the smart people that funded, promoted and wrote about this company never stopped and looked beyond the claim of “30 tests from one drop of blood” that seemed to be the mantra for the company. While we may never know the answer to the question, Aswath Damodaran offers three possible reasons that should operate as red flags on future young company narratives…

  1. The Runaway Story: If Aaron Sorkin were writing a movie about a young start up, it would be almost impossible for him to come up with one as gripping as the Theranos story: a nineteen-year old woman (that already makes it different from the typical start up founder), drops out of Stanford (the new Harvard) and disrupts a business that makes us go through a health ritual that we all dislike. Who amongst us has not sat for hours at a lab for a blood test, subjected ourselves to multiple syringe shots as the technician draw large vials of blood, waited for days to get the test back and then blanched at the bill for $1,500 for the tests? To add to its allure, the story had a missionary component to it, of a product that would change health care around the world by bringing cheap and speedy blood testing to the vast multitudes that cannot afford the status quo.

   

  The mix of exuberance, passion and missionary zeal that animated the company comes through in this interview that Ms. Holmes gave Wired magazine before the dam broke a few weeks ago. As you read the interview, you can perhaps see why there was so little questioning and skepticism along the way. With a story this good and a heroine this likeable, would you want to be the Grinch raising mundane questions about whether the product actually works?

   

  2. The Black Turtleneck: I must confess that the one aspect of this story that has always bothered me (and I am probably being petty) is the black turtleneck that has become Ms. Holmes’s uniform. She has boasted of having dozens of black turtlenecks in her closet and while there is mention that her original model for the outfit was Sharon Stone, and that Ms. Holmes does this because it saves her time, she has never tamped down the predictable comparisons that people made to Steve Jobs.

   

  

   

  If a central ingredient of a credible narrative is authenticity, and I think it is, trying to dress like someone else (Steve Jobs, Warren Buffett or the Dalai Lama) undercuts that quality.

   

  3. Governance matters (even at private businesses): I have always been surprised by the absence of attention paid to corporate governance at young, start ups and private businesses, but I have attributed that to two factors. One is that these businesses are often run by their founders, who have their wealth (both financial and human capital) vested in these businesses, and are therefore as less likely to act like “managers” do in publicly traded companies where there is separation of ownership and management. The other is that the venture capitalists who invest in these firms often have a much more direct role to play in how they are run, and thus should be able to protect themselves. Theranos illustrates the limitations of these built in governance mechanisms, with a board of directors in August 2015 had twelve members:

   

   

  

   

  I apologize if I am hurting anyone’s feelings, but my first reaction as I was reading through the list was “Really? He is still alive?”, followed by the suspicion that Theranos was in the process of developing a biological weapon of some sort. This is a board that may have made sense (twenty years ago) for a defense contractor, but not for a company whose primary task is working through the FDA approval process and getting customers in the health care business. (Theranos does some work for the US Military, though like almost everything else about the company, the work is so secret that no one seems to know what it involves.)

   

  The only two outside members that may have had the remotest link to the health care business were Bill Frist, a doctor and lead stockholder in Hospital Corporation of America, and William Foege, worthy for honor because of his role in eradicating small pox. My cynical reaction is that if you were Ms. Holmes and wanted to create a board of directors that had little idea what you were doing as a business and had no interest in asking, you could not have done much better than this group of septuagenarians. 

  

  

  

  

• "Gangs" Of "All-Male" Moroccan Migrant Children “Take Over” Stockholm Train Station; Steal, Grope, Beat Women

  On Sunday, we learned that despite the best efforts of German cartoonists, some refugees are still having a hard time understanding how to behave at public pools.

  European authorities, increasingly desperate to salvage the “yes we can” refugee narrative in the face of mounting evidence that it may be well nigh impossible to integrate two vastly divergent cultures, have scrambled to put together integration guides and design brochures and pamphlets aimed at “explaining” Western European societal norms to the millions of asylum seekers that now call the bloc home.

  Most of the integration guides make some reference to the fact that in polite culture, it’s not appropriate to grope women even if they appear, by Mid-East standards anyway, to be scantily clad. On New Year’s Eve, women reported being sexual assaulted by dozens of “Arab” men in Germany, Finland, and Austria among other countries and since then, officials have focused increasingly on what certainly appears to be a kind of “groping” epidemic perpetrated by asylum seekers.

  But it’s not just the “groping.” If Bild is to be believed, some refugees recently engaged in what one might call some “shenanigans” at the Johannisbad baths in Zwickau. Here are the rather disconcerting details from a clumsy (yet exceedingly amusing) Google translation of the original German:

  “According bathrooms GmbH have masturbated refugees when visiting swimming baths in pools and emptied their bowels in the water. They are women in sauna harassed and have tried to storm the ladies’ locker!”

  Needless to say, that won’t do anything to calm Europeans’ frayed nerves.

  Far-right Dutch politician Geert Wilders even went so far as to suggest that the “Islamic testosterone bombs” be “locked up” in asylum centers for the sake of “the women.”

  On Monday, we get the latest bit of migrant news out of Europe, this time from Sweden where “gangs” of Moroccan migrant children have apparently “taken over” the Stockholm train station where, to let The Daily Mail tell it, they are “stealing, groping” and beating women. Here’s the story:

  Swedish police warns that Stockholm’s main train station has become unsafe after being ‘taken over’ by dozens of Moroccan street children. 

  The all-male migrant teen gangs are spreading terror in the centre of the Swedish capital, stealing, groping girls and assaulting security guards, according to Stockholm police.

   

  Members of the gangs, some as young as nine, roam central Stockholm day and night, refusing help provided by the Swedish authorities. 

   

  
  

   

  Sweden has seen a dramatic increase in the number of Moroccan under-18s who apply for asylum without a parent or guardian in the past four years, with many later running away from the housing provided to live on the streets in the capital. 

   

  Stockholm police estimate that at least 200 Moroccan street children move in the area around the main train station in the centre of the capital, sleeping rough, and living off criminal activity.

   

  ‘These guys are a huge problem for us. They steal stuff everywhere and assault security guards at the central station,’ one police officer told SVT.

   

  ‘They grope girls between their legs, and slap them in the face when they protest. All police officers are aware of this. 

  So apparently, dozens of nine-year-olds and preteenagers have effectively taken control of a major transportation hub and transformed it into their own personal crime den where security guards are assaulted on site, women are “groped”, and girls are “slapped in the face” for trying to protect themselves. 

  

  “The gangs are made up of orphans who have grown up on the streets of Casablanca and Tanger in Morocco, where authorities estimate there are around 800,000 homeless ‘street children,” the Mail continues, adding that “Swedish migration authorities first reported and increase in Moroccan unaccompanied minors applying for asylum in 2012, when 145 arrived, a number which more than doubled in 2013.”

  Some 500 Moroccan children applied for asylum but around a fifth of those who were placed with foster families or put in group homes ran away and “disappeared off the radar.” 

  It would appear that these missing children are now dug in at the train station where they have brought authorities “to their knees.” 

  So far, police have attempted to solve the problem by arresting the children for “public drunkenness” in order to “get them off the streets for a while.” Clearly, that isn’t a viable long-term strategy and so, Interior Minister Anders Ygeman now says Sweden is set to round them all up Trump style and ship them back to Morocco, or as Ygeman puts it, “we are in agreement that this is a joint problem for us to solve, and that we both need to find ways of identifying these people and achieve repatriation.”

  Of course there’s another solution. Sweden could just post the following cartoons at the train station:

  

  

  

  

  

  

  

• Gundlach Slams Yellen: "The Market Will Humiliate You"

  In just 44 somewhat anger-and-frustration-filled seconds, DoubleLine’s bond guru Jeffrey Gundlach unleashes some very uncomfortable truths on Janet Yellen and the “idiots” at The Fed… “they have got to dial this [hawkish] rhetoric back or the markets are going to humiliate them.”

   

   

  Gundlach slams the #Fed – here’s are his shocking comments
  https://t.co/epPyuSdKp5

  — CNBC’s Fast Money (@CNBCFastMoney) January 25, 2016

   

   

  Some would argue that has already begun…

  

  

  

  

  

  

  

• The Marketing Of The American President

  Authored by Nina Khrushcheva, originally posted at Project Syndicate,

  When it comes to political entertainment, it doesn’t get much better than presidential election season in the United States. Foreign observers follow the race to determine who is best equipped to lead the US – and, to some extent, the world – toward a more stable, secure, and prosperous future. But in America, entertainment is king, and Americans tend to focus on excitement above all – who looks better, has a catchier sound bite, seems most “authentic,” and so on, often to the point of absurdity.

  This is not a new approach, of course. Edward Bernays, the father of modern public relations, examined it in 1928, in his book Propaganda. “Politics was the first big business in America,” he declared, and political campaigns are “all side shows, all honors, all bombast, glitter, and speeches.” The key to victory is the manipulation of public opinion, and that is achieved most effectively by appealing to the “mental clichés and emotional habits of the public.”

  A president, in other words, is nothing more than a product to be marketed. And, as any marketer knows, the quality of the product is not necessarily what drives its success; if it were, Donald Trump would not be regarded as a serious candidate for the Republican Party nomination, much less a top contender. Instead, a president must serve as a kind of imaginary friend: a beer buddy for men, an earnest empathizer for women, or a charming Twitter user for the millennials.

  In the current campaign, the most complex candidate, Hillary Clinton, is suffering mightily as a result of – let’s be honest – personality issues. She has made important policy contributions as US Secretary of State in the first Obama administration, and she has offered what is arguably the most complete economic vision of any presidential candidate. Yet she is facing a serious challenge from Bernie Sanders, a self-described socialist senator from Vermont, in the race for the Democratic nomination.

  Sanders’s popularity stems partly from the image he projects of a stereotypical “nutty professor,” adorably of another world. His energetic and unselfconscious gesticulations make him seem passionate and genuine. Yet his actual policy suggestions – such as free post-secondary education and universal health care – resemble Trump’s calls to “make America great again,” in the sense that they establish simple yet visionary goals.

  According to Bernays, people’s desire for simplicity extends to another area of electoral politics: “party machines should narrow down the field of choice to two candidates, or at most three or four.” Here, the Republicans have gone badly astray. After beginning the election season with 17 candidates, they have managed to narrow it down by only a few, to 12.

  Jeb Bush, former Florida governor and younger brother of George W. Bush, was initially considered a serious contender. But Trump is right, for once, in his observation that Bush is a “low-energy” person. He is the Charlie Brown of the election, whose every swipe at the football is thwarted by his savvier counterparts.

  Another Floridian, Senator Marco Rubio, is a more energetic establishment alternative. But his campaign, like his appearance, lacks definition and assertiveness – not to mention a good sound bite.

  A lack of sound bites is not a problem for New Jersey Governor Chris Christie, whose Tony Soprano vibe and brash one-liners have plenty of entertainment value. Indeed, in a typical US presidential election campaign, Christie might be a contender for the most cartoonish candidate. But this is not a typical campaign, because there’s nothing typical about Trump.

  With his exaggerated facial expressions, penchant for trash talking, and love of superlatives, Trump – a showman and a businessman – seems to have the right background for Bernays-style public manipulation. But he has the wrong background for a president. (It is worth asking whether he really even wants to be President. He must know that, like the Wizard of Oz, he can portray himself as great and powerful only until he needs to perform actual miracles.)

  Among these one-dimensional figures, one fully formed candidate stands out: the Texan Ted Cruz. Once a national debating champion, Cruz is fully in control of his persona; not even Trump, with his frantic attacks on Cruz’s eligibility (because he was born in Canada), can get under his skin.

  In fact, it is Cruz who has made Trump squirm. In last week’s Republican debate, Cruz accused Trump of having “New York values,” calling the city (explicitly excluding New York State) “socially liberal” and focused on “money and media.” Cruz managed not only to get a rise out of Trump, but also to enhance his own appeal to conservative voters in the Midwest and South, who view the city as a kind of modern-day Sodom and Gomorrah. (New Yorkers and many others were also offended by Cruz’s statement, not because the city isn’t socially liberal and the home base of America’s media and financial industries, but because the pejorative use of “New York” has historically been an anti-Semitic dog whistle.)

  Appropriately plastic-looking, Cruz can, when necessary, act as brainless as Sarah Palin (who has just endorsed Trump). But Cruz, educated at Princeton and Harvard, is no fool. He is, as Bernays taught, treating his campaign as a “drive for votes, just as an Ivory Soap advertising campaign is a drive for sales.”

  Trump is a showman who has captured the public’s attention. But Cruz is a propagandist, selling to his constituents an ostensibly credible story of actual leadership. Though he, like Clinton, is not the most broadly likable character, he would be a worthy contender in a presidential election. The question is whether Americans will want to buy what they are selling.

  It seems for now… they are not…

  

  

  

  

  

  

• 20 Dead, 200 Hospitalized After Reports US Lab "Leaks" Deadly Virus In Ukraine

  Amid the so-called "ceasefire" in Ukraine, yet ongoing shelling in many regions, the Donbass news agency reports that more than 20 Ukrainian solders have died and over 200 soldiers are hospitalized after an apparent leak of a deadly virus called "California Flu" from a US lab near the city of Kharkov.

  As Donbass News International reports,

  More than 20 Ukrainian soldiers have died and over 200 soldiers are hospitalized in a short period of time because of new and deadly virus, which is immune to all medicines. Donetsk People's Republic intelligence has reported that Californian Flu is leaked from the same place where research of this virus has been carried out.

   

  The laboratory is located near the city of Kharkov and its base for US military experts.

   

  Information from threatening epidemic is announced by Vice-Commander of Donetsk Army, Eduard Basurin.

   

  Leak of deadly virus in Ukrainian side was published first time on 12.1.2016:

  "According to the medical personnel of the AFU units (Ukrainian troops) there were recorded mass diseases among the Ukrainian military personnel in the field. Physicians recorded the unknown virus as a result of which the infected get the high fever which cannot be subdues by any medicines, and in two days there comes the fatal outcome. Thus far from the virus there have died more than twenty servicemen, what is carefully shielded by the commandment of the AFU from the publicity", said Basurin in daily MoD situation report.

  Outbreak of deadly virus continues and Friday 22.1.2016 Vice-Commander told new information from epidemic:

  "We keep registering new facts of growing the epidemics of acute respiratory infections among the Ukrainian military.

   

  Just since the beginning of this week more than 200 Ukrainian military have been taken to civil and military hospitals of Kharkov and Dnepropetrovsk. It is important to repeat that the DPR intelligence previously reported the research being carried out in a private laboratory in the locality Shelkostantsiya, 30 km away from the city of Kharkov, and involving US military experts. According to our information, it is there where the deadly Californian flu strain leaked from," Basurin said.

  It appears it is not just military that is affected, as Radio Free Europe reports a flu epidemic is sweeping through the eastern Ukrainian city of Kramatorsk — and the conflict smoldering nearby is making the situation even worse. Doctors are unable to identify the exact strain of the virus, because the laboratory they need is across the front lines in separatist-controlled Donetsk

   

  

  

  

  

  

• "If All The Markets Crashed Tomorrow" – Here Are The Cheapest Hedges For A Systemic Collapse

  We have to thank Benjamin Bowler: one month ago Bank of America’s “equity-linked analyst” (aka derivatives guy) was the first honest sellside banker to demonstrate, vividly and in no uncertain terms and with lovely charts to boot, how the Fed’s “massive manipulation” broke the market. We urge anyone who missed it the first time, to reread his piece from late December (it can be found here) because it summarizes in a few paragraphs about 7 years worth of posts from this website.

  Earlier today, BofA’s Bowler struck again, thinking out loud what could – and would – happen, if the “central bank puts failed” and many, if not all, asset classes proceeded to disintegrate.

  As he put it, “since 2014, risk-off episodes have been typically characterized by short-lived bouts of volatility which mostly remained localized to a particular asset class or region as central banks have been aggressive in their actions to calm markets. In our 2016 Year Ahead we anticipated such instances would become more frequent, with an increased likelihood of global contagion as the Fed embarked on a rate hike cycle, reducing their willingness to intervene at the first sign of stress. Indeed, volatility across asset classes has steadily risen over the last few months with global equity vol and US IG credit spreads having breached their 8yr+ median levels. It remains to be seen whether Draghi’s comments on 21-Jan and further global policy initiatives will suffice to curtail further contagion in the mid to long term.

  More importantly, being a derivatives expert, Bowler was king enough to lay out a matrix showing the cheapest ways to cross specific or broad asset “crash” risk, ranking the hedge options by underlying asset and by “richness” of the hedge. As we admitted, while hedge costs have risen across the board to levels last seen during the May-12 sell-off, “FX options continue to offer best value with SEKUSD and EURUSD puts ranking as the top hedges in our screen.”

  He also calculated that within equities, NIFTY puts continue to stand out, while KOSPI puts also offer good value, on relative basis. RTY (Small/mid-cap US equities) puts are the most attractive DM equity hedge at current pricing, while S&P500 and NDX puts are among the most overpriced hedges across all markets.

  The summary chart of the various cheap-to-rich puts is shown below (the methodology of how to read this chart is presented at the bottom of the post).

  

  As he explains, Chart 1 shows crash returns of different assets during historical tail events per unit of current OTM option implied volatility.

  We measure tail events by the 10 largest 3M drops since Jan-06 (see Finding cheap hedges: the framework for how we algorithmically identify these events at the end of this post). Ranked by the average, the analysis shows that SEKUSD, EURUSD and NIFTY puts offer most value across asset classes, given the distribution of historical shocks in respective markets.

  • SEKUSD puts screen as best value across asset classes as SEKUSD volatility has proven resilient to the recent rise in cross asset vol. It is worth noting that BofAML FX strategists recommend short EURSEK to position for a strengthening Swedish economy. Investors positioned this way may find SEKUSD puts attractive as a hedge.
  • More generally, FX hedges (EURUSD, AUDUSD & GBPUSD puts in particular) rank as most underpriced versus their historical drawdowns in our screen, with DM equities and Oil puts most expensive.
  • However, even the best value hedge is currently offering less protection per unit price than any best value hedge since Jun-12 – i.e., the top-most blue marker (avg crash return / put vol for SEKUSD) is the furthest to the left it has been in 3yrs+.
  • NIFTY puts offer the best value within equities and 3rd best in our universe.
  • TLT calls continue to rank as good value despite the >4% TLT rally YTD.

  But what if one wanted to hedge against specific risk factors, whether the S&P 500, or Stoxx 50, or Emerging Markets, or China, or Commodities, or Junk bonds, or any other major underlying asset class?

  Well you are in lunk: Chart 2 through Chart 9 show ratios of historical crash betas (versus a benchmark) to relative hedge costs (see Benchmark proxy hedging in Finding cheap hedges: the framework for a detailed explanation of the methodology). Whenever a proxy asset does not decline for a given sell-off in the benchmark, this hedge benefit is registered as 0, highlighting the basis risk of proxy hedging.

  As Bowler summarizes, for good proxy hedges, look out for:

  1. Average hedge benefit per unit cost > 1 (better value than the benchmark hedge)
  2. Closely distributed hedge benefits in past sell-offs (consistency of proxy hedge)
  3. Min hedge benefit > 0 (low basis risk to benchmark)

  So, without further ado, here are the cheapest and most efficient ways to profit from a crash by…

  Hedging US equities (S&P500)

  Proxy hedging the S&P500 with Russell (small/mid cap US equities) puts continues to screen attractive. In fact – at current pricing – RTY puts would have offered 45% better value than S&P500 puts during the latest sell-off (labelled ‘7’ in the chart below). Moreover, RTY puts would have delivered similar or superior protection to S&P puts in 8 of the top 10 S&P drawdowns since ’06.

  One thing to note: Proxy hedging S&P500 with RTY puts screens attractive, with the number of RTY puts which can be bought for the price of an S&P500 put at its 95th 7yr+ percentile. RTY puts would have delivered 1.5x the hedge benefit of S&P500 puts during the Jan-16 sell-off, at current pricing.

  

   

  Hedging US small/mid-cap equities (RTY)

  In the Cross-asset tail hedging section RTY puts rank as the most attractive tail hedge across DM equities. Consequently, RTY puts offer better value protection than any proxy hedge candidate.

  

   

  Hedging European equities (Euro STOXX 50)

  NIFTY puts screen top among proxy hedges for ESTX50 exposure, offering 8% better value than ESTX50 puts on average (at current pricing). However, this isn’t sufficient to justify the basis risk, in our view.

  

   

  Hedging Emerging market exposure (EEM)

  Puts on DJUBS (broad commodity index) would have generated superior protection to EEM exposure in most recent large sell-offs vs. the benchmark puts. In particular, DJUBS puts would have offered 66% better value than EEM puts during the Jan-16 sell-off (labelled by ‘6’ in the chart below), owing to declines on relatively low volatility, that most commodities ex-Oil have have exhibited in recent months.

  

   

  Hedging commodity exposure (DJUBS)

  Proxy hedging the DJUBS commodities index with most assets in our screen brings with it prohibitively high basis risk to be attractive, according to our analysis.

  

   

  Hedging HY Credit

  Proxy hedging HY Credit exposure with most assets is not attractive given the high levels of basis risk.

  

   

  Hedging the EURO (EURUSD)

  With EURUSD puts screening as the second best value hedge across all assets in our benchmark-agnostic screen (see Cross-asset tail hedging section), it is unsurprising that proxy hedging EUR weakness does not currently screen attractive.

  

   

   

  Hedging Chinese equities (HSCEI)

  While HSCEI volatility has continued to grind higher, volatility on most other equities also increased over the past two months. Basis risk and higher prices of proxy hedges have reduced their efficacy in protecting against HSCEI declines, leaving proxy-hedging
  unattractive.

  

   

  * * *

  Here is BofA’s primer on how to read the above charts:

  Finding cheap hedges: the framework: Method I: Cross asset tail hedging

  Our cross asset tail hedging screen compares current put option costs to the magnitude of historical tail events in order to determine which options are most underpricing tail risk.

  Interpreting the cross asset TH screen:

  • Readings further to the right represent assets that are most underpricing historical tail events today
  • An asset with a benefit-to-cost ratio of 2 indicates its options are half the price of an asset with a ratio of 1, assuming their historical tail returns were similar
  • Looking across asset classes we perform a cost-benefit analysis comparing the cost of buying out-of-the-money put options to the magnitude of historical tail events, without consideration of hedging benchmarks. Assuming historical tail events represent the potential magnitude of future sell-offs, we look for options that are most underpricing downside risk.
  • Tail hedge benefit: is measured by the magnitude of the 10 largest drawdowns occurring over non-overlapping 3-month periods since Jan-06 (Chart 17).
  • Hedging cost: is measured by the current implied vol of 25 delta put options (*see footnote of Chart 18). We use out-of-the-money options as we are comparing their pricing of large downside risks. Equal delta options allow for easy comparison across assets.
  • High benefit / low cost: The best value hedge is cheap to enter relative to its expected payoff in a tail event. The x-axis in the right-hand chart below maps out this ratio for past events and includes the average payout relative to today’s put costs. Assets with points far to the right are most underpricing historical downside risks and hence represent best value.

  

  Method II: Benchmark proxy hedging

  Interpreting the BPH screen:

  • A reading > 1 indicates better value in the proxy put option vs. the benchmark
  • Small variations along the x-axis mean the proxy has good tracking to the benchmark during large sell-offs
  • All readings > 1 indicates the proxy has consistently been a better hedge at current pricing

  For investors looking to hedge risk in a specific underlying benchmark, including equity, credit, commodity or currency, it is not only important to consider the cheapest options across asset classes, but also how the proxy asset correlates with the benchmark during times of stress. In severe risk-off events, asset correlations tend to 1 and proxy hedging can become attractive. Proxy hedging does not often work for small declines in benchmark assets due to the basis risk between asset classes.

  • Here, we identify options on proxy assets that our analysis shows can help hedge against declines in various benchmark assets, bearing in mind the trade-off between cost savings and tracking risk of the proxy asset.
  • Proxy hedge benefit: We calculate how much proxy assets have fallen during the largest sell-offs in a benchmark asset (eg. S&P500, US HY Credit). “Crash betas” are computed based on the decline in the proxy and benchmark assets, respectively since Jan-05. For example, Chart 19 illustrates how the AUDUSD moved during the S&P500 sell-off in Feb-10.
  • Relative hedge cost: The current ratio of 3M 25% delta put option implied volatility for the proxy vs. the benchmark.
  • High benefit / low cost: Chart 20 summarizes how much the proxy asset declined during benchmark sell-offs relative to current option costs. A reading above 1 is desirable and means that proxy hedging would offer better value than put options on the benchmark, assuming relative asset performance is similar to the past during severe tail events.

  

  * * *

  And while the above information is great, and quite valuable, it does beg a simple question: if indeed everything were to crash tomorrow (or the day after) in a systemic collapse that drags down the entire asset universe, then while any of the above listed puts will clearly soar in value, just who will be there on the other side, either to sell them to or at exercise time? After all, the crashes envisioned above guarantee that no banks and counterparties would be left standing.

  Which begs the question: is, paradoxically, the best crash hedge not buying but selling puts and collecting the premium now before it all goes to hell? After all if everything collapses, who will be there to enforce contracts and demand that you repay your counterparty, especially if the Fed – unlike in 2008 – does not come to bail you and everyone else out?

  Finally, if and when contracts are no longer observed, the only “hedges” left, whether cheap or not, will not be of the paper variety but only the physical type.

  

  

  

  

• Chinese Rush To Buy Foreign Assets As Mammoth $1 Trillion In Capital Flees Country

  “The immediate trigger for a pickup in capital outflows toward the end of the year was the People’s Bank of China’s poor communication over its shift in currency policy,” Mark Williams, chief Asia economist for Capital Economics told Bloomberg on Sunday, describing the panicked reaction to Beijing’s adoption of a trade-weighted currency index.

  Over $1 trillion in capital flowed out of China in 2015 as the PBoC’s bungled move to devalue the yuan caused investors to question whether a much larger depreciation is in the cards.

  According to Bloomberg’s estimates, $158.7 billion left the country last month, the second highest monthly total of 2015 after September’s $194.3 billion hemorrhage.

  Things had calmed down going into December and probably would have stayed calm at least in the interim had the PBoC not introduced a new trade-weighted index for the yuan which pretty clearly indicated that China still thinks its currency is overvalued.

  Indeed, assuming the dollar continues to appreciate versus global currencies, the yuan will need to fall significantly in order to keep the trade-weighted RMB stable.

  

  In short, China is no longer willing to take it on the chin in the global currency wars. The days of Beijing sitting idly by and watching as the dollar peg kills the country’s export competitiveness are over.

  As 2015 turned to 2016 we got still more volatility and indeed, fresh devaluation fears contributed mightily to the market turmoil we witnessed in January.

  “China’s yuan policy has a communication issue” the IMF’s Christine Lagarde said last week.

  Indeed, but one thing that has been clearly communicated to Chinese citizens is that they need to get their money out of China – and fast. Technically, Chinese are limited to $50,000 in terms of how much they can move out of the country in a given year, but as we’ve documented extensively, there are any number of ways to skirt the restrictions.

  “Thanks to incremental reforms to China’s capital account enacted while the yuan was still strong, it is easier than ever for Chinese companies and individuals to get money out legally,” Reuters writes, adding that Chinese “can buy property, or invest in offshore stocks, bonds or managed hedge funds; they can purchase offshore life insurance that can be used as collateral for further loans, or even buy a foreign company outright.”

  And those are just the legal outlets. Chinese can also use the UnionPay end-around (although Xi has cracked down on that) or simply visit “Mr. Chen” at his “tea” kiosks. Here’s more from Reuters on Beijing’s “more holes than fingers” problem:

  As a slick slide presentation runs for the well-heeled investors jammed into the banqueting hall of Shanghai’s Renaissance Yangtze Hotel, an image flashes up of a grinning Chinese man pushing a wheelbarrow full of cash into Europe.

   

  Another slide features a car bearing a Chinese flag preparing to drive into a pit. For wealthy Chinese, desperate to avoid further falls in a currency that has shed 6 percent against the dollar since August, the message is clear.

   

  “The yuan will keep depreciating as time goes by, so we should swap the money we have in hand into tangible assets,” Li Xiaodong, chairman of Canaan Capital, tells his audience, while exhorting them to pull their money out of China while the going is still good and pour it into property in Spain and Portugal.

   

  Canaan Capital is one of a swarm of asset management firms leaping to profit from Beijing’s latest policy headache: the swelling crowd of Chinese individuals and firms trying to get their money out of the world’s second biggest economy as its growth slows to a quarter-century low.

   

  One Shanghai-based investment company, Zengda, plans to guide Chinese money into mines, land and gas projects in Africa.

   

  Others use trade and even tourism transactions to get money out of the country – contributing to the $200-$500 billion Chinese tourists are estimated to spend abroad annually.

   

  The trend has grown so rapidly that some international banks are bolstering their wealth management divisions, encouraged by data showing money pouring out of China.

   

  China’s central bank and commercial banks sold a net 629 billion yuan ($95.61 billion) worth of foreign exchange in December, nearly triple the figure for the previous month.

  Estimating capital flight out of China isn’t an exact science and different analysts look at different proxies to determine just how leaky the ship is, so to speak. “In the wake of the small devaluation of the renminbi in August 2015, and more recently the weaker fixes in the first week of the new year, we have received a large volume of questions about capital outflows from China – how big they are, what the main sources of outflows, and how long they can continue,” Goldman says, in a note out Monday.

  In an effort to shed some light on where to look for accurate data on capital flight, Goldman breaks down the relevant data points on the way to determining that from August to December, $449 billion in capital left the country.

  *  *  * 

  From Goldman

  Each month, official sources publish three different data sets that are relevant to the FX flow situation. These are not comprehensive either individually or collectively, but together shed a fair amount of light on the likely degree of FX outflow.

  PBOC FX reserves (Exhibit 3). This dataset captures the FX assets held by the PBOC. It is reported based on market prices and therefore subject to valuation effects (both with respect to exchange rate and asset price movements). It does not include forwards but captures PBOC’s FX-RMB (cash) settlements with other parties; these settlements may include drawdown/repayment of PBOC’s FX entrusted loans to other entities (e.g., policy banks). It is released the earliest of the three indicators, usually on the 7^th of the month.

  

  Position for FX purchase of the whole banking system (PBOC plus banks). This dataset captures the amount of RMB supplied for FX purchase by the entire banking system (i.e., both the central bank and commercial banks), free of valuation effects. It is based on cash settlements and therefore does not include any changes in forwards. Transactions between the onshore banking system (PBOC plus onshore banks) and other parties with access to the onshore FX market would be covered in this dataset. This data is usually out around the middle of the month, after FX reserves data. Note that given possible PBOC balance sheet management (e.g., short-term transactions and agreements with banks, e.g., forward transactions), neither PBOC’s reserve data nor its position for FX purchase necessarily forms a complete picture of the FX situation.

  SAFE data on banks’ FX settlement . This dataset captures banks’ FX transactions with onshore non-banks, both in the spot market and via forwards. It is transaction-based and therefore free of valuation effects. While the headline series is cash-based, which includes outright spot transactions in the reporting period and settlement of previously entered forwards, we can adjust the forward component by subtracting the settlement of forwards and adding back freshly entered forwards. After this adjustment, the SAFE data capture the underlying currency demand both in spot and forward by corporates and households—it is therefore our preferred gauge of onshore FX flows. The SAFE data is usually released in the third week of the month, after FX reserves and FX purchase data.

  Based on the different characteristics of the various data sets as summarized in Exhibit 4, we can roughly deduce the underlying FX flow situation as follows.

  

  Our preferred gauge of onshore FX flow—again, based on SAFE data but adjusted for settled/freshly-entered forward contracts–suggests a net flow of about -$449bn during August-December (and -$620bn for the full year). Note that this gauge refers only to onshore FX flow, not including any FX intervention in the offshore CNH market—hence it is likely an underestimate of the overall (onshore and offshore) outflow situation.

  From an accounting perspective, though, it would be the unadjusted SAFE settlement data (including settlement of previously entered forwards between banks and non-banks, but excluding freshly- entered ones) that are more comparable with other related FX data sets (which are also cash-based). Exhibit 5 shows the changes in the various FX data sets from August through December 2015.

  

  A main difference between SAFE settlement and banks’ position for FX purchase is that the latter captures onshore banks’ FX transactions with other institutions that also have access to onshore interbank FX market (e.g., offshore banks, some other non-bank financial institutions). Data from these two data sets were fairly close in August-December, except for October, where the SAFE FX settlement suggested continued FX outflow while the position for FX purchases pointed to FX inflow. The discrepancy, along with the meaningful increase in non-bank financial institutions’ RMB deposits during the month, suggests the possibility that some non-bank financial institutions sold a significant amount of FX for RMB in the interbank market in October.

  One area where none of the official data can give much guidance on is the possible scale of CNH intervention through forwards Judging from observed market behavior, there has likely been significant volume of CNH forward intervention. To the extent this has been the case, the outstanding amount of the forward positions would be additive to the amount of outflows we calculated above and could be an additional drag on PBOC reserves going forward.

  *  *  *

  In other words, when you see the spread between the onshore and offshore spot suddenly compress after blowing out dramatically, China has just spent more money to combat capital flight and as regular readers might have noticed, CNH interevention isn’t exactly uncommon.

  And so, as money flees the country for the “safety” of Spanish real estate and African mines, watch the FX reserve headline figure and recall what Bank of Singapore chief economist Richard Jerram said earlier this month: “The burn rate has been worrying. It’s not about how long it gets to zero, its about how long it gets to about 2, which is what they need.”

  

  

  

  

  

• The Fed Passes The Buck: Blame Oil And China

  Submitted by C. Jay Engel via The Mises Institute,

  There are a handful of themes out there on recent market action that are either totally wrong or otherwise highly misleading. For instance, regarding the recent calamity in the capital markets, one especially apparent dichotomy has presented itself as offering two choices as to what, exactly, is causing the painful turbulence.

  There are some who, in a complete echo of the news headlines, are quick to point the finger at both oil and China. And yet there are others who point the finger at the Fed for “raising rates too early.” Along with the second is the observation that “inflation is totally MIA” and therefore it was ludicrous that the Fed felt the need to “raise interest rates.” Both of these tend to express anguish over the “strong dollar.”

  Both of these miss the entire point, and the cause of the current trouble. For one thing, it is ridiculous to blame oil for the falling markets when the falling oil is the very thing that needs to be explained. It is wholly unsatisfactory to explain something by describing it. It works well for headlines, and for shifting the blame away from where it really belongs, but one must learn to look deeper. One cannot expect to impress anyone by explaining that the plane is crashing to the ground because it is no longer flying. What is the cause of oil’s magnificent plummet toward the bottom? That is the true question.

  Moreover, the problem with the “China thesis” is that it doesn’t explain anything either. It merely observes a correlation in the markets and therefore makes it highly convenient to put the blame on “the other guys.” Let me not be misunderstood here: the Chinese and US economies are certainly influenced by each other, especially in our age of fluctuating fiat currencies. But ultimately, both China and the US — indeed the entire world — are being dragged down by past actions of their respective central banks and more specifically the illusion of prosperity via monetary and credit expansion.

  Which leads to the second theme: putting the blame on the Fed for “raising rates” too early. That is, there are a good many who argue that if the Fed had never announced in December that it was going to seek minuscule increases in the Federal Funds rate, none of the recent market drops would have happened. They will say things like “inflation was never a threat, so the Fed was irresponsible to raise rates.”

  Money-Supply Inflation vs. Price “Inflation”

  This is confused. First, it must be constantly emphasized that the meaning of inflation, contrary to the mainstream’s application of it, is more appropriately defined an increase in the money supply, not “rising prices.” The reason why the Fed and proponents of central banking prefer the “rising prices” definition is because it obscures the chief source of our present economic condition. It rips the blame away from the Fed and toward all kinds of other “market forces” and therefore encourages the central bank to swoop in to the rescue rather than be the object of severe suspicion. Indeed, as Mises observed (page 420 of Human Action):

  What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless. It plays an important role in fomenting the popular tendencies toward inflationism.

   

  First of all there is no longer any term available to signify what inflation used to signify. It is impossible to fight a policy which you cannot name…

   

  The second mischief is that those engaged in futile and hopeless attempts to fight the inevitable consequences of inflation — the rise in prices — are disguising their endeavors as a fight against inflation. While merely fighting symptoms, they pretend to fight the root causes of the evil. Because they do not comprehend the causal relation between the increase in the quantity of money on the one hand and the rise in prices on the other, they practicalIy make things worse.

  Rising prices can be a result of inflation, but it is not itself inflation. So then, inflation was actually very high in the last decade due to the Fed’s QE and other monetary policy schemes. Second, it should never be ignored that “rising prices” can easily be found in the capital markets themselves. It doesn’t take an investment guru to observe the staggering levels to which the various market indexes have reached. Digging only a little bit farther into the surface reveals the absurd prices for the so-called highest valued stock such as Facebook, Amazon, Apple, and so on.

  Where All That Money Went

  More importantly, however, is the fact that much of the newly created money has not even come close to creating “widespread [consumer price] inflation” due to the actual structure of the current, post-crises banking regime. In fact, Jeffrey Snider, among others, have argued that it is literally impossible for “price inflation” to take place as a direct result of QE due to the way that money currently enters the system as reserves. “Price inflation” would need to come from the actions of individual banks themselves who are at present cautious about their consumer lending practices. Therefore the Fed is not creating “price inflation,” but something far worse: capital misallocation.

  The point here is simply that those who want the interest rates to be continually suppressed so that economic activity will be encouraged, don’t even realize that this is literally the cause of bubble creations, not productive economic activity.

  It used to be, under the pre-crises fractional-reserve model, that there would be loads of malinvestment as a result of banks creating new loans (new economic activity would take place, and then collapse back down). But now, money is created, not by commercial banks, but mostly by the Fed itself. Which means that, in the phraseology of David Stockman, the new money is simply sloshing around the canyons of Wall Street and pushing up equity and bond prices, rather than reaching the “real economy.”

  The Bubble Only Prolongs the Problem

  Thus, contrary to those blaming the Fed for causing stocks to fall by “raising rates” (which Joe Salerno reflects on here) we want to stress the fact that, in raising rates, the most that the Fed could do is unravel previously made mistakes. In other words, there is nothing praiseworthy in the first place about artificially propped up stock market levels. We have no interest in lauding the longevity of the bubble, because the bubble is the enemy of the healthy economy. The collapsing equity markets reveal where bubbles were formed and that our alleged prosperity is an illusion. And this is precisely what former Dallas Fed Chairman Richard Fisher stated in a conversation on CNBC last week when he confessed: “We frontloaded a tremendous market rally to create a wealth effect.”

  And thus, the money expansion must inevitably cycle back down. Fisher himself admits: “… and an uncomfortable digestive period is likely now.” What was inflated up to the top, must deflate down to the floor. That is the only way for an economy to recover: bad credit needs to be liquidated. Unfortunately, it is painful indeed.

  That is the true cause of the recent calamity. The dollar is “strengthening” by virtue of our credit system cracking at the seams. In other words, the so-called “strong dollar,” is merely one side of the pendulum swing of a volatile collapsing banking system. It shouldn’t be assumed that the dollar is becoming more sound; it is not. But if we might ever again have a sound currency, we first have to face the music.

  And thus oil too, after years of being elevated up toward the heavens via the Fed’s monetary shenanigans, is experiencing its own inevitable bust. The illusion is being exposed.

  Unfortunately, the Fed is a wild card, so we stay tuned to whether it will let the markets recover, or continue the perpetual cycle of money creation. My own advice for the Fed is neither to “raise rates” nor to lower them. But rather, to let go and let the market correct itself. For we have a lot of correction ahead of us.

  

  

  

  

  

• Crude Crash Crushes Stock Knife-Catchers – Bonds & Bullion Bid

  Seemed appropriate…

  But we just had to show this…Who says bears don't know how to have fun?

   

  It appears the BoC-inspired bounce has run its correlated margin-call course…

  

   

  And as goes crude so goes stocks…

  

   

  As every asset class is the same trade…

  

   

  And stocks are rolling over fast…as it seems Draghi did not offer enough dovishness today…

  DRAGHI: AT HOME THE RECOVERY IS PROCEEDING. Sell Mortimer, Sell!!!

  — zerohedge (@zerohedge) January 25, 2016

   

  

   

  Small Caps were the worst performer today (along with Trannies) after being the most-squeezed in the last few days…

  

   

  This is the 3rd dip that was ripped, only to turn into another dip…

  

   

  As FANGs were hit hard (along with TSLA)…

  

   

  Treasury yields rallied 2-4bps (with the curve bull flattening)…

  

   

  Stocks caught down to bonds' early warning…

  

   

  Financials finally caught down to realityy…

  

   

  The USD Index drifted lower on the day led by EUR strength as Draghi's jawboning today did nothing to help…(notable weakness in commodity currencies)

  

   

  Commodities were a mixed bag today with crude and copper giving back their gains as gold and silver rallied notably…

  

   

  WTI crashed back below $30 as Gold broke back above $1100…thanks to Saudi Aramco's comments…

  

   

  As Crude started to run for $30, stock losses accelerated…

  

   

  Charts: Bloomberg

  

  

  

  

• "Don't Overstay Your Welcome In This Bounce": JP Morgan Crushes Last Week's Exuberance

  Earlier today, we brought you the latest commentary from Bloomberg’s Mark Cudmore who cautioned traders against reading too much into the late week rally that left everyone in a good mood heading into the weekend.

  “Thursday’s rally continued strongly into the weekend close, resulting in most global assets recording a positive week,” Cudmore wrote.

  “But once analyzed in the broader context, it seems likely this may only be a bear-market bounce [and although] the relief rally probably has more to run but it’s hard to believe the worst of 2016 is behind us,” he added.

  Cudmore isn’t the only one who thinks last week’s exuberance should be promptly faded.

  On Monday we got the latest from JP Morgan’s Mislav Matejka who earlier this month announced that BTFD is officially dead and STFR is the new guiding principle for traders. “Clearly, equities are unlikely to keep falling in a straight line, with periodic rebounds likely,”  Matejka wrote. “However, we believe that one should be using any bounces as selling opportunities.”

  On Monday, Matejka is back and he’s got some advice for anyone who might be feeling brave after Thursday and Friday: “one should not overstay one’s welcome in the bounce.”

  Below, find more from Matejka on what “one” should and shouldn’t do in today’s volatile and increasingly precarious markets (note the bit about poor breadth and limited counter-cyclical slack for policymakers).

  *  *  *

  From JP Morgan

  In our last week’s report, we argued for a tradeable market bounce given a number of tactical indicators flashing oversold, including RSI, Bull-Bear, put/call ratio, equity skew and other.

  Our take was that perhaps up to half of the earlier decline could be unwound. We believe, though, that one should not overstay one’s welcome in the bounce. The medium-term risk-reward for equities has worsened significantly, in our view, and the risk of a downside economic scenario is far from adequately priced in.

  When we analyze the historical downturns, we get the following: the average US market fall was of the order of 29%. At 11% SPX fall so far, we are far from this. Even bigger problem, in our view, is that corporate earnings are still near highs, as are sales. In past recessions, forward EPS fell by 22% peak to trough. This contrasts to the current 3% fall. In addition, the forward P/E troughed in recession at 11.5x vs latest 14.9x. Finally, the average duration of a recession trade was 14 months. In contrast, S&P500 was near all-time highs as recently as November. All these variables – duration of equity market weakness, size of the fall, multiples at lows and the move in sales/earnings from highs – suggest that the market is far from pricing in adequate probability of an economic slowdown. We believe it is premature to start thinking about a low from a medium-term perspective.

  

  Some might say that lower yields now mean multiples should be sustained at higher levels. We don’t see it this way. In our view, the problem is that if we are indeed starting the next downturn at near zero rates in the US, the investor sentiment might be additionally hurt. The worry might be that there is no cushion this time around and the effectiveness of any future policy response would surely be challenged given that policymakers didn’t even have chance to unwind the past policy supports. This is additional to the poor breadth and liquidity in the market currently, as well as continued China concerns. If CNY depreciation becomes disorderly, we believe stocks could see further downside.

  

  

  

  

  

• Don't Say You Weren't Warned (Again)

  Submitted by Michael Lebowitz via 720Global.com,

  “What The Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect… and an uncomfortable digestive period is likely now.” – Former Dallas Federal Reserve Governor Richard Fisher – January 5, 2016.

  Throughout 2015 we discussed various measures of evaluating equity prices. All of our analysis points to current equity valuations indicating the market is at an extreme and that poor future returns should be expected. As a result, we have not been shy to recommend investors take a more conservative tack with equities. Indeed, equity market price deterioration in just the first three weeks of 2016 has wiped out nearly two years of gains. While we are uncertain if the recent downturn is the beginning of the anticipated bearish period we expect to materialize, we are certain it is imperative investors better understand the poor risk/reward dynamic of holding equities in the current environment.

  On the heels of the frank comments from Mr. Fisher, we thought it would be helpful to share yet another type of equity analysis to help visualize the effect the “enormous rally” has had on equity valuations.

  Soaring Price to Earnings Multiples

  The scatter plot below shows the strong correlation (r-squared = .75) between long-term earnings growth estimates and the price to forward earnings estimates ratio. This ratio is similar to traditional P/E measures but uses 1-year forward earnings estimates instead of historical earnings data. When long term growth estimates are high, investors tend to be optimistic and likely to pay a higher premium or a greater multiple for earnings. The opposite holds true for lower growth expectations.

  Long Term Growth Estimates vs Price to Forward Earnings 1997-Current (monthly)

  

  Deeply concerning to us, and apparently now to Mr. Fisher, is the degree of excessive optimism embedded in current prices. The red line delineates combinations of earnings ratios and long term growth estimates that are 20% greater than the dotted black regression line. The yellow dot, representing the most current data, lies slightly above the red line and at levels rarely seen in the last 20 years. The circled cluster of data points nearest the yellow one are all from the prior 9 months.

  **Keep in mind as you view the charts- the data only covers the last 18 years, a time period which we would argue contains three of the largest equity bubbles since the Great Depression. Accordingly, observations that stand out as extreme within this data-set are even more extreme when analyzed over longer time periods.

  Where will the dot go over time?

  The inevitable question is, “Where and how will the yellow dot shift?” In the following chart we add arrows to the scatter plot to help visualize how the location of the dot might change. In reality there are an infinite number of possibilities but we offer four base cases (A-D) in an effort to asses which shifts might be of higher or lower probability.

  Potential Data Shifts

  

  A. This scenario infers prices increase at a faster rate than expected forward earnings, or decline at a slower rate than forward earnings decline. Also conditional is that long term growth estimates remain the same. This scenario leads to further multiple expansion beyond the current levels, which as noted earlier are already historically extreme.

  B. This arrow represents a path towards normalization back to the trend line. In this case long term growth estimates rise and investors do not pay a higher forward earnings multiple as they traditionally have. An increase of long term growth rate estimates of 3% currently, absent a change in the price to forward earnings ratio, would bring the market to a fair valuation and a multiple consistent with the last 18 years of data.

  C. This arrow presents another path to normalization. Long term growth rates remain stable like arrow A, however unlike arrow A, multiples decline back to trend. In this case a price drop in the S&P 500 of 20% with no change in expectations for one-year forward earnings, would be required to normalize valuations.

  D. In this scenario, price to forward earnings multiples remain unchanged despite a shrinking long term earnings growth rate. This would defy historical precedent as reduced long term earnings estimates have usually been met with lower price multiples. The fact that current valuations are already at extremes seems to make this scenario unlikely.

   

  E. This arrow highlights the general direction the data points have traveled over the last 5 years. This is more accurately shown in the scatter plot below which uses yearly color codes to map out the last 5 years of data.

  Shifts Since 2011

  

  To help answer the question on which way the yellow dot might shift, we focus on long term earnings growth and the price to forward earnings ratio which are the x and y-axis respectively of the preceding charts.

  

  Long term earnings trends tend to be highly correlated with economic activity. In the year 2000 investors were incredibly optimistic as expected long term earnings growth rates peaked over 18%. Since then, the expected growth rate of earnings has fallen to 10% and currently resides less than 1% above the pessimistic outlooks observed during the great financial crisis of 2008. The trend this millennium should not come as a surprise as GDP growth, the ultimate driver of long term earnings, has been decelerating for years. The graph to the left uses a 3-year moving average trend line to smooth GDP data. Despite ebbs and flows, the rate of economic growth has been steadily declining for well over 60 years.

  Given our stated views on productivity growth declines and the massive level of indebtedness, it is not unreasonable to forecast that actual long term earnings growth will likely follow the GDP trend lower in the future. That does not mean the market cannot temporarily witness periods of optimism where the expected growth rate increases. We are comfortable predicting that long term earnings growth will most likely shift left along the x axis, at least until there is a profound change to the way the government and Federal Reserve promote economic growth.

  Earnings are a function of revenue and corporate profit margins. Our earnings growth forecast in the prior paragraph holds true for revenue growth. As long as GDP continues to trend lower, revenues will likely be challenged as well. Margins, on the other hand, are not as reliant on economic growth. Over the last few years, for instance, margins exploded to record levels despite below trend GDP growth. Layoffs, deficient investment, stock buybacks, mergers and a host of other factors, including suspect measurement, facilitated greater profits per dollar of revenue for shareholders.

  Margins have a long history of expanding and contracting within a well-defined range. Currently, margins are at the top end of that range, making further margin expansion difficult to expect. In fact many of the aforementioned methods in which companies increased margins have been largely depleted, which adds to our expectation that margins will contract to more normal levels over the coming years. Given the declining long term trend in economic growth and therefore revenues, coupled with expectations for lower margins, we are left to assume forward earnings estimates will also decline.

  Declining long term earnings growth forecasts and forward earnings estimates coupled with historically high valuations is a recipe for poor returns. This concoction would most likely result in a shift somewhere between arrows C and D in the chart entitled “Potential Data Shifts” above.

  20% Downside and Then Some

  A quick glance at the scatter plot would lead one to assume that a 20% decline in the S&P 500 with no change in forward earnings estimates or long term growth forecasts would result in a fair valuation (the yellow dot would follow the path of the C arrow shown above). That is correct, but we would be remiss if we did not mention two other important factors. First, corrections frequently move beyond trend lines and tend to “overcorrect”. Based on the data shown above, it is not farfetched to assume the yellow data point could fall an additional 10-20% below the trend line. Secondly, as stock prices decline, the economy may likely suffer as well. Therefore we should also consider the ramification of a decline in forward earnings estimates and possibly long term growth forecasts. The one takeaway we hope you arrive at is that a decline akin to those seen in 2000 and 2008 is not out of the realm of possibilities.

  Many other valuation measures also predict poor future returns. We urge investors to carefully consider the implications of holding a large equity allocation at this time. Our tag line below is worth careful consideration.

  At 720 Global, risk is not a number. Risk is simply overpaying for an asset.

  

  

  

  

  

• The Big Short of 'Mother Frackers'

  By EconMatters

   

  Energy Bankruptcy Boom 2015

   

  Dozens of oil and gas companies went into bankruptcy last year. While energy E&P companies were dropping like flies in 2015, credit rating agencies and banks have remained awfully quiet and apparently buried their heads in the sand.   

  

   

  You see, the Fall Borrowing Base Redetermination by banks on the E&P sector was supposed to take place around October 2015. According to a Haynes and Boone, LLP survey conducted prior to the fall borrowing base redetermination season, industry observers and insiders are predicting a decrease in the ability to borrow against reserves by an average of 39%.

   

  The result of base redetermination does not require public disclosure.  Nevertheless, it seemed banks were extremely lenient as the average reduction for 17 companies disclosing the borrowing base reduction results was just 4%.  Rating agencies, meanwhile, did not take major E&P downgrade actions till this month in 2016.

   

  It’s About Time!

   

  On Jan. 22, 2016 Moody’s Investors Service said it put 120 oil and gas companies on review for downgrades. Rival Standard & Poor’s Ratings Services was way ahead of Moody’s. S&P said it already downgraded the debt of 165 U.S. companies back in 4Q 2015, representing $1.5 trillion, led by the oil, gas, and commodity sectors. S&P also said for the full year, downgrades rose by 67%, to 461, the highest level since 2009. From late December to January 2016, Fitch also took individual downgrade action on companies such as NGL Energy (NGL: NYSE), Chesapeake Energy (CHK: NYSE) and Williams (WMB: NYSE).

   

  Wall Street’s Lifeline to Frackers

   

  We can see how banks do not want to write off and take a loss from their E&P debt on their books and have motivation to keep feeding the high leverage and not call in the energy loans during the base determination last October. 

   

  FT reports that as of September 2015, about a dozen E&Ps already had debts as high as more than 20 times their EBITDA. One of the reasons pushing down oil price to the current historical lows, and yet no sign of decline in U.S. production is that quite a few small frackers need to pump oil regardless (even below the economic threshold) just for the cashflow to pay bills and payrolls.

   

  So the collective action by banks to sustain the life of many weak oil frackers (so banks won’t  need to book losses) ironically exacerbated the oil over-supply and price crash speeding up the way for these hanging-in-there frackers to meet their maker.

  

   

   

  Why the Downgrade Delay?

   

  On the other hand, we fail to see the motivation and logic behind the delay by rating agencies who are supposed to have independent (from banks) evaluation model to provide forward-looking financial risk indications.

   

  It is so ironic to see how Moody’s came out and defended the frackers the same time when Einhorn slammed ‘Mother Frackers‘ which prompted a watershed event in oil E&P stocks last May.  At the time, Moody’s said,

  …[The oil and gas sector] liquidity-stress index (LSI) more than doubled….[however], the [LSI] index is still well below its 26% peak in March 2009 …..default risk remains benign ….

  [Emphasis Ours]

  From there, we can only draw two possible conclusions from rating agencies delayed reaction/action:

   

  (1) Influences from Banks (or Others) — There is an inherent conflict of interest in the current Wall Street model that rating agencies are basically paid by the ones they are supposed to give ratings on.  Readers who saw the movie “The Big Short” (from the book by Michael Lewis) should remember how rating agencies were prominently profiled as influenced by big banks on their rating calls during the 2008 financial crisis (perhaps that’s why S&P seems to have an earlier jump on the E&P downgrade than the two rivals?)

   

  While nobody can say for sure if this conflict-of-interest model has improved since 2008, it is not hard to draw a parallel Déjà vu from the 2008 subprime/housing sector with possible banks influencing rating agencies to the current E&P sector.  An even better question right now would be:  Is this to allow some insiders time to position themselves “on the right side of the trade”?

   

  (2) Extremely flawed (perhaps even delusional) oil price assumption by rating agencies.  While EconMatters outlined why WTI is a short as early as July 2013, it is pretty basic (if not alarmed by the booming oil bankruptcies and layoffs) for any competent Wall Street or rating agency analysts to at least reach a similar oil price scenario by 3Q 2015.  But rating agencies did not come out and act accordingly until early 2016.  (In the same vein, it is highly questionable why Moody’s all of a sudden jumped on the bandwaon of oil price forecast.)

   

  Fracking Bubble 2015-2016

   

  FT reports the 60 leading US independent oil and gas companies have total net debt of $206bn, more than doubled from about $100bn at the end of 2006, and almost a third of the 155 US oil and gas companies covered by Standard & Poor’s are rated B-minus or below (highly speculative, below investment grade).

   

  We don’t always agree with Einhorn on his view including Apple long and some of his specific E&P shorts. However, we do see a bubble in the E&P sector similar to the 2000 tech bubble. We noted last May that “the sector is long overdue for a shakeup” with 110+ publicly traded E&P companies in North America (mid to small caps), and many of them came to market just in the past five years for the sole purpose of hitting their IPO pay dirt.    

   

  More Pains To Come

   

  Many highly leveraged and poorly managed drillers have been able to hide under the cloak of high oil prices (and Wall Street) in the past few years.  Now Barclays estimates that without a rebound in commodity prices, the potential oil bonds downgrade volume for 2016 and 2017 could exceed $170 Bn while another $155 billion worth of high-yield debt supply will enter the market.

  Chart Source: Bloomberg

  The long overdue credit agency downgrade is only the beginning of a tsunami hitting the entire oil E&Ps (bonds and stocks). More E&Ps will go out of business while some solid companies may get smacked down (but hopefully eventually survive) simply by the sector association.  

   

  Wall Street had a hand in this Frack Bubble of 2015-2016, not much different from the 2008 housing bubble.  We know Shell just fired another 10,000 workers while global oil job losses top 250,000, but it is too early to tell how the market and economy will turn out in this bubble aftermath. 

   

  Not to be despair though, the better news for now is that with weak shale E&P companies going out of business, oil production should progress to reflect the logical supply volume in the current oil price environment.  That should eventually lead to the rebalance of the oil market, price and the proper valuation of the remaining energy stocks.

   

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