• Will The Fed Hike Rates This Week? The Only 'Data' That Matters

  This is the real "data" that The Fed is "dependent" on…

   

  

   

  As Deutsche Bank notes, The Fed is “right” to be raising rates. If they had done it earlier all the problems they now have to face, they wouldn’t have had to. If they do it later, those same problems will be even worse. Of course had they done it earlier there may well have been other problems. Like for example, no growth and a much higher unemployment rate. But that’s all water under the bridge. Fact is this Fed is ready to go. And markets know it!

  But, what would it take for the Fed not to hike this coming meeting?

  We think SPX through 1860.

   

  Right through the 1900s, the Fed is likely to be complacent that this is normal market volatility. Pre-Prom nerves, if you will. It took the SPX just seven trading days to drop from 2102 to 1867 in August, an average of over 30 points a day. It could do the same but the pace would have to be closer to double. Possible but one wouldn’t make that a central forecast. More likely, the debate will quickly shift to how quickly the Fed stops tightening.

   

  It appears, we have discussed previously,  that the logic of the median dots is to raise rates to dampen a would be credit bubble (and 'disable' the record leverage that low risk premia have allowed). It’s hard to know how far rates have to rise for that outcome but we suspect it's more than one hike and less than what our adjusted Taylor rule model for terminal funds suggests, which is around 2.5 percent. Plus or minus 1 percent therefore seems a reasonable first proxy, which would have the Fed hiking say through to September, 2016.

  And then what…

  

  It looks like the market is already pricing in the next inevitable round of QE.

   

  Charts: Bloomberg

  

  

  

  

  

• Cornering Russia – Risking World War III

  Authored by Alastair Crooke, originally posted at ConsortiumNews.com,

  Official Washington is awash with tough talk about Russia and the need to punish President Putin for his role in Ukraine and Syria. But this bravado ignores Russia’s genuine national interests, its “red lines,” and the risk that “tough-guy-ism” can lead to nuclear war, as Alastair Crooke explains.

  We all know the narrative in which we (the West) are seized. It is the narrative of the Cold War: America versus the “Evil Empire.” And, as Professor Ira Chernus has written, since we are “human” and somehow they (the USSR or, now, ISIS) plainly are not, we must be their polar opposite in every way.

  “If they are absolute evil, we must be the absolute opposite. It’s the old apocalyptic tale: God’s people versus Satan’s. It ensures that we never have to admit to any meaningful connection with the enemy.” It is the basis to America’s and Europe’s claim to exceptionalism and leadership.

  And “buried in the assumption that the enemy is not in any sense human like us, is [an] absolution for whatever hand we may have had in sparking or contributing to evil’s rise and spread. How could we have fertilized the soil of absolute evil or bear any responsibility for its successes? It’s a basic postulate of wars against evil: God’s people must be innocent,” (and that the evil cannot be mediated, for how can one mediate with evil).

  Westerners may generally think ourselves to be rationalist and (mostly) secular, but Christian modes of conceptualizing the world still permeate contemporary foreign policy.

  It is this Cold War narrative of the Reagan era, with its correlates that America simply stared down the Soviet Empire through military and – as importantly – financial “pressures,” whilst making no concessions to the enemy.

  What is sometimes forgotten, is how the Bush neo-cons gave their “spin” to this narrative for the Middle East by casting Arab national secularists and Ba’athists as the offspring of “Satan”:  David Wurmser was advocating in 1996, “expediting the chaotic collapse” of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that “the phenomenon of Baathism” was, from the very beginning, “an agent of foreign, namely Soviet policy.”

  Moreover, apart from being agents of socialism, these states opposed Israel, too. So, on the principle that if these were the enemy, then my enemy’s enemy (the kings, Emirs and monarchs of the Middle East) became the Bush neo-cons friends.  And they remain such today – however much their interests now diverge from those of the U.S.

  The problem, as Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).

  What is more, the “Cold War narrative” simply does not reflect history, but rather the narrative effaces history: It looses for us the ability to really understand the demonized “calous tyrant” – be it (Russian) President Vladimir Putin or (Ba’athist) President Bashar al-Assad – because we simply ignore the actual history of how that state came to be what it is, and, our part in it becoming what it is.

  Indeed the state, or its leaders, often are not what we think they are – at all. Cohen explains: “The chance for a durable Washington-Moscow strategic partnership was lost in the 1990 after the Soviet Union ended. Actually it began to be lost earlier, because it was [President Ronald] Reagan and [Soviet leader Mikhail] Gorbachev who gave us the opportunity for a strategic partnership between 1985-89.

  “And it certainly ended under the Clinton Administration, and it didn’t end in Moscow. It ended in Washington — it was squandered and lost in Washington. And it was lost so badly that today, and for at least the last several years (and I would argue since the Georgian war in 2008), we have literally been in a new Cold War with Russia.

  “Many people in politics and in the media don’t want to call it this, because if they admit, ‘Yes, we are in a Cold War,’ they would have to explain what they were doing during the past 20 years. So they instead say, ‘No, it is not a Cold War.’

  “Here is my next point. This new Cold War has all of the potential to be even more dangerous than the preceding 40-year Cold War, for several reasons. First of all, think about it. The epicentre of the earlier Cold War was in Berlin, not close to Russia. There was a vast buffer zone between Russia and the West in Eastern Europe.

  “Today, the epicentre is in Ukraine, literally on Russia’s borders. It was the Ukrainian conflict that set this off, and politically Ukraine remains a ticking time bomb. Today’s confrontation is not only on Russia’s borders, but it’s in the heart of Russian-Ukrainian ‘Slavic civilization.’ This is a civil war as profound in some ways as was America’s Civil War.”

  Cohen continued: “My next point: and still worse – You will remember that after the Cuban Missile Crisis, Washington and Moscow developed certain rules-of-mutual conduct. They saw how dangerously close they had come to a nuclear war, so they adopted “No-Nos,’ whether they were encoded in treaties or in unofficial understandings. Each side knew where the other’s red line was. Both sides tripped over them on occasion but immediately pulled back because there was a mutual understanding that there were red lines.

  “TODAY THERE ARE NO RED LINES. One of the things that Putin and his predecessor President Medvedev keep saying to Washington is: You are crossing our Red Lines! And Washington said, and continues to say, ‘You don’t have any red lines. We have red lines and we can have all the bases we want around your borders, but you can’t have bases in Canada or Mexico. Your red lines don’t exist.’  This clearly illustrates that today there are no mutual rules of conduct.

  “Another important point: Today there is absolutely no organized anti-Cold War or Pro-Detente political force or movement in the United States at all –– not in our political parties, not in the White House, not in the State Department, not in the mainstream media, not in the universities or the think tanks. … None of this exists today. …

  “My next point is a question: Who is responsible for this new Cold War? I don’t ask this question because I want to point a finger at anyone. The position of the current American political media establishment is that this new Cold War is all Putin’s fault – all of it, everything. We in America didn’t do anything wrong. At every stage, we were virtuous and wise and Putin was aggressive and a bad man. And therefore, what’s to rethink? Putin has to do all of the rethinking, not us.”

  These two narratives, the Cold War narrative, and the neocons’ subsequent “spin” on it: i.e. Bill Kristol’s formulation (in 2002) that precisely because of its Cold War “victory,” America could, and must, become the “benevolent global hegemon,” guaranteeing and sustaining the new American-authored global order – an “omelette that cannot be made without breaking eggs” – converge and conflate in Syria, in the persons of President Assad and President Putin.

  President Obama is no neocon, but he is constrained by the global hegemon legacy, which he must either sustain, or be labeled as the arch facilitator of America’s decline. And the President is also surrounded by R2P (“responsibility-to-protect”) proselytizers, such as Samantha Power, who seem to have convinced the President that “the tyrant” Assad’s ouster would puncture and collapse the Wahhabist jihadist balloon, allowing “moderate” jihadists such as Ahrar al-Sham to finish off the deflated fragments of the punctured ISIS balloon.

  In practice, President Assad’s imposed ouster precisely will empower ISIS, rather than implode it, and the consequences will ripple across the Middle East – and beyond. President Obama privately may understand the nature and dangers of the Wahhabist cultural revolution, but seems to adhere to the conviction that everything will change if only President Assad steps down. The Gulf States said the same about Prime Minister Nouri al-Maliki in Iraq. He has gone (for now), but what changed? ISIS got stronger.

  Of course if we think of ISIS as evil, for evil’s sake, bent on mindless, whimsical slaughter, “what a foolish task it obviously [would be] to think about the enemy’s actual motives. After all, to do so would be to treat them as humans, with human purposes arising out of history. It would smack of sympathy for the devil. Of course,” Professor Chernus continues, “this means that, whatever we might think of their actions, we generally ignore a wealth of evidence that the Islamic State’s fighters couldn’t be more human or have more comprehensible motivations.”

  Indeed, ISIS and the other Caliphate forces have very clear human motivations and clearly articulated political objectives, and none of these is in any way consistent with the type of Syrian State that America says it wants for Syria. This precisely reflects the danger of becoming hostage to a certain narrative, rather than being willing to examine the prevailing conceptual framework more critically.

  America lies far away from Syria and the Middle East, and as Professor Stephen Cohen notes, “unfortunately, today’s reports seem to indicate that the White House and State Department are thinking primarily how to counter Russia’s actions in Syria. They are worried, it was reported, that Russia is diminishing America’s leadership in the world.”

  It is a meme of perpetual national insecurity, of perpetual fears about America’s standing and of challenges to its standing, Professor Chernus suggests.

  But Europe is not “far away”; it lies on Syria’s doorstep.  It is also neighbor to Russia. And in this connection, it is worth pondering Professor Cohen’s last point: Washington’s disinclination to permit Russia any enhancement to its standing in Europe, or in the non-West, through its initiative strategically to defeat Wahhabist jihadism in Syria, is not only to play with fire in the Middle East. It is playing with a fire of even greater danger: to do both at the same time seems extraordinarily reckless.

  Cohen again: “The false idea [has taken root] that the nuclear threat ended with the Soviet Union: In fact, the threat became more diverse and difficult. This is something the political elite forgot. It was another disservice of the Clinton Administration (and to a certain extent the first President Bush in his re-election campaign) saying that the nuclear dangers of the preceding Cold War era no longer existed after 1991. The reality is that the threat grew, whether by inattention or accident, and is now more dangerous than ever.”

  As Europe becomes accomplice in raising the various pressures on Russia in Syria – economically through sanctions and other financial measures, in Ukraine and Crimea, and in beckoning Montenegro, Georgia and the Baltic towards NATO – we should perhaps contemplate the paradox that Russia’s determination to try to avoid war is leading to war.

  Russia’s call to co-operate with Western states against the scourge of ISIS; its low-key and carefully crafted responses to such provocations as the ambush of its SU-24 bomber in Syria; and President Putin’s calm rhetoric, are all being used by Washington and London to paint Russia as a “paper tiger,” whom no one needs fear.

  In short, Russia is being offered only the binary choice: to acquiesce to the “benevolent” hegemon, or to prepare for war.

  *  *  *

  Alastair Crooke (born 1950) is a British diplomat. Previously he was a ranking figure in British intelligence (MI6).

  

  

  

  

  

• "A Night In Aleppo": Scenes From Syria's Most War-Torn City

  Back in October, we brought you “Syrian Showdown: Russia, Iran Rally Forces, US Rearms Rebels As ‘Promised’ Battle For Aleppo Begins,” in which we detailed Russia and Iran’s preparations for an push north towards Aleppo, Syria’s second largest city that’s held by a hodgepodge of militants, rebels, and jihadists (if one is inclined to differentiate between the three). 

  As Reuters noted at the time, “the assault means the army is now pressing insurgents on several fronts near Syria’s main cities in the west, control of which would secure President Bashar al-Assad’s hold on power even if the east of the country is still held by Islamic State.” 

  In other words, we said, if Assad can secure Aleppo, Iran and Russia will have successfully restored his grip on the country for all intents and purposes. 

  To give you an idea of how critical the battle truly is, Quds commander Qassem Soleimani personally called thousands of Shiite militiamen over from Iraq to fight alongside Hezbollah in the ground operation. In fact, Soleimani showed up on the frontlines to rally the troops and according to a number of reports, was injured two weeks ago while commanding his armies near the city (no one knows his current status). 

  The fight for Aleppo rages on today and in the lead up to the assault we brought you a series of stark images from 2012 depicting the struggle facing those who remain trapped in the violence. Here are few representative samples:

  

  

  

  We also highlighted the following image which shows nighttime light emissions before and after the war began:

  

  Here’s a recent account from Reuters which summarizes where things stand in what has become a protracted, grinding offensive for Assad, Iran, and Russia:

  Syrian government forces backed by Iranian troops edged closer to a major rebel-controlled highway south of Aleppo on Tuesday, pushing further into insurgent-held areas supported by heavy Russian air strikes.

   

  After seizing a series of villages including Zitan, Humaira and Qalaajiya, the army said it had thrust to the outskirts of Zirba and encircled the town of Khan Touman, an advance rebels said had left them outgunned from the air and ground.

   

  The aim of government forces appeared to be to cut the main Aleppo-Damascus highway that fighters use to transport supplies from rebel-held Idlib province to the north.

   

  Two months of Russian air strikes twinned with army ground offensives backed by Iranian and Lebanese Hezbollah forces have shored up Syrian President Bashar al-Assad in his western heartland. 

  And here’s an account from Newsweek which gives you an idea of how desperate the situation is in the city:

  Dr. Rami Kalazi (a neurosurgeon) and his colleagues work in a building that, to most people, isn’t recognizable as a hospital. Seen in a photograph sent via messaging service WhatsApp, the hospital has worn metal bars covering two holes at the front of the beige three-story structure, where glass windows are supposed to be. Wires dangle down past exposed brick and around a dozen barrels containing concrete debris that are lined up outside. The sidewalk in front of the hospital has mostly been destroyed and the two-story clinic next door is in a similar state of disrepair.

   

  It’s hard to imagine these buildings as places that could save someone’s life, yet this is the reality for the remaining hospitals in rebel-held eastern Aleppo, Syria, where roughly 80 doctors remain, down from 1,500 in 2010. Nearly all the doctors—95 percent—in the eastern part of the city have fled, been detained or been killed, according to a startling report from international humanitarian organization Physicians For Human Rights. 

  It’s against that rather depressing backdrop that we present the following photos (courtesy of Reuters) which depict “A night in Aleppo” (click on the images to enlarge and observe how clear the stars are in the absence of any and all light emissions from the city; the last two images are of graveyards):

  

  

  

  

  

  

  

  *  *  *

  Congratulations, Washington. This is what “democratic regime change” looks like.

  

  

  

  

• Monday Humor: Barack Obama Reveals His Secret Plan To Crush ISIS

  Having earlier taken credit for the ‘success’ achieved recently against ISIS, one comedic trader had a suggestion for how President Obama could really “depress, deflate, defeat, and destroy” the terrorists:

  “We are going to break ISIS financially by requiring them to enroll in the Affordable Care Act by 2017”

   

  – POTUS

  That should put an end to it all.

  h/t @TopThird

  

  

  

  

  

• Martin Armstrong Slams "Myopic" Policymakers' Ignorance That Lower Rates Fuel Deflation

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  

  Those in power never understand markets. They are very myopic in their view of the world. The assumption that lowering interest rates will “stimulate” the economy has NEVER worked, not even once. Nevertheless, they assume they can manipulate society in the Marxist-Keynesian ideal world, but what if they are wrong?

  By lowering interest rates, they ASSUME they will encourage people to borrow and thus expand the economy. They fail to comprehend that people will borrow only when they BELIEVE there is an opportunity to make money. Additionally, they told people to save for their retirement. Now they want to punish them for doing so by imposing negative interest rates (tax on money) to savings. They do not understand that lowering interest rates, when there is no confidence in the future anyhow, will not encourage people to start businesses and expand the economy. It wipes out the income of savers and then the only way to make and preserve money becomes ASSET investment, as in the stock market — not creating business startups.

  So lowering interest rates is DEFLATIONARY, not inflationary, for it reduces disposable income. This is particularly true for the elderly who are forced back to work to compete for jobs, which increases youth unemployment.

  Since the only way to make money has become ASSET INFLATION, they must withdraw money from banks and buy stocks. Now, they are in the hated class of the “rich” who are seen as the 1% because they are making money when the wage earner loses money as taxation rises and the economy declines. As taxes rise, machines are replacing workers and shrinking the job market, which only fuels more deflation. Then you have people like Hillary who say they will DOUBLE the minimum wage, which will cause companies to replace even more jobs with machines.

  

  Democrats, in particular, are really Marxists. They ignore Keynes who also pointed out that lowering taxes would stimulate the economy. Keynes, in all fairness, did not advocate deficit spending year after year nor never paying off the national debt. Keynes wrote regarding taxes:

  “Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance, than an increase, of balancing the budget.”

  Keynes obviously wanted to make it clear that the tax policy should be guided to the right level as to not discourage income. Keynes believed that government should strive to maximize income and therefore revenues. Nevertheless, Democrats demonized that as “trickle-down economics.”

  Keynes explained further:

  “For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more–and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.

  

  This is the logic employed by those in power. They are raising taxes and destroying the economy; when revenues decline, they raise taxes further. The evidence that politicians are incompetent of managing the economy is simply illustrated here. Now, we have Hillary claiming that she will raise taxes on corporations, but that will reduce jobs for she will only attack small businesses and never the big entities and banks who fund her campaign.

  

  So when it comes to sanity on interest rates or taxes, we really need to throw out of office anyone who is a professional career politician before they wipe out everything. The balance sheet is, as Keynes said, “ZERO on both sides.”

   

  

  

  

  

  

• "Stealth" Currency War Continues – China Weakens Yuan Fix For 7th Consecutive Day

  The Yuan fix has now weakened for 7 consecutive days. Aside from the August devaluation, this is the biggest devaluation in the Yuan since records began in 2004. At the current level of 6.4559 per dollar, the Yuan has retraced to the level it was at when QE ended in July 2011. Chinese stocks are fading a smidge after yesterday's afternoon session "rescue" ramp.

   

  

  (note – CNY chart inverted to make comparisons easier – lower is weaker CNY compared to USD)

  It's good to have friends in The IMF where not a peep will be heard as the quietest currency war in the world is under way. We presume as long as US equities don't get hurt, then The Fed, Treasury, and Chuck Schumer will just ignore it (unless and until HY's collapse becomes just too painful to ignore for all those collateral chains as The Fed withdraws up to $800bn in liquidity this week).

   

  Charts: Bloomberg

  

  

  

  

  

• Bitcoin Or Gold: Did The Alleged Bitcoin Creator Just Settle Once And For All What Is More Valuable?

  Last Wednesday, we brought you the story of Craig Steven Wright who was “outed” by Wired and Gizmodo as Satoshi Nakamoto, the pseudonymous founder of bitcoin.

  Hours after two articles pegged Wright as the man behind the myth, Australian authorities moved in, raiding the residence “Cold fish Craig” (as he was known in his neighborhood) rented with his wife and conducting searches and interviews at his businesses. 

  Apparently, Australian tax authorities had questioned Wright in the past and according to a number of sources (and documents obtained by Wired and Gizmodo), there appears to have been some manner of dispute over how his bitcoin holdings should be taxed. The attention accorded to Wright on the heels of the two articles published late last Tuesday might have prompted the ATO to move in once and for all, although authorities claimed at the time that there was no connection between the new “revelations” about Wright’s identity and the raids. 

  Now, we get the latest twist in what is already a fairly bizarre story, as The Australian says that in May of 2013, Wright attempted to buy some $85 million in gold and software from Mark Ferrier, who at the time was working on a deal whereby his MJF Mining would obtain 50% of the gold discovered by ASX-listed goldminer Paynes Find Gold. 

  Apparently, Paynes needed machinery which Ferrier – via MJF – was willing to provide in exchange for a claim on any future discoveries. According to the Australian, “Mr Ferrier is alleged to have told Mr Wright gold was good security in the event the ‘funny money’ of Bitcoin failed.” Here’s what supposedly happened next: 

  Mr Wright has alleged payments were made in August 2013 of $38.8m — then the equivalent of 245,103 Bitcoin — for Siemens software and gold from Paynes. He then claimed payments were made to Mr Ferrier of $20.3m — or 135,100 Bitcoin — in September 2013 for the “core software” from Al-Baraka. In September that year Mr Ferrier was arrested in Perth and the gold partnership with Paynes was discontinued.

   

  In December 2013 Mr Wright filed actions in the Federal Court and NSW Supreme Court suing for his share of the gold, claiming the sum of $84.42m based on the market value of the alleged Bitcoin payments for the gold.

  Paynes’ annual financial report for the year ending June 30, 2014 contains the following passage about the partnership:

  The company terminated a mining services and profit sharing agreement with MJF on October 1, 2013. Mr. Mark Ferrier has lodged a statement of claim with the District Court of New South Wales, claiming an amount of $279,621 related to the loss of profits from the small scale mining.The company considers the claim to be completely false.

  Here’s an excerpt from a transcript of an ATO meeting that tells part of the story (this is from a John Chesher, who was Wright’s accountant):

  Craig Wright was speaking in a conference in Melbourne. He was giving a talk about Bitcoins and mining. He was then approached by a man by the name of Mark Ferrier and that was how they met. This was how the relationship was formed. They started talking. Craig Wright told Mark Ferrier that he wanted to start up a Bitcoin bank. They then started emailing. Mark Ferrier told him that he knew someone who could help him start up the bank. This was all done in early June 2013. Everything was done very quickly- most of it was done in one weekend. Craig Wright, with the help of Mark Ferrier, agreed to purchase banking software from Al Baraka. Mark Ferrier also convinced him to purchase gold ore.

   

  He also offered Ian Ferrier’s services to Mark Ferrier. Ian Ferrier is Mark Ferrier’s father. Before engaging in Mark Ferrier’s services, Craig Wright had conducted lots of checks on him and everything came up clean. So in essence, Craig Wright wanted the banking software and Mark Ferrier wanted Bitcoins. Around mid-July/August,

   

  Craig Wright released funds from an entity located in the UK to MJF Consulting. This was all going through a server located in Central West Africa. Mark Ferrier was then arrested in September 2013. Craig Wright then started to take action to protect his own rights. Your director, Des McMaster has informed us that ASIC documents show that Mark Ferrier was only put on as a director for one day. Craig Wright then contacted Pitcher Partners in Brisbane and asked them for an explanation. We found out that Mark Ferrier was never a director. The address that he had on ASIC was false as well. Craig Wright was able to get hold of the banking software and automation system. He has everything but not the gold ore. He was expected to receive the gold ore in 2015 but now that’s not happening as the gold can’t be delivered.

   

  Craig Wright has also contacted Ian Ferrier. Ian Ferrier advised us that he has not spoken to Mark Ferrier for 2 years and wants nothing to do with him. We have a case against MJF Consulting with the Supreme Court of NSW and also the Federal Court. The case with the Federal Court is for deceptive conduct against Mark Ferrier personally as an individual.

   

  Due diligence was conducted on Mark Ferrier before we engaged him. We have done all we could to protect ourselves. If you look at the transactions made, you will see that every transaction was pegged against the currency exchange rate at the time. Craig Wright has already advised you that the accounting method for this personal enterprise should be changed from cash to accruals. The accounts should be on accruals from the start of the 2013 income year. Craig Wright has previously informed the ATO of this. We have previously been dealing with ATO officers from different sites at first, e.g. some initial work was being conducted from the Hurstville office, Brisbane office etc. But then Des McMaster made a decision for all the audits to be done from Parramatta. The audits were then being conducted by Celso. I am uncomfortable with the fact that Des McMaster is looking after these audits. We have had past dealings with him in the previous audits. 

  For those interested in attempting to get to the bottom of this, you can read more here (just use a word search for “Ferrier), and we’re sure they’ll be much, much more revealed as time goes on, unless of course the Craig Wright story goes the way of all other Satoshi Nakamoto discovery claims (see Newsweek). 

  What’s immediately interesting however is that while Ferrier might not have “actually wanted any Bitcoin,” (to quote Wright), it does seem clear that Wright did and still does, want gold. 

  The takeaway: if you believe Wright is Satoshi, then the founder of bitcoin is skeptical enough of his creation’s intrinsic value compared to hard assets that he was at one time willing to trade a sizeable portion of his cryptocurrency wealth for physical gold. 

  Trade – or “mine”, as it were – accordingly. 

  

  

  

  

  

• Chesapeake Bonds Plummet To 27 Cents Of Par After Company Hires Restructuring Advisor

  After numerous false starts and months of hollow hopes for the stakeholders of beleaguered gas producer Chesapeake Energy, including an activist stake built up by none other than Carl Icahn which was the source of much transitory joy, various notional reducing debt exchanges, and speculation of asset sales, the time is coming when the inevitable debt-for-equity restructuring, one which could wipe away most or all of the existing $2.6 billion equity tranche (down from $11 billion a year ago) is on the table.

  According to the WSJ, Chesapeake has hired restructuring advisor Evercore “to shore up its balance sheet as commodity prices extend their decline.” This means that Evercore will seek to further slash its debt, almost certainly be equitizing a substantial portion of it, and handing it over as equity in the new company to CHK’s bondholders.

  And while many saw the restructuring, and potential prepackaged bankruptcy, coming from a mile away, what precipitated it was the plunge in the company’s liquidity as a result of the ongoing collapse in commodity prices. Just earlier today, nat gas hit the lowest price in 13 years, which meant that after ending 2014 with $4.1 billion in cash, the company is down to just $1.8 billion in cash, or about 1-2 quarter of liquidity at the current cash burn rate.

  But while CHK’s stock has imploded, falling 79% this year to around $4.09 per share or a $2.7 billion market cap, the real story is in the company’s bonds.

  Chesapeake’s $1.3 billion in bonds due in 2020 bearing 6.625% interest recently traded at 29 cents on the dollar, down from 47 cents late last month, according to MarketAxess.

  Worse, the company’s 2023 bonds which were trading at par as recently as late May, just rumbled to a record low 27 cents on the dollar.

  

   

  What is troubling is that Chesapeake has already taken steps to reduce its debt load, and is offering to exchange bonds at a discount for up to $1.5 billion of new debt, while offering a partial priming and a stronger claim on the company’s assets. As the WSJ adds, the proposed swap follows a deal Chesapeake cut with its banks earlier this year that allowed it to issue the new high-ranking debt. In return, Chesapeake agreed to secure its $4 billion credit line with a top-ranking claim on its assets.

  In other words, what Chesapeake is doing is using and abusing the goodwill of its creditors, both secured and unsecured, to extract every last penny from them while promising the sun and the moon to both groups.

  This is hardly new: “Dozens of money-losing oil-and-gas companies have issued new debt this year, sometimes swapping it for discounted bonds, in an effort to ride out the slump in prices. SandRidge Energy Inc., Midstates Petroleum Co. and Halcon Resources Corp. all have done such deals this year.”

  However, in the aftermath of the most recent implosion in the high yield space, of which Chesapeake is a proud member, we expect that the banks, realizing at this point they are only throwing good money after bad will slam the issuance (and voluntary refi) window shut, forcing the company to burn the last of its cash which at current commodity prices should be gone by the summer of 2016, at which point it will have no choice but to file for bankruptcy. The only question is whether it will be a prepackaged consensual affair or a free-fall Chapter 11.

  Our only question is whether Carl Icahn will be as generous with lending Chesapeake the Debtoi In Possession loan it will need, as he was in building up his 11% “BTFD” equity stake.

  

  

  

  

  

• Ron Paul: "If You Want Security, Pursue Liberty"

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

  Judging by his prime-time speech last week, the final year of Barack Obama’s presidency will be marked by increased militarism abroad and authoritarianism at home. The centerpiece of the president’s speech was his demand for a new law forbidding anyone on the federal government’s terrorist watch list from purchasing a firearm. There has never been a mass shooter who was on the terrorist watch list, so this proposal will not increase security. However, it will decrease liberty.

  Federal officials can have an American citizen placed on the terrorist watch list based solely on their suspicions that the individual might be involved in terrorist activity. Individuals placed on the list are not informed that they have been labeled as suspected terrorists, much less given an opportunity to challenge that designation, until a Transportation Security Administration agent stops them from boarding a plane.

  Individuals can be placed on the list if their Facebook or Twitter posts seem “suspicious” to a federal agent. You can also be placed on the list if your behavior somehow suggests that you are a “representative” of a terrorist group (even if you have no associations with any terrorist organizations). Individuals can even be put on the list because the FBI wants to interview them about friends or family members!

  Thousands of Americans, including several members of Congress and many employees of the Department of Homeland Security, have been mistakenly placed on the terrorist watch list. Some Americans are placed on the list because they happen to have the same names as terrorist suspects. Those mistakenly placed on the terrorist watch list must go through a lengthy “redress” process to clear their names.

  It is likely that some Americans are on the list solely because of their political views and activities. Anyone who doubts this should consider the long history of federal agencies, such as the IRS and the FBI, using their power to harass political movements that challenge the status quo. Are the American people really so desperate for the illusion of security that they will support a law that results in some Americans losing their Second Amendment rights because of a bureaucratic error or because of their political beliefs?

  President Obama is also preparing an executive order expanding the federal background check system. Expanding background checks will not keep guns out of the hands of criminals or terrorists. However, it will make obtaining a firearm more difficult for those needing, for example, to defend themselves against abusive spouses.

  Sadly, many who understand that new gun control laws will leave us less free and less safe support expanding the surveillance state. Like those promoting gun control, people calling for expanded surveillance do not let facts deter their efforts to take more of our liberties. There is no evidence that mass surveillance has prevented even one terrorist attack.

  France’s mass surveillance system is much more widespread and intrusive than ours. Yet it failed to prevent the recent attacks. France’s gun control laws, which are much more restrictive than ours, not only failed to keep guns out of the hands of their attackers, they left victims defenseless. It is thus amazing that many American politicians want to make us more like France by taking away our Second and Fourth Amendment rights.

  Expanding government power will not increase our safety; it will only diminish our freedom. Americans will have neither liberty nor security until they abandon the fantasy that the US government can provide economic security, personal security, and global security.

  

  

  

  

  

• Chinese Officials Admit To "Significantly Faking And Overstating" Economic Data

  Slowly all the wheels of the legacy propaganda narrative are falling off, only this time dealing not with some ridiculous economic “recovery” tripe (for those still confused, the global economy just suffered its worst USD-denominated GDP collapse in 50 years), but with the credibility of Chinese data, which most have known is completely fabricated, only there was never an actual admission from within. Now there is.

  According to China Daily, several local officials in China’s Northeast region sought to explain dramatic economic drops in their areas by admitting they had faked economic data in the past few years to show high growth when the real numbers were much lower, Xinhua News Agency reported on Friday.

  The report cited several officials in the region who acknowledged they had “significantly overstated data ranging from fiscal revenue and household income to GDP.”

  Three years ago Liaoning province’s GDP growth was reported at 9.5 percent, but its current figure?over the first three quarters of this year?is just 2.7 percent. Jilin’s growth was reported at 12 percent three years ago, but its current rate is 6.3 percent in the same period.

  The revelation about the inflated figures came as the GDP growth of the three Northeast provinces ranked the lowest nationwide.

  Of course, while the economy was growing, nobody cared that the numbers were absolutely ridiculous: after all, it confirmed the narrative of growth. Guan Yingmin, an official in Heilongjiang province, said local investment figures were inflated by at least 20 percent, which translates to nearly 100 billion yuan ($15.7 billion).

  As a reminder, Heilongjiang province is where we reported recently a local coal miner, Longmay Mining Holding Group, the biggest met coal miner in Northeast China laid off a record 100,000 workers in one fine September day.

  China Daily also notes that if the local financial reports were true, some single counties’ GDP would have surpassed Hong Kong. An earlier audit by the National Audit Office found one county in Liaoning that reported annual fiscal revenues 127 percent higher than the actual number.

  Again: as long as everyone was “growing”, it didn’t matter if the numbers were fabricated – in fact, the more made up the better.

  Why? As a staff member in the Jilin provincial finance department, who asked not to be identified, told China Daily that in past years, local officials competed each other to lure external investment projects. They reported the promised investment value, whether it had been achieved or not, as the investment figure. So the bigger the “reported” growth, the higher the likelihood of being awarded the project, which in turn means millions in government funds being directly embezzled by corrupt local officials, money which would promptly then end up in some duplex in NYC, San Fran or Vancouver.

  But why is all this emerging now? Simple: it is all the fabricated data’s fault why the current growth (or rather, economic collapse) is so terrible:

  “If the past data had not been inflated, the current growth figures would not show such a precipitous fall,” one official was quoted as saying.

  Brilliant: if only we hadn’t made up ridiculously high data in the past, the comps to one, two or more years ago would not look so terrible.

  What was left unsaid is that if “data had not been inflated”, it would be negative and instead of 7% GDP growth we would be asking just how big China’s GDP contraction will be this year.

  We bring all this up in the aftermath of this weekend’s “strong” Chinese industrial production and retail sales data because it too is completely fabricated and goalseeked. Only now there is no doubt.

  

  

  

  

  

• Meet The Burmese "Slaves" Helping Wal-Mart Maintain Margins

  Peak globalization? Burmese men, women and children are being sold to factories in Thailand – "no names are used, just numbers" – and forced to peel shrimp that ends up in global supply chains. As a recent AP investigation uncovered, U.S. customs records show the shrimp made its way into the supply chains of major U.S. food stores and retailers such as Wal-Mart, Kroger, Whole Foods, Dollar General and Petco, along with restaurants such as Red Lobster and Olive Garden.

  Shrimp is the most-loved seafood in the U.S., with Americans downing 1.3 billion pounds every year, or about 4 pounds per person. Once a luxury reserved for special occasions, it became cheap enough for stir-fries and scampis when Asian farmers started growing it in ponds three decades ago. Thailand quickly dominated the market and now sends nearly half of its supply to the U.S.

  And the way to keep those prices low enough for a stagnant-wage-earning America… "slavery"

  Full AP story here..

  

  

  

  

  

• These Are Deutsche Bank's Two Top Trades After A Fed Rate Hike

  When it comes to Wednesday’s rate hike, the opinion of Deutsche Bank, which has openly called such a move a “policy error” in the past, is quite clear: “the Fed’s objective is to slow credit. With deficient market liquidity that is easier done and said. In doing so it appears they also may help tidy up outstanding FX issues around RMB. Neither are good for risk on now and both favor curve flattening.”

  To be sure, DB does not want to come out sounding like a tinfoil hat blog by telling the whole truth without spinning it at least a little bit, which is why it adds that “Doom and gloom is not the official call on either the US economy, the Fed nor China. But it is our rates view that doom and gloom should be hedged. Do not underestimate how far rates can fall or the curve can flatten depending on the extent to which the Fed insists on tightening and the sensitivity of credit creation and EM/China fall out.”

  That is about as close as DB’s Dominic Konstam will come to saying “doom and gloom” is now the base case.

  But that’s in the medium-term. How to trade the short-term which even a resigned DB believes means a Fed rate hike (even if it is promptly undone with a rate cut or worse as Hilsenrath hinted yesterday)? Here are Konstam’s two core trade recos for the next few days… which some may say is really one trade.

  It’ll take some deep dives in SPX to stop the Fed from tightening. Possible but even we cannot be that pessimistic. So they hike. Then what? How many can they really manage. Less rather than more. And it all depends on how quickly they achieve their real goal. The real goal is not managing inflation higher, otherwise they wouldn’t hike at all. Nor is it managing unemployment higher. That’s not the mandate. The real goal is to cut credit – the evil eye of leverage that threatens longer term sustainable growth. Partly thanks to an already over extended credit cycle and super deficient liquidity, they probably don’t need to hike very much at all. For safety we’ll assume they might try to get to 1 percent. That’s still plenty good enough to expect the curve to flatten and bullishly from the long end. Don’t under estimate how far rates can fall in this scenario. 5y5y easily can trade to old lows and 2s-bonds can flatten to 150 bps. China, like credit should also “get resolved” in Fed tightening. A golden opportunity to have more extensive depreciation.

  Here DB makes an amusing detour between what it “really” thinks, and its “official” bullish, optimistic position which is spun by the cheerleaders such as LaVorgna and Bianco, whose only job is to placate bullish clients who hear what they want to hear, and spend some “soft dollars” with the German bank:

  Of course to be clear our official view on China is not that. Officially, we have been optimistic on Chinese growth and limited scope for depreciation. Officially we also think the Fed has plenty of ability to raise rates without flaying the economy and credit markets.

  But… “Officially though also, we think investors should use the rates market to hedge those official views.”

  We get it: ixnay on the Koolaid-ay.

  What is more surprising is that rarely if ever have we seen a more acute example of just how profoundly one group within a bank disagrees with the bank’s “official” cheerleading narrative: things must be really bad internally for the discord to be so public.

  So putting all this together, what is DB’s recommendation, assuming the market does not crash by over 100 points overnight and trigger a rate hike pause?

  It’s two fold: either buy bonds, or buy even more bonds.

  Even without the profit constrained world for the dim labor market view, the Fed wants credit to slowdown. When credit slows down, buybacks slow. A roll over in the credit cycle is always associated with significant slowing in the labor market. It is true there are some metrics that suggests the corporate sector still has some juice in it, in terms of net worth, outlays to profits. It is not nearly as stretched overall as it has been on these other metrics this time around. But at this rate, it pretty much will become mid 2016. If it wasn’t the Fed wouldn’t be raising rates after all. So maybe there is an immaculate tightening but the choice seems to be either the Fed achieves its goals quickly to a very low terminal Funds rate. Buy bonds. Or they need to be even more aggressive. Buy even longer duration bonds. The choice is more about where to put the long leg of the curve flattener not about whether to steepen or flatten the curve.

  And just to confirm that it is all about return of capital, not on DB also points out what has been the topic of the past week, namely the spectacular implosions in various junk bond funds, something which should not be happening if the economy and financial conditions were strong enough to handle a tiny 25 bps rate increase:

  Credit stresses in the market place appear to be fast emerging. As our HY strategists have argued it is not good enough to “ignore” credit woes simply because they are concentrated in one sector. Crises are always concentrated in one sector but that then leads to contagion. Contagion occurs because of leveraged and forced selling and forced refinancing that then cannot take place.

  Taking all this together, what DB’s “unofficial” message is, since there is no “immaculate tightening”, one which soaks up $600-800 billion in liquidity to start and goes up as much as $3 trillion at 1%, is to start frontrunning QE4 and/or NIRP by the Fed, something which the market will “force” on Yellen in two distinct ways – by causing a sell of in stocks, and by inverting the yield curve hinting a recession is imminent unless the Fed eases immediately once it begins tightening.

  Just as Hilsenrath warned yesterday would happen.

  

  

  

  

  

• Will The Market Force Yellen Into 'None-And-Done'?

  

  The market has a way of getting what it wants. And right now, it surely does not want Yellen to hike this week. Will she nevertheless, as is widely expected? Or will the buoyant markets force yet another delay, ultimately resulting in a ‘none-and-done’?

  There’s no denying that the Fed policies fueled this stock bull market. The liquidity of QE 1 to 4 propelled the markets to new highs with every shot. At the completion of the QE tapering in October 2014, the S&P 500 hovered around the 2,000 mark. Today, we’re trading at exactly the same levels. No QE, no advance.
  

  

  Leon Cooperman, manager of Omega Advisors, argues that interest rate hikes are positive for stocks. That might historically be the case. But this time around, things could be different. We know, that’s the most dangerous sentence in the world. But this is not your average business cycle. Nowhere near. The cumulative GDP-addition since the end of the financial crisis might be equal to the the point of prior rate hike cycles, as bond king Jeff Gundlach pointed out early last week. But there’s barely GDP growth to be found.

  Also, inflation usually picks up in the late expansion of the business cycle. Commodities outperform as the slack in the economy diminishes. That’s the point where the Fed normally starts tightening. Right now, we’re looking at the worst commodity crash in decades. Inventories-to-sales are rising as well. The yuan is plummeting. There is just no slack.

  What about the job market? Isn’t the unemployment rate at the 5% target? Well yes, it is. And at first glance, it’s looking much better than Europe’s 9% unemployment. But wait a second. If we adjust the unemployment for the participation rate, like GMO’s Jeremy Grantham did recently, we’re looking at worse employment figures in the US than in Europe. While even counting in Italy and Spain. You know, the same Europe where ECB-president Mario Draghi just put the QE-pedal further to the metal.

  

  But the Fed seems to want to hike anyway. Why? First of all, there are two tools for monetary policy: words and deeds. And if you use too much of the former compared to the latter, you lose credibility. The Fed put itself in a corner. It is pretty much forced to act.

  Secondly: the US elections are coming up next year. President Obama would like to finish on a positive note. And of course, he would like to see a Democratic successor. To that end, he needs to ‘build confidence’. And a rate hike is a sign of confidence – whether it’s just keeping up appearances or not. If you don’t believe politics matter: it was Obama himself who nominated Yellen as Fed chair in October 2013.

  Now, let’s be crystal clear. These are not valid reasons for a rate hike. On the contrary.

  To make matters worse, market conditions have already significantly tightened since mid-2014. The stress accelerated during this year, culminating in the high yield turmoil we’re currently witnessing. But it’s not just the the well-known HYG and JNK junk bond ETFs that are crashing. Another example is the BKLN Senior Loan ETF pictured below, which includes leveraged loans. There are some rumors of margins calls on total return swaps, which participants use to leverage loan portfolios.

  
  

  Even spreads in investment grade credits are widening sharply.

  

  We are on the cusp on a surge in corporate defaults. Does that sound like a good time to hike rates?

  

  In August 2007, with the first mortgage shockwaves hitting the market, Jim Cramer of all people literally begged Fed chairman Bernanke to “wake up” and “open the discount window”. The CNBC commentator noted: “We have armageddon in the fixed income markets”. The stock market shrugged and made new highs in October, before slipping somewhat. It was not until early 2008 before the summer lows were breached. And it took more than a year for the market to eventually melt down.

  Will the Fed disregard the current bond market turmoil, either on purpose or because of basic ignorance? Or will it hold rates steady yet again, forced by the high yield markets and making ‘none-and-done’ the new mantra? We will find out shortly.

  >>> Protect Your Wealth: Download our Exclusive Gold Report

  Secular Investor offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies are transformed into the Gold & Silver Report and the Commodity Report.
  

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• Paper Money Versus The Gold Standard

  Submitted by Richard Ebeling via EpicTimes.com,

  We are living in a time that can only be considered monetary chaos. The U.S. Federal Reserve has manipulated key interest rates down to practically zero for the last six years, and expanded the money supply in the banking system by $4 trillion dollars over that time. And with the true mentality of the monetary central planner, the Fed Board of Governors are now planning to manipulate key interest rates in an upward direction that they deem desirable.

  The European Central Bank (ECB) has instituted a conscious policy of “negative” interest rates and planned an additional monetary expansion of well over a trillion Euros over the next year. Plus, the head of the ECB has assured the public and financial markets that there is “no limit” to the amount of paper money that will be produced to push the European economies in the direct that those monetary central planners consider best.

  We also should not forget that it was the Federal Reserve that earlier in the twenty-first century undertook a monetary expansion and policy of interest rate manipulation that set the stage for the severe and prolonged “great recession” that began in 2008-2009, in conjunction with a Federal government distorting subsidization of the American housing market.

  The media and the policy pundits may focus on the day-to-day zigs and zags of central bank monetary and interest rate policy, but what really needs to be asked is whether or not we should continue to leave monetary and banking policy in the discretionary hands of central banks and the monetary central planners who manage them.

  

   

  Central Banking as Monetary Central Planning

  And make no mistake about it. Central banking is monetary central planning. The United States and, indeed, virtually the entire world operate under a regime of monetary socialism. Historically, socialism has meant an economic system in which the government owned, managed, and planned the use of the factors of production.

  Modern central banking is a system in which the government, either directly or through some appointed agency such as the Federal Reserve in the United States, has monopoly ownership and control of the medium of exchange. Through this control the government and its agency has predominant influence over the value, or purchasing power, of the monetary unit, and can significantly influence a variety of market relationships. These include the rates of interest as which borrowing and lending goes on in the banking and financial sectors of the economy, and therefore the patterns of savings and investment in the market.

  If there is one lesson to be learned from the history of the last one hundred years – during which the world and the United States moved off the gold standard and onto a government-managed fiat, or paper, money system – is the fundamental disaster of placing control of the money supply in the hands of governments.

   

  Continual Government Abuse of Money

  If is worth recalling that money did not originate in the laws or decrees of kings and princes. Money, as the most widely used and generally accepted medium of exchange, emerged out of the market transactions of a growing number of buyers and sellers in an expanding arena of trade.

  Commodities such as gold and silver were selected over generations of market participants as the monies of free choice, due to their useful characteristics to better facilitate the exchange of goods in the market place.

  For almost all of recorded history, governments have attempted to gain control of the production and manipulation of money to serve their seemingly insatiable appetite to extract more and more of the wealth produced by the ordinary members of society. Ancient rulers would clip and debase the gold and silver coins of their subjects.

  More modern rulers – whether despotically self-appointed through force or democratically elected by voting majorities – have taken advantage of the monetary printing press to churn out paper money to fund their expenditures and redistributive largess in excess of the taxes they impose on the citizenry.

  Today the process has become even easier through the mere click of a “mouse” on a computer screen, which in the blink of an eye can create tens of billions of dollars out of thin air.

  Thus, monetary debasement and the price inflation that normally accompanies it have served as a method for imposing a “hidden taxation” on the wealth of the citizenry. As John Maynard Keynes insightfully observed in 1919 (before he became a “Keynesian”!):

  “By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”

  It is the corrosive, distortive, and destructive effects from monetary manipulation by governments that led virtually all of the leading economists of the nineteenth century to endorse the “anchoring” of the monetary system in a commodity such as gold, to prevent governments from using their powers over the creation of paper monies to cover their budgetary extravagance. John Stuart Mill’s words from the middle of the nineteenth century are worth recalling:

  “No doctrine in political economy rests on more obvious grounds than the mischief of a paper currency not maintained at the same value with a metallic, either by convertibility, or by some principle of limitation equivalent to it . . . All variations in the value of the circulating medium are mischievous; they disturb existing contracts and expectations, and the liability to such changes renders every pecuniary engagement of long date entirely precarious . . .

   

  “Great as this evil would be if it [the supply of money] depended on [the] accident [of gold production], it is still greater when placed at the arbitrary disposal of an individual or a body of individuals; who may have any kind or degree of interest to be served by an artificial fluctuation in fortunes; and who have at any rate a strong interest in issuing as much [inconvertible paper money] as possible, each issue being itself a source of profit.

   

  “Not to add, that the issuers have, and in the case of government paper, always have, a direct interest in lowering the value of the currency because it is the medium in which their own debts are computed . . . Such power, in whomsoever vested, is an intolerable evil.”

  

   

  The Social Benefits of a Gold Standard

  Under a gold standard, it is gold that is the actual money. Paper currency and various forms of checking and other deposit accounts that may be used in market transactions in exchange for goods and services are money substitutes, representing a fixed quantity of the gold-money on deposit with a banking or other financial institution that are redeemable on demand.

  Any net increases in the quantity of currency and checking and related deposits are dependent upon increases in the quantity of gold that depositors with banking and financial institutions add to their individual accounts. And any withdrawal of gold from their accounts through redemption requires that the quantity of currency notes and checking and related accounts in circulation be reduced by the same amount. Under a gold standard, a central bank is relieved of all authority and power to arbitrarily “manage” the monetary order.

  Many critics of the gold standard consider this a rigid and inflexible “rule” about how the monetary system and the quantity of money in the society is to be determined and constrained. Yet, the advocates of the gold standard have long argued that this relative inflexibility is essential to discipline governments within the confines of a “hard budget.”

   

  A Gold Standard Can Limit Government Monetary Abuse

  Without the “escape hatch” of the monetary printing press, governments either must tax the citizenry or borrow a part of the savings of the private sector to cover its expenditures. Those proposing government spending must either justify it by explaining where the tax dollars will come from and upon whom the taxes will fall; or make the case for borrowing a part of the savings of the society to cover those expenditures – but at market rates of interest that tell the truth about what it will cost to attract lenders to lend that sum to the government rather than to private sector borrowers, and therefore, at the social cost of private sector investment and future growth that will have to be foregone.

  In other words, it prevents the government from “monetizing the debt” to cover all or part of its budget deficits. The borrowed sums cannot be created out of thin air through central bank monetary expansion. The government, under a gold standard, can no longer create the illusion that something can be had for nothing.

  As Austrian economist, Ludwig von Mises, expressed it:

  “Why have a monetary system based on gold? Because, as conditions are today and for the time that can be foreseen today, the gold standard alone makes the determination of money’s purchasing power independent of the ambitions and machinations of governments, of dictators, and political parties, and pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called ‘sound money’.”

  

   

  Milton Friedman’s “Second Thoughts” About the Benefits of Paper Money

  It must be admitted that even some advocates of economic freedom and limited government have been advocates of paper money. The most notable one in the second half of the twentieth century was the Nobel Prize economist, Milton Friedman. Over most of his professional career he argued that maintaining a gold standard was a waste of society’s resources.

  Why squander the men, material and machinery digging gold out of the ground to then simply store it away in the vaults of banks? It is better to use those scarce resources to produce more of the ordinary goods and services that can enhance the standard and quality of people’s lives. Control the potential arbitrary recklessness of central banks, Friedman proposed, by setting up a monetary “rule” that says: Increase the paper money supply by some small annual percent, with no discretion left in the hands of the monetary managers.

  But it less well known is that in the years after Friedman won the Nobel Prize in Economics in 1976, he had second thoughts about this monetary prescription. In a 1986 article on, “The Resource Costs of Irredeemable Paper Money,” he argued that when looking over the monetary mismanagement and mischief caused by governments and central banks during the twentieth century, it was “crystal clear” that the costs of mining, minting and storing gold as the basis of a monetary system would have been far less than the disruptive and destabilizing costs imposed on society due to paper money inflations and the booms and busts of the business cycle brought about by central bank manipulations of money and interest rates.

  In his 1985 presidential address before the Western Economic Association on “Economists and Public Policy,” Friedman said that Public Choice theory – the use of economics to analyze the workings of the political process – had persuaded him that it would never be in the long-run self-interest of governments or central bankers to manage the monetary system according to some hypothetical “public interest.”

  Those in government or holding the levers of the monetary printing press will always be susceptible to the temptations and pressures of short-run political gains that monetary expansion can fund. He admitted that it had been a “waste of time” on his part to try to get governments and central banks to follow his idea for a monetary rule.

  And in another article in 1986 (co-authored with Anna Schwartz) on, “Has Government Any Role in Money?” Friedman said that while he was not ready at that time to advocate a return to the gold standard, he did conclude that “that leaving monetary and banking arrangements to the market would have produced a more satisfactory outcome than was actually achieved through government involvement.”

  

   

  Monetary Mismanagement versus Markets and Gold

  But it is not only the political dangers arising from government mismanagement of paper money that justifies the establishment of a gold standard. It is also and equally the fact that monetary central planning is unworkable as a means to maintain economy-wide stability, full employment, and growth.

  Especially since the 1930s, many economists and policy makers influenced by Keynes and the Keynesian Revolution have believed markets are potentially unstable and susceptible to wide and prolonged fluctuations in employment and output that only can be prevented or reduced in severity through “activist” monetary and fiscal policy.

  But in reality, the causation runs the in the opposite direction. It is central bank manipulations of money, credit and interest rates that have generated the instability and periodic swings in economy-wide production and employment.

  The fact is financial institutions and interest rates have important work to do in the market economy. Banks and other financial intermediaries are supposed to serve as the “middlemen” who bring together those who wish to save portions of their earned income with others who desire to borrow and invest that savings in profit-oriented productive ways that generate capital formation, technological improvements, and cost-efficient production of new, better and more goods and services to satisfy consumer demands in the future.

  Market-determined interest rates are meant to bring those savings and investment plans into coordination with each other, so the amount of invested capital and the time-shape of the investment horizons undertaken are consistent with the available real savings to support them to maintainable completion.

  Monetary expansion by central banks creates the illusion that there is more actual investable savings in the economy than really exists. And the false interest rate signals generated in the banking system by the monetary expansion not only misinforms potential investment borrowers about the amount of real savings available for capital projects, but creates an incorrect basis for determining the present value calculations that influence the time horizons for the investments undertaken.

  It is these false monetary and interest rate signals that induces the misdirection of resources, the mal-investment of capital, and the incorrect allocation of labor among employments in the economy that sets the stage for an inevitable and inescapable “correction” and readjustment that represents the recession stage of the business cycle that follows the collapse of the artificial boom.

  The monetary central planners can never be more successful in determining a “optimal” quantity of money or the “right” interest rates to assure savings-investment coordination than all other socialist planners were when they tried to centrally plan agricultural production or investment output for an entire society.

  All such attempts at monetary planning and management by central bankers are instances of what Friedrich A. Hayek called in his Nobel Lecture a, “pretense of knowledge,” that they can know better and do better than the outcomes generated by competitive interactions of the market participants, themselves. And as Adam Smith warned, nowhere is such regulatory power “so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit to exercise it.”

  There is no way of knowing the optimal amount of money in the economy other than allowing market participants in the competitive exchange process to decide what they want to use as money – which has historically been a commodity such as gold or silver. And there is no way of knowing what interest rates should be other than allowing the market forces of supply and demand for lending and borrowing to determine those interest rates through the process of private sector financial intermediation, without government or central bank interference or manipulation.

  

   

  The Return to the Gold Standard as a Monetary Constitution

  Finally, how do we return to a functioning and workable gold standard? Under the current government and central bank-controlled monetary system the simplest method might be for the monetary authority to stop creating and printing money and credit. Over a short period of time a fairly reasonable estimate could be made about the actual quantity of a nation’s currency and checking and related deposits that are in existence and in circulation. A new legal redemption ratio could be established by dividing the estimated total quantity of all forms of these money-substitutes into the quantity of gold possessed by the government and the central bank.

  A country following this procedure would then, once again, be on the gold standard. Its long-run maintainability, of course, would require the government and the central bank to follow those “rules of the game” that no increase in the quantity of money-substitutes may be created and brought into circulation unless there have been net deposits of gold in people’s accounts with banking and other financial institutions.

  Can we trust governments and central banks to abide by these rules of the game? The temptations to violate them will still remain strong in a political environment dominated by ideologies of wealth redistribution, special interest favoritism, and numerous “entitlement” demands.

  It is why the real long-run goal of monetary reform should be the denationalization of money. That is, the separation of money from the state by ending of central banking, altogether. In its place would emerge private, competitive free banking – a truly market-based money and banking system.

  But nevertheless, in the meantime, a gold standard can serve as a form of a “monetary constitution” setting formal limits and imposing restraints on those in government who would want to abuse the monetary printing press, similar to the way political constitutions, however imperfectly, are meant to limit the abuses of power-lusting monarchs and the plundering majorities in functioning democracies.

  If it fails, it should not be for want of trying. And a gold standard can be one of the positive institutional reforms in the attempt and on the way to a fully free market monetary system.

  

  

  

  

  

• Prominent Tennessee Senator Fails To Disclose Millions In Hedge Fund, Real Estate Investments

  Earlier this year, quite a few members of the American electorate were distressed to learn that the Clinton Foundation had apparently suffered what we called a “Geithner Moment.” 

  For those who might have missed the story, when a Reuters investigation revealed discrepancies, the charity decided to refile five years worth of tax returns and review filings dating back as far as fifteen years. At issue were disclosures around contributions from US and foreign governments which Reuters claimed totaled “tens of millions” of dollars in a typical year but which mysteriously disappeared altogether from the organization’s 990s starting in 2010. As we noted at the time, the Foundation was quick to point out that when it comes to charities, it is exemplary in terms of being forthright, but the missing disclosures will likely serve to fan the flames for Republicans who claim Clinton’s ties to the charities could make her susceptible to the influence of outside interests. 

  A few days later, the charity’s acting CEO penned a lengthy blog post explaining the “mistakes” and assuring voters that the organization goes to great lengths to avoid conflicts of interest. Finally, a few days after that, IB Times questioned whether a $200,000 payment made to Bill Clinton by Goldman Sachs (ostensibly as compensation for a speaking appearance) was an effort to influence the State Dept’s decision making process surrounding a loan from the Export-Import Bank to a company that was set to purchase planes from a Goldman-backed supplier. Revelations that Hillary Clinton’s State Department approved $165 billion in arms deals to nations who had previously given money to the Clinton Foundation didn’t help to reassure anyone. 

  Put simply: if voters don’t know where the money is coming from (even if the contributions are “charitable”) they are operating with incomplete information with regard to who may be influencing the candidates. 

  Now, it turns out Tennessee Senator Bob Corker – who you might recall had a run in or two with Ben Bernanke and once penned a scathing FT Op-Ed about the market’s unhealthy fixation with the Fed – failed to disclose millions in income from hedge funds and real estate investments. 

  As WSJ reports, “Mr. Corker late Friday filed a series of amendments showing that his personal financial reports as originally filed included dozens of errors and omissions.”

  Ok, so what’s the nature of these “mistakes?” 

  The new forms show that Mr. Corker had failed to properly disclose at least $2 million in income from investments in three small hedge funds based in his home state.

  Wow. Ok, was there anything else? 

  He also didn’t properly report millions of dollars in income from commercial real-estate investments due to an accounting error. 

  This is starting to seem like a rather glaring omission – surely a member of the Senate Banking Committee wouldn’t have “forgotten” to disclose anything else, right? 

  And he didn’t disclose millions of dollars in other assets and income from other financial transactions.

  Goodness. So what’s the grand total? 

  His report for 2014 didn’t include a gain of between $304,000 and $1.4 million in hedge fund Gerber/Taylor.

   

  In 2013, he failed to disclose a gain of between $100,001 and $1 million in hedge fund TSW II. And in 2012, he made a gain of $1.2 million in Pointer (QP) LP, though his previous statement reported income of $100,001 to $1 million from the hedge fund.

   

  The amendments also show that he failed to disclose a 2014 investment in Gerber/Taylor of between $500,001 and $1 million and a 2013 investment in Pointer of between $1 million and $5 million.

   

  The senator also underreported rental income from his commercial real-estate investments in Corker Properties, a company he founded years before being elected to the Senate. 

   

  As a result of the accounting error, Mr. Corker’s new forms show additional income of at least $3.8 million between 2007 and 2014 from his commercial real-estate holdings.

  So millions upon millions upon millions. Got it.

  “This is not a situation calling for punishment or admonition by the Ethics Committee,” Robert Walker, a former chief counsel for the Senate ethics panel told The Journal. “You can’t just disclose once you get caught,” Anne Weismann, president of the Campaign for Accountability, counters.

  For those unfamiliar, this isn’t the first time Corker has come under scrutiny for his investments. Just last month, the Campaign for Accountability (CFA), a D.C. watchdog, called for an SEC and ethics investigation of Corker in connection with his family’s trading in shares of CBL & Associates (a REIT based in Tennessee). Here are some excerpts from the CBA’s press release:

  Between 2008 and 2015, Sen. Corker, his wife and daughters made an astonishing 70 trades of stock in the real estate investment giant CBL & Associates Properties – more than triple the number of transactions he made of any other stock. Some of the trades closely preceded company announcements that led to changes in the stock’s price and seemingly resulted in the senator making millions of dollars.

   

  CfA Executive Director Anne Weismann stated, “Sen. Corker’s trades followed a consistent pattern — he bought low and sold high. It beggars belief to suggest these trades – netting the senator and his family millions – were mere coincidences.”

   

  As the Wall Street Journal has reported, Sen. Corker failed to report numerous trades of CBL stock. Federal law requires members of Congress to report stock trades and file reports disclosing their assets. Many of Sen. Corker’s profitable trades were made in advance of his broker, UBS, issuing reports impacting CBL’s trading price.

   

  Sen. Corker recently amended his filings to reveal a 2009 purchase of between $1 and $5 million of CBL stock, sold just five months later in 2010 at a 42% profit. Similarly, Sen. Corker made purchases worth between $3 and $15 million in 2010 and, just after his last trade, UBS said it was upgrading its outlook. The stock went up 18%. Shortly thereafter, Sen. Corker began selling; a week later, UBS downgraded the stock and the share price soon declined about 10%.

  Nope, nothing suspicious about that. But it gets better.

  As CBA also notes, “as a member of the Senate Banking Committee, Sen. Corker has advanced legislation that would financially benefit UBS and CBL.” Here are some excerpts from a piece by Vanity Fair contributing editor Bethany McClean who parsed the CBA’s entire complaint (enbedded below): 

  As the complaint—filed with the SEC and the Senate Select Committee on Ethics—details, Corker and CBL go way back. Corker began his career at a company whose primary business was subcontracting for CBL and which is now substantially owned by CBL. CBL executives were Corker’s “first and most generous donors,” as the complaint put it, when Corker filed to run for Congress in 2006.

   

  Both directly and indirectly, CBL have given generously to Corker. According to the complaint, CBL’s executives, directors and their spouses rank among the senator’s top campaign donors, contributing $88,706 to his campaign committee and PAC since his 2006 run. Since Corker’s arrival in the Senate, CBL executives have contributed more than $50,000 each to NAREIT and ICSC—which, in turn, were part of a nine-PAC consortium that held a fundraiser for Corker in Washington in 2011. NAREIT and ICSC also donated $15,000 directly to his campaign committee since his arrival in the Senate.

   

  A few years ago, the Environmental Protection Agency and the Army Corps of Engineers issued a rule called “Waters of the United States,” which would have expanded the EPA’s jurisdiction.

   

  Both the ICSC and NAREIT were among the many who fought against it.

   

  Using a rarely used tool called a Congressional Review Act, the Senate passed a resolution last month by a vote of 53 to 44 to rescind the rule. Corker’s vote in favor of rescinding the rule was celebrated on Twitter. 

  Senate passes Resolution of Disapproval on #WOTUS rule 53-44. Both Senators @SenAlexander and @SenBobCorker voted yes.

  — TN Farm Bureau (@FBonTheHill) November 4, 2015

  Then there’s the long, vicious fight over online retailers not charging sales tax, because states are barred from collecting sales tax from out-of-state companies. This has been an area of particular concern to companies like CBL, which own shopping malls, and which stand to lose out if consumers choose to buy online.

   

  Back in 2013, a measure called the Marketplace Fairness Act, which would have required online retailers to collect sales taxes, failed in part because some top Republicans opposed it. Corker supported it. Just this spring though, a bipartisan group of senators including Corker reintroduced the measure. 

  And on, and on, and on. 

  You’ll also note that Corker comes in at number 23 on the richest members of Congress list. Here’s the entry from Roll Call:

  

  So if you needed another reason (or three, or four) to distrust politicians and to despise business as usual inside the Beltway, you can find plenty of things to be disgusted with here. Indeed, the latest revelations about Corker’s “ommissions” look like par for the course for the Senator.

  While none of the above will likely come as any surprise to readers, what we would note is that it’s precisely this kind of thing that’s driven voters to support a certain Presidential candidate who, like Corker, knows a thing or two about real estate…

  289155471 Campaign for Accountability Requests SEC and Ethics Investigation of Sen Robert Corker R TN for I…

  

  

  

  

  

• Did Goldman Just Do It Again?

  For anyone who managed to avoid Goldman’s “can’t miss” recommendation and get short the EURUSD two weeks ago ahead of the ECB’s stunning disappointment which sent the pair soaring and crushing virtually every macro hedge fund and FX trader, Goldman’s Asset Management group has another recommendation just for you.

  

  In case the fine print is a little too small, here it is in normal font:

  High Yield & Bank Loans: We have increased our overweight in high yield.

  Why?

  • High yield returned -1.53% over the week, with spreads widening by 23bps, driven by underperformance in energy-related markets. Bank loans returned -0.27% and European high yield returned -0.58%.
  • High yield funds experienced $398mn in inflows over the week, while loan funds saw $387mn in outflows.
  • High yield primary market activity increased over the week, with eight deals pricing for $4.1bn. Bank loan new issue volumes fell, with nine deals pricing for $2.3bn.

  

   

  Here is one simple explanation of what Goldman suggests you do:

  

  Here is another: buy everything that Goldman has to sell. Confused: see Abacus.

  h/t @insidegame

  

  

  

  

• Credit Carnage & Contagion Sparks Panic… Buying Of Stocks

  Today…

  The Yellen effect pic.twitter.com/ogQgxINN2r

  — Morris Cabrioli (@insidegame) December 14, 2015

   Today's focus was on credit markets – rightly – as the contagion spread to IG markets… 

  

   

  But it started when China devalued the Yuan yet again…for the 6th day in a row – and in growing size – PBOC fixed the Yuan weaker to its weakest since July 2011

  

   

  And The National Team stepped in to save Chinese stocks again…

  

   

  The equity market "went nuts" just after 10am ET this morning with a wild algo seeming wreaking haov in S&P Futures and the VIX ETF complex…

  

   

  But, despite the carnage in credit, VIX was crushed in an effort to prove to 'mom-and-pop' that everything is awesome…

  

   

  But USDJPY did the heavy-lifting as stops were run to 121…

  

   

  Leaving stocks soaring into the close (Trannies and Small Caps remained red)…

  

   

  Year-to-Date, it's ugly with only Nasdaq holding any gains…

  

   

  And the last time this kind of vol hit, The Fed folded…

  

   

  Trannies entered a bear-market (down 21% from the highs)…

  

   

  Stocks and credit did not agree…

  

   

  Treasury yields rose notably today (China selling? or liquidation flows from bond redemption requests)

  

   

  The US Dollar closed unchanged against the majors – dumping into the European close and rallying all the way back this afternoon…

  

   

   

  Commodities were mixed today but as the USD rallied after Europe's closed so they all leaked lower (despite crude's exciting algo ramp this morning)…

  

   

  Crude prices rebounded… running stops at the lows and highs…

  

   

  After Speculative crude shorts hit a new record high…

  

   

   

  Charts: Bloomberg

  

  

  

  

• Fed-pocalypse Now?

  Submitted by Howard Kunstler via Kunstler.com,

  “Here’s another fine mess you’ve gotten me into….”

  — Oliver Hardy

  If ever such a thing was, the stage is set this Monday and Tuesday for a rush to the exits in financial markets as the world prepares for the US central bank to take one baby step out of the corner it’s in. Everybody can see Janet Yellen standing naked in that corner — more like a box canyon — and it’s not a pretty sight. Despite her well-broadcasted insistence that the economic skies are blue, storm clouds scud through every realm and quarter. Equities barfed nearly four percent just last week, credit is crumbling (nobody wants to lend), junk bonds are tanking (as defaults loom), currencies all around the world are crashing, hedge funds can’t give investors their money back, “liquidity” is AWOL (no buyers for janky securities), commodities are in freefall, oil is going so deep into the sub-basement of value that the industry may never recover, international trade is evaporating, the president is doing everything possible in Syria to start World War Three, and the monster called globalism is lying in its coffin with a stake pointed over its heart.

  Folks who didn’t go to cash a month ago must be hyperventilating today.

  But the mundane truth probably is that events have finally caught up with the structural distortions of a financial world running on illusion. To everything there is a season, turn, turn, turn, and economic winter is finally upon us. All the world ‘round, people borrowed too much to buy stuff and now they’re all borrowed out and stuffed up. Welcome to the successor to the global economy: the yard sale economy, with all the previously-bought stuff going back into circulation on its way to the dump.

  A generous view of the American predicament might suppose that the unfortunate empire of lies constructed over the last several decades was no more than a desperate attempt to preserve our manifold mis-investments and bad choices. The odious Trump has made such a splash by pointing to a few of them, for instance, gifting US industrial production to the slave-labor nations, at the expense of American workers not fortunate enough to work in Goldman Sachs’s CDO boiler rooms. Readers know I don’t relish the prospect of Trump in the White House. What I don’t hear anyone asking: is he the best we can come up with under the circumstances? Is there not one decent, capable, eligible adult out there in America who can string two coherent thoughts together that comport with reality? Apparently not.

  The class of people who formerly trafficked in political ideas have been too busy celebrating the wondrous valor of transgender. Well, now the wheels are going to come off the things that actually matter, such as being able to get food and pay the rent, and might perforce shove aside the neurotic preoccupations with race, gender, privilege, and artificial grievance that have bamboozled vast swathes of citizens wasting a generation of political capital on phantoms and figments. Contrary to current appearances, the election year is hardly over. There is still time for events to steer history in another direction.

  Mrs. Yellen and her cortege of necromancers may just lose their nerve and twiddle their thumbs come Wednesday. If they actually make the bold leap to raise the fed funds rate one measly quarter of a percent, they might finally succeed in blowing up a banking system that deserves all the carnage that comes its way. There is something in the air like a gigantic static charge, longing for release.

  

  

  

  

  

• "Nobody Could Have Possibly Seen This Coming"

  We have been watching the market’s “sudden panic” about the implosion in the junk bond space with bemused detachment because, for the better part of the past year, we have been warning that this is about to take place. Here is a modest sample of articles from the past year commenting on the dangers from junk:

  • Junk Bonds Are Going To Tell Us Where The Stock Market Is Heading In 2015
  • Add Junk Bonds To The Growing Pile Of Concerns
  • This Alarming Indicator Is Back At A Level Last Seen 10 Days Before The Bear Stearns Collapse
  • Junk Bonds “Even More Dangerous” Than Stocks, Icahn Says
  • “This Will End Badly” High Yield Bonds Tumble To Worst Since 2011
  • High Yield Credit Risk Explodes To Its Highest Since June 2013
  • 4 Telltale Signs The Credit Cycle Is Turning Now
  • The Complete Guide To ETF Phantom Liquidity
  • How Fund Managers Use ETF Phantom Liquidity To Avert A Meltdown
  • What Would Happen If ETF Holders Sold All At Once? Howard Marks Explains
  • ETF Issuers Quietly Prepare For “Market Meltdown” With Billions In Emergency Liquidity
  • Wall Street Sees Junk Bond Collapse, Prepares to Profit from it
  • This Is When Junk Bonds Go Kaboom!

  And so on.

  All this culminated with a recent piece titled simply: “How To Profit From The Coming High Yield Meltdown.”

  To be sure, now that the carnage has been finally appreciated, everyone is on it. Cue Bloomberg:

  Debt of struggling companies has slumped, with one market gauge falling to a six-year low, as declining energy and commodity prices hit producers just as the Federal Reserve prepares to raise borrowing costs for the first time in almost a decade. Scott Minerd, global chief investment officer at Guggenheim Partners, predicts 10 percent to 15 percent of junk bond funds may face high withdrawals as more investors worry about getting their money back. He joins money managers Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross in warning of more high-yield trouble ahead.

  However, in all honesty the warnings were there for those who cared long ago and not just on this website. Back in July, the WSJ wrote:

  Reef Road Capital LLC, led by former J.P. Morgan Chase & Co. proprietary trader Eric Rosen, has been betting against, or shorting, exchange-traded funds that hold junk bonds and buying options that will pay off if the value of these high-yield securities falls.

   

  “They are going to be toast,” David Tawil, president of hedge fund Maglan Capital LP, said of the funds holding hard-to-sell assets like emerging-market debt and small-capitalization stocks. “It will be one of our first levels of shorting the moment we start to see cracks, because it’s ripe with retail, emotional investors.”

   

  In a way, the moves resemble efforts by some hedge funds to find a way to wager against the U.S. housing market ahead of the financial crisis. At the time, the country brimmed with highly indebted homeowners who had been encouraged to borrow more in a low-interest-rate environment… The risk now is that this latest era of low interest rates has made risky junk bonds, which pay relatively high returns, disproportionately attractive for investors.

  And then there was everyone else.

  Here is an extensive selection of various warnings noted over the past year which cautioned everyone that a rout in junk is coming courtesy of Deutsche Bank.

  Here are the hedge fund suggestions to go short the high yield space:

  • April 2015, Pacific Alternative, Ross associate director, “Although ‘bank-run’ risk exists in all mutual fund structures because the investors in them have daily liquidity, the risk is heightened with liquid alts due to the relative novelty of the strategy to the retail investor”
  • July 2015, Apollo, “ETFs and similar vehicles increase ease of access to the high yield market, leading to the potential for a quick ‘hot money’ exit”
  • July 2015, Maglan Capital, Tawil President, “They (the funds holding hard-to-sell assets) are going to be toast“ “It will be one of our first levels of shorting the moment we start to see cracks, because it’s ripe with retail, emotional investors“
  • 8 December 2015, DoubleLine, Gundlach co-founder, “We’re looking at some real carnage in the junkbond market” “This is a little bit disconcerting that we’re talking about raising interest rates with the credit markets in corporate credit absolutely tanking. They’re falling apart“
  • December 2015, Legal & General Investment Management, Roe head of multi asset funds, “The problem dates back to the financial crisis, as there is not the liquidity in the market to cope with a wave of redemptions and investors know this” “We saw this kind of thing before in 2008-09 in the property market, when a number of funds had to be closed because of liquidity problems”
  • December 2015, USAA Mutual Funds, Freund CIO and portfolio manager, “A precursor of a period of substantial defaults“
  • December 2015, Lehmann Livian Fridson Advisors, Fridson money manager, “It’s significantly bad news for the market, and another straw on the camel’s back” “It’s not typical, but it raises the question: Can this happen to the next-worst fund? You just don’t know. It certainly doesn’t encourage people to put money in, and that just exacerbates the liquidity problem there”
  • 10 December 2015, Carl Icahn, “The meltdown in High Yield is just beginning“

  Here are official regulators warning about “run risk”:

  • 8 October 2014, IMF, “Capital markets have become more significant providers of credit since the crisis, shifting the locus of risks to the shadow banking system. The share of credit instruments held in mutual fund portfolios has been growing, doubling since 2007, and now amounts to 27 percent of global high-yield debt. At the same time, the fund management industry has become more concentrated. The top 10 global asset management firms now account for more than $19 trillion in assets under management. The combination of asset concentration, extended portfolio positions and valuations, flightprone investors, and vulnerable liquidity structures have increased the sensitivity of key credit markets, increasing market and liquidity risks” … Redemption fees that benefit remaining shareholders are one option; however, the calibration of such a fee is challenging and to the extent possible, should not be time varying, as this could encourage asset flight. Similarly, gates to limit redemptions appear to solve some incentive problems, but may simply accelerate redemptions ahead of potential imposition and lead to contagion“
  • 10 October 2014, IMF, Lagarde Managing Director, “There is too little economic risk taking, and too much financial risk taking” “One side effect is the danger, once again, of a rush toward reckless risk taking. While there are a number of warning signs, the risks are particularly acute in the nonbank sector. One example: mutual funds now account for 27 percent of global high-yield debt, twice as much as in 2007. This is larger than the world’s largest economy—the United States. History teaches us a clear lesson—the bigger the boom, the bigger the bust. A sudden shift in sentiment could easily cascade across the entire globe”
  • 18 February 2015, FRB, Powell Governor, “Caution on the part of supervisors is certainly understandable here. It is worth  remembering that the destructive potential of the subprime mortgage market was not obvious in advance and not fully reflected in real-time measures of balance sheet exposure” “Mutual funds that invest in fixed income assets have seen large inflows and have become more significant investors in this market. Some of these funds, including those holding syndicated leveraged loans and high-yield bonds, provide investors with what is called “liquidity transformation”–providing daily liquidity even when the underlying assets are relatively illiquid. The risk is that, in the event of a shock or a panic, investors will demand all of their money back at the exact time when the liquidity of the already illiquid underlying assets deteriorates even further. Investors may not anticipate or recognize this problem until it is too late–the so-called liquidity illusion” “Bank loan funds, which attract retail investors and offer daily liquidity, now total about $150 billion, or 20 percent of institutional leveraged loans outstanding…. supervisors and market participants have raised valid concerns that stressful times could well bring large-scale redemptions and threaten runs.
  • 2 June 2015, Goldman Sachs, Cohn COO, “I am concerned like many others that there’s a rather large imbalance being created between the daily liquidity in the AUM (investment trust) world and the broker-dealer liquidity available to that world” “The industry as a whole has been shrinking their balance sheets because of regulatory constraints and the ability for dealers to create liquidity because of other regulatory constraints that are not balance sheet are kicking in, and we’re implementing those too. And I think there’s a relatively large disconnect happening there. And you don’t see it most days. If you ask me how liquidity is on a normal day, I would say normal day liquidity is quite normal. The problem is on the days when you need liquidity, it probably won’t be there”
  • 3 September 2015, FAC (Federal Advisory Council), “Under normal conditions in well-functioning markets, banks will provide necessary liquidity, but under stress, liquidity shortage may be very problematic. Liquidity constraints may become more apparent as interest rates rise in the coming months and years to more normal levels” “High-yield bonds, in particular, are prospectively the asset class where illiquidity will become most acute in a downturn”
  • 7 October 2015, IMF, “Changes in market structures appear to have increased the fragility of liquidity. Larger holdings of corporate bonds by mutual funds, and a higher concentration of holdings among mutual funds, pension funds, and insurance companies, are associated with less resilient liquidity”
  • 3 December 2015, FRB, Fischer Vice Chairman, “Valuation pressures had been high for a while, before risk spreads widened and issuance slowed over the past year” “The high issuance of corporate debt in recent years is evident in the near-record-high debt-to-asset ratios at speculative-grade and unrated corporations, making this sector vulnerable to adverse shocks“

  And even the regulators chimed in about the quality of underlying “junk” assets and levered loans:

  • 21 May 2013, U.S. Treasury Secretary Lew, “The issuance of high-yield bonds reached a historical high in the fourth quarter of 2012. While underwriting standards remain conservative in many markets, there are some examples of loosening standards“
  • 25 February 2014, FRB, Tarullo Governor, “High-yield corporate bond and leveraged loan funds, for instance, have seen strong inflows, reflecting greater investor appetite for risky corporate credits, while underwriting standards have deteriorated, raising the possibility of large losses going forward“
  • 18 June 2014, FRB, Yellen chair, “With respect to financial stability, we monitor potential threats to financial stability very, very carefully, and we have spoken about some – I’ve spoken in recent congressional testimonies and speeches about some threats to financial stability that are on our radar screen that we are monitoring, trends in leverage lending and the underwriting standards there, diminished risk spreads in lower-grade corporate bonds. High-yield bonds have certainly caught our attention. There is some evidence of reach for yield behavior. That’s one of the reasons I mentioned that this environment of low volatility is very much on my radar screen and would be a concern to me if it prompted an increase in leverage or other kinds of risk-taking behavior that could unwind in a sharp way and provoke a sharp, for example, jump in interest rates.”
  • 7 October 2014, NY fed, Federal Reserve Bank of New York, Dudley President, “We are following up with those banks to see how closely they are following the guidance (regarding standard of leveraged loan)” “We think the market is a bit frothy”
  • 18 February 2015, FRB, Powell Governor, “Investors may take highly leveraged positions in leveraged loans through total return swaps and secured funding transactions, and a substantial buildup of these positions could present run and fire-sale risks if asset values started to fall…. “Another issue to consider when contemplating such intervention is that, particularly in the United States, activity is free to migrate outside the commercial banking system into less regulated entities. As supervisory scrutiny has increased in recent years, a growing number of nonbanks have become involved in the distribution of leveraged loans.”
  • 6 May 2015, FRB, Yellen chair, “I would highlight that equity market valuations at this point generally are quite high” “There are potential dangers there” “Long-term interest rates are at very low levels, and that would appear to embody low term premiums, which can move, and can move very rapidly” “When the Fed decides it’s time to begin raising rates, these term premiums could move up and we could see a sharp jump in long-term rates“
  • 22 October 2015, Bank of England, Cunliffe Deputy Governor: Challenge for the market: “A particular concern occupying both the (BoE’s) Financial Policy Committee and authorities internationally is that simultaneous redemptions from open-ended funds offering short-term redemptions could test the resilience of market liquidity” “It is quite conceivable that given the range and speed of regulatory reforms, there are parts of the framework that might not work in the way we intended“

  Finally, ETFs:

  “ETFs are another form of financial engineering that have grown rapidly over the past decade or so – from a small base in the early 2000s to more than US$2 trillion today. Equity funds still comprise the majority of ETFs. But the share of fixed income ETFs, in which the underlying assets are much less liquid, has grown substantially – in Europe, from around 5% in the early 2000s to around 25% today” “In times of stress not only can their liquidity characteristics revert back to that of their underlying assets, they can also trade at a discount to the value of these assets. We saw some of this effect in the market turmoil last summer. We need to understand better why these effects happened and the circumstances in which they could reoccur”

  * * *

  All of the above? Ignore, as our friend Eddie Morra sarcastically remarks:

  Holy Shit!! This HY mess came out of nowhere

  — Eddie Morra_ZH (@convert_trader) December 14, 2015

  Bottom line, if junk bonds end up being the precursor to a wholesale market swoon or something even more serious, one can be certain that the common refrain from all the financial “experts” will be a very well known one:

  “nobody could have possibly seen this coming.“

  

  

  

  

  

  

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• The Neocon's Hegemonic Goal Is Driving The World To Extinction

  Authored by Paul Craig Roberts,

  My warning that the neoconservatives have resurrected the threat of nuclear Armageddon, which was removed by Reagan and Gorbachev, is also being given by Noam Chomsky, former US Secretary of Defense William Perry, and other sentient observers of the neoconservatives’ aggressive policies toward Russia and China.

  Daily we observe additional aggressive actions taken by Washington and its vassals against Russia and China. For example, Washington is pressuring Kiev not to implement the Minsk agreements designed to end the conflict between the puppet government in Kiev and the break-away Russian republics.  Washington refuses to cooperate with Russia in the war against ISIS. Washington continues to blame Russia for the destruction of MH-17, while preventing an honest investigation of the attack on the Malaysian airliner. Washington continues to force its European vassals to impose sanctions on Russia based on the false claim that the conflict in Ukraine was caused by a Russian invasion of Ukraine, not by Washington’s coup in overthrowing a democratically elected government and installing a puppet answering to Washington.

  The list is long. Even the International Monetary Fund (IMF), allegedly a neutral, non-political world organization, has been suborned into the fight against Russia. Under Washington’s pressure, the IMF has abandoned its policy of refusing to lend to debtors who are in arrears in their loan payments to creditors. In the case of Ukraine’s debt to Russia, this decision removes the enforcement mechanism that prevents countries (such as Greece) from defaulting on their debts. The IMF has announced that it will lend to Ukraine in order to pay the Ukraine’s Western creditors despite the fact that Ukraine has renounced repayment of loans from Russia.

  Michael Hudson believes, correctly in my view, that this new IMF policy will also be applied to those countries to whom China has made loans. The IMF’s plan is to leave Russia and China as countries who lack the usual enforcement mechanism to collect from debtors, thus permitting debtors to default on the loans without penalty.

  In other words, the IMF is presenting itself, although the financial media will not notice, as a tool of US foreign policy.

  What this shows, and what should concern us, is that the institutions of Western civilization are in fact tools of American dominance. The institutions are not there for the noble reasons stated in their founding documents.

  The bottom line is that Western Capitalism is simply a looting mechanism that has successfully suborned Western governments and all Western “do-good” institutions.

  As in George Orwell’s 1984, the IMF is dividing the world into warring factions — the West vs. the BRICS.

  To avoid the coming conflict that the neoconservatives’ pursuit of American hegemony is bringing, the Russians have relied on fact-based, truth-based diplomacy. However, neocon Washington relies on lies and propaganda and has many more and much louder voices. Consequently, it is Washington’s lies, not Russia’s truth, that most of the Western sheeple believe.

  In other words, Russia was misled by believing that the West respects and abides by the values that it professes. In fact, these “Western values” are merely a cover for the unbridled evil of which the West consists.

  The Western peoples are so dimwitted that they have not yet understood that the “war on terror” is, in fact, a war to create terror that can be exported to Muslim areas of Russia and China in order to destabilize the two countries that serve as a check on Washington’s unilateral, hegemonic power.

  The problem for the neocon unilateralists is that Russia and China—although misinformed by their “experts” educated abroad in the neoliberal tradition, people who are de facto agents of Washington without even knowing it—are powerful military powers, both nuclear and conventional. Unless Russia and China are content to be Washington’s vassal states, for the neoconservatives, who control Washington and, thereby, the West, to press these two powerful countries so hard can only lead to war. As Washington is not a match for Russia and China in conventional warfare, the war will be nuclear, and the result will be the end of life on earth.

  Whether ironic or paradoxical, the US is pushing a policy that means the end of life. Yet, the majority of Western governments support it, and the insouciant Western peoples have no clue.

  But Putin has caught on. Russia is not going to submit. Soon China will understand that US dependency on China’s workforce and imports is not a protection from Washington’s aggression. When China looks beyond its MIT and Harvard miseducated neoliberal economists to the writing on the wall, Washington is going to be in deep trouble.

  What will Washington do? Confronted with two powerful nuclear forces, will the crazed neocons back off? Or will their confidence in their ideology bring us the final war?

  This is a real question. The US government pays Internet trolls to ridicule such questions and their authors. To see the people who sell out humanity for money, all you have to do is to read the comments on the numerous websites that reproduce this column.

  Nevertheless, the question remains, unanswered by the Western presstitute media and unanswered by the bought-and-paid-for stooges in the US Congress and all Western “democracies.”

  Indications are that Russia has had enough of American arrogance. The Russian people have elevated a leader as they always do, and which Western countries seldom, if ever, do. The West has triumphed by technology, not by leadership. But Vladimir Putin is Russia’s choice of a leader, and he is one. Russia also has the technology and a sense of itself that no longer exists in the diversified West.

  There is nothing like Putin anywhere in the West, over which presides a collection of bought-and-paid-for-puppets who report to private interest groups, such as Wall Street, the military-industrial complex, the Israel Lobby, agribusiness, and the extractive industries (energy, mining, timber).

  At the 70th Anniversary of the United Nations (September 28), Putin, backed by the President of China, announced that half of the world no longer accepts American unilateralism. Additionally, Putin said that Russia can no longer tolerate the state of affairs in the world that results from Washington’s pursuit of hegemony.

  Two days later Putin took over the fight against ISIS in Syria.

  Putin, still relying on agreements with Washington, relied on the agreement that Russia would announce beforehand its attacks on ISIS installations in order to prevent any NATO-Russian air encounters. <a href=" http://sputniknews.com/analysis/20151211/1031591091/us-defense-analyst-s… “>Washington took advantage of this trust placed in Washington by Russia, and arranged for a Turkish jet fighter to ambush an unsuspecting Russian fighter-bomber. 

  This was an act of war, committed by Washington and Turkey, and thereby Washington’s European NATO vassal states against a nuclear power capable of exterminating all life in every one of the countries, including the “superpower US.”

  This simple fact should make even the American super-patriots, who wear the flag on their sleeve, wonder about the trust they place in “their” government and in Fox “news,” CNN, NPR, and the rest of the presstitutes who continually lie every minute of every broadcast.

  But it won’t. Americans and Europeans are too insouciant. They are locked tightly in The Matrix, where the impotent creatures are content to live without understanding reality.

  Realizing that it is pointless to attempt to communicate to the Western sheeple, who have no input into their government’s policy, Putin now sends his message directly to Washington.

  Putin’s message is loud and clear in his order directed against any US/NATO operations against Russia in its Syrian operations against ISIS:

  “Any targets threatening the Russian groups of forces or land infrastructure must be immediately destroyed.”

  Putin followed up this order with another order to the Russian Defense Ministry Board:

  “Special attention must be paid to strengthening the combat potential of the strategic nuclear forces and implementing defense space programs. It is necessary, as outlined in our plans, to equip all components of the nuclear triad with new arms.”

  Russia’s Defense Minister Sergei Shoigu reported at the Defense Ministry meeting that 56 percent of Russia’s nuclear forces are new and that more than 95 percent are at a permanent state of readiness. The few Western news sources that report these developments pretend that Russia is ”saber-rattling” without cause.

  To make it clear even for the insouciant Western populations, everything that Reagan and Gorbachev worked for has been overthrown by crazed, demented, evil American neoconservatives whose desire for hegemony over the world is driving the world to extinction.

  These are the same bloodthirsty war criminals who have destroyed seven countries, murdered, maimed, and displaced millions of Muslim peoples, and sent millions of refugees from the neocon wars into Europe. None of these war criminals are protected from terrorist attack. If the alleged “Muslim threat” was real, every one of the war criminals would be dead by now, not the innocent people sitting in Paris cafes or attending parties in California.

  Neocons are the unhumans who created on purpose the “war against terror” in order to gain a weapon against Russia and China. You can witness these unhumans every day on talk TV and read them in the Weekly Standard, National Review, the Wall Street Journal, the New York Times, the British, German, Australian, Canadian, and endless Western newspapers.

  In the West lies prevail, and the lies are driving the world to extinction. An expert reminds us that it only takes one mistake and 30 minutes to destroy life on earth.

  

  

  

  

  

• "Reassured?"

  Were you reassured after President Obama’s address on terrorism?

  Yes?

  

   

  No!

  

   

  Source: Townhall.com

  

  

  

  

• Guest Post: The Ugly Truth Donald Trump Has Exposed

  Authored by Karl Denninger via The Market Ticker blog,

  The fear in both the GOP and Democratic party is visible at the surface when it comes to Trump, and it's not that he's any of what they've accused him of.  No, it's really much simpler than that, and both Republican and Democrat parties, along with the mainstream media, are utterly terrified that you, the average American, is going to figure out what underlies all of these institutions in America.

  No, it's not that they're evil.

  It's worse, for evil frequently is recognized and fought back yet for decades America has not awakened to what has been going on in the political and media establishment.  It was evident during the Vietnam war and has only gotten worse since.

  For those who don't recall the Tet Offensive was an attack launched by the NVA and VietCong by some 70,000 troops in a coordinated series of attacks across more than 100 targets.  It was an attempt to foment rebellion among the South's population.

  Tet failed in its military objective, in that there were too few troops spread too thinly, and once the US and South Vietnamese figured out what was going on they literally slaughtered a huge number of the attackers.  To put perspective on this at the Battle of Hue roughly 500 US Marines and South Vietnamese were killed but over 5,000 NVA and VietCong died in that one battle alone.

  The story was repeated through the country; while the North managed to attack they lost virtually the entire attacking force, while not managing to take one mile of territory.  They also failed to incite rebellion, which was the primary goal of the offensive in the first place.

  Our media, however, reported that we lost.  They were present and they lied, including Walter Cronkite. Cronkite reported in February of 1968 that the war "was a stalemate and probably unwinnable" despite knowing that the NVA had virtually been rendered soldierless in the Tet offensive as their casualty rate ran ten times the South's.

  Tet was a desperation move; the North was in serious trouble.  They were failing to take territory and losing men and material at an ridiculous rate compared to the Americans and South.  Simply put we were the better fighting force and it wasn't a close call.  In the first few days of their "offensive" they lost ten thousand men against about 750 on the other side and it just got worse from there with total losses on their side being close to 50,000, or virtually all of their remaining fighting-age force.

  Cronkite didn't care about the truth.  He wasn't evil, he was indifferent.  He didn't give a damn about the fact that a totalitarian government was being handed a victory over millions of citizens, he simply wanted to make a further name for himself and push his political agenda.

  Likewise there are those who claim that Obama and similar are evil in their view of Muslims and terrorism and of course they wish to draw a distinction between left and right sides of the aisle.  Wrong.  They're all indifferent.

  The political goal is more power for them and their friends, mostly economic power.  More ability to extract from you by force and threaten you with jail or worse if you try to resist.  More power over your daily life.  More power to tell you that you must bake a cake for gays (because your religious convictions don't matter) but if your religious convictions are Muslim then they do matter and must be protected because that's where one of the big reservoirs of oil and undeveloped people that can be exploited in the future reside.

  They literally don't care if you get blown up or shot and it doesn't matter if they're Democrat or Republican.  They don't care if you live under a freeway overpass because your health "insurance" that you are forced to buy covers so little that you have to spend $6,000 before one dime is covered, and you don't have $6,000.  They don't care that a Christmas Party was shot up by a couple of Islamic Nutjobs who they could have identified if they did care and in fact they shut down an investigation on "civil rights" grounds that probably would have identified the shooters years before.

  Jeb Bush has never apologized for giving Driver Licenses to the majority of the 9/11 hijackers in Florida because he doesn't care.  What he cared about was making sure that illegal immigrants could roof houses during the housing bubble so his buddies could make money.  That 3,000 Americans died as a plausibly direct consequence doesn't matter to him.

  Marco Rubio supports allowing the illegal invaders to remain here because he doesn't care if it screws you out of a job.  Like Bush, what he cares about is his corporate patrons that want cheap labor.  He cites all these Fortune 500 companies that were started by immigrants but I'll bet that not one of them was an illegal invader.  Ditto for his Nobel Prize winner claims.  Oh sure, they've been immigrants — the legal variety.  The illegal ones are the roofers working under the table or the gang members.  That there is immense criminal and economic collateral damage doesn't matter to him; he's not evil, he's indifferent.

  Ben Carson refuses, despite being a surgeon, to speak against the medical monopolies.  He knows exactly what's wrong in that regard both in the hospital and drug field.  He's not evil, he's indifferent to the damage that his own profession has done to you over the last 30 years.

  Hillary Clinton knows damn well that during the Benghazi attacks there were military resources available to interdict them.  But she has famously said "what difference does it make" and, in her view, she's right.  She's not evil, she's indifferent — to the lives lost there and to any other collateral damage including the arming of what has turned into Daesh!  Her goal is globalism, socialism and statism, all for her own personal aggrandizement.  That you are harmed or even killed doesn't matter to her.

  Folks, this is where Trump is really freaking the establishment out.  See, Trump already has anything material that he wants, and if something pops up he wants and doesn't have he can simply stroke a check.  He has no need to play the indifference game; there is no amount of money he can gain or lose in his lifetime that will change his lifestyle.  He has his own security and doesn't need yours, he has his own money and also doesn't need yours.

  The visceral reaction you're seeing in the media isn't about Trump's policies.  It's fear that's motivating them.

  They fear that you might come to realize that you can't demonize the "other side" for being evil; rather, they are both equally guilty almost to a single man and woman at being simply indifferent as to how much you get screwed and by whom, up to and including your death and the death of your children, so long as their desire for more power and control, either for them or their friends, is realized.

  If that happens — if you quit the left/right, republican/democrat, liberal/conservative game and instead demand the indictment of all of them for their treasonous and outrageously unlawful behavior along with their removal from office and are willing to back that up with action up to and including a general strike until they are all gone and in chains then they are all screwed.

  That is what is driving the animus toward Trump.

  Wake up America.

  

  

  

  

  

• China's Currency Continues To Tumble As AsiaPac Credit Markets Plunge, EM Stocks Lowest Since 2009

  Following weakness in the middle-east and as WTI prices slide back into the red (on the heels of record speculative shorts in crude oil), Asia-Pac stocks are opening to the downside (but only modestly). On the bright side, the ZARpocalypse has been delayed briefly as the Rand is rallying on the back of Zuma hiring a new finance minister. On the dark side, offshore Yuan continues to plummet, down 6 of the last 7 days (down 14 handles!) and the Yuan fixed weaker for the 6th day in a ro wto July 2011 lows. and signaling more turmoil ahead of The Fed's decision. AsiaPac credit markets are gapping notably wider, EM stocks down 9th day in a row to 2009 lows, and EM FX is plunging.

   

  AsiaPac credit markets are gapping wider… Worst day in over 2 months..

  • *JAPAN ITRAXX INDEX CLIMBS 5.25BPS TO 79BPS
  • *AUSTRALIA ITRAXX INDEX RISES 7.9BPS TO 135BPS
  • *ASIA ITRAXX INDEX RISES 6.5BPS TO 149.5BPS

  

   

  Offshore Yuan was extending recent weakness into the Fix…

  

   

  Earlier we asked…

  Will the PBOC set the CNY at another 4 year low today

  — zerohedge (@zerohedge) December 13, 2015

  And the answer is… yes

  for the 6th day in a row – and in growing size – PBOC fixed the Yuan weaker to its weakest since July 2011

  

   

  The Middle-East closed weak…

  

   

  As Oil faded…

  

   

  After Speculative crude shorts hit a new record high…

  

   

  Japanese bond futures price just hit a record high…

  

   

  And Nikkei plunged as China came to life…

  

   

  The ZARpocalypse has been delayed a little, after South Africa's president Zuma reappointed Pravin Gordan as finance minister, replacing David van Rooyen who was appointed 5 days ago only to unleash a record collapse in the Rand. It remains to be seen if the market will stabilize after an initial kneejerk spike higher in the ZAR.

  

   

  As Zuma hired a new "cooperative" finance minister.. which rallied the South African Rand briefly… but even that is fading fast now…

  

   

  Other currencies are turmoiling…

  • *RUPIAH FALLS 0.9% VS USD, SET FOR BIGGEST DROP SINCE OCT. 29

  MSCI AsiaPac (MXAPEXA) is drifting lower…

  • *INDIA'S NIFTY FUTURES DROP 0.8% IN SINGAPORE
  • *FTSE CHINA A50 DECEMBER FUTURES DECLINE 1.7% IN SINGAPORE
  • *TAIWAN'S TAIEX INDEX FALLS 0.7% to 8,058.67 AT OPEN
  • *SINGAPORE'S STRAITS TIMES INDEX FALLS 0.5% TO 2,819.78 AT OPEN
  • *S.KOREA KOSPI INDEX FALLS 1.5%; SAMSUNG ELECTRONICS DROPS 2%

  And EM is getting hammered…

  • *MSCI EMERGING MARKETS INDEX FALLS FOR 9TH DAY
  • *MSCI EMERGING MARKETS INDEX HEADS FOR LOWEST CLOSE SINCE 2009

  Metals are all lower…

  • *COPPER OPENS 0.5% LOWER AT $4,680.00 A TON IN LONDON
  • *NICKEL OPENS 0.2% LOWER AT $8,680.00 A TON IN LONDON
  • *ZINC OPENS 0.2% LOWER AT $1,549.00 A TON IN LONDON

  There is some good news… China's Warren Buffett is back from the dead…

  • *FOSUN CHAIRMAN GUO SAID TO ATTEND INTERNAL CONFERENCE
  • *FOSUN’S 6.875% 2020 BONDS JUMP 4.8 CENTS TO 96.8 CENTS ON DLR

  But…

  • *FOSUN INTL FALLS 13.5% AFTER CHAIRMAN GUO ASSISTED PROBE

  And that is not helping Chinese stocks… at 2-week lows…

  

  Charts: Bloomberg

  For now US equity futures are flat.

  

  

  

  

  

• In Dramatic Twist, CEO Of "Gating" Third Avenue Is Fired, "Not Allowed Back In The Building"

  And just like that last week’s junk bond debt fund liquidation and redemption suspension, which first struck at the mutual fund giant Third Avenue and promptly spread to a hedge fund launched by the former heads of distressed and high yield trading from, get this, Bear Stearns, and was supposed to be quietly buried, went front page and nuclear following a WSJ report that the CEO of Third Avenue, David M. Barse, who had been with the company for 23 years, has been fired.

  The less than amicable “parting of the ways” follows the decision to gate withdrawals from its junk-bond fund which as we reported on Friday, roiled all asset classes, and sent junk bond prices to the lowest level since 2009. 

  The WSJ adds that a security guard at the firm’s New York headquarters said Sunday that Mr. Barse had been let go and isn’t allowed back in the building.

  Mr. Barse had led Third Avenue since 1991, according to the company’s website, and is a large shareholder. He was the public face of the firm’s announcement Thursday that it was closing its $789 million Third Avenue Focused Credit Fund and would bottle up investors’ money for months or more as it tries to liquidate its assets.

   

  The move roiled credit markets Friday and sparked widespread concern about other mutual funds with large holdings of corporate junk bonds.

   

  Mr. Barse didn’t reply to requests for comment. Third Avenue and its representatives didn’t respond to requests for comment.

  This dramatic escalation now means that every single hedge and mutual funds will spend all Sunday night and Monday morning trying to ferret out any bonds that are especially illiquid or are mispriced (based on the traditional hedge fund mismarking methodology of marking an illiquid bond pretty much anywhere one wants because in the absence of an active market, that’s precise where the price is: anywhere). It also means that what was already an illiquid market will, paradoxically, get even worse as BWIC after BWIC slam trading desks, and cause panic as stunned PMs ask themselves just what cockroaches are hiding in their own balance sheets.

  As a result, instead of looking for bargains, everyone will be eager to dump as much illiquid exposure as they can since nobody wants to be the next David Barse.

  * * *

  Finally, here are some final thoughts from JPM on what one should be on the lookout for as fund liquidations and gates suddenly become the entire story, ironically enough, in the week in which Yellen is supposed to hike rates to demonstrate how solid the economy is and how stable financial conditions are.

  This week’s experience also exposes the major disadvantage of mutual funds relative to ETFs in terms of “first mover advantage” in periods of stress: with bond ETFs trading continuously during the day like equities and with prices able to deviate significantly from their end-of-day NAV, the first move advantage disappears. In other words this deviation from NAV represents the market mechanism by which the first move advantage is cancelled.

   

  In all, redemption gates appear to be a rather problematic tool relative to other options such as redemption fees in the debate on how to prevent runs in the mutual fund industry in the future.

   

  Another issue that arises from this week’s decision by Third Avenue Management to suspend redemptions from its Third Avenue Focused Credit Fund is about the cash levels of bond mutual funds. How healthy are these cash balances overall to prevent a more widespread repeat of Third Avenue’s redemption suspension?

   

  ICI data allow us to calculate the cash balances as % of assets for both HG and HY bond mutual funds in the US. These cash balances are shown in Figure 4. The cash balances of HY bond funds had risen in September and October but they remain rather low by historical standards. HG bond funds look less vulnerable than HY funds, but they have seen steady erosion of cash balances since mid 2014. In other words HG bond funds look a lot more vulnerable relative to a year a go.

  

  We look forward as first bond, then stock, then all other mutual funds seeks to shore up cash balances in the aftermath of the Third Avenue fiasco. Or, in other words, as everyone tries to sell at the same time.

  

  

  

  

  

• Credit Suisse Is "Worried" These Two Charts May Abort The Fed Hiking Cycle

  Despite the bloodbath in corporate credit markets, talking heads remain cognitively dissonant as to the reality lurking under the surface of this colossal leap in cost of funds for every firm. However, Credit Suisse is "worried" about the implications of these two disheartening charts expose, suggesting a default environment that might abort the Fed hiking cycle – which in this case is not a market-reassuring outcome.

  As Credit Suisse's William Porter explains, the percentage of North American companies losing money on an LTM basis in Q3 rose to a cycle high, while the ratio in Europe stayed stable, at the low end of its recent range.

  

  The burden of this is the correlation with the default rate. Moody's 2016 forecast is 3.8% but the relationship with this ratio now suggests something much higher, and we watch that outcome as a risk. Arguably the only market remotely priced to a much higher default rate as an outcome is US rates.

  

   

  This is not a forecast, but an observation and a watching point. With the ECB now apparently less friendly as we examine below, we become more cautious ahead of the presumed Fed hike on 16 December, particularly in terms of total return dynamics.

  Ironically, if defaults were to rise to anything like the degree this analysis suggests, it might abort the Fed hiking cycle which is a source of concern for the credit market. But we would hardly take this as a reassuring outcome.

  There is a theme at present that credit is leading other markets, and is predicting "recession." We are worried…

  

  

  

  

• India's Failing Gold Monetization Scheme: Seizure Imminent?

  Submitted by Paul-Martin Foss via The Mises Institute,

  India’s newest gold monetization scheme has been a colossal failure. After one month, it has netted only one kilogram (2.2 pounds avoirdupois) out of an estimated 20,000 tonnes (44 million pounds avdp) of privately-held gold. Why is that? Well, let’s look at how the program works.

  1. Gold-holders turn their gold over to a bank. The banks melt the metal down and provide it to the central bank to loan to jewellers.
  2. In exchange, the central bank provides gold accounts to the banks on behalf of the gold depositors and pays interest on those deposits.
  3. The interest rate on those deposits is a little over 2%, while the inflation rate in India right now is over 5%.
  4. The deposits are time deposits, meaning that depositors receive their principal repaid at the end of the term; short-term depositors receive gold or rupees back, while medium- and long-term depositors receive only rupees.

  So you give up all your gold, get at most a -3% rate of return on your investment, and might get both your interest payments and principal paid in rupees that the government has historically devalued at up to 15% per year. And the government wonders why gold-holders aren’t flocking to offload their gold?

  But not to worry, the government will make sure this scheme works:

  “A finance ministry official said if banks fail to win over temples, the government could intervene directly as it is looking for a big boost to the scheme to keep both imports and the current account deficit under control.”

  Shades of 1933 all over again. One would imagine that outright gold confiscation from Hindu temples would result in massive protests and quite a bit of bloodshed. And while most rational people would assume that the government would be smart enough to avoid doing something so drastically stupid, this is the same government that developed the cockamamie gold monetization scheme in the first place. Never underestimate the idiocy of government bureaucrats, especially when those bureaucrats are trying to save face.

  Let’s hope for the sake of the Indian people that their government learns its lesson and quietly shelves its futile attempts to monetize private gold holdings. If it really wanted to monetize gold, it would end any restrictions on the importation, transfer, and use of gold as money and allow markets to determine what money they wanted to use. Control is hard to give up, but the Indian economy would be far better off with gold as money instead of rupees.

  

  

  

  

  

• The Donald Responds To "Dopey, Daddy's Boy" Saudi Prince's Slur

  "Shots fired"

  

   

  Following Saudi Prince Alwaleed Bin Talal's statement on Friday…

  .@realDonaldTrump You are a disgrace not only to the GOP but to all America. Withdraw from the U.S presidential race as you will never win.

  — ?????? ?? ???? (@Alwaleed_Talal) December 11, 2015

  … we said, "we now anxiously await Trump's twitter response."

  We no longer have to wait, because as of late last night, the Donald responded: 

  Dopey Prince @Alwaleed_Talal wants to control our U.S. politicians with daddy’s money. Can’t do it when I get elected. #Trump2016

  — Donald J. Trump (@realDonaldTrump) December 12, 2015

  Ironically, as The Hill reports,

  Bin Talal told The Economist in 1999 that he started his business with a $30,000 loan from his father and by mortgaging a house his father had given him for $400,000.

   

  Trump, the son of a wealthy real estate developer, has said he received a "small" $1 million loan from his father after he graduated from college in 1968. Forbes estimates his net worth at $4.5 billion.

  Black pots and kettles everywhere…

  

  

  

  

• "Ferocious Surprises" Await Bonds Traders In 2016

  Submitted by Salil Mehta via Staistical Ideas blog,

  It should be easy to at least get the direction of interest rate changes correct, most of the time.  Instead as we see in the chart here, professional money managers always get this wrong (and truth be told this pattern has been going on for many cycles).  The problem is just as bad when it comes to predicting stock price changes for the following year.  Nevermind that the brash financial pundits have assured you that now is a great time to rotate into stocks, given that we are both in the middle of a “Santa Claus rally” and within a year ending in “5”!  Nothing could be more cockamamie. 

  Next week we have the highly-anticipated, Federal Open Market Committee meeting where there is a chance that the discount rate will be hiked for the first time since before the recent financial crisis.  While both risks in stock and bond markets are again smouldering in advance (note we correctly forewarned exactly 2 years ago today in the New York Times that we’d suddenly have a few ~3% or more daily drops in the stock market during 2014-2015), we focus our attention here on the knottier and more pertinent idea of the dispersion about interest rates expected for 2016.  In other words, what should this probability distribution of outcomes or errors best look like?

  

   

  We will combine the best concepts from modern interest rate modeling, macroeconometrics, and probability theory.  To start, see the blue color graphical representation below of the 10-year treasury bond yield distributions, over the past 30 years (1986 through today).

  

   

  We notice an astonishingly large and complex shape to the rate disturbances over the course of a year, making the job of borrowers, business planners, and traders, far more interesting.

  We know from modern interest rate modeling (used for various purposes through finance) that these bond rates can follow either an equilibrium rate, or an arbitrage-free rate class of models (the main difference being that the former assumes that the inputs are reliable).  Both of these model types can then be further split into risk-neutral, and a realistic class of models (the main difference being the former assumes the current pricing can be used).  The idea (in theory) is that this volume of bond math work focuses on capturing the guidance of bond rates, to their more natural level.  However it does little to describe the enormous amount and differing quality of the error dispersions about any progressing path. 

  And the typical macroeconometric model tries to take on some of these opposing considerations into account, on the front of pricing and parameter inputs.  It would incorporate too much autocorrelation within important market variables, which we know from probability theory (combined with personal market observations over decades) can be erroneous.  We’ll also provide below an exploration of exponential weighting of past empirical distributions (as opposed to the simple aggregation that most analysts already use). 

  We’ll show the relevant de-trended, daily yield changes across time, for the blue raw chart above.  You can see this in the green color chart below.  One can see the breach of modern interest rate modeling formulas that target volatility proportional to the level of the rate, yet we see on this left hand chart that there is a theoretically insurmountable violent pick-up in volatility only from 2008 onwards!  And we have a second version on the right, which trains the eye to better focus on the shape of the distributions, as opposed to the magnitudes of the extreme gyrations.  We do this by rescaling the distributions across time so that they have an equal higher-order dispersion.

  

   

  Now we can use these rate modeling changes as our historical data, from which we can peer into 2016.  We use the current 10-year yield of 2.1%, unite it with the blue raw yield distributions further above, and then redraw below the new, red color interest rate distributions.  The chart on the right, again, has been rescaled to our 30-year average (which -as we noted early in this article- the current 2015 volatility in bond yields are reasonably above average).

  

   

  We can also see from this vast distance of time (e.g., in the green charts further above) what a legendary treasury market wreck occurred on October 15, 2014.  But notice as well how this sorely magnanimous deviation no longer glares at us in the red charts immediately above? 

  Now to look into 2016, we can then combine our insights into the 3-year history of balanced and rescaled distributions of rate changes, and give a natural and more reliable probability distribution that better reflects what could happen at the end of 2016 (beyond any subtle, underlying trend ensued by a chaotic and random path.)  The first distribution, on the gold color chart below on the left, we can think of as the error distribution given 100% weight still on the 2015 data.

  

   

  We can then show this (sticking with the same left chart immediately above), for the scenario where we provide a lower 50% weighting on the 2015 data, but then this would now accommodate a 25% [or 50% weighting of the (100%-50%) remaining] on the 2014 data, etc.  One can see the weighting formulae through the example below, for the case where we assume a parameter estimate is 20%:

  • 2015 weight = 20%
  • 2014 weight = 20%*(100%-20%) = 16%
  • 2013 weight = 20%*[100%-20%-20%*(100%-20%)] = 20%*[100%-20%-16%] = 10%
  • 2012 weight = 20%*(100%-20%-16%-10%) = 6%

  Where we can see relative to the 50% parameter estimate (and particularly the 100% parameter estimate), the probability weight becomes more naturally spread across past history. 

  As we have done previously, we look at the right hand chart above, for the 2016 dispersion likelihood accompanying the same averaging parameters, except for the scale-standardized distributions.

  We notice in the charts that we can expect that once the bond volatility climaxes next year or beyond, that it should simmer down to levels more modest than what we had in 2015.  Further we can shrewdly notice below, from the difference in the standardized distribution shapes, between the 100% and the 1% parameter weighting, that the 2016 bond rates can present a distribution with fatter tails (in both directions!)  Similar to above, all of the distributions below have the same median and standard deviation.

  

   

  This implies that there is slightly greater probability room (maybe equally in both directions) to experience a ferocious surprise in the 2016 end-of-year rates.  Again however, these engaging distinctions in the shape of next year’s distribution shouldn’t detract you from another important message here: that the lift-off in treasury rates –once it happens– should right away also be a significant consideration.

  

  

  

  

  

• Goldman Confirms China's New FX Index Signals Further Yuan Devaluation To Continue

  Confirming what we explained here, Goldman Sachs notes that the publication of a new CNY exchange rate index suggests an increased focus on broader CNY moves against other non-USDollar currencies and reinforces the likelihood of further depreciation versus the USD.

  Goldman Sachs writes…

  The China Foreign Exchange Trade System (also known as CFETS), a sub-institution of the People's Bank of China whose main function is organizing the inter-bank FX market, published a new CNY exchange rate index on its website on December 11th. The stated intention of the new index is to help bring about a shift in how the public and the market observe RMB exchange rate movements–emphasizing broader (trade-weighted) currency moves rather than simply bilateral moves versus the US dollar. The PBOC re-posted the CFETS announcement on its own website. In our view, this reinforces the likelihood of moderate depreciation versus the USD, should the broad USD continue to strengthen per our forecast.

  The new index references 13 currencies, with their weights reportedly based on the countries' importance for China's trade, after adjusting for re-exports. Compared to BIS's China effective exchange rate index, which has previously often been referred to in official communications, weights assigned to the USD and EUR are noticeably higher (Exhibit 1)–the total effective weight assigned to the most major currencies (USD, EUR, JPY and GBP, including weight to the HKD in that of USD) is about 73%, compared to 54% in the BIS index. Note that CFETS mentioned yesterday that it would also start publishing CNY exchange rates based on the BIS basket and the SDR basket.

  

  Since the decision by the IMF Executive Board to include the RMB in the Special Drawing Rights Basket on November 30, the authorities have more clearly allowed a weakening of the currency. The depreciation also followed the recent rise in the euro (vs. USD) in light of the less dovish than expected ECB move on Dec 3rd–this development caused the RMB TWI to ease on the margin, and all else being equal, might help mitigate the market sell-off pressure on the currency. Nevertheless, the recent rise in onshore CNY trading volume and widening of the CNH-CNY gap suggests that FX outflow might have picked up (Exhibit 2), likely reflecting increased expectation of RMB depreciation against the dollar as the weakening trend became visible.

  

  Looking ahead, the news does not necessarily mean the PBOC will now peg the RMB on this basket. In recent days, the RMB depreciated not only against the USD, but indeed by even more against this CFETS basket (by 1.3% since Dec 3rd, by our calculation; Exhibit 3).

  

  It remains to be seen whether the PBOC may decide to explicitly adopt this basket at some point in the future. In any case, however, in our view, the fact that the authorities have increasingly drawn public focus to RMB's performance on TWI basis rather than simply against USD reinforces the likelihood of moderate depreciation versus the USD, should the broad USD continue to strengthen per our forecast. This communication appears to signal the authorities' intention to maintain broad CNY stability in TWI terms, and may also make it easier for the authorities to offset USD strength without causing a major increase in policy uncertainty or expectations of a sharp one-off devaluation ahead.

  

  Taken in conjunction with our global currency views, our baseline forecast of USDCNY at 6.60 on a one-year horizon implies a small (roughly 2.4%) appreciation of the CNY vs. the new basket over the coming year.

  *  *   *

  Of course, as we noted previously, the real purpose of the PBOC's exercise in FX management today was, just like in August, to fire a warning shot at the Fed's rate-hiking plans. Only this time the warning shot is far, far louder.

  

   

  In September the Fed postponed its rate hike as a result of China's devaluation. Will it do the same again next week? Because if China is about to unleash a 15% deval of the CNY against the entire world, expect a flood of Chinese FX reserves as the PBOC tries to control the glidepath of its currency, and avoid an all out collapse driven by soaring capital outflows.

  In other words, we are now right back where we were in mid-August, just before the bottom fell out of the market.

  

  

  

  

  

• Hit-And-Run Driver Arrested After Her Car Calls Police

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  As technology generally continues to advance, one thing you can be sure of is the criminal justice system’s use of innovative new “tools” will grow exponentially. This can be a good thing, but it can also be a very dangerous thing. Pennsylvania’s new law that permits the use of data showing whether people are “deemed likely to commit additional crimes” in criminal sentencing, is a perfect example of how an over reliance on technology can be a threat to liberty and due process.

   

  – From the post: Pennsylvania to Become First State to Use “Precrime” Statistics in Criminal Sentencing

  Welcome to the future, ladies and gentleman.

  From ZDNet:

  A driver allegedly involved in two hit-and-run incidents was tracked down after her car alerted the police.

   

  As reported by local news outlets, an unusual 911 call to emergency services took place on Friday in Port St. Lucie, Florida. You would usually expect a human voice on the end of the line, but in this scenario, a Ford vehicle alerted the police to a collision.

   

  57-year-old woman Cathy Bernstein allegedly hit a truck before ploughing into a van on Prima Vista Boulevard, fleeing the scene after each collision. While Bernstein allegedly ran for the hills, her car had already recorded the crash and automatically contacted 911 after recording the time and date of the collision.

   

  The car’s safety features, used by by Ford, BMW and other automakers, make use of sensors and Internet connectivity to shave down the time emergency responders take to get to the scene of an accident.

   

  As an example, Ford’s SYNC‘s Emergency Assistance portal pushes the car to send a direct call to emergency services when the airbag is deployed or the fuel pump is deactivated — such as when a car suffers a sudden jolt against an object.

   

  The system also gives 911 information including the car model, time, and GPS coordinates.

   

  Usually, this would mean that drivers involved in an accident who are knocked out or cannot reach for their phones can be assisted as quickly as possible. However, in the case of hit-and-run drivers there will be nowhere to hide — as their car may snitch on them. You are automatically linked to a record of a collision’s time, the vehicle involved — and therefore the accompanying registration details — and the location.

   

  By 2018, every new vehicle sold within the grasp of the European Union must have this kind of emergency responder technology installed. While originally planned for 2015, despite delays, the EU says eCall emergency responder technology could save up to 2,500 lives a year.

  It’s a brave new world out there.

  

  

  

  

  

• If Washington Were Serious About Defeating Terrorism, It Would Have An Entirely Different Playbook

  Excerpted from Stephen Walt’s “The Unbearable Lightness of America’s War Against the Islamic State” originally published in FP

  If Washington were really serious about defeating terrorism, it would have an entirely different playbook.

  In the classic World War II novel The Caine Mutiny, author Herman Wouk quoted an “ancient adage” about the typical bureaucratic response to a crisis:

  “When in danger or in doubt, Run in circles, scream and shout.”

  That couplet summarizes the prevailing U.S. response to global terrorism perfectly. All one has to do is read the panicky, narrow-minded, and irresponsible ravings of the current GOP presidential aspirants, as well as look at the latest poll numbers, and it’s clear that a good portion of the U.S. electorate is prepared to follow them off the deep end.

  Yet the unhinged nature of the current discourse on terrorism also reveals how profoundly unserious U.S. counterterrorism efforts really are. To say this sounds odd, given the hundreds of billions of dollars that have been thrown at the problem, and the tens of thousands of lives (both American and foreign) that have been lost waging the “global war on terror” (or if you prefer, the “campaign against violent extremism”), is an understatement. It sounds even odder when one considers the vast army of people who are now employed to protect us from terrorism, not to mention the countries we’ve invaded, the drone strikes and targeted assassinations we’ve performed, and the mountains of metadata we’ve collected. Surely all this effort shows that Washington is deeply engaged in the challenge of thwarting al Qaeda, the Islamic State, and other violent radicals.

  If only. For starters, consider what we have to show for all this effort and expense. We now have a vast counterterrorism industry, much bigger intelligence budgets, and more energetic government surveillance, but the basic counterterrorist playbook has evolved little over the past 20 years. In particular, our national security establishment is still convinced that the main way to defeat extremist groups is U.S. military intervention, despite the nagging suspicion that it just creates more ungoverned spaces and makes it easier for groups like the Islamic State to recruit new members. The New York Times reported this week that the Pentagon is now seeking a new set of military bases in or around the Arab and Islamic world so that it can prosecute the military campaign against the Islamic State et al. more effectively.

  Excuse me, but isn’t that exactly what we’ve been doing since the 1990s and with greater energy and effort over time? Yet there are more al Qaeda affiliates now than there were back in 2001, and organizations like the Islamic State didn’t even exist back then. Is it possible that our entire approach here has been ill-conceived and has been making the problem worse instead of better? And what would a more serious approach to terrorism look like?

  If the United States were truly serious about terrorism, it would start by gauging the level of threat properly and communicating that appraisal to the American people.

  As numerous scholarly studies have shown, the actual risk of terrorism to the average American is remarkably low. In their new book Chasing Ghosts, John Mueller and Mark Stewart estimate the odds that an American will be killed by a terrorist are about one in 4 million each year. Compared with more prosaic dangers that we accept on a daily basis, this level of risk is absurdly small. Yet instead of using logic and evidence to reassure the American people, leaders from both parties have encouraged, since 9/11, the irrational fear of terrorism to drive a host of counterproductive policies. Even President Barack Obama, who seems to have a more measured view than many of his counterparts, did a rather limp job of reassuring the public in his Oval Office speech last Sunday.

  * * *

  If the United States were truly serious about terrorism, we would also have a more honest and open discussion about our own role in generating it.

  Our reluctance to consider whether certain aspects of U.S. foreign and defense policy inspire anti-American extremism began as early as the 9/11 Commission. As the late Ernest May, a distinguished historian who worked with the commission, later acknowledged:

  “[T]he report skirts the question of whether American policies and actions fed the anger that manifested itself on September 11…. [it] is weak in laying out evidence for the alternative argument that the World Trade Center, the Pentagon, and the Capitol might not have been targeted absent America’s identification with Israel, support for regimes such as those in Saudi Arabia, Egypt, and Pakistan, and insensitivity to Muslims’ feelings about their holy places. The commissioners believed that American foreign policy was too controversial to be discussed except in recommendations written in the future tense. Here we compromised our commitment to set forth the full story.”

  Wow.

  * * *

  If the United States were truly serious about terrorism, we would now be having a frank discussion about the role of the media.

  I’m positive organizations like Fox News and CNN do not intend to help al Qaeda or the Islamic State, but that is in fact precisely what they are doing. Whenever a terrorist incident occurs, TV and radio outlets immediately offer up a frenzy of overheated reportage, most of it intended to keep people scared and their eyeballs glued to the screen or their ears glued to the radio. (It’s the nature of modern media; the Weather Channel does the same thing with every major storm.) Yet this Pavlovian response is precisely what groups like the Islamic State are hoping for: It gives them more free publicity; convinces people who are in little to no danger that they should be really, really scared; and makes a comparatively weak movement like the Islamic State seem like a vast multi-headed hydra that is penetrating our society and threatening every one of us. Frankly, the media couldn’t be doing more to help these movements if they were being paid by them directly.

  * * *

  If the United States were truly serious about terrorism, we’d also see more creative efforts to discredit, marginalize, spoof, and embarrass the groups we oppose.

  The Islamic State has a pretty sophisticated social media operation, designed to convince recruits that they are joining a movement that is exciting, visionary, dedicated, and that will change the world. There are many ways to combat this message, but let’s not leave out the role of humor and ridicule.  One of the best ways to discredit extremist movements is to make them look ridiculous, so that joining or backing them is seen as stupid, uncool, or embarrassing. Instead of constantly portraying the Islamic State and its ilk as cruel, cunning, fanatical, dedicated, dangerous, etc., we should spend at least as much time depicting them as ignorant, backward, inept, misguided, and absurd.

  * * *

  If the United States were truly serious about terrorism, you’d see a more hardnosed approach to the various American “allies” who are part of the problem rather than being part of the solution.

  U.S. officials would be calling out Turkey publicly for its actions against the Kurdish forces battling the Islamic State, for the porosity of its border with Islamic State-controlled territory, and for its blind eye toward smuggling and other actions that are keeping the militant group in business. Instead of going overboard to reassure Saudi Arabia in the wake of the deal with Iran, we’d be having some unpleasant conversations about the Saudi role in promoting Wahhabism and its connection to extremist movements like the Islamic State. And, by the way, putting that issue at the top of the agenda is not an unfriendly act, given that al Qaeda and the Islamic State are themselves potential threats to the House of Saud. We would also make it clear to the Israeli government that its treatment of the Palestinians is a national security issue for us, and we would make our “special relationship” conditional on the creation of Palestinian state and not just the usual empty promises (I know, I’m dreaming here, but our failure to take this obvious step just shows how unserious our policy still is).

  * * *

  Read the full article at FP

  

  

  

  

  

• Hilsenrath Just Reset Market Expectations: "Fed Is Worried Rates Will End Up Right Back At Zero"

  Two weeks ago, we predicted that if the same September storm clouds return, and if December, which is increasingly looking as shaky as August as a result of a return of China deval fears, soaring dollar concerns and – the cherry on top – the collapse in junk bonds, forcing the Fed to have some literally last minute concerns about a rate hike, then the Fed’s official mouthpiece, Jon Hilsenrath will be very busy…

  If Fed has any doubts about December, Hilsenrath will soon be very busy

  — zerohedge (@zerohedge) November 30, 2015

  … as he scarmbles to realign market expectations of a rate hike “because the economy is oh so strong“, with the reality that a rate hike may just unleash the next Lehman event of the past 8 years.

  It looks like Hilsenrath indeed had a very busy weekend with his Fed “sources”, as he attempts to readjust the market consensus for a December rate hike lower, warning that the Fed’s “big worry is they’ll end up right back at zero.”

  For some inexplicable reason, he also adds that “Federal Reserve officials are likely to raise their benchmark short-term interest rate from near zero Wednesday, expecting to slowly ratchet it higher to above 3% in three years. But that’s if all goes as planned.” Well, just how many things can take place in the next 72 hours that derail the Fed’s “planning?” And just what kind of lift-off is this, if the Fed’s decision is quite literally dependent on daily market, pardon economic, fluctuations?

  It was not immediately clear what the answer to these questions is. What Hilsenrath did answer, however, is why and how the Fed will proceed to cut rates right back to zero.  Here is Hilsy:

  Any number of factors could force the Fed to reverse course and cut rates all over again: a shock to the U.S. economy from abroad, persistently low inflation, some new financial bubble bursting and slamming the economy, or lost momentum in a business cycle which, at 78 months, is already longer than 29 of the 33 expansions the U.S. economy has experienced since 1854.

  Sounds an awful lot like setting the stage for an imminent, and confidence destroying, rate cut unleashed by, drumroll, the Fed’s own rate hike. In fact, so likely is that the Fed’s rate hike will be the catalyst for the Fed’s next easing cycle, that practically nobody has any doubt:

  Among 65 economists surveyed by The Wall Street Journal this month, not all of whom responded, more than half said it was somewhat or very likely the Fed’s benchmark federal-funds rate would be back near zero within the next five years. Ten said the Fed might even push rates into negative territory, as the European Central Bank and others in Europe have done–meaning financial institutions have to pay to park their money with the central banks.

   

  Traders in futures markets see lower interest rates in coming years than the Fed projects in part because they attach some probability to a return to zero. In December 2016, for example, the Fed projects a 1.375% fed-funds rate. Futures markets put it at 0.76%.

   

  Among the worries of private economists is that no other central bank in the advanced world that has raised rates since the 2007-09 crisis has been able to sustain them at a higher level. That includes central banks in the eurozone, Sweden, Israel, Canada, South Korea and Australia.

   

  “They effectively have had to undo what they have done,” said Susan Sterne, president of Economic Analysis Associates, an advisory firm specializing in tracking consumer behavior.

  Here is the bigger problem: what the Fed has done – which is very little for the actual economy –  is to push the S&P from 666 to 2100. It is the undoing of that most market participants are terrified about, and what will be to most, very unpleasant.

  The pre-emptive excuses continue:

  The Fed has never started raising rates so late in a business cycle. It has held the fed-funds rate near zero for seven years and hasn’t raised it in nearly a decade. Its decision to keep rates so low for so long was likely a factor that helped the economy grow enough to bring the jobless rate down to 5% last month from a recent peak of 10% in 2009. At the same time, waiting so long might mean the Fed is starting to lift rates at a point when the expansion itself is nearer to an end.

   

  Ms. Sterne said the U.S. expansion is now at an advanced stage and consumers have satisfied pent-up demand for cars and other durable goods. She’s worried it doesn’t have engines for sustained growth. “I call it late-cycle,” she said.

  Actually, there is one time when the Fed waited this long to tighten conditions, in fact waited too long: the economy was already in recession. That was back in 1936. What happened next was the second part of the Great Depression and a 50% collapse in the Dow Jones.

  

  

  Hilsenrath’s odd litany of preemptive excuses continues:

  Several factors have conspired to keep rates low. Inflation has run below the Fed’s 2% target for more than three years. In normal times the Fed would push rates up as an expansion strengthens to slow growth and tame upward pressures on consumer prices. With no signs of inflation, officials haven’t felt a need to follow that old game plan. Moreover, officials believe the economy, in the wake of a debilitating financial crisis and restrained by an aging population and slowing worker-productivity growth, can’t bear rates as high as before. Its equilibrium rate–a hypothetical rate at which unemployment and inflation can be kept low and stable–has sunk below old norms, the thinking goes.

   

  That means rates will remain relatively low even if all goes as planned. If a shock hits the economy and sends it back into recession, the Fed won’t have much room to cut rates to cushion the blow.

  This goes to the question of what r* is, or the Equilibrium Real Interest rate, one which as we showed last week, is almost entirely a function of nominal US economic growth rate (very low) and consolidated debt/GDP (at 350%, it’s very high). Under current conditions, it is either negative or just barely in the positive, suggesting any Fed rate hike will be followed by an immediate rate cut, something Hilsenrath just acknowledged.

  

  The excuses continue:

  Among the risks to the economy are financial booms that could turn to busts. One is in commercial real estate. Another in junk bonds is already fizzling. Each of the past three expansions was accompanied by an asset price bust–residential real estate in 2007, tech stocks in 2001 and commercial real estate in the early 1990s.

   

  Normally in a recession the Fed cuts rates to stimulate spending and investment. Between September 2007 and December 2008 it cut rates 5.25 percentage points. Between January 2001 and June 2003 the cut was 5.5 percentage points, while from July 1990 to September 1992 it was 5 percentage points.

   

  If the Fed wants to reduce rates in response to the next shock, it will be back at zero very quickly and will have to turn to other measures to boost growth.

  Yup: such as QE4 and NIRP, which are inevitable, but which the Fed wants to “hike” rates first just so it has the alibi to unleash even more easing. And now even Hilsenrath is warning that this is the endgame:

  Fed officials worry a great deal about the risk. The small gap between zero and where officials see rates going “might increase the frequency of episodes in which policy makers would not be able to reduce the federal-funds rate enough to promote a strong economic recovery…in the aftermath of negative shocks,” they concluded at their October policy meeting, according to minutes of the meeting.

   

  In short, the age of unconventional monetary policy begun by the 2007-09 financial crisis might not be ending.

  Coming from Hilsenrath, it does not get any clearer than that.

  

  

  

  

  

• About That Rate Hike…

  Authored by Mark St.Cyr,

  On Wednesday of this week (December 16, 2015 to be precise) The FOMC committee at the Federal Reserve is slated to follow through on the 2nd most anticipated, telegraphed, jawboned, as well as hand-wrung policy dictates to end the now maligned zero-bound policy, and raise rates ever so slightly by 25 basis points. Some Fed. officials have publicly stated that many around the world are calling for them to “just do it.” Sure they were. Maybe a few weeks ago. But as we get closer to the actual moment where “should” turns to “will?” Things change, and change fast. Especially when that change looks awfully familiar as what transpired last time the global markets held its collective breath. i.e., As the market held its breath – all the air began streaming out of the balloon.

  So once again we await the results for the monetary policy game of “Will they? – Won’t they?” The issue this time? The consequences may be in fact a little more costly than previously. For the world is a much changed place than what is was just this past September. And looking back less than 90 days later, it seems raising then may have been a cakewalk as compared to now. Like I said, “A lot has changed over the last few months.” And they all point to the same thing: Potential for disaster.

  One thing that’s changed and yet remains the same? China. What’s changed is things seem to have taken a turn for the worse. What hasn’t changed? The blatant ham-fisted style of dealing with its monetary and market fiascos via its politburo.

  A few weeks back I wrote in an article “Dec. 16th A Date Which Will Live On In Monetary Infamy”

  “Well, don’t look now, but there indeed looks to be trouble brewing on the global stage (or should I say “international developments”) that could turn out to be just as big of a headache to the Fed’s reasoning’s on whether or not to “just do it.” Just one of those issues is – once again: China.”

  And guess what has transpired since? Not only has the Asian markets nearly mirrored what took place during that period. China itself has done things far more damaging to their own credibility of making their markets more transparent and stable. This time they’ve devalued their currency via backroom operations more frequently in moves that are causing outright consternation across the for-ex markets.

  

   

  The inclusion into the SDR (Special Drawing Rights) Basket which was supposedly a coveted milestone awarded as to assign stability and confidence seems to have done anything but. As a matter of fact it seems to have done quite the opposite. Adding to this the PBoC signaled just the other day their intention to loosen the Yuan’s peg to the $Dollar. How’s that going to work for a Fed. rate hike? Can anyone say “importing deflation via Made In China?” And here the Fed. is said to be all worried about inflation. I wonder if we’ll see “Ooopsy” in any of the corresponding releases via the Fed. minutes. I’m of the belief that word is going to come front-of-mind quite a lot over the next few months. We’re now seeing just how much turmoil waiting for the “right moment” Fed. style is about to unleash.

  Another actuality which shouldn’t be lost on anyone is just how many top Chinese business leaders or market participants have suddenly gone missing. If one is perceived in any way as not towing the Party’s line (which is what happens in communist countries which far too many forget China is) whether they are talking negative, selling shares, cashing out, or a myriad of other factors deemed “improper” by the politburo – they are gone. Gone as in: Are they still alive?

  But not to worry we’ve heard from many a next in rotation fund manager appearing in the financial media. “Their markets are just fine. They’re working out issues that come with any growing economy. After all, don’t forget China’s economy and GDP is still growing some 6% plus! We wish we had such growth!! And now they’re moving from manufacturing to a service economy, Oh, the riches to be had by all, Just back up the truck and BTFD!”

  Sure thing. After all, what’s a little market turmoil when you can just “ghost” those you decide are the cause of any selling or market turmoil. And even if they aren’t, that’s OK too. For as Mao stated “You have to break a few eggs to make an omelet.” And that’s when millions were “ghosted.” So what’s a few business leaders for the sake of “the markets” hmmm?

  And that’s just China. Or, should I say the “international developments” excuse implied last time the Fed. was going to “just do it” and didn’t. How about a few other real international developments taking place this time that weren’t so front and center last time. e.g. Nearly every other Developed as well as other EM nation whose economy is linked heavily to commodities. With some EM’s looking into the real possibility of returning to Frontier statuses if there’s even further calamity in the markets. That catalyst being the now collapsing commodities market.

  Today, if you are a nation that’s tied to commodities – your economy is either in turmoil, or, outright free-fall. Saudi Arabia for one is burning through reserves at a pace only equaled with their oil output. Canada is suddenly finding itself at the precipice of an economic tailspin. The once driving economic hot-spots such as Alberta , and Saskatchewan have been particularly hard hit, and the worst is far from over as the price of oil continues to fall to levels many suggested would never be seen again in generations.Yet; not only are they here. They seem to be going even lower.

  Brazil? Disaster, and getting worse by the day. Venezuela? Worse. And I haven’t even mentioned problems such as in Puerto Rico, Mexico, and a few others. However, let’s do mention Europe. e.g., The EU, and specifically Mario Draghi and the ECB.

  Not more than two weeks ago Mr. Draghi took to the media as to announce what the market presumed to be an even more dovish toned statement. i.e., More QE in one form or another. The issue? They didn’t get it – and the markets fell in unison.

  Once again in less than 90 days since the August plunge the markets reacted in similar fashion and many market participants found out what the meaning of “liquidity” meant when playing in this HFT fueled world supposedly “full of it.” Only when Mr. Draghi came out the next day at a speech at the Economic Club of New York™ to reassure (or triage the rout) stating “We are ready at any time to re-calibrate our array of tools” did the markets reverse rewarding the parasitic, algorithmic, headline reading, stop running, HFT programs to front-run his soothing tones and vaulted the markets upwards.

  When pressed after his speech by other participants if he had iterated these passages as to help quell market fears. He responded at first with some push back, only to relent at the same time stating, “No…not really. Well, of course.” Welcome to monetary policy 2015 style. If you need reminding just how adulterated and far the markets have come. You needn’t look any further. Only this time – they aren’t staying there. They’re falling, and falling quickly. What’s worse? The Euro is climbing if not outright spiking upwards crushing many carry trades where the carnage is still yet to be felt, as well as fully identified. However, there are clues to just how bad it is under the surface.

  Unprecedented losses in hedge funds caused other ECB members such as Ewald Nowotny to state “I think it was really a massive failure of market analysts.”  Yes it was. Problem was the markets thought the ECB were not only going to keep the pipes open – they’d turn the valve up to 11! And why wouldn’t they when the ECB continued to give soundbites as late as Nov. 2nd such as: Nowotny says, “ECB has to act as inflation target to be missed.” Massive failure indeed is all I’ll say.

  The entire Euro-Zone is in chaos with many of its member states not only arguing about national sovereignty. They are literally beginning to once gain erect barricades and border crossings that were once thought never to be seen again. Yet, there they are. Again.

  The Syrian refugee crisis is bringing out old tensions and new fears across Europe. Greece is finding out the hard way just how much of its sovereignty it did indeed relinquish when it signed it away to EU oversight for loans. My how costly those interest payments seem today. Think Portugal and Spain are going to do the same as they begin demanding better terms? In this current light? I dare say – I think not. You think Germany has more solid ground to put a halt to such demands today? Give that scenario a thought through while remembering the ongoing Volkswagen™ scandal, as well as demanding millions more refugees be accepted into member states with their own 50% youth unemployment. I believe Mr. Schäuble would be in-store for a little unwanted Schadenfreude during discussions this time.

  Then there’s Russia. You know, that other communist country that is currently engaged in a real kinetic engagement in Syria. A country whose leader has basically called out the U.S. for outright manipulation, and the root cause of all the Middle East turmoil and militant uprising. The same country whose leader, and military have made it known they are “To strengthen Russian nuclear forces” while simultaneously launching cruise missiles from a sub into Syria. Add to this, that Turkey (a NATO ally) has subsequently shot down a Russian fighter jet. Does one think a mishap (any mishap) is possible that may launch WW3? How about a monetary one? Think it’s implausible or lunacy? I would urge you to think again, as well as quite carefully. For it’s not as far-fetched as one might first think.

  Back in October I proposed this very idea that a monetary policy action could in fact be construed by other nations as an outright act of war if the situations presented themselves in just the right way, at just the wrong time. Whether or not it was intentional the results could be the same. Here’s a passage to reiterate:

  “With the way the current global markets are now predisposed to HFT – If one wanted to put a hurt on a presumed or proposed adversaries economy; why wait for sanctions to be reimposed or, tightened or, a number of other financial weapons that need to be brought for a vote or, announced or, whatever: when it could be done today through various other means with only a nod-of-the-head.”

  The premise of such an idea at that time was shouted at as being “preposterous!” However, let me now add a detail that no one. And I mean, no – one thought would happen. Especially in these turbulent moments. To wit:

  “The IMF Just Entered The Cold War, Forgives Ukraine’s Debt To Russia”  And just how do you think this was viewed last week in Putin’s war council deliberations? Better yet, how do you think it’s going to be viewed when it’s contrasted against the Fed. raising interest rates against a backdrop of every other DM across the globe devaluing theirs in a response to an outright commodity driven rout crushing not only those economies, but also swelling government burdens causing social unrest?

   

  An interest rate hike here by the U.S. Federal Reserve could in fact be a catalyst that all but crushes their current fragile economies outright. Remember, this will be needed to be thought through enlisting the eyes of one Vladimir Putin. You know, the one installing ICBM’s where we also have forces. And had a plane shot down by one of our ally’s. Think he’s going to look at this as “Oh well, the Fed. had to save its credibility. Pass the vodka?”

  Which brings us back to the first player – who is also a co-player with the last in the same arena: China.

  China as of what has been demonstrated publicly sides with Russia, not the U.S. And has also been moving its alliances with others that we are now having difficulties with. i.e., Iraq and more. And it will also be China’s economy that may suffer just as bad as Russia if and when the Fed. raises rates. Yep, nothing to see here. Move along. thanks for stopping by. As we can now see the Fed. knew exactly what it was doing by delaying all these years. For this sure looks like the absolute best time to “just do it.” Right?

  This is where the Fed. now finds itself. Here they were. Just holding policy lines doing what they in their Ivory Tower contemplated and the so-called “smart crowd” insisted they do. And now the saying of “Between a rock and a hard place” might be an understatement. The world sits atop a tinderbox fueled by monetary policies that created them and awaits a match that could set it off in a blaze of who knows what. All in short order.

  Unless they don’t do anything except try their best Draghi impersonation and declare, “They too are once again at the ready to do what ever it takes!” Except – just not now. Or worse. They do raise – and near immediately need, and do issue – QE. At that point who knows which is worse. For what it won’t be, is:

  Predictable.

  

  

  

  

  

• "Stick With The Bull" Indeed: 10 Out Of 10 Barrons "Experts" Again Predict The S&P Will Rise 10% In 2016

  One year ago, as part of its one-year forward forecast issue, the ten “experts” polled by Barrons in its one year forward forecast, predicted that the S&P would close at an average of 2209.

  

  Instead, with just 13 trading days to go in the year, the S&P is down just over 2% for the year.

  No wonder the name of that particular Barron’s article was “Stick With the Bull“, although we doubt Barrons meant it in the more accurate in retrospect, “secondary” meaning of the phrase.

  Fast forward to this weekend, when the same ten experts unanimously agree that while they may all have been wrong about 2015 (barring some last minute miracle in which the S&P soars by 200 points in the next two weeks), it is only far to double down on 2016, and they all expect the S&P500 to not only rise, but do so with style, hitting an average of 2220 on December 31, 2016 (at least there was no reference to male bovine excrement in this year’s title which was the far more muted “Stocks Have Room to Rise 10% in 2016, Market Strategists Say“)

  

  This is what Barron’s says:

  Based on their mean forecast, the Standard & Poor’s 500 index will end next year at 2220, an increase of 10% from Friday’s close of 2012. An advance of that magnitude is more reflective of the market’s rout last week, however, than undue exuberance among our prognosticators. To the contrary, the strategists were more cautious in their comments than in recent years past.

  Actually, not really: only two “strategists” lowered their year end target for 2016 compared to 2015, as just Adam Parker and Dubravko Lakos-Bujas now see a “more cautious” 2016 (cutting their forecasts from 2275 to 2175 and 2250 to 2200, respectively). At the same time Chris Auth, eager to overcompensate for being wrong, has taken his year end forecast from 2350 to 2500, while Glionna and Koesterich both expect the S&P to be higher than their expectations for 2015. 5 “experts” are unchanged in their forecasts from a year ago.

  however, not even Barrons’ can avoid to be sarcastic with the panel’s performance:

  Any advance would be superior to this year’s 2.3% loss (through Dec. 11). A year ago, the pros predicted stocks would rally 10% in 2015; that target seems far-fetched today, with just 13 trading days left in the year.

  There is more in the forecast but it is all very much worthless, because far from actually attempting to predict the future correctly, what these “prediction calls” are merely an exercise in setting the echo chamber, and making sure that everyone is on the same page. After all if everyone is wrong, it is the same as if nobody is wrong: just one outlier would make the entire panel of “experts” look idiotic.

  And speaking of idiotic forecasts, we can’t help but laugh at Barron’s 2007 year end prediction “A Bullish Call” laying out where all these same (and some different) “experts” predicted the market would close.

  

   

  Come to think of it, back then both Lehman’s Ian Scott and Bear’s Jonathan Golub were both really bullish. We wonder why they no longer grace Barron’s “expert” roundtable?

  

  

  

  

• The Coincidences Are Just Too Eerie: This Is The Last Time CCC Yields Were Here And Rising

  Yesterday, we highlighted the all too eerie coincidence that the very first hedge fund (not mutual fund) to gate investors late on Friday, was operated by none other than the two former heads of distressed/high yield trading of the bank that started it all, Bear Stearns.

  Today, things get even eerier, because while we already have the Bear Stearns link, an even more curious coincidence emerged when according to the BofA-Merrill index of “CCC and below” bond yields, the index just hit 17.24%, soaring nearly 2% in just the past two weeks, and rising fast.

  When was the last time the same index was at precisely 17.24% and rising? The answer: the weekend Lehman Brothers filed for bankruptcy (check for yourselves: on Sept 15, 2008, the closing effective yield was 17.27%).

  

   

  What happened next? This.

  

   

  And while no bank has blown up this time (to the best of our knowledge) the irony is that the catalyst driving the long, long overdue blow out in yields is the trifecta of plunging oil, the soaring dollar, and of course, fears about the tightening financial conditions as a result of the an “imminent” rate hike.

  In other words, the Fed.

  And while history rhymes, it usually does so in very ironic ways, and we can’t wait to find out if indeed Yellen’s first rate hike in 9 years this Wednesday unleashes a Lehman-like neutron bomb that leads to the full collapse of the junk bond market first, and then the shockwave spreads across all asset classes leading to the same financial devastation witnessed at the end of 2008, unleashing the longest period of “free capital markets” central planning the world has ever seen.

  

  

  

  

  

• France's Far-Right Nationalist Party Swings From First To Worst; "Routed' In Regional Election Run-Off

  A week ago, fear was tangible as France's far-right Front National party won an unprecedented 2 provinces in the nation's first elections since the Paris terror attacks. With 40% of the votes, Marine Le Pen's party dominated the mainstream political parties and status quo maintainers were beginning to quake. Now, a week later, with turnout surging from 50% to 59%, Front National has been "routed" according to AP, failing to win any regions.

  

   

  • *FRENCH NATIONAL FRONT FAILS TO WIN ANY REGIONS IN ELECTION
  • *FRENCH VOTER TURNOUT RISES TO ABOUT 59% VS ABOUT 50% LAST WEEK

  As voters cast their ballots in the second-round runoff, Le Pen’s party is hobbled by a lack of allies from which it can draw fresh support. France’s two main parties are even working together in some districts to keep Le Pen out of power.

  Prime Minister Manuel Valls, a Socialist like Hollande, said on Friday that he was “convinced” his party’s supporters would engage in tactical voting to defeat Le Pen. The Socialists pulled their party out of both races and it appears that many voters cast ballots to prevent the once-pariah National Front from gaining power.

  Keep in mind: Front national was only defeated today because Socialists withdrew candidates qualified for run-off and let conservatives win.

  — Mathieu von Rohr (@mathieuvonrohr) December 13, 2015

  It appears to have worked, as AP reports, pollsters project France's far right is routed in regional elections after winning 1st round…

   

  Three polling agencies are projecting that anti-immigrant National Front has been routed in regional election runoffs despite dominating the first-round vote.

   

  Party leader Marine Le Pen and her niece lost their bids to run two French regions in elections Sunday seen as an important test for the anti-immigrant party.

   

  Polling agencies Ipsos, Ifop, TNS-Sofres projected that the opposition conservatives and governing Socialists won control of France's 13 regions.

   

  They showed Le Pen won around 42 percent of the vote in the Nord-Pas de Calais region, and rival conservative Xavier Bertrand about 57 percent.

   

  Le Pen's niece, Marion Marechal-Le Pen, was projected to win about 45 percent in the southern Provence-Alpes-Cote d'Azur region. Conservative Nice Mayor Christian Estrosi was projected to win about 55 percent.

  *  *  *

  No Dark Blue FN wins…

  

   

  Europe is "safe" once again… just ask Diebold.

  

  

  

  

  

• Cuomo, Schumer Unveil Cunning "No Guns For Dangerous Terrorists" Plan

  In what is possibly the most inane political statement ever, U.S. Senator Charles Schumer and Governor Andrew M. Cuomo today announced a push to prevent known or suspected terrorists from purchasing guns in New York State. Schumer and Cuomo areasking the federal government to officially add the U.S. Terror Watch List to the criteria it uses for federal background checks in New York State, exclaiming "we need to move to close the Terror Gap once and for all."

  The Statement…

  States – Like New York – Cannot, On Their Own, Block Sales of Guns to Those on Terror Watch List Because Watch List Is Restricted; Schumer & Cuomo's Efforts Come On Heels of Federal Failure to Close Terror Gap

   

  U.S. Senator Charles Schumer and Governor Andrew M. Cuomo today announced a push to prevent known or suspected terrorists from purchasing guns in New York State.

   

  Schumer and Cuomo are asking the federal government to officially add the U.S. Terror Watch List to the criteria it uses for federal background checks in New York State. This would prevent known or suspected terrorists from legally purchasing guns and would cross-check the terror watch list with a National Instant Criminal Background Check System (NICS) request, effectively closing the Terror Gap within the state and barring individuals on federal terror watch lists from legally arming themselves.

   

  Schumer noted that the terror watch list is restricted by the federal government. Cuomo said that, if the federal government won't use the terrorist watch list in conducting background checks to restrict guns to known or suspected terrorists, Congress must develop a mechanism to grant states ‎access to the list and allow them to keep their residents safe.

   

  Schumer and Cuomo say there is urgency to stop terror suspects from gaining legal access to weapons of war, something Congress has failed to prevent on the national level.

   

  Senator Schumer said: “We need to move to close the Terror Gap once and for all. We will continue to push again and again at the national level to put into practice this common sense provision that would do so much to protect the American public, but until we do, today’s push with Governor Cuomo will add momentum to this larger effort. Railing to close the Terror Gap in New York State will send a message to other states – and Congress – to act. The federal government has always been there for New York when it comes to giving us the tools we need to fight terrorism and I remain hopeful that they’ll work with us on preventing terror suspects from passing gun background checks. The feds should move ASAP on this request and I will fight tooth and nail to see that they meet the mark.”

   

  Governor Cuomo said: “The fact that known or suspected terrorists continue to legally buy guns is mindboggling and we cannot allow gridlock, dysfunction and the NRA's stranglehold on Washington ‎to continue to place the safety of New Yorkers at risk. If Congress refuses to act, the federal government needs to step up and either take proactive action to right this wrong once and for all, or allow states to do so. I thank Senator Schumer for his strong and consistent leadership on this critically important issue, and am proud to fight with him to close the Terror Gap.”

   

  In the aftermath of the terrorist attacks that struck Paris in November, Senator Schumer has led a renewed push in Congress for passage of the “Denying Firearms and Explosives to Dangerous Terrorists Act of 2015,” which would give the Department of Justice authority to prevent a known or suspected terrorist from buying firearms or explosives nationwide. Governor Cuomo has also been vocal in calling on members of Congress to stand with Senator Schumer and pass this common-sense legislation.

  Sound like a no-brainer … stopping terrorists from having guns? But as Daily Beast points out, in an article called “My Fellow LIBERALS, DON’T Support Obama’s Terror Watch List Gun Ban“:

  As Americans we understand well how important due process is. No one, for instance, should be thrown in jail just on the say-so of some government official who declares they deserve it. Such is the behavior of tyrants, the Founding Fathers understood, and so we enshrined in our Constitution the right to counsel, the right against being compelled to testify against oneself, the right to trial by jury, etc.All of these rights are checks to ensure the government can’t simply pluck innocent people out of their lives and strip them of their life, liberty, or property. Only after fairly testing the charges against them can the government punish people with such deprivation.

   

  But none of these hurdles must be overcome for the government to put someone on a list, especially not a list like this, which is a watch list. It is a list of people that for whatever reason (a reason that no one outside the government knows) the government has decided deserve closer scrutiny of their actions.

   

  Is the government right to be concerned about these people? Maybe yes, but maybe not, and there is no way for ordinary citizens to know. Which means there is also no way for ordinary citizens to know whether any of them, even people who in no way intend to commit acts of terrorism, are also on that list.

   

  In other words, there is no way to know whether you are on that list. Nor is there any way to know how to get off it.

   

  That there is any list at all should give us all pause. It has not historically been the hallmark of a healthy democracy when governments have kept lists of people they didn’t like. It is hard to be a government of the people, by the people, and for the people when the government keeps track of the people, including those dissidents who would challenge it (which is something that in a democracy they are allowed, and even supposed, to do).

   

  ***

   

  What this proposal calls for is the government using the list as a basis to deny the people on it a right to which they were otherwise entitled.

   

  ***

   

  Based on the plain text of the Second Amendment and subsequent jurisprudence it is clear that some right is in there somewhere, and what this proposal calls for is for the government to arbitrarily and un-transparently deny this right to certain people without any sort of the due process ordinarily required. And that’s a problem.

   

  ***

   

  With this proposal we would be authorizing the government to act capriciously and unaccountably for any reason, including—and this point cannot be emphasized enough—bad reasons or no reasons at all, and against anyone, including—and this point cannot be emphasized enough, either—people just like you. There would also be no reason why, if the government could take away this right this way today, it couldn’t take away other rights you depend on having tomorrow the same way.

  As we concluded previously, we've got to stop mass shootings … but using a Kafkaesque, fatally flawed watchlist system is not the way. A top liberal Constitutional law expert explains:

  Like many academics, I was happy to blissfully ignore the Second Amendment. It did not fit neatly into my socially liberal agenda.

   

  ***

   

  It is hard to read the Second Amendment and not honestly conclude that the Framers intended gun ownership to be an individual right. It is true that the amendment begins with a reference to militias: “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.” Accordingly, it is argued, this amendment protects the right of the militia to bear arms, not the individual.

   

  Yet, if true, the Second Amendment would be effectively declared a defunct provision. The National Guard is not a true militia in the sense of the Second Amendment and, since the District and others believe governments can ban guns entirely, the Second Amendment would be read out of existence.

   

  ***

   

  More important, the mere reference to a purpose of the Second Amendment does not alter the fact that an individual right is created. The right of the people to keep and bear arms is stated in the same way as the right to free speech or free press. The statement of a purpose was intended to reaffirm the power of the states and the people against the central government. At the time, many feared the federal government and its national army. Gun ownership was viewed as a deterrent against abuse by the government, which would be less likely to mess with a well-armed populace.

   

  Considering the Framers and their own traditions of hunting and self-defense, it is clear that they would have viewed such ownership as an individual right — consistent with the plain meaning of the amendment.

   

  None of this is easy for someone raised to believe that the Second Amendment was the dividing line between the enlightenment and the dark ages of American culture. Yet, it is time to honestly reconsider this amendment and admit that … here’s the really hard part … the NRA may have been right. This does not mean that Charlton Heston is the new Rosa Parks or that no restrictions can be placed on gun ownership. But it does appear that gun ownership was made a protected right by the Framers and, while we might not celebrate it, it is time that we recognize it.

  And liberal icons Gandhi and the Dalai Lama accept gun ownership as moral.

  

  

  

  

  

• The End Of The Bubble Finance Era

  Submitted by David Stockman via The Daily Reckoning blog,

  We are nearing a crucial inflection point in the worldwide bubble finance cycle that has been underway for more than two decades. To wit, the world’s central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.

  We will get to the Fed’s upcoming once in a lifetime shift to raising rates below, but first it is crucial to sketch the global macroeconomic context.

  In a word, we are now entering an epic deflation. Its leading edge is manifested in the renewed carnage in the commodity pits.

  This week the Bloomberg commodity index, which encompasses everything from crude oil to soybeans, copper, nickel, cotton and livestock, plunged below 80 for the first time since 1999. It is now down nearly 70% from its all-time high on the eve of the financial crisis, and 55% from its 2011 recovery high.

  

  Wall Street bulls and Keynesian apologists for the Fed want you to believe that there isn’t much to see here. They claim it’s just a temporary oil glut and some CapEx over-exuberance in the metals and mining industry.

  But their assurances that in a year or so current excess supplies of copper, crude, iron ore and other commodities will be absorbed by an expanding global economy couldn’t be farther from the truth. In fact, this error is at the heart of my investment viewpoint.

  We believe the global economy is vastly bloated with debt-based spending that can’t be sustained. And that this distortion is compounded on the supply side by an incredible surplus of excess production capacity. As well as wasteful malinvestments that were enabled by dirt cheap central bank credit.

  Consequently, the world economy is actually going to shrink for the first time since the 1930s. That’s because the plunging price of commodities is only a prelude to what will amount to a worldwide CapEx depression — the kind of thing that has not happened since the 1930s.

  There has been so much over-investment in energy, mining, materials processing, manufacturing and warehousing that nothing new will be built for years to come. The boom of the last two decades essentially stole output from many years into the future.

  So there will be a severe curtailment in the production of mining and construction equipment, oilfield drilling rigs, heavy trucks and rail cars, bulk carriers and containerships, materials handling machinery and warehouse rigging, machine tools and chemical processing equipment and much, much more.

  The crucial point, however, is that sharp curtailment of the capital goods industries has far more destructive implications for the macro-economy than a reduction in consumer appliance sales or restaurant and bar tabs.

  Service operations have virtually no working inventories and the supply chains for durable consumer goods such as dishwashers and cars typically have perhaps 50 to 100 days of stocks on hand. So when excessive inventory investments accumulate, the destocking and resulting supply chain curtailments are relatively short-lived.

  But when it comes to capital goods the relevant inventory measure is capacity in place. That’s where the bubble finance policies of the Fed and other central banks have done so much damage.

  Prolonged periods of below market capital costs induce business customers to drastically over-estimate investment returns. And therefore to eventually accumulate years and years worth of excess capacity.

  This is very different than your grandfather’s consumer goods recessions of the 1950s and 1960s. Those typically involved moderate production cutbacks and several quarters of inventory destocking. But this time the capital goods adjustment will take years, perhaps more than a decade.

  Here’s why.

  When iron ore mines are drastically overbuilt, for example, new orders for Caterpillars’ (CAT) big yellow mining machines can drop to nearly zero. That’s why CAT is already in the longest string of dealer sales declines — 35 straight months and running — in its 100 year history.

  

  That’s also why the coming global recession will be so prolonged and stubborn. When cheap credit generates a boom in long-lived and expensive capital goods, it gives rise to a pipeline of new capacity.

  This pipeline is not easy to shut-off and often makes sense to complete — say containerships, steel plants or new field mines — even if pricing and profitability have already headed south. That’s known as the sunk cost problem.

  Mining equipment orders are likely to remain deeply depressed for the rest of the decade. And this syndrome will be repeated in most other sectors such as heavy trucks, shipyards, oil drilling equipment etc.

  This depression in the capital goods industries, in turn, means the disappearance of thousands of typically high pay, high skill jobs at companies like Caterpillar. The same will happen among their extensive chains of outsourced components, materials and service suppliers. And the cascade of those contractions down the economy’s food chain will further intensify and extend the deflationary dynamic.

  The graph below give some hint of the massive downturn which lies ahead on a worldwide basis.

  During the last 25 years CapEx spending by the publicly listed companies of the world grew by an incredible 500%. Much of this happened in China and the Emerging Market (EM) economies, and in the transportation and distribution infrastructure that connects them.

  

  Yet this massive explosion of investment spending didn’t happen because several billion Asian peasants suddenly decided to save-up a storm of new capital.

  Instead, this unprecedented construction and CapEx campaign was financed almost entirely by a massive issuance of printing press credit at virtually zero real interest rates.

  That means capital was drastically underpriced and that waste, excess and inefficiency abounded.

  At length, the global economy became dangerously unbalanced. And these adverse consequences of the false central bank credit boom, in fact, highlight the investment opportunity ahead.

  Healthy capitalist investment based on market prices and savings set aside from current income can go on indefinitely, fueling rising efficiency, output and wealth.

  But CapEx based on printing press credit only temporarily enabled the world economy to have its cake and eat it, too. Now it’s payback time.

  Needless to say, during the expansion phase of central bank enabled bubble finance, optimism reigns and bulls and speculators insist that “this time is different.”

  Yet the laws of sound finance and market economics never change. It often just takes an extended time for all the excesses to work their way through the system and finally reach the blow-off stage.

  The graph below summarizes this great deformation.

  Over the last two decades, global credit market debt outstanding has soared from $40 trillion to $225 trillion. This represents an incredible $185 trillion debt expansion. That eruption would be simply unimaginable without the help of money printing central banks.

  By contrast, global GDP only expanded by $50 billion during the same period, and even that’s an overstatement. Much of that reported gain merely represented the one-time pass-through of fiat credit, not real savings put to work in efficient production.

  Consequently, it is likely that the global economy accumulated more than $4 of new debt for every $1 of incremental GDP.

  Not only is that self-evidently an unsustainable financial equation, it also means that when credit growth stops, the bottom will drop out of reported GDP. It wasn’t new wealth in the first place, just production stolen from the future.

  

  And this gets us to the Fed’s upcoming move to raise interest rates for the first time in 10 years. It will amount to a sea-change that in due course will shatter the entire regime of bubble finance that gave rise to the false credit and CapEx boom depicted above.

  As I have often said, the Fed has become addicted to the “Easy Button.” During more than 80% of the 300+ months during the last quarter century it has either cut rates or left them unchanged.

  

  Accordingly, the professional gamblers in today’s Wall Street casino have no real experience of a time when the “Fed is your friend” adage failed to work. They have experienced essentially false one-way markets, knowing that the Greenspan/Bernanke/Yellen “put” under stocks and other risks assets would come to the rescue.

  But here’s the thing. After 84 months of zero interest rates — and folks that’s pure lunacy by all historic standards — the Fed has run out of time and excuses.

  If it doesn’t begin to normalize rates at last, and as repeatedly promised, its credibility will be shattered. And what it long has been deathly afraid of will happen. That is, the market will plunge into a hissy fit that will shatter confidence in what is essentially a giant credit-based Ponzi.

  And the other major central banks of the world are in the same boat.

  Just last week we saw the ECB stopped short by its powerful Germany contingent that essentially said to Draghi that $1.3 trillion of money printing is enough.

  Likewise, the People’s Bank of China (PBOC) has run out of dry powder, too. And that’s of monumental importance.

  The epicenter of the global commodity, industrial and CapEx boom was in China. Thanks to the greatest money printing spree by the PBOC in recorded history, outstanding public and private debt there has exploded from $500 billion in 1994 to $30 trillion at present.

  That’s a 60-fold gain. Is it any wonder that the commodity and CapEx charts shown above went nearly vertical during the peak of the global boom?

  But now China is facing the collapse of its credit Ponzi, and capital is fleeing the country at a prodigious pace.

  In the last 15 months alone, nearly $1 trillion has high tailed it for London, New York, Australia, Vancouver and other resting places for flight capital.

  So the PBOC is being forced to stop its printing presses in order to prevent the Yuan exchange rate from collapsing and the capital outflow from getting totally out of hand.

  Even in Japan, the Bank of Japan’s printing press is no longer accelerating. That because notwithstanding trillions of new money conjured from thin air during recent years, Japan is on the verge of its 5th recession in seven years. Even in Japan, bubble finance is losing its credibility.

  

  

  

  

  

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• Is ISIS Simply A "Saudi Army In Disguise"?

  Authored by F. William Engdahl via New Eastern Outlook,

  In recent weeks one nation after another is falling over themselves, literally, to join the turkey shoot known, erroneously, as the war in Syria, ostensibly against the Islamic State or Daesh. The most wanted but most feared question is where will this war frenzy lead, and how can it be stopped short of dragging the entire planet into a world war of destruction?

  On September 30, responding to a formal invitation or plea from the duly-elected President of the Syrian Arab Republic, the Russian Federation began what was an initially highly effective bombing campaign in support of the Syrian Government Army.

  On 13 November following the terror attacks claimed by ISIS in Paris, the French President proclaimed France was “at war” and immediately sent her one and only aircraft carrier, the Charles de Gaulle, to Syria to join the battle. Then on December 4, the German Parliament approved sending 1,200 German soldiers and six Tornado jets to “help” France. Reports out of Germany say the Germans will not work with Russia or the Assad regime, but with CentCom command in Florida and coalition headquarters, not in Damascus, but in Kuwait. The same week the UK Parliament approved sending British planes and forces to “fight ISIS” in Syria. Again we can be sure it’s not to help Russia’s cause in cooperation with the Syrian Army of Assad to restore sovereignty to Syria.

  Then Turkey’s hot-head President Recep Erdo?an, fresh from his criminal, premeditated downing of the Russian SU-24 in Syria, orders Turkish tanks into the oil-rich Mosul region of Iraq against the vehement protests of the Iraqi government. And added to this chaos, the United States claims that its planes have been surgically bombing ISIS sites for more than a year, yet the result has been only to expand the territories controlled by ISIS and other terror groups.

  If we take a minute to step back and reflect, we can readily realize the world is literally going berzerk, with Syria as merely the ignition to a far uglier situation which has the potential to destroy our lovely, peaceful planet.

  Something major missing

  In recent weeks I have been increasingly unsatisfied by the general explanations about who is actually pulling the strings in the entire Middle East plot or, more precisely, plots, to the point of reexamining my earlier views on the role of Saudi Arabia. Since the June, 2015 surprise meeting in St Petersburg between Russian President Putin and Saudi Defense Minister Prince Salman, the Saudi monarchy gave a carefully cultivated impression of rapprochement with former arch-enemy Russia, even discussing purchase of up to $10 billion in Russian military equipment and nuclear plants, and possible “face time” for Putin with the Saudi King Salman.

  The long procession of Arab leaders going to Moscow and Sochi in recent months to meet President Putin gave the impression of a modern version of the walk to Canossa in1077 of Holy Roman Emperor Henry IV to Pope Gregory VII at Canossa Castle, to beg revocation of Henry’s ex-communication. This time it looked like it was the Gulf Arab monarchs in the role of Henry IV, and Vladimir Putin in the role of the Pope. Or so it seemed. I at least believed that at the time. Like many global political events, that, too, was soaked in deception and lies.

  What is now emerging, especially clear since the Turkish deliberate ambush of the Russian SU-24 jet inside Syrian airspace, is that Russia is not fighting a war against merely ISIS terrorists, nor against the ISIS backers in Turkey. Russia is taking on, perhaps unknowingly, a vastly more dangerous plot. Behind that plot is the hidden role of Saudi Arabia and its new monarch, King Salman bin Abdulaziz Al Saud, together with his son, the Defense Minister, Prince Salman.

  Saudi ‘impulsive intervention policy’

  German media has widely reported a leaked German BND intelligence estimate. The BND is Germany’s version of the CIA. The BND report, among other things, concentrates on the rising role of the King’s son, 30-year-old Prince Mohammed bin Salman. Referring to the child prince’s important role the BND states, “The current cautious diplomatic stance of senior members of the Saudi royal family will be replaced by an impulsive intervention policy.”

  Prince Salman is Defense Minister and led the Kingdom, beginning last March, into a mad war, code-named by Salman as “Operation Decisive Storm,” in neighboring Yemen. Saudis headed a coalition of Arab states that includes Egypt, Morocco, Jordan, Sudan, the United Arab Emirates, Kuwait, Qatar and Bahrain. The Prince is also head of the Saudi Economic Council which he created.

  The new King, Salman, is not the benign sweet guy his PR staff try to paint him.

  As my soon-to-be-released book, The Lost Hegemon: Whom the gods would destroy, documents in detail, ever since CIA Cairo Station Chief Miles Copeland organized the transfer of the Muslim Brotherhood, banned in Egypt for an alleged assassination attempt against Nasser, to Saudi Arabia in the early 1950’s, there has existed a perverse marriage of the Saudi monarchy and radical “Islamic” terrorist organizations. As described by John Loftus, a former US Justice Department official, by the joining of Egypt’s Muslim Brothers and Saudi strict Islam, “they combined the doctrines of Nazism with this weird Islamic cult, Wahhabism.”

  Allen Dulles’ CIA secretly persuaded the Saudi monarchy in 1954 to help rebuild the banned Muslim Brotherhood, thereby creating a fusion of the Brotherhood with Saudi ultra-fundamentalist Wahhabi Islam and, of course, backed by the vast Saudi oil riches. The CIA planned to use the Saudi Muslim Brothers to wield a weapon across the entire Muslim world against feared Soviet incursions. A fanatical young terrorist named Osama bin Laden was later to arise out of this marriage in Hell between the Brotherhood and Wahhabite Saudi Islam.

  King Salman was in the middle of creating Osama bin Laden’s Al Qaeda as it was later dubbed in the media. His involvement goes back to the late 1970’s when he, as Governor of Riyadh, was named head of major conservative Saudi charities later discovered financing Al Qaeda in Afghanistan and Bosnia. Salman worked intimately as the financial funding conduit for what became Al Qaeda together with bin Laden’s Saudi intelligence “handler,” then-head of Saudi Intelligence, Prince Turki Al-Faisal and the Saudi-financed Muslim World League.

  King Salman in those days headed the Saudi High Commission for Relief to Bosnia-Herzegovina, a key front for al-Qaeda in the Balkans in the 1990s. According to a United Nations investigation, Salman in the 1990s transferred more than $120 million from commission accounts under his control — as well as his own personal accounts — to the Third World Relief Agency, an al-Qaida front and the main pipeline for illegal weapons shipments to al-Qaida fighters in the Balkans. Osama bin Laden was directly involved in those operations of Salman.

  During the US invasion of Iraq in 2003-4, Al Qaeda entered that country, headed by Moroccan-born terrorist Abu Musab al-Zarqawi, who had pledged allegiance to bin Laden’s Al Qaeda, creating Al Qaeda in Iraq, later calling itself the Islamic State in Iraq, the Saudi-financed forerunner of ISIS. A declassified Pentagon DIA document shows that in August 2012, the DIA knew that the US-backed Syrian insurgency was dominated by Islamist militant groups including “the Salafists, the Muslim Brotherhood and al-Qaeda in Iraq.” According to author Gerald Posner, Salman’s son, Ahmed bin Salman, who died in 2002, also had ties to al-Qaida.

  A Saudi Oil Imperium

  If we look at the emergence of Al Qaeda in Iraq and its transformation into the Islamic State in Iraq and Syria (ISIS), it all traces back to the Saudi operations going back to the late 1970’s involving now-King Salman, Saudi Osama bin Laden, together with Saudi intelligence head, Prince Turki Al-Faisal.

  Washington and the CIA worked intimately with this Saudi network, bringing bin Laden and other key Saudis into Pakistan to train with the Pakistani ISI intelligence, creating what became the Afghan Mujahideen. The Mujahideen were created by Saudi, Pakistani and US intelligence to defeat the Soviet Red Army in the 1980’s Afghanistan war, the CIA’s “Operation Cyclone.” Cyclone was Zbigniew Brzezinski’s plan to lure Moscow into an Afghan “Bear Trap” and give the Soviet Union what he called their “Vietnam.”

  The so-called ISIS today in Iraq and Syria, as well as the Al Qaeda Al-Nusra Front in Syria and various other Jihad terror splinter gangs under attack from Russia and the Damascus government of Assad, all have their origins in Saudi Arabia and the activities of King Salman.

  Has the King undergone a Saul-to-Paul conversion to a pacific world view since becoming King, and his son, Prince Salman as well? Despite signals in recent months that the Saudis have ceased financing the anti-Assad terror organizations in Syria, the reality is the opposite.

  The Saudis Behind Erdo?an

  Much attention of late is given, understandably, to the Turkish dictatorship of the thug, Recep Tayyip Erdo?an. This is especially so since his Air Force deliberately shot down the Russian SU-24 jet over Syrian territory, an act of war. What few look at are the ties of Erdo?an and his AKP to the Saudi monarchy.

  According to a well-informed Turkish political source I spoke with in 2014, who had been involved in attempts to broker a peace between Assad and Erdo?an, Erdo?an’s first Presidential election campaign in August 2014 was “greased” by a gift of $ 10 billion from the Saudis. After his victory in buying the presidential election, Erdo?an and his hand-picked Prime Minister Ahmet Davuto?lu opened the doors wide to establish secret training centers for what was to be called ISIS. Under supervision of Hakan Fidan, Erdo?an’s hand-picked head of the Secret Services (MIT), Turkey organized camps for training ISIS and other terrorists in Turkey and also to provide their supplies in Syria. The financing for the Turkish ISIS operation was arranged apparently by a close personal friend of Erdo?an named Yasin al-Qadi, a Saudi banker close to the Saudi Royal House, member of the Muslim Brotherhood, financier of Osama Bin Laden and Al Qaeda since Afghanistan in the 1980’s. x

  Erdo?an’s US-sanctioned and Saudi-financed terrorist training camps have brought an estimated 200,000 mercenary terrorists from all over the world, transited by Turkey in order to wage “jihad” in Syria.

  But that jihad, it is now clear, is not about Allah but about Moola—money. The Saudi monarchy is determined to control the oil fields of Iraq and of Syria using ISIS to do it. They clearly want to control the entire world oil market, first bankrupting the recent challenge from US shale oil producers, then by controlling through Turkey the oil flows of Iraq and Syria.

  Saudi TOW missiles to ISIS

  In May 2014, the MIT transferred to ISIS terrorists in Syria, by special train, a quantity of heavy weapons and new Toyota pick-ups offered by Saudi Arabia.

  Now a detailed investigation of the Turkish shoot down of the Russian SU-24 jet reveals that the Turkish F-16 jet that shot down the jet was supported by two AWACS reconnaissance planes that enabled the Turkish F-16 exact hit, a very difficult if not impossible feat against a jet as agile as the SU-24. One of the AWACS planes was a Boeing AWACS E-3A of the Saudi Arabian air force which took off from the Riyadh, Saudi Arabia airbase.

  Then, as a Russian rescue helicopter rushed to the scene of the SU-24 crash, Saudi TOW anti-aircraft missiles shot the Russian helicopter down. The Saudis had sent 500 of the highly-effective TOW missiles to anti-Assad terror groups in Syria on October 9.

  What we have, then, is not an isolated Russian war against ISIS in Syria. What lies behind ISIS is not just Erdo?an’s criminal regime, but far more significant, the Kingdom of Saudi Arabia and her Wahhabite allies Kuwait, UAE, Qatar.

  In the true sense, ISIS is simply a “Saudi army in disguise.”

  If we strip away the phony religious cover, what emerges is a Saudi move to grab some of the world’s largest oil reserves, those of the Sunni parts of Iraq, and of Syria, using the criminal Turkish regime in the role of thug to do the rough work, like a bouncer in a brothel. If Moscow is not conscious of this larger dimension, she runs the risk of getting caught in a deadly “bear trap” which will more and more remind them of Afghanistan in the 1980’s.

  What stinks in Saudi Arabia ain’t the camel dung. It’s the monarchy of King Salman and his hot-headed son, Prince Salman. For decades they have financed terrorism under a fake religious disguise, to advance their private plutocratic agenda. It has nothing to do with religion and everything to do with money and oil. A look at the ISIS map from Iraq to Syria shows that they precisely targeted the oil riches of those two sovereign states. Saudi control of that oil wealth via their ISIS agents, along with her clear plan to take out the US shale oil competition, or so Riyadh reckons, would make the Saudi monarchy a vastly richer state, one, perhaps because of that money, finally respected by white western rich men and their society. That is clearly bovine thinking.

  Don’t bet on that Salman.

  

  

  

  

• Emerging Market Vulnerability – The Most Likely For Disruption From Fed Liftoff

  The build-up in credit or leverage in many Emerging Market economies has been an important focus for EM investors given historical episodes of credit crunches and subsequent growth slowdowns. While broadly speaking, EM stocks began to drastically underperform DM stocks at the start of QE3…

  

   

  Goldman summarizes in a heat map, the EM nations with greatest potential for the upcoming Fed liftoff to cause a major disruption.

  The darkest shaded regions indicate the largest risks.

  

   

  The current credit landscape suggests investors should be cautious on various EMs, although not overly concerned about the aggregate picture.

  • China is the “poster child” of credit imbalances and looks most exposed: a rapid private sector credit build-up has caused the credit gap1 to widen out to the highest level across EMs, with high levels of bank leverage as well. The offset is that external and government leverage are at very low levels. Korea is also exposed on similar dimensions, although to a somewhat smaller extent than China.
  • Turkey and Mexico have relatively large credit gaps, but the former has seen a more rapid private sector credit buildup in recent years with a thinner reserve cover, whereas Mexico’s overall indebtedness is quite low.
  • The Czech Republic and Hungary have high debt levels, with a high proportion of external debt, but other indicators are less worrying.
  • India stands out as having a relatively manageable debt burden (and negative credit gap), but the banking sector there appears highly levered, which is a source of concern.
  • South Africa has experienced the sharpest build-up in government debt.

  Source: Goldman Sachs

  

  

  

  

• December 16, 2015 – When The End Of The Bubble Begins

  Submitted by David Stockman via Contra Corner blog,

  They are going to layer their post-meeting statement with a steaming pile of if, ands & buts. It will exude an abundance of caution and a dearth of clarity.

  Having judged that a 25 bps pinprick is warranted, the FOMC will then plant itself firmly in front of the great flickering dashboard in the Eccles Building. There it will repose to a regimen of “watchful waiting”, scouring the entrails of the “incoming data” to divine its next move.

  Perhaps the waiting won’t be so watchful as all that, however. What is actually coming down the pike is something that may put the reader, at least those who have already been invited to join AARP, more in mind of that once a year hour-long special broadcast by Saturday morning TV back in the days of yesteryear; it explained how the Lone Ranger got his mask.

  Memory fails, but either 12 or 19 Texas Rangers rode high in the saddle into a box canyon, confident they knew what was around the bend. Soon there was a lot of gunfire and then there was just one, and that was only because Tonto’s pony needed to stop for a drink.

  Yellen and her posse better pray for a monetary Tonto because they are riding headlong into an ambush in the canyons of Wall Street. To wit, they cannot possibly raise money market interest rates—-even by 75 bps—-without massively draining liquidity from the casino.

  Don’t they know what happened to the $3.5 trillion of central bank credit they have digitally printed since September 2008? Do they really think that fully $2.8 trillion of it just recycled right back to the New York Fed as excess bank reserves?

  That is, no harm, no foul and no inflation? The monetary equivalent of a tree falling in an empty forest?

  To the contrary, how about recognizing the letter “f” for fungibility. What all that “excess” is about is collateral, not idle money.

  The $2.8 trillion needed an accounting domicile—so “excess reserves” was as good as any.  But from a financial point of view it amounted to a Big Fat Bid for existing inventories of stocks and bonds.

  Stated more directly, Wall Street margined the Fed’s gift of collateral, and did so over and over in an endless chain of rehypothecation.

  So that’s why December 16th will be the beginning of the end of the bubble. If the Fed were to actually raise money market rates the honest way, and in the manner employed by central banks for a century or two, it would have to drain cash from the system; and it would have to do so in the trillions in order to levitate the vast sea of money it has pinned to the zero bound.

  Yet actually raising money market rates the honest way would amount to the opposite of what has gone before. That is, it would become the Big Fat Offer, triggering a selling stampede in the casino.

  The front-running smart money of the bubble’s inflation phase would become a bow-wave of retreat; and the hypothecated chains of collateral would morph into a monetary black hole of margin calls and liquidations.

  So the Keynesian monetary plumbers of the Eccles Building will try something truly stupid. That is, they will try to levitate the entire sea of money-like liabilities they have conjured over the last two decades, but especially since September 2008, mainly by paying higher rates of interest to banks on those $2.8 trillion of so-called excess reserves.

  Well now. Will higher IOER (interest on excess reserves) cause money market funds to pay more to their long-suffering investors; or cause the repo rate on trillions of government and other fixed income securities to rise in sympathy; or lift the rate on short-term CP and the multiple other forms of wholesale money?

  No it won’t. The Fed is fixing to call a rate rise but its preferred tool is powerless to make it happen. The so-called IOER scheme has always been a pointless crony capitalist sop to the Fed’s banking system constituency, anyway.

  After all, we do not (yet) pay prisoners to stay in jail, but paying banks on idle reserves amounts to the same thing. Just where were they going?

  The truth is, IOER payments were designed to compensate the banks for the regulatory cost of capital required to be set-aside against these assets under the new rules. So the banks got their capital costs subsidized and Wall Street got more fungible collateral in the bargain.

  Yet wait until the cowboys on Capitol Hill figure this out. In not too many months down the road, the $100 billion per year of so-called “profit” which the Fed remits to the US Treasury will largely disappear, leaving one of many gapping holes in the Federal deficit that are lurking just around the corner.

  That’s because even 100 basis points of IOER would cost $30 billion a year. On top of that there is also the mega-risk that prices of the $4.4 trillion of Treasury and GSE debt owned by the Fed will keep heading south, requiring it to carve out “reserves” from its earnings to offset the balance sheet losses.

  The whole maneuver is a world class scam anyway, and indicative of the lunacy which passes for national policy. The Fed’s $98.7 billion of “profits” last year was generated by the $116 billion of interest paid to it by the US treasury and the GSE’s——less a goodly rake-off for system expenses and salaries and for funding contract research by say 85% of the monetary economists in the US who don’t already work for Wall Street.

  

  Click to enlarge. (Source: The Federal Reserve.)

  In any event, Congress will surely blow its top if the Fed uses up this $100 billion “deficit reducer” by paying IOER or other forms of bribes aimed at make pretend interest rate raising.

  For instance, another so-called tool to effectuate rate normalization is the TDP or term deposit facility. Under that particular gem, banks may offer cash to the Fed for seven days in return for an interest rate that would presumably be above the money market rate or say 30 bps after Wednesday.

  Now isn’t that brilliant! The regulated banks are drowning in excess liquidity—-so sopping up cash seven days at a time will not constrain their ability to lend in the slightest.

  Nor would it elevate the money market rate of interest unless the Fed issues a humungous open-ended tender to the banking system to take any and all deposits offered. Exactly thereupon, however, the number of histrionics-filled hearings on Capitol Hill would be limited only be the number of TV crews available to cover them.

  It would be perceived as, and in fact would be, a massive subsidy to the banking system. That is, a reward for not lending to main street America.

  At the end of the day, the Fed will not be able to bribe the money market higher in a manner that is politically feasible. So it will be forced to repair to the old fashioned recipe——-draining cash from the Wall Street dealer markets.

  Even on this matter, however, these Keynesian fools can’t manage to be honest about what they will be doing. They will offer up another tool called RRP or reverse repo; it will be described as an instrument to manage market liquidity in a manner consistent with its measured journey toward normalization.

  Folks, RRP is nothing more than selling bonds with your fingers crossed.

  Once they get started down this path in earnest, they will either keep rolling the RRPs, which is the same thing as selling down their $4.5 trillion inventory of treasury bonds and GSEs, or they will relent and admit the whole interest rate raising gambit had been a blithering failure.

  When the US economy joins the worldwide slide into deflationary recession some time next year, this will all be academic anyway. But in the interim you haven’t seen nothing yet in terms of Fedspeak gibberish and cacophony.

  Within no time the hapless 19 Federal Reserve Rangers will be debating about whether they have actually tightened in the first place; and whether any actual liquidity that they drain from Wall Street via TDF or RRP is meant to be permanent or just a short-term market stabilizing maneuver.

  This much can’t be gainsaid. The combination of encroaching recession and even moderate liquidity draining moves will be enough to trigger Wall Street fainting spells, like those of this past week, and with increasing amplitude and frequency.

  The fact, that the junk bond market is already falling apart and CCC yields have soared back to 17% is not just due to an isolated bust in the shale patch; its a warning that the hunt for yield that massive central bank financial repression triggered in the financial markets is about ready to become a stampede for the exists.

  

  So get ready for the monetary gong show which starts next week.

  This week’s Commerce Department report on total business sales and inventories further confirmed that the inventory to sales ratio is now decidedly in the recession red zone. This means that the Fed’s liquidity draining moves will join hands with rising risks of recession.

  

  Can the third great bubble of this century survive a Fed that finally wants to get off the zero bound after its way too late, but can’t do it anyway without a massive crash inducing cash drain from Wall Street? And in the teeth of the next recession to boot?

  Yes, the end of the bubble does begin on December 16th.

  

  

  

  

• ZARpocalypse Now?

  As goes the South African Rand, so goes The World?

   

  

  Source: BofAML

  

  

  

  

• Tear Gas, Water Cannons Deployed In Germany As Leftists, Neo-Nazis, Police Clash

  One thing you might have noticed if you’ve followed the short history of Germany’s migrant “miracle” is that citizens’ celebratory mood (characterized initially by the “sweets, toys, and hugs” Syrian refugees received upon arriving in Germany after completing the increasingly arduous Balkan route) has gradually been replaced by a creeping skepticism towards the asylum seekers and towards the “iron chancellor’s” open-door policy for refugees. 

  Just two days ago, we highlighted the following graphic from WSJ which we called “the scariest chart for Angela Merkel” (TIME magazine’s recently crowned person of the year): 

  

  And here’s a look at the political context:

  

  Even before the Paris attacks and the subsequent bomb scare in Hanover, the tide was already turning in terms of public sentiment.

  Put simply, it’s not clear that Germans understood what the numbers meant until they came face to face with the influx.

  None of this is to say that there aren’t still large parts of the German electorate that support Merkel’s “yes we can” approach, it’s simply to say that reality is beginning to sink in regarding what it means to take in one million people in the space of just six months when you are a country whose entire population is just 81 million.

  Some groups have been against the open-door approach from the very beginning. PEGIDA (which stands for Patriotic Europeans Against the Islamization of the West), for instance has regained much if not all of the momentum the movement lost earlier this year when Lutz Bachmann posted a picture of himself dressed as Hitler on Facebook with the caption “He’s Back” (read more about recent PEGIDA rallies here). 

  On Saturday, we got the latest example of social and political unrest in Germany when an attempt by leftists to disrupt right wing demonstrations turned violent. As RT recounts, “about 150 members of different far-right organizations marched through the southern part of Leipzig. They included the neo-Nazi party Die Rechte (the Right), xenophobic organization Offensive für Deutschland (OfD) (Offensive for Germany), and a division of the PEGIDA movement called Thugida.”

  Things apparently turned ugly when protestant pastor and youth worker Lothar Konig, 61, showed up with his “loudspeaker van.” 

  

  Here’s more from Deutsche Welle‎:

  In 2011, König, had denied similar alleged transgressions when resisting far-right extremists in Dresden.

   

  The clashes on the fringe of a leftist counter-rally were described by Leipzig’s Social Democrat (SPD) mayor Burkhard Jung as “shocking.”

   

  “That is open street terror,” Jung said, adding that “criminals” had discredited important, peaceful protest against neo-Nazis.

   

  On Saturday, the neo-Nazis had intended to march through Leipzig’s alternative lifestyle district of Connewitz. But authorities refused them entry, citing safeguards needed for a pre-Christmas market and concert.

   

  During the violence in Südvorstadt rubbish containers were set ablaze, a bus stop demolished and windows broken.

   

  A police spokeswoman said masked persons in leftist ranks had attacked police “massively” during the rally by “a thousand violently-inclined leftist autonomists.”

   

  In the early hours of Saturday car tires and rubbish containers and the roof of a warehouse had been set on fire.

  The Left party said one of its newly set up offices had been attacked by right-wing extremists, resulting in 5,000-euros worth of damage.

  So apparently, the neo-Nazis weren’t the root cause of the problem here although we’re reasonably sure that the leftists would argue that any time neo-Nazis stage a march they’re bound to cause trouble due simply to the fact that they identify which a movement that’s had… how should we put this… a rather checkered history in Germany. 

  In any event, police brought out the tear gas and water cannons as protesters set the streets ablaze: 

  

  

  

  

  

  

  

  Elsewhere in Germany, anti-migrant sentiment is becoming readily observable. As Deutsche Welle goes on to report, “asylum seekers arriving at new container-style shelter in Saxony’s town of Jahnsdorf were confronted by 30 people including six persons who threw stones and explosive crackers at their bus,” on Thursday, the same day that the “children of refugee families were attacked by fellow school pupils in the town of Wurzen near Leipzig.”

  Because we couldn’t imagine a more accurate way to describe the situation (and indeed we’ve been saying this for months), we’ll simply close by quoting Aydan Özoguz, from the German government’s commission for the integration of foreigners, who says he fears the country is descending into a “xenophobic abyss.”

  

  

  

  

• Trump's Cunning Plan Revealed

  Donald Trump – Bigot, zealot, xenophobe, racist, hitler-ite? Or Donald Trump – cunning strategist who knows Americans better than the "leave us alone up here on our Hill" career politicians and their lackey liberal media partners?

  You decide…

  As YouGov reports, a majority of Americans say that they view Islam unfavorably, and even Democrats are almost twice as likely to view Islam negatively than positively.

  One week ago the United States saw the deadliest terrorist attack it has seen since 9/11, after 14 people were killed in San Bernadino by Syed Farook and his wife Tashfeen Malik. In the wake of the attack Republican presidential candidate Donald Trump took his most aggressively anti-Muslim stance so far by calling for Muslims to be barred from entry into the United States. Though the United States has millions of Muslims, anti-Muslim sentiment has become increasingly common in public discourse.

   

  YouGov/HuffPost's latest research shows that most Americans have an unfavorable opinion of Islam. 58% of Americans have an unfavorable opinion of Islam, and just over a third (35%) say that they have a 'very unfavorable' opinion of the religion. Only 17% of Americans view it positively. Democrats (27%) are the most likely to have a favorable opinion of Islam, but even they tend to say that they view Islam negatively. Among independents (58%) and Republicans (75%) most people have a negative view of Islam. 

   

  

   

  Under-30s (45%) are the least likely to have unfavorable opinions of Islam, but 65% of over-65s view Islam unfavorably.

  So, is Trump merely reflective of the real American "values"?

  Finally, here is Patrick Buchanan, of Buchanan.org, explaining the odd hypocrisy in the establishment's unhinged response to Trumps' call:

  Calling for a moratorium on Muslim immigration “until our country’s representatives can figure out what the hell is going on,” Donald Trump this week ignited a firestorm of historic proportions.

   

  As all the old hate words — xenophobe, racist, bigot — have lost their electric charge from overuse, and Trump was being called a fascist demagogue and compared to Hitler and Mussolini.

   

  The establishment seemed to have become unhinged.

   

  Why the hysteria? Comes the reply: Trump’s call for a temporary ban on Muslim immigration tramples all over “American values” and everything we stand for, including the Constitution.

   

  But is this really true?

   

  The Constitution protects freedom of religion for U.S. citizens. But citizens of foreign lands have no constitutional right to migrate. And federal law gives a president broad powers in deciding who comes and who does not, especially in wartime.

   

  In 1924, Congress restricted immigration from Asia, reduced the numbers coming from southern and Central Europe, and produced a 40-year moratorium on most immigration into the United States.

   

  Its authors and President Coolidge wanted ours to remain a nation whose primary religious and ethnic ties were to Europe, not Africa or Asia.

   

  Under FDR, Truman and JFK, this was the law of the land.

   

  Did this represent 40 years of fascism?

   

  Why might Trump want a moratorium on Muslim immigration?

  • Reason one: terrorism. The 9/11 terrorists were Muslim, as were the shoe and underwear bombers on those planes, the Fort Hood shooter, the Times Square bomber and the San Bernardino killers. And as San Bernardino showed again, Islamist terrorists are exploiting our liberal immigration policies to come here and kill us. Thus, a pause, a timeout on immigration from Muslim countries, until we fix the problem, would seem to be simple common sense.
  • Second, Muslims are clearly more susceptible to the siren call of terrorism, and more likely to be radicalized on the Internet and in mosques than are Christians at church or Jews at synagogue. Which is why we monitor mosques more closely than cathedrals.
  • Third, according to Harvard’s late Samuel Huntington, a “clash of civilizations” is coming between the West and the Islamic world. Other scholars somberly concur. But if such a conflict is in the cards, how many more millions of devout Muslims do we want inside the gates?

  Set aside al-Qaida, ISIS and their sympathizers. Among the 1.6 billion Muslims worldwide are untold millions of followers of the Prophet who pray for the coming of a day when sharia is universal and the infidels, i.e., everyone else, are either converted or subjugated.

   

  In nations where Muslims are already huge majorities, where are the Jews? Where have all the Christians gone?

   

  With ethnic and sectarian wars raging in Afghanistan, Iraq, Syria, Turkey, Yemen, Libya, Nigeria and Somalia, why would we bring into our own country people from all sides of these murderous conflicts?

   

  Many European nations — Germans, French, Swedes, Brits — appear to regret having thrown open their doors to immigrants and refugees from the Islamic world, who have now formed unassimilated clusters and enclaves inside their countries.

   

  Ought we not explore why, before we continue down this road?

   

  In some countries of the Muslim world, Americans who embrace “Hollywood values” regarding abortion, adultery and homosexuality, can get their heads chopped off as quickly as converts to Christianity.

   

  In what Muslim countries does Earl Warren’s interpretation of the First Amendment — about any and all religious presence being banned in public schools and all religions being treated equally — apply?

   

  When is the next “Crusade for Christ” coming to Saudi Arabia?

   

  Japan has no immigration from the Muslim world, nor does Israel, which declares itself a Jewish state. Are they also fascistic?

   

  President Obama and the guilt-besotted West often bawl their apologies for the horrors of the Crusades that liberated Jerusalem.

   

  Anyone heard Muslim rulers lately apologizing for Saladin, who butchered Christians to take Jerusalem back, or for Suleiman the Magnificent, who conquered the Christian Balkans rampaging through Hungary all the way to the gates of Vienna?

   

  Trump’s surge this week, in the teeth of universal denunciation, suggests that a large slice of America agrees with his indictment — that our political-media establishment is dumb as a box of rocks and leading us down a path to national suicide.

   

  Trump’s success tells us that the American people really do not celebrate “globalization.” They think our negotiators got snookered out of the most magnificent industrial machine ever built, which once guaranteed our workers the highest standard of living on earth.

   

  They don’t want open borders or mass immigration. They want people here illegally to be sent back, the borders secured, and a moratorium imposed on Muslim immigration until we fix the broken system.

   

  As for the establishment, they are saying pretty much what The Donald is saying. To paraphrase Oliver Cromwell’s speech to the Rump Parliament: You have sat here too long for any good you have done here. In the name of God, go!

  *  *  *

  And if you still need further proof.. here are the numbers…

  

  

  

  

  

  

• China's Gold Army

  Submitted by Koos Jansen via BullionStar.com,

  Withdrawals from the vaults of the Shanghai Gold Exchange, which equal Chinese wholesale gold demand, in week 46 accounted for 49 tonnes. Year to date withdrawals have reached 2,362 tonnes.

  

  As part of the wide analysis of the Chinese domestic gold market I would like to share that since the seventies there is a special army in China dedicated to gold. It’s called The Gold Armed Police – if you can read Chinese have a look at this Wikipedia page.

  It’s no coincidence this army came into existence in 1979, eight year after the US left the gold standard and when China started opening up under the guidance of Deng Xiaoping. As, this was the moment the Chinese slowly started to reform their economy and made the first preparations in their gold market. They knew, among others, the global dollar standard wouldn’t last forever.

  On 29 October 1976 representatives of the Chinese central bank and the Federal Reserve (US, Arthur Burns) met in China and discussed international economics. From Wikileaks:

  IN INTERNATIONAL ECONOMICS, THE DISCUSSION CONSISTED MAINLY OF QUESTIONS BY THE CHINESE AND ANSWERS BY DR. BURNS, ALTHOUGH THE CHINESE VIEW THAT INFLATION IS A SYMPTOM OF ECONOMIC WEAKNESS CAME THROUGH CLEARLY. THE CHINESE ASKED ABOUT DR. BURNS’ VIEWS OF THE IMF CONFERENCE AND WERE PARTICULARLY INTERESTED IN THE IMF GOLD AUCTIONS, AND THE ISSUANCE OF SDR’S. THE CHINESE ASKED ABOUT THE PROBLEM OF CONTROLLING THE $200 BILLION IN EURODOLLARS, AND GAVE THE IMPRESSION THAT THEY CONSIDERED THE EURODOLLAR MARKET A THREAT TO EXCHANGE RATE STABILITY, WHICH BY IMPLICATION THEY SEEMED TO FAVOR. THEY ALSO ASKED ABOUT COMPARATIVE GROWTH RATES AMONG THE OECD COUNTRIES. AGAIN, THE CHINESE BANKERS WERE WELL INFORMED AND HAD THEIR QUESTIONS WELL PREPARED.

  In the quote from Wikileaks we can clearly read the Chinese were interested in gold. However, the Chinese economy was completely centrally planned at the time and they were not a member of the World Trade Organization or the giant exporter of goods they are now. Therefor, I suspect China had little resources to acquire gold – in the seventies China’s foreign exchange reserves were very small – while they urgently needed to increase their reserves.

  Initially the Gold Armed Police was established to develop China’s domestic mining industry. China’s domestic mining output grew by an incredible 2,964 % from 1976 until 2014, according to data from the China Gold Association, and this was partially due to gold exploration by the Gold Armed Police.

  

  Remember that before 2002 the PBOC had the monopoly on all gold trade in China. Mining output (and potential import) was transferred to the PBOC that set the domestic gold price and distributed the gold to a limited amount of designated jewelry shops or kept the metal for its official reserves. The Gold Armed Police and the PBOC must be closely associated.

  Next to exploration the Gold Armed Police was also assigned to guard the mines and to do other tasks. And here is where it becomes interesting. Gold market insider James Rickards has written in The Death Of Money (2014):

  A senior manager of G4S, one of the world’s leading secure logistics firms, recently revealed to a gold industry executive that he had personally transported gold into China by land through central Asian mountain passes at the head of a column of People’s Liberation Army tanks and armored transport vehicles. This gold was in the form of the 400- ounce “good delivery” bars favored by central banks rather than the smaller one- kilo bars imported through regular channels and favored by retail investors.

  Although Rickards notes the convoy was lead by the People’s Liberation Army I think it’s very likely the Gold Armed Police was involved in this transport that contained monetary gold directed to PBOC vaults. We can speculate the Gold Armed Police is active in distributing the PBOC’s monetary gold into the mainland.

  

  The Gold Armed Police in April 2011, about 100 soldiers from the 7th detachment in Xinjiang.

  The other day I spoke to a gold market insider, that likes to remain anonymous, who told me “some central banks send their own airplanes to London to pick up monetary gold” when we were discussing purchases from China’s central bank in the UK. I’m quite sure the PBOC has bought a substantial amount of gold in London in recent years and I suspect the Gold Armed Police is distributing the monetary metal.

  So how does the PBOC buy gold in London? Through which proxy do they do they purchase the metal? Well, that’s hard to say. But, if I may freely speculate the Bank Of China is part of this. If we read the Chinese Wikipedia page about the Foreign Exchange Reserves of the People’s Republic of China (not the English page) it states:

  ?????????????????????????????????????????????????

  The FX reserves of the Chinese mainland are State-owned assets and managed by SAFE and the PBOC, the actual business operations are carried out by the Bank of China.

  SAFE (State Administration Of Foreign Exchange) is the largest Chinese sovereign wealth fund that manages the PBOC’s foreign exchange reserves.

  The Bank Of China is a commercial state-owned bank and LBMA member that can be one of the proxies for the PBOC’s monetary gold purchases around the globe. So, possibly the Bank Of China buys gold in the London OTC market, which is then transported by the Gold Armed Police to PBOC vaults in Beijing.

  Below is an article I found on The China Times about the Gold Armed Police:

  Source The China Times, Global Edition

  China has a military unit dedicated to gold exploration, this unit is the only one of its kind in the world.

  

  The gold exploration unit was established in the beginning of China’s reform and opening up, when the country urgently needed to increase its gold reserves. The unit has found more than 1800 tons of gold so far, helping China become the world’s largest gold-producing country.

  

  China’s annual gold production was merely 4 tons when PRC was founded. After the gold exploration unit of the Chinese People’s Liberation Army was established in 1979, 12 detachments were sent to all over China. The picture shows soldiers from the 7th detachment of the gold exploration unit singing songs on their way in March 2006.

  

  Gold reserves are usually located in remote and inaccessible areas. The picture shows soldiers from the 8th detachment of the gold exploration unit fighting sandstorm in Lop Nur in August 2002.

  

  In 1995, China’s gold production for the first time exceeded one hundred tons, taking the 8th place in the world. More than half of the gold reserves were found by the gold exploration unit. Eight years later, China’s annual gold production exceeded 200 tons. The picture shows a soldiers from the 8th detachment of the gold exploration unit carrying out explosion works in August 2002.

  

  July 2000, soldiers from the 8th detachment panning alluvial gold in Xinjiang. In 30 years, the gold exploration unit has found many large-scale gold deposits, in total found more than 1800 tons of proven gold reserves.

  

  Lop Nur, August 2002, soldiers from the 8th detachment cooking meals in tent, two days later, the tent was swept away by flood.

  

  Lop Nur, August 2002, soldiers from the 8th detachment having lunch together.

  

  April 2011, about 100 soldiers from the 7th detachment carrying out geology and resources survey tasks in Xinjiang.

  

  May 2011, soldiers from the 6th detachment taking a break after long-hours hard work in Qilian Mountain, Qinghai.

  

  Natural gold nugget found by the gold exploration unit in 1983, it contains 1114 grams of pure gold.

  

  

  

  

• "Coppock Guide" Signals A Bear Market Is At Hand

  With Emerging Market currencies, bonds, and stocks collapsing, US corporate debt crashing, and carry trades unwinding everywhere (ahead of the $800 billion liquidity withdrawal that looms from next week's 25bps hike from The Fed), it is no surprise that US equities are beginning to shudder (even the FANGs are not immune). But, as InvesTech Research notes, among its 6 compelling reasons to be cautious in 2016, the so-called Coppock Guide may be close to confirming that a bear market is at hand…

  In March 2015, the Coppock Guide was signaling that both primary and secondary momentum had peaked and this continues to be the case today.

   

  The Coppock Guide is a valuable tool to gauge the emotional state of a market index as it transitions from one psychological extreme to another.  It was developed more than 50 years ago by Edwin S. Coppock and it measures momentum by taking a 10-month weighted moving total of a 14-month rate of change plus a 11-month rate of change of a market index.

   

  The Coppock Guide is typically most useful at market bottoms, when market indexes reverse sharply as psychology shifts.  It signals a “Best Buy” opportunity when the index turns upward from below “0” (see black dashed lines).  The last such buy signal came within 60 days after the March 2009 market bottom.

  
   

   

  Early in a bull market, momentum runs high and often peaks early.  For this reason, the Coppock Guide isn’t as effective in identifying market tops.  In fact, the initial peak in the Coppock Guide was seen during the first 18 months of this lengthy bull market, with a secondary peak in March 2014. 

   

  When a double-top occurs in an extended bull market without the Coppock falling below “0”, it signals that psychological excess could be at an extreme.  And when that momentum finally peaks (see red dashed lines), it usually means a bear market isn’t far behind.  This phenomenon was first observed by a market technician named Don Hahn in the late 1960s.  Since 1929, there have been only eight instances of a double-top, and each one was followed by bear market losses of 30% or more.

   

  

   

  We are currently seeing the likely completion of a double top (yellow shading on upper chart).  When the Coppock Guide falls below zero, it confirms that a bear market is in place 77% of the time.  The current value is 4.9 – which has resulted in a further drop below zero in 22 out of 24 instances.

  Bottom line:  If the Coppock Guide continues falling through zero, the probability of a bear market will increase… as will our portfolio defenses.

  

  

  

  

• The American Dream "Exposed" In 22 Depressing Datapoints

  Submitted by Michael Snyder via The End of The American Dream blog,

  Once upon a time, middle class households took home 62 percent of all income in America. Today, that number has dropped to just 43 percent. This is just one of the absolutely astounding statistics that you will read about in this article. Over the years, the middle class in America has been in steady decline. Our incomes have been going down, our net worth has been going down, the quality of our jobs has been going down, and yet the cost of living just keeps going up. As a result of all of these factors, more Americans are living in poverty today than ever before, and dependence on the government has exploded to unprecedented levels.

  But of course it doesn’t take a genius to figure any of this out. In fact, politicians of all stripes are saying the exact same thing during this election season…

  Bernie Sanders says it is in the midst of “a 40-year decline.” Jeb Bush says it is “shrinking.” Ted Cruz says it is “headed in the wrong direction.” And Hillary Clinton says the “basic bargain” that hard work could move families into the middle class “has eroded.”

  Sadly, when we send these politicians to Washington D.C. they just continue on with business as usual. No matter who resides in the White House and no matter who controls Congress, the game remains the same and the middle class just continues to suffer. The following are 22 cold, hard pieces of evidence that show that the middle class in America is dying…

  #1 This week we learned that for the first time ever recorded, middle class Americans make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.

  #2 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.

  #3 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percent between 2001 and 2013.

  #4 In 1970, the middle class took home approximately 62 percent of all income. Today, that number has plummeted to just 43 percent.

  #5 There are still 900,000 fewer middle class jobs in America than there were when the last recession began, but our population has gotten significantly larger since that time.

  #6 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

  #7 For the poorest 20 percent of all Americans, median household wealth declined from negative 905 dollars in 2000 to negative 6,029 dollars in 2011.

  #8 A recent nationwide survey discovered that 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.

  #9 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.

  #10 Traditionally, entrepreneurship has been one of the engines that has fueled the growth of the middle class in the United States, but today the level of entrepreneurship in this country is sitting at an all-time low.

  #11 If you can believe it, the 20 wealthiest people in this country now have more money than the poorest 152 million Americans combined.

  #12 The top 0.1 percent of all American families have about as much wealth as the bottom 90 percent of all American families combined.

  #13 If you have no debt and you also have ten dollars in your pocket, that gives you a greater net worth than about 25 percent of all Americans.

  #14 The number of Americans that are living in concentrated areas of high poverty has doubled since the year 2000.

  #15 An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.

  #16 According to the U.S. Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now.

  #17 In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.

  #18 According to Kathryn J. Edin and H. Luke Shaefer, the authors of a new book entitled “$2.00 a Day: Living on Almost Nothing in America“, there are 1.5 million “ultrapoor” households in the United States that live on less than two dollars a day. That number has doubled since 1996.

  #19 46 million Americans use food banks each year, and lines start forming at some U.S. food banks as early as 6:30 in the morning because people want to get something before the food supplies run out.

  #20 The number of homeless children in the U.S. has increased by 60 percent over the past six years.

  #21 According to Poverty USA, 1.6 million American children slept in a homeless shelter or some other form of emergency housing last year.

  #22 The median net worth of families in the United States was $137, 955 in 2007. Today, it is just $82,756.

  

  That last number really stunned me.

  According to Pew Research, the median net worth of U.S. families has fallen by more than $55,000 since 2007.

  That sure doesn’t sound like an “economic recovery” to me.

  I think that everyone can agree that we have a major problem on our hands.

  So what is the solution?

  Well, in order to have a healthy middle class, we need to have an economy that produces lots of middle class jobs and lots of thriving small businesses. But in America today, our small businesses are being strangled out of existence by mountains of red tape and excessive taxation, and millions of middle class jobs have been shipped out of the country to other nations where it is legal to pay slave labor wages.

  Until we start doing things differently, we are going to continue to get the same results that we have been getting, and the middle class will just keep getting smaller and smaller and smaller.

  The middle class is now a minority in this country. How much worse do things have to get before we say that enough is enough? Are we just going to stand on the sidelines and watch the middle class disappear entirely?

  At one time, the United States had the most vibrant middle class the world had ever seen. We were the envy of the rest of the planet, and people all over the world wanted to come here and live out “the American Dream”.

  Unfortunately, “the American Dream” is now dying, and most Americans don’t seem to care.

  What in the world is it going to take for people to finally wake up and start taking action?

  

  

  

  

• Austria Proudly Shows Off The 15 Tons Of Gold It Repatriated From London

  On May 28, the Austrian Central Bank surprised the world when it announced that it too would follow in the footsteps of Germany and the Netherlands, and repatriate half of its sovereign physical gold, currently held almost entirely at the Bank of England, to Austria while transferring a modest portion in Switzerland by the year 2020.

  Back then, the central bank headed by Ewald Nowotny said it took the decision after recommendations made by the Austrian Court of Audit in February, which warned of a “heightened concentration risk” linked to storing the majority of its reserves in Britain. At the time, the bank had argued the policy was warranted because London was a major international centre for the gold trade.”

  This was the official statement the Austrian National Bank (OeNB) released in May:

  In May 2015, the gold reserves held by the OeNB amounted to 280 tons, having remained unchanged since 2007. Austria’s gold reserves are fully owned by the OeNB, which maintains and manages them with utmost care. In line with the OeNB’s current gold storage policy, 17 % of its gold holdings are at present kept in Austria, 80 % in the United Kingdom and 3 % in Switzerland.

   

  Recently, the Governing Board of the OeNB adopted the 2020 gold storage policy following a regular in-house gold strategy and storage policy review, while also considering the recommendations made by the Austrian Court of Audit. The cornerstones of this policy are as follows:

  • By the year 2020, 50% of Austria’s gold reserves are to be held in Austria (OeNB and Münze Österreich AG), 30% in London and 20% in Switzerland.
  • Starting from mid-2015, the new storage policy will be gradually implemented in keeping with security and logistical requirements.
  • A comprehensive review and, if need be, adaptation of the storage policy is scheduled for 2019.
  • The OeNB will regularly report on the progress in its upcoming annual reports.

  What the central bank did not say, is that by repatriating its gold from the UK, it was implicitly confirming that trust is now very publicly fraying at the highest levels of the international monetary system, with first Germany, then the Netherlands, then Austria, and most recently China, all demonstrating they are moving and/or building up their domestic gold reserves, and withdrawing their gold held at either the NY Fed or the Bank of England, something hardly surprising for those who have read our article explaining What Happens When You Hand Over Your Gold To The Bank Of England For “Safekeeping”.

  Which is also why yesterday, with great fanfare, Austria proudly announced to the world that it has moved 15 tonnes of gold from London of its gold reserves as part of its aforementioned repatriation plan.

  “By the end of November, the Austrian National Bank brought 15 tonnes of its gold back into its own vaults,” the OeNB said in a statement. A spokesman for the central bank said it had begun repatriating the gold from London in October.

  According to Reuters, after the repatriation, Austria held roughly 65 tonnes of gold, or about 23 percent of its reserves, on its territory, the spokesman said. Around three quarters, 209 tonnes, were in London, he said, and six tonnes were in Switzerland.

  “London and Zurich remain the most significant trading centres for physical gold,” the OeNB said in its statement, a point it has made before in explaining why it kept such a large share of its reserves abroad.

  In the decades after World War Two, security concerns also played a part because international trading centres were the best place to make use of the gold if needed in the case of an international crisis, the OeNB said in its statement.

  “Geopolitical considerations in the time of the Cold War also played a role,” said the central bank in Vienna, which was only an hour’s drive away from the Iron Curtain that divided Europe for four decades.

  It would appear that despite conditions between the west and Russia deteriorating to levels not seen since the depths of the cold war, Austira is more confident it can withstand the renewed Russian “threat” by storing its gold in house, rather than “trusting” Goldman’s Mark Carney, currently performing his GS alumnus duties as the head of the Bank of England, with possession of its gold.

  How times have changed.

  * * *

  But perhaps what was most surprising about the repatriation is that in order to “prove” the gold is indeed back, the Austrian central bank also released a 3 minute clip showing not only where the Austrian gold is located now:

  

   

  … but where it is headed:

  

   

  … how it is measured:

  

   

  … how it is tested using ultrasound:

  

   

  … while validating its Rand Refinery serial numbers (read more about the refinery that has processed one third of all gold ever mined here):

  

   

  … and finally holding a gold welcoming celebration party for media and journalists in its vault room:

  

   

  The full clip is below.

  We congratulate the Austrians on have such access and transparency to their own gold: sadly, for some unknown reason, when it comes to the US gold held at Fort Knox, the secrecy over the past several decades has prevented any member of the media or public to observe the thousands of tons which the US allegedly holds in storage. On behalf of the general population.

  We wonder: why do Austrians celebrate the arrival of their gold and televize it for the entire world to see, while the world’s allegedly biggest gold inventory remains a national secret, even, or rather especially, from those to whom it supposedly belongs – the citizens of USA?

  

  

  

  

• Zombies, Cronies, And The Trouble With Yellen's Future

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

  “As democracy is perfected, the office of the President represents, more and more closely, the inner soul of the people. On some great and glorious day, the plain folks of the land will reach their heart’s desire at last and the White House will be occupied by a downright fool and complete narcissistic moron.”

  – H.L.Mencken

  All over the world, elections allow the people to express their innermost thoughts and feelings. This was a big week in Argentina, for example. Outgoing president Cristina Kirchner is supposed to hand over power to her successor, Mauricio Macri.

  But when we looked yesterday, there was dispute as to exactly what time the baton would be passed. And Cristina has let it be known she would not attend the inaugural and would generally make life as difficult for Mr. Macri as possible.

   

  

  This photo is simply too funny not to show it – it cries out for a caption contest actually. Background: Kirchner asked Macri to visit her in the presidential palace, so she could personally congratulate him on his victory. And she said to him to “come alone”, which immediately spawned the twitter hashtag #VeniSolo (#ComeAlone)

   

  

  Image from an #VeniSolo tweet …

   

  Deep State in Control

  Elections are misunderstood. On the surface they are contests between zombies and cronies. The zombies (leftists, socialists, Democrats) want lots of little handouts. The cronies (rightists, Wall Streeters, Republicans) want fewer but bigger ones.

  All the loot comes from the voters – who willingly give up both their money and their liberty believing that, somehow, they are better off for it. But the real winner is the Deep State. It usually controls the candidates… and continues to gain power and resources, no matter which side wins.

  But the Deep State is not immune to setbacks. On the pampas, it must be worried that Macri may actually believe in free markets rather than markets controlled by cronies. If so, it may be harder to work with him than they had hoped.

   

  

  The Deep State meme is really getting ingrained – now there’s even a comic book entitled “Deep State”

  Image credit: Matt Taylor

   

  And in the U.S., poor Janet Yellen must be having trouble sleeping again. The Deep State, the zombies, the cronies – all turn their black hearts and beady eyes unto her.

  Next Wednesday, she takes center stage again. And with the whole world watching, she’ll make a complete fool of herself.

   

  The Trouble with the Future … and Yellen’s Next Move

  Yellen is supposed to announce a tiny increase in the Fed’s key lending rate… currently sitting at 0.25%. Analysts will examine every word. Commentators will report, confuse, and misinterpret her remarks. And the economy and the markets will react.

  But they may not react as the insiders hope.

  Each generation has its market myths. Each decides what is important and what is not. The generation of the 1970s and 1980s watched inflation rates and money supply figures.

  Investors had been beaten up by the inflation of the 1970s. Then they learned from Milton Friedman at the Chicago School that inflation was “always and everywhere a monetary phenomenon.” So they began to watch the Fed’s M2 money supply figures like scouts looking for early warning of an enemy attack.

  The attack never came. The rate of consumer price inflation fell from a high of about 15% in 1980 to its near-zero levels today. Investors are always looking in the wrong direction. They have to be…

  “I’m going home to the U.S. to die,” said an old friend the other day.

  “If you know you’re going to die at home,” we asked, “why not stay in Paris?”

  Likewise, if investors knew what the future held, it wouldn’t happen that way. They would sell their positions before the top was in, avoiding a crash. And they’d buy before stocks hit rock bottom, never allowing a bear market to fully express itself.

   

  

  The future remains a mystery … particularly to modern-day economic forecasters

  Image credit: Scanpix

   

  Surprises would be eliminated. Accidents avoided. If everyone knew where they would have a fender-bender, auto-body shops would be out of business! That is the trouble with the future: It must come as a surprise.

   

  Looking in the Wrong Direction

  We talk about borrowing as “taking from the future.” But it’s not really possible. Because the future hasn’t happened yet. It’s just a metaphor for understanding what is going on.

  Farmers – at least in the old days – saved some of their corn each year as “seed corn.” This is what they would plant the following year. And if they ate it rather than saving it, they would have been “taking from the future.” Next year’s crop would be reduced as a result. More today but less tomorrow.

  But it is always a risk to take from tomorrow. Centuries ago, fewer seeds – and perhaps less rainfall, or too much rainfall, or too much wind, or hail, or frost – might have meant starvation. What might it mean today?

  We don’t know. The future is always a surprise… especially to people with PhDs in economics. And now we watch Ms. Yellen. Acres of print will be devoted to speculating on how much of an increase she will announce… and how it will be followed up.

   

  Does it even matter?

   

  Guessing about the “pace of tightening” (that is, how soon will the first rate hike be followed by another) and positioning portfolios for tighter money – more dollars, less emerging market debt – are already growth businesses.

  Could it be that investors are looking in the wrong direction? Has the future moved on… without Ms. Yellen? Have stocks already topped out? Are sales already dropping? Is subprime student, energy, auto, corporate, and emerging market debt already sinking?

  Have the trains already left their stations, headed to destinations that investors haven’t even thought of? Could it be that the Deep State’s debt-based financing system is already in trouble? And, after 84 months of zero interest rates and roughly $4.5 trillion of central bank stimulus, can Ms. Yellen save it?

  

  

  

  

• President Obama Explains How He Just 'Saved' The World From Its Greatest Threat – Live Feed

  "Mission Accomplished?" Amid failure after failure for President Obama's 'legacy' policies, Americans can rest assured that the "historic" signing of today's climate accord will be spun in its most positive, "see, I saved the world from its greatest threat" awesomeness, despite, as we detailed earlier, the utter farce of it all. 

  

   

  Despite its watering down for The Saudis, and total lack of enforceability, leaders and the environmental community hailed the United Nations agreement has a historic turning point that has the potential to stave off the worst expected effects of global warming.

  The media is already crowing of Obama's "big win"…

  Adoption of the accord is a major win for President Obama. He has made it a central piece of his second-term climate agenda to get an international agreement, since domestic action can only make a small dent in the world’s greenhouse gases.

   

  Obama has taken a leading international role leading up to the Paris conference, securing major environmental pledges from countries like Brazil and Mexico, and the first-ever promise from China to limit its greenhouse gas output.

  And so is he…And all "thanks to American leadership…"

  This is huge: Almost every country in the world just signed on to the #ParisAgreement on climate change—thanks to American leadership.

  — Barack Obama (@BarackObama) December 12, 2015

  The #ParisAgreement will improve the world our kids and grandkids will grow old in. We are witnessing history today. And we should be proud.

  — Vice President Biden (@VP) December 12, 2015

  Live Feed (President Obama is due to speak at 1730ET…)

  See you in 2099… After all the warm words of developed countries on a 1.5C limit, the new text contains no obligation to stay under this threshold. Shockingly, the text could allow for carbon emissions to continue until 2099.

  

  

  

  

• 500,000 Reasons Why Millennials Are Having Fewer Babies

  In the US, the average age of a first-time mother is now over 26 years old, up from 21.4 years-old in 1970.

  

  Through 2008-2013, the birth rate declined each year, likely the result of the financial crisis and its aftermath. Furthermore, as Goldman's Taposh Bari notes, amid the decline in births since the beginning of the Great Recession, one thing that stands out is that the decline in births has come from the youngest mothers – women under 25 years of age.

  

  There are a number of factors that have contributed to this continued increase including: (1) advances in medicine which have increased life expectancies and are making pregnancies safer and more successful for older women; (2) higher levels of educational attainment among women; (3) the aftermath of the great recession which has led to weaker job prospects and confidence about the future; and finally, and perhaps most importantly (4) highly inflationary education costs, which, coupled with lower wages and  igher educational attainment, have led to higher levels of student debt.

  The cost of raising a child

  A skittishness around family formation is bourne out in other data series like rates of home homeownership and marriage. Having a child is probably one of the most expensive decisions a parent will make in their life. In 2013, the annual cost of raising a newborn was approximately US$13k for married families in the middle income bracket in the US. On a cumulative basis through age 17, families having babies will have to commit to US$245k in total spending per child (US$304k accounting for inflation).

  

  The exhibit above excludes the cost of a college education (and all other costs for children over 17 years-old), which was US$19k (4-year public school tuition, room and board) for enrollment in the 2014-2015 academic year. Inflation adjusted, this cost is up 80% over the past 20 years, growing at real and nominal CAGRs of 2.9% and 5.4% respectively over that period.

  Assuming that the rate of college education continues at its current pace, Millennial parents can expect their newborn’s college education to be US$205k, making the total cost of raising a child over US$500k.

  Source: Goldman Sachs

  

  

  

  

• The West’s Alliance With Saudi Arabia Fuels Islamism

  By Toby Matthiesen is a senior research fellow in the international relations of the Middle East at St. Antony’s College, University of Oxford. He is the author of “Sectarian Gulf: Bahrain, Saudi Arabia, and the Arab Spring That Wasn’t” and “The Other Saudis: Shiism, Dissent and Sectarianism.” Originally posted on the NYT.

  The West’s Alliance With Saudi Arabia Fuels Islamism

  One of the key contradictions of Western foreign policy toward the Middle East is the strong alliance with Saudi Arabia. With its vast oil resources and its strategic location between the Red Sea and the Persian Gulf, staunchly anticommunist Saudi Arabia became a key Western ally during the Cold War.

  This alliance with the West and the influx of enormous oil revenues since the 1970s have allowed Saudi Arabia to export its brand of Sunni Islam, named Wahhabism after its founder Muhammad Ibn Abd al-Wahhab, encouraging the homogenization of Islamic practices around the world after the model of the Wahhabiya. Known for its rejection of pre-Islamic history, visitation of tombs, the mixing of men and women, its zeal to purify Islam from allegedly deviant practices (such as Sufism and Shiism) and its disdain for other religions, the Wahhabiya was a puritan movement that gave religious legitimacy to the conquests of the Al Saud.

  The United States teamed up with Saudi Arabia to undermine the Soviet Union in 1980s Afghanistan. This cooperation with radical Islam was to have disastrous consequences and the rise of Al Qaeda and ISIS is an outcome of this pairing of an alluring ideology with the resources of an oil-rich state allied to a global superpower.

  The spread of extremist Islamist ideology is then as much a result of Western foreign policy as of Saudi machinations. Western and Gulf support for the rebels in Syria followed a similar path as the one observed in Afghanistan, before ISIS started to turn against the West and the Gulf states. But it is no coincidence that ISIS is adopting Saudi religious textbooks in its schools, killing Shia in Saudi Arabia just like the early Wahhabi zealots wanted to, and generally garnering much support on a popular level in the kingdom.

  The West’s strong alliance with the Saudi ruling family has not led to a moderation of the country’s religious policies. But in the recruitment strategy of ISIS it makes it much easier to describe Middle Eastern monarchies as puppets.

  The key ideological difference between ISIS and the early Saudi-Wahhabi movement is that the Islamic State wants to establish a caliphate, and regards monarchy as an un-Islamic form of government. Frightened by this challenge, which the Gulf states helped to create, Saudi Arabia has reaffirmed its alliance with the conservative Wahhabi religious forces in the country.

  But in ISIS, Saudi Arabia now has a foe that is so close to its own religious interpretation of Islam, that Saudi Arabia can not be seen to be fighting ISIS very strongly because it would undermine its authority at home. And so the West’s support for Middle East dictatorships continues to fuel the flames that have given rise to Al Qaeda and ISIS, despite a growing awareness that these alliances are a double-edged sword.

  

  

  

  

• Ask Santa

  Can GOP Establishment dreams come true… after all it’s nearly Christmas…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• World Leaders Just Agreed To A "Historic" Climate Accord… Which Is Non-Binding And Has No Enforcement Language

  Great news! The "greatest threat to future generations of the world" has apparently been solved. World leaders Saturday adopted an historic international climate accord in Paris, the first-ever agreement to commit almost every country to fight climate change. However, as we knew all along and just got confirmation, the 31-page pact does not have binding language or a mechanism to force countries to live up to the promises to cut greenhouse gases emissions or provide money for developing and poor nations to cope with the effects of global warming.

  Basically, COP21 was a massive taxpayer-funded boondoggle, in which "leaders" enjoyed all the perks of Paris for two weeks, burned through hundreds of millions in public funding, and created millions of tons in greenhouse gases (what do you think to private jets and government 747s use to fly?) that has achieved absolutely nothing.

  In other words…

  

  Nonetheless, leaders and the environmental community hailed the United Nations agreement has a historic turning point that has the potential to stave off the worst expected effects of global warming.

  And The UN reports a large round of mutual masturbation…

  A joyful atmosphere fills the plenary hall at #COP21. #ParisAgreement pic.twitter.com/ukwZgFdUZr

  — United Nations (@UN) December 12, 2015

   

   

  The Borg press is happy, clearly having no idea that absolutely nothing just took place:

  Journo says she's watching #ParisAgreement with press (https://t.co/GOi0pu4clW), tweets video of their reaction. pic.twitter.com/bKn51UlyNS

  — T. Becket Adams (@BecketAdams) December 12, 2015

   

  Obama was delighted that "American leadership" was responsible for an agreement that is neither binding nor enforceable, in other words, something one would write on the back of a napkin:

  This is huge: Almost every country in the world just signed on to the #ParisAgreement on climate change—thanks to American leadership.

  — Barack Obama (@BarackObama) December 12, 2015

   

  So, on one hand, and the hand that the same Borged media as shown in the tweet above will bombard everyone with over the next week, moments ago world leaders Saturday adopted an historic international climate accord in Paris, the first-ever agreement to commit almost every country to fight climate change.

  On the other hand, the hand which will get zero mention at all, the pact has zero binding language or a mechanism to force countries to live up to the promises to cut greenhouse gases emissions or provide money for developing and poor nations to cope with the effects of global warming.

  In other words, world leaders just spent hundreds of millions in taxpayer funds on an epic boondoggle in Paris to write a 31-page pamphlet summarizing everyone's best intentions about the future and… that's it.

  *  *  *

  So if the document is such a farce, what does it contain? This.

  As The FT reports,

  The latest draft says governments should stick to a previously agreed goal to keep warming below 2C from pre-industrial times and “pursue efforts” to stop temperatures rising more than 1.5C, a target favoured by a large number of countries at the talks but opposed by China, Saudi Arabia and others.

   

  In order to meet this temperature goal, earlier drafts of the accord had echoed a call by G7 leaders in June for the “decarbonisation” of the global economy over the course of this century and a specific cut in greenhouse gas emissions of at least 40 per cent by 2050.

   

  This was opposed by several countries including Saudi Arabia, a leading exporter of fossil fuels that produce carbon dioxide when burnt to produce energy.

   

  In a statement explaining its position on Thursday, Saudi delegates said the agreement should “consider all greenhouse gas emissions and not just CO2”.

   

  Policies to reduce emissions “must cover all sectors instead of focusing exclusively on energy” and should not “discriminate against any of the energy sources”, the Saudi delegates said.

  In other words, the world's leaders are releasing a non-binding, long-enough-away-target-as-not-to-matter-for-any-of-those-involved-in-its-drafting document watered down to meet the needs of, drum roll please.. The Saudis.

  After all the warm words of developed countries on a 1.5C limit, the new text contains no obligation to stay under this threshold. Shockingly, the text could allow for carbon emissions to continue until 2099.

  If implemented, it would force companies and citizens to sharply reduce their use of fossil fuels and could herald in a transformation of the world economy. Which, judging by this week in Beijing…

  

  

  If enforced by authorities, means China is heading for its very own Great Depression.

  We leave it to Raul Ilargi Meijer (of The Automatic Earth) to explain the utter CON of this 'pact' that The IMF's Christine Lagarde has called "a critical step forward."

  * * *

  I understand some people may get offended by some of the things I have to say about this – though not all for the same reasons either-, but please try and understand that and why the entire CON21 conference has offended me. After watching the horse and pony show just now, I thought I’d let ‘er rip:

  I don’t know what makes me lose faith in mankind faster, the way we destroy our habitat through wanton random killing of everything alive, plants, animals and people, through pollution and climate change and blood-thirsty sheer stupidity, or if it is the way these things are being ‘protested’.

  I’m certainly not a climate denier or anything like that, though I do think there are questions people gloss over very easily. And one of those questions has to be that of priorities. Is there anyone who has thought over whether the COP21 stage in Paris is the right one to target in protest, whatever shape it takes? Is there anyone who doesn’t think the ‘leaders’ are laughing out loud in -plush, fine wine and gourmet filled- private about the protests?

  Protesters and other well-intended folk, from what I can see, are falling into the trap set for them: they are the frame to the picture in a political photo-op. They allow the ‘leaders’ to emanate the image that yes, there are protests and disagreements as everyone would expect, but that’s just a sign that people’s interests are properly presented, so all’s well.

  COP21 is not a major event, that’s only what politicians and media make of it. In reality, it’s a mere showcase in which the protesters have been co-opted. They’re not in the director’s chair, they’re not even actors, they’re just extras.

  I fully agree, and more than fully sympathize, with the notion of saving this planet before it’s too late. But I wouldn’t want to rely on a bunch of sociopaths to make it happen. There are children drowning every single day in the sea between Turkey and Greece, and the very same world leaders who are gathered in Paris are letting that happen. They have for a long time, without lifting a finger. And they’ve done worse -if that is possible-.

  The only thing standing between the refugees and even greater and more lethal carnage are a wide, even confusingly so, array of volunteers, and the people of the Greek coastguard, who by now must be so traumatized from picking up little wide-eyed lifeless bodies from the water and the beaches, they’ll live the rest of their lives through sleepless nightmares.

  Neither Obama nor Merkel nor Hollande will have those same nightmares. And let’s be honest, will you? You weren’t even there. And still, you guys are targeting a conference in Paris on climate change that features the exact same leaders that let babies drown with impunity. Drowned babies, climate change and warfare, these things all come from the same source. And you’re appealing to that very same source to stop climate change.

  What on earth makes you think the leaders you appeal to would care about the climate when they can’t be bothered for a minute with people, and the conditions they live in, if they’re lucky enough to live at all? Why are you not instead protesting the preventable drownings of innocent children? Or is it that you think the climate is more important than human life? That perhaps one is a bigger issue than the other?

  Moreover, the very same leaders that you for some reason expect to save the planet -which they won’t- don’t just let babies drown, they also, in the lands the refugees are fleeing, kill children and their parents on a daily basis with bombs and drones. Dozens, hundreds, if not thousands, every single day. That’s how much they care for a ‘healthy’ planet (how about we discuss what that actually is?).

  And in the hallways of the CON21 conference they’ve been actively discussing plans to do more of the same, more killing, more war. Save the world, bombs away! That’s their view of the planet. And they’re supposed to save ‘the climate’?

  There are a number of reasons why the CON21 conference will not move us one inch towards saving this planet. One of the biggest is outlined in just a few quoted words from a senior member of India’s delegation -nothing new, but a useful reminder.

  India Opposes Deal To Phase Out Fossil Fuels By 2100

  India would reject a deal to combat climate change that includes a pledge for the world to wean itself off fossil fuels this century, a senior official said, underlying the difficulties countries face in agreeing how to slow global warming.

   

  India, the world’s third largest carbon emitter, is dependent on coal for most of its energy needs, and despite a pledge to expand solar and wind power has said its economy is too small and its people too poor to end use of the fossil fuel anytime soon. “It’s problematic for us to make that commitment at this point in time. It’s certainly a stumbling block (to a deal),” Ajay Mathur, a senior member of India’s negotiating team for Paris, told Reuters in an interview this week.

   

  “The entire prosperity of the world has been built on cheap energy. And suddenly we are being forced into higher cost energy. That’s grossly unfair,” he said.

  This means the ‘poorer’ countries, -by no means just India; China has 155 more coal plants in the pipeline despite their pollution levels moving ‘beyond index’-, the poorer counties won’t volunteer to lower their emissions unless richer nations lower theirs even a lot more. US per capita emissions are over 10 times higher than India’s, those of the EU six times. Ergo: Step 1: lower US emissions by 90%. It also means that richer nations won’t do this, because it would kill their economies.

  Which, in case you haven’t noticed, are already doing very poorly, much worse than the media -let alone politicians- will tell you. In fact, the chances that the richer countries will ‘recover’ from the effects of their debt binge are about on par with those of renewable energy sources becoming cheaper than fossil fuels -barring subsidies. If only because producing them depends entirely on those same fossil fuels. All the rest of what you hear is just con.

  The people of India obviously know it, and you might as well. It’s going to cost many trillions of dollars to replace even a halfway substantial part of our fossil energy use with renewables, and we already don’t have that kind of money today. We will have much less tomorrow.

  Besides, despite all the talk of Big Oil turning into Big Energy, Shell et al are not energy companies, they’re oil -and gas- companies, and they’ll defend their (near) monopolies tooth and claw. Especially now that their market caps are sinking like so many stones. They have no money left to invest in anything, let alone an industry that’s not theirs. They lost some $250 billion in ‘value’ this week alone. They’re getting killed.

  In the same vein, China can’t close more than a token few of its most polluting plants. China’s getting killed economically. And for all nations and corporations there’s one principle that trumps all: competitive advantage. If going ‘green’ means losing that, or even some of it, forget it. We won’t volunteer to go green if it makes us less rich.

  And who do you think represents big oil -and the bankers that finance them- more than anyone else? Right, your same leaders again, who make you pay for the by now very extensive and expensive security details that keep them from having to face you. Just like they’re planning to make you pay dearly for the illusion of a world running on renewables.

  Because that’s where the profit is: in the illusion.

  Whatever makes most money is what will drive people’s, corporations’, and nations’ actions going forward. Saving energy and/or substituting energy sources is not what makes most money, and it will therefore not happen. Not on any meaningful scale, that is.

  There will be attempts to force people to pay through the nose to soothe their consciences -which will be very profitable for those on the receiving end-, but people’s ability to pay for this is shrinking fast, so that won’t go anywhere.

  The only thing that could help save this planet is for all westerners to reduce their energy use by 90%+, but, though it is theoretically and technically feasible, it won’t happen because the majority of us won’t give up even a part of our wealth, and the powers that be in today’s economies refuse to see their profits (re: power) and those of their backers go up in -ever hotter- air.

  The current economic model depends on our profligate use of energy. A new economic model, then, you say? Good luck with that. The current one has left all political power with those who profit most from it. And besides, that’s a whole other problem, and a whole other issue to protest.

  If you’re serious about wanting to save the planet, and I have no doubt you are, then I think you need to refocus. COP21 is not your thing, it’s not your stage. It’s your leaders’ stage, and your leaders are not your friends. They don’t even represent you either. The decisions that you want made will not be made there.

  There will be lofty declarations loaded with targets for 2030, 2050 and 2100, and none of it will have any real value. Because none of the ‘leaders’ will be around to be held accountable when any of those dates will come to pass.

  An imploding global economy may be your best shot at lowering emissions. But then again, it will lead to people burning anything they can get their hands on just to keep warm. Not a pretty prospect either. To be successful, we would need to abandon our current political and economic organizational structures, national governments and ‘up’, which select for the sociopaths that gather behind their heavy security details to decide on your future while gloating with glee in their power positions.

  Better still, we should make it impossible for any single one of them to ever be elected to any important position ever again. For now, though, our political systems don’t select for those who care most for the world, or its children. We select for those who promise us the most wealth. And we’re willing to turn a blind eye to very many things to acquire that wealth and hold on to it.

  The entire conference is just an exercise in “feel good”, on all sides. Is there anyone out there who really thinks the likes of Bill Gates and Richard Branson will do anything at all to stop this world from burning to the ground? You have any idea what their ecological footprints are?

  Sometimes I think it’s the very ignorance of the protesting side that dooms this planet. There’s a huge profit-seeking sociopathic part of the equation, which has caused the problems in the first place, and there’s no serious counterweight in sight.

  Having these oversized walking talking ego’s sign petitions and declarations they know they will never have to live up to is completely useless. Branson will still fly his planes, Gates will keep running his ultra-cooled server parks, and Obama and Merkel will make sure their economies churn out growth ahead of anything else. Every single country still demands growth. Whatever gains you make in terms of lower emissions will be nullified by that growth.

  And in the hallways, ‘smart’ entrepreneurs stand ready to pocket a ‘smart’ profit from the alleged switch to clean energy. At the cost of you, the taxpayer. And you believe them, because you want to, and because it makes you feel good. And you don’t have the knowledge available to dispute their claims (hint: try thermodynamics).

  You’re seeking the cooperation of people who let babies drown and who incessantly bomb the countries these babies and their families were seeking to escape.

  I’m sorry, I know a lot of you have a lot of emotion invested in this, and it’s a good emotion, and you’re thinking this conference is really important and all, and our ‘last chance’ to save the planet. But you’ve been had, it’s as simple as that. And co-opted. And conned.

  And it’s not the first time, either. All these conferences go the same way. To halt the demise of the planet, you can’t rely on the same people who cause it. Never works.

  *  *  *

  And now we can sit back and calculate how many million tons of greenhouse gasses the private and government jets that ferried world leaders to (and soon, from) Paris, burned to get this epic farce "signed."

  

  

  

  

• Artist's Impression Of Middle-Class America

  The American middle class is getting poorer. Wages have been stagnant for decades – if jobs can be found to get those wages. Jobs are exported overseas by big corporations. Small businesses get harassed with taxes and big government red tape. There are bailouts to central bankers to the tune of trillions while Main Street businesses go bankrupt. Endless QEs have propped up ‘their’ stock market, largely owned by the 1 percent. The rich are getting fabulously richer while a record number of people are on food stamps.

   

  

   

  I blame the Federal Reserve. It’s the heart of darkness. They’re a private group of elites who get to print up money for themselves and their cronies while their mainstream media tells everyone it’s all fine and dandy. They get richer and more powerful while the middle class gets the debt and abuse. The middle class has one foot in the grave and the other foot on a banana peel, thanks to our corrupt and dysfunctional system of money.

  It’s time to end audit the Federal Reserve. It’s time to end the Federal Reserve. It’s time to shut down the IRS. It’s time to end crony capitalism, which is leading us deeper into fascism.

  Via RogueCartoonist.com's Ben Garrison

  

  

  

  

  

• Market Panics As "China's Warren Buffett" Detained In "Richter Scale 9 Event"

  As several CSRC officials have learned over the past four months, being a “connected guy” vis-a-vis the Politburo does not necessarily mean you are immune when Xi and the Party decide it’s time to make an example of a few “chickens” in order to scare some “monkeys.” 

  China’s sweeping crackdown on sellers, “manipulators”, frontrunners, financial journalists and anyone else “suspected” of acting in such a way as to sow fear and uncertainty in the wake of the dramatic meltdown in Chinese equities that unfolded over the summer has ensnared money managers, high profile executives, and government officials alike. Earlier this week, it reached a crescendo with the disappearance of Guo Guangchang, known to some as “China’s Warren Buffett.” 

  As we reported on Thursday, the Fosun chief was “unreachable” according to the company which said only that it was “handling the situation.”

  

  For anyone familiar with Beijing’s “kill the chicken to scare the monkey” campaign, it was easy to venture a guess as to what might have happened. While it seemed obvious that Guo had been “disappeared” by the Party, it wasn’t as yet clear what he was ultimately suspected of doing “wrong.” “Whether Beijing is questioning Guo about his habit of eschewing investments in China in favor of deploying capital overseas or whether Fosun did something ‘wrong’ in the markets during the selloff is hard to know,” we said.

  We now have a bit more in the way of color regarding Guo’s detention and sure enough, he’s being “held in connection with an investigation.” In a statement, Fosun did not divulge Guo’s whereabouts, saying only that he’s helping with “certain investigations carried out by the mainland judicial authorities” and that he is still able to oversee “major matters” pertaining to his businesses. 

  As FT notes, “rumours of Mr Guo’s disappearance began to circulate in China on Thursday when influential financial publication Caixin cited unconfirmed reports that police had detained him when he arrived in Shanghai on a flight from Hong Kong.” Subsequently, business partners have only been able to establish “minimal contact” – his family has not been able to reach him. 

  As usual, there’s no word on whether Guo is in fact the subject of the investigation. If you’ve followed the witch hunt – which we recently learned is being run by Fu Zhenghua, a former Beijing police chief responsible for orchestrating an infamous prostitution bust, a campaign against “popular bloggers whose sometimes anti-establishment comments drew the ire of party leaders,” and a decree prohibiting police officers from drinking alcohol outside of their homes – China likes to keep the explanations as vague as possible presumably for the chilling effect the ambiguity has on the rest of the market.

  Guo, who earlier this year called himself an “apprentice” of everyone’s favorite octogenarian from Omaha, is worth nearly $8 billion, a fact which may have landed him in Xi’s crosshairs. “As China’s economy slows after three decades of furious expansion, conspicuous wealth has become suspect,” WSJ says, adding that “uncertainty about his situation has added to a chill in finance circles.”  

  As for the wider implications of Guo’s arrest, consider the following from FT:

  His disappearance will fuel anxieties in the private sector that the anti-corruption crackdown launched by President Xi Jinping three years ago is being extended to high-profile entrepreneurs and the prime beneficiaries of China’s decades of rapid growth. It initially focused on ensnaring senior members of the government and military and financiers and is now broadening to prominent businesspeople in Shanghai.

  Significantly, FT also suggests that “[Guo’s] case threatens to accelerate the pace of capital flight out of China as the country’s wealthy elite scramble to shift their assets offshore and out of reach of the Chinese authorities.”

  “This is Richter scale 9 for the private sector in China,” one observer who tracks China’s wealthiest people said.

  Guo is also well connected in the Politburo. Here’s The Journal: 

  In August, the tycoon was named during the sentencing for corruption of a former senior Communist Party member in Shanghai who had run a government-owned dairy company. Mr. Guo had granted the man favors for unspecified benefits, according to China’s official Xinhua News Agency, which said that Mr. Guo wasn’t accused of wrongdoing. Fosun issued a statement at the time, saying Mr. Guo supported China’s anticorruption push.

   

  Like many other entrepreneurs in China, Mr. Guo has also remained close to Chinese leaders with positions on numerous official bodies, while some of Fosun’s businesses have overlapped with government priorities.

   

  He has served as a deputy to China’s legislature, the National People’s Congress, as well as represented Shanghai on a high-level government advisory body called the Chinese People’s Political Consultative Conference. 

  “In March 2012, he met Mr Xi as he was poised to take over as the country’s top leader, and urged him to enact a series of economic reforms, including greater court protection for insurance companies, increased lending by non-bank financial institutions and greater scope for private equity businesses to operate,” FT adds.

  As we mentioned on Thursday, Fosun spent more than $6 billion buying stakes in 18 overseas companies between February and July. Here’s a snapshot: 

  

  And here’s an org chart: 

  

  Due to the fact that Guo has so much influence over the company, his absence (especially if he ends up being detained for a prolonged period) could well have a serious impact, something which WSJ notes was “illustrated in trading Friday when [a] trading halt for its primary business triggered selling in related stocks and bonds.”

  In other words, it’s possible that this entire effort becomes self-defeating for Xi. If the widening probe ends up triggering trading halts and harrowing declines in the assets connected to the targets of the crackdown, then Beijing is simply fostering the type of instability it claims to be stamping out. 

  Furthermore, if the country’s wealthiest people start to get the idea that they too will be targeted and brought up on trumped up charges, then you can bet they will move their money out of the country by any means necessary and no UnionPay POS mointoring scheme is going to stop them. Obvisouly, just about the last thing China needs to be doing right now is creating more excuses for rich Chinese to skirt capital controls just as the CFETS telegraphs a much larger devaluation for the yuan on the horizon.

  *  *  *

  Bonus color from Deutsche Bank

  Given that the company responded promptly in the past couple of episodes, we think any delay this time could be taken more negatively by the investors. Separately, it seems China has learnt its lessons from the Kaisa episode and hasn’t lifted the corporate veil in such cases, clearly differentiating between the management vs. company operations. In almost every instance since Kaisa, Chairmen/founders have resigned, letting new management run the operations. We need to be mindful that Fosun is one of China’s largest private sector enterprises and the repurcurssions of a Kaisa-like episode could be huge for China Inc. 

  Fosun 20s are marked around 15 points lower at ~90 (mid, 10% ytm) amidst thin liquidity, at the time of writing. This is a bit more than the roughly 10 point drop we have seen in recent times in the USD bond space in similar situations (Wuzhou being the latest). Our base case and gut feel at this stage is that the company should eventually be fine. Key risks include resignation of Mr. Guo as Chairman and possible breach of bank loan covenants (though we expect this to be waived, if at all), black box nature of company’s operations, etc. 

  

  

  

  

  

• Good Luck Getting Your Money Out When the Next Crisis Hits

  Why is it that when a banking crisis hits, everyone acts surprised?

   

  The reason is actually quite simple: everyone at the top of the financial food chain are highly incentivized to keep quiet about the problems.

   

  Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

   

  For that reason, you will never and I repeat NEVER see a Central banker, Bank CEO, or politician admit openly what is happening in the financial system. Even middle managers and lower level employees won’t talk about it because A) they don’t know the truth concerning their institutions or B) they could be fired for warning others.

   

  Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).

   

  Moreover, when the Crisis DOES hit, it will be much, much harder to get your money out.

   

  Consider the recent regulations implemented by SEC to stop withdrawals from happening should another crisis occur.

   

  The regulation is called Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds. It sounds relatively innocuous until you get to the below quote:

   

  Redemption Gates – Under the rules, if a money market fund’s level of weekly liquid assets falls below 30 percent, a money market fund’s board could in its discretion temporarily suspend redemptions (gate).  To impose a gate, the board of directors would find that imposing a gate is in the money market fund’s best interests.  A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier.  Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period…

   

  Also see…

   

  Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions.  However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors.

   

  http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347

   

  In simple terms, if the system is ever under duress again, Money market funds can lock in capital (meaning you can’t get your money out) for up to 10 days. If the financial system was healthy and stable, there is no reason the regulators would be implementing this kind of reform.

   

  As Zerohedge noted earlier today, the use of “gates” is spreading. A hedge fund just suspended redemptions… meaning investors cannot get their money out. Expect more and more of this to hit in the coming months as anyone who is has bet the farm on the system continuing to expand gets taken to the cleaners.

   

  The solution, as it was in 2008, will not be to allow the defaults/ debt restructuring to occur. Instead, it will be focused on forcing investors to stay fully invested at whatever cost.

   

  This is just the start of a much larger strategy of declaring War on Cash.

   

  Indeed, we’ve uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

   

  We detail this paper and outline three investment strategies you can implement

  right now to protect your capital from the Fed’s sinister plan in our Special Report

  Survive the Fed’s War on Cash.

   

  We are making 1,000 copies available for FREE the general public.

   

  To pick up yours, swing by….

  http://www.phoenixcapitalmarketing.com/cash.html

   

  Best Regards

  Phoenix Capital Research

   

   

  

  

  

  

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• Trump's Cunning Plan Revealed

  Donald Trump – Bigot, zealot, xenophobe, racist, hitler-ite? Or Donald Trump – cunning strategist who knows Americans better than the "leave us alone up here on our Hill" career politicians and their lackey liberal media partners?

  You decide…

  As YouGov reports, a majority of Americans say that they view Islam unfavorably, and even Democrats are almost twice as likely to view Islam negatively than positively.

  One week ago the United States saw the deadliest terrorist attack it has seen since 9/11, after 14 people were killed in San Bernadino by Syed Farook and his wife Tashfeen Malik. In the wake of the attack Republican presidential candidate Donald Trump took his most aggressively anti-Muslim stance so far by calling for Muslims to be barred from entry into the United States. Though the United States has millions of Muslims, anti-Muslim sentiment has become increasingly common in public discourse.

   

  YouGov/HuffPost's latest research shows that most Americans have an unfavorable opinion of Islam. 58% of Americans have an unfavorable opinion of Islam, and just over a third (35%) say that they have a 'very unfavorable' opinion of the religion. Only 17% of Americans view it positively. Democrats (27%) are the most likely to have a favorable opinion of Islam, but even they tend to say that they view Islam negatively. Among independents (58%) and Republicans (75%) most people have a negative view of Islam. 

   

  

   

  Under-30s (45%) are the least likely to have unfavorable opinions of Islam, but 65% of over-65s view Islam unfavorably.

  So, is Trump merely reflective of the real American "values"?

  Finally, here is Patrick Buchanan, of Buchanan.org, explaining the odd hypocrisy in the establishment's unhinged response to Trumps' call:

  Calling for a moratorium on Muslim immigration “until our country’s representatives can figure out what the hell is going on,” Donald Trump this week ignited a firestorm of historic proportions.

   

  As all the old hate words — xenophobe, racist, bigot — have lost their electric charge from overuse, and Trump was being called a fascist demagogue and compared to Hitler and Mussolini.

   

  The establishment seemed to have become unhinged.

   

  Why the hysteria? Comes the reply: Trump’s call for a temporary ban on Muslim immigration tramples all over “American values” and everything we stand for, including the Constitution.

   

  But is this really true?

   

  The Constitution protects freedom of religion for U.S. citizens. But citizens of foreign lands have no constitutional right to migrate. And federal law gives a president broad powers in deciding who comes and who does not, especially in wartime.

   

  In 1924, Congress restricted immigration from Asia, reduced the numbers coming from southern and Central Europe, and produced a 40-year moratorium on most immigration into the United States.

   

  Its authors and President Coolidge wanted ours to remain a nation whose primary religious and ethnic ties were to Europe, not Africa or Asia.

   

  Under FDR, Truman and JFK, this was the law of the land.

   

  Did this represent 40 years of fascism?

   

  Why might Trump want a moratorium on Muslim immigration?

  • Reason one: terrorism. The 9/11 terrorists were Muslim, as were the shoe and underwear bombers on those planes, the Fort Hood shooter, the Times Square bomber and the San Bernardino killers. And as San Bernardino showed again, Islamist terrorists are exploiting our liberal immigration policies to come here and kill us. Thus, a pause, a timeout on immigration from Muslim countries, until we fix the problem, would seem to be simple common sense.
  • Second, Muslims are clearly more susceptible to the siren call of terrorism, and more likely to be radicalized on the Internet and in mosques than are Christians at church or Jews at synagogue. Which is why we monitor mosques more closely than cathedrals.
  • Third, according to Harvard’s late Samuel Huntington, a “clash of civilizations” is coming between the West and the Islamic world. Other scholars somberly concur. But if such a conflict is in the cards, how many more millions of devout Muslims do we want inside the gates?

  Set aside al-Qaida, ISIS and their sympathizers. Among the 1.6 billion Muslims worldwide are untold millions of followers of the Prophet who pray for the coming of a day when sharia is universal and the infidels, i.e., everyone else, are either converted or subjugated.

   

  In nations where Muslims are already huge majorities, where are the Jews? Where have all the Christians gone?

   

  With ethnic and sectarian wars raging in Afghanistan, Iraq, Syria, Turkey, Yemen, Libya, Nigeria and Somalia, why would we bring into our own country people from all sides of these murderous conflicts?

   

  Many European nations — Germans, French, Swedes, Brits — appear to regret having thrown open their doors to immigrants and refugees from the Islamic world, who have now formed unassimilated clusters and enclaves inside their countries.

   

  Ought we not explore why, before we continue down this road?

   

  In some countries of the Muslim world, Americans who embrace “Hollywood values” regarding abortion, adultery and homosexuality, can get their heads chopped off as quickly as converts to Christianity.

   

  In what Muslim countries does Earl Warren’s interpretation of the First Amendment — about any and all religious presence being banned in public schools and all religions being treated equally — apply?

   

  When is the next “Crusade for Christ” coming to Saudi Arabia?

   

  Japan has no immigration from the Muslim world, nor does Israel, which declares itself a Jewish state. Are they also fascistic?

   

  President Obama and the guilt-besotted West often bawl their apologies for the horrors of the Crusades that liberated Jerusalem.

   

  Anyone heard Muslim rulers lately apologizing for Saladin, who butchered Christians to take Jerusalem back, or for Suleiman the Magnificent, who conquered the Christian Balkans rampaging through Hungary all the way to the gates of Vienna?

   

  Trump’s surge this week, in the teeth of universal denunciation, suggests that a large slice of America agrees with his indictment — that our political-media establishment is dumb as a box of rocks and leading us down a path to national suicide.

   

  Trump’s success tells us that the American people really do not celebrate “globalization.” They think our negotiators got snookered out of the most magnificent industrial machine ever built, which once guaranteed our workers the highest standard of living on earth.

   

  They don’t want open borders or mass immigration. They want people here illegally to be sent back, the borders secured, and a moratorium imposed on Muslim immigration until we fix the broken system.

   

  As for the establishment, they are saying pretty much what The Donald is saying. To paraphrase Oliver Cromwell’s speech to the Rump Parliament: You have sat here too long for any good you have done here. In the name of God, go!

  *  *  *

  And if you still need further proof.. here are the numbers…

  

  

  

  

  

  

• Visualizing The World's "Hot" Money

  Every year, roughly $1 trillion flows illegally out of developing and emerging economies due to crime, corruption, and tax evasion. This amount is more than these countries receive in foreign direct investment and foreign aid combined.

  This week, a new report was released that highlights the latest data available on this “hot” money. Assembled by Global Financial Integrity, a research and advisory organization based in Washington, DC, the report details illicit financial flows of money from developing countries using the latest information available, which is up until the end of 2013.

   

  

  Courtesy of: Visual Capitalist

   

  The cumulative amount of this “hot money” coming out of developing countries totaled just over $7.8 trillion between 2004 and 2013. On an annual basis, it breached the $1 trillion mark each of the last three years of data available, which is good for a growth rate of 6.5% rate annually.

  In Asia, illicit financial outflows are growing even quicker at an 8.6% clip. It’s also on the continent that five of the ten largest source economies for these flows can be found, including the largest offender, which is Mainland China.

  How does this “hot” money leave these countries? Global Financial Integrity has calculated that 83% of illicit financial flows are due to what it calls “trade misinvoicing”.

  It’s defined as the following:

  The misinvoicing of trade is accomplished by misstating the value or volume of an export or import on a customs invoice. Trade misinvoicing is a form of trade-based money laundering made possible by the fact that trading partners write their own trade documents, or arrange to have the documents prepared in a third country (typically a tax haven), a method known as re-invoicing. Fraudulent manipulation of the price, quantity, or quality of a good or service on an invoice allows criminals, corrupt government officials, and commercial tax evaders to shift vast amounts of money across international borders quickly, easily, and nearly always undetected.

  Trade misinvoicing accounted for an average of $654.7 billion per year of lost trade in developing markets over the data set covered by the report.

  Source: Visual Capitalist

  

  

  

  

  

• White House Unable To Explain How Gun Control Will Stop Mass Shootings

  Authored by Steve Watson, originally posted at PrisonPlanet.com,

  The White House cannot name one single shooting incident that would have been prevented by gun control legislation.

  As President Obama prepares executive action to pass further gun control legislation, one errant reporter asked the White House press secretary exactly how such proposals would have prevented any recent mass shootings.

  Josh Earnest couldn’t directly answer the question and floundered around repeating the same talking points over and over again.

  Reporter Byron Tau referred to a statement made by Sen. Marco Rubio that no mass shootings in recent memory would have been prevented by gun legislation, which even the Washington Post fact-checked as true.

  “If not a single recent mass shooting would have been stopped by the kind of gun control measures you champion, are those the right approach to this problem?” Tau asked.

   

  “Well, Byron, I think we’ve been pretty direct and upfront,” replied Earnest, not being very direct and upfront.

   

  “…there is no piece of legislation that Congress can pass that would prevent every single act of gun violence,” Earnest added, avoiding the question.

   

  “I think the case that we have made is one that rests primarily on our concern about national security and our careful consideration of common sense.” he stated, again avoiding the question entirely.

   

  Earnest then diverted the talking point to the terrorist no-fly-list, prompting Tau to follow up, “Were any of the recent mass shooters on the ‘no-fly’ list?”

   

  “Not that I’m aware of,” Earnest admitted. “You’ll probably have to ask the director of national intelligence to confirm that.”

   

  The reporter stuck to the central issue at hand – that gun control legislation is not a fix for mass shootings.

   

  “Can the White House point to a recent mass shooting that would have been stopped by a expanded assault weapons ban or stricter background checks?” Tau asked.

   

  “The evidence seems to be that in all these recent mass shootings, these folks either passed background checks or were very determined to circumvent the strict gun laws that are already on the books.” the reporter added.

  Indeed, The shooters at Virginia Tech, the Aurora Colorado movie theater, Fort Hood, Isla Vista, the Washington Navy Yard, the attempted mass killing at Arapahoe High School ALL passed background checks.

  The shooter at Washington Navy Yard even managed to buy his firearm after the background check system was supposedly strengthened following the incident at Virgina Tech.

  The BATF has also determined that Syed Rizwan Farook, one of the two shooters in San Bernardino, also legally purchased two of the weapons at a gun shop in Corona.

  The reporter pressed Earnest, asking “Can you point to any that would have been prevented or stopped by the kind of proposals the White House is championing?”

  Earnest again repeated the “common sense” talking point without addressing the actual question and threw in a smattering of empty “national security” rhetoric.

  Last week when addressing the same line of questioning, Earnest admitted that further gun control legislation would not have prevented the San Bernardino shooting, and that it is purely “hypothetical” that terrorist incidents could be prevented with such new laws.

  While the Obama administration is seemingly hell bent on going after stricter gun control, research from Pew Research Center, the FBI, and the Centers for Disease Control and Prevention, reveals that gun violence in the US is actually on the decline, and is at its lowest since the 1960s.

  In addition, gun crime, despite an exponential increase in privately owned firearms over the same period, has steadily declined for about 20 years, except for high-profile shootings in gun-free zones.

  

  

  

  

  

• Bitcoin Breaks Out Higher After China Announces Crackdown On UnionPay POS Devices

  When we first detailed the link between a devaluing currency, increasing restrictions on outflows of China capital, and Bitcoin, the virtual currency soared (driven by Chinese flows, just as predicted). The last few days, as China has once again started devaluing its currency, authorities once again moved to tighten capital outflows – this time through caps on credit-card withdrawals (as warned here) – and sure enough, Bitcoin has been soaring recently. Specifically, a nationwide crackdown on illegal UnionPay point-of-sale devices, has sparked capital flight (on heavy volume) through the vurtual currrency.

  Having previously documented Beijing’s mad dash to tighten up capital controls in China in order to stem outflows in the wake of the PBoC’s move to transition towards a new FX regime; increasing expectations that a (much) deeper devaluation is on the horizon (blessed by The IMF) coupled with China’s efforts to manage the fallout from those expectations by liquidating hundreds of billions in FX reserves to support the onshore and offshore spots have understandably put authorities on edge, leading directly to efforts to stop the bleeding.

  As we put it a few weeks ago, “while China may succeed in maintaining an orderly pace of FX depreciation, if the local population is concerned it will lose substantial purchasing power in the coming months and years, it will accelerate the capital flight from the country, forcing even greater reserve liquidation as the government finds itself defending not only the capital but also the current account, not to mention the sheer capital flight panic resulting from the crashing stock market.”

  However, as we detailed here, one of the more straightforward ways of circumventing China’s official capital controls has been by “abusing” UnionPay cards. Roughly speaking, the process works like this (via Reuters):

  Growing numbers of Chinese are using the country's state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found.

   

  This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.

   

  In a warren of gritty streets around Macau's ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases – a way of evading China's strict currency-export controls.

   

  On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a "general sale", stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.

   

  The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200, in cash that individual Chinese can legally move out of the mainland. "Don't worry," said a store clerk when asked about the legality of the transaction. "Everyone does this."

  Yes, “everyone does this,” but not for long because now that the yuan deval debacle has served to accelerate the capital outflows, Beijing is set to double down on efforts to curb the degree to which capital controls are openly subverted and as WSJ reported, China “put a new annual cap on overseas cash withdrawals using UnionPay.”

  Which leads us to the past week, where, as Bloomberg reports, China is now cracking down on illegal use and manipulation of UnionPay point-of-sale devices to cirumvent the limits…

  A nationwide crackdown targets use of illegal UnionPay “point of service” devices used by retailers which have been altered to mask cash transactions to circumvent China’s strict currency control, South China Morning Post reports, citing a UnionPay internal memo.

   

  Illegal use involves customers purchase goods, only to return them to retailer and receive cash, minus retailer’s commission: report

   

  New measures require mobile POS transaction devices across China to be properly registered.

  We note this is a mainland version of the previous 'tricks' that the ultra-wealthy used in Macau and these newly reported UnionPay measures may prompt greater scrutiny on Macau pawnshop business model in which cash transactions are recorded as goods purchases, analysts led by Vitaly Umansky write in Dec. 10 note. Use of illegal POS devices in Macau pawnshops, and on some casino floors, have occurred in the past, but represent only "a minuscule fraction" of dealings in Macau’s pawnshops.

  Will this help to reverse the momentum? No, probably not. 

  The problem here – and this is something that quite a few people are still struggling to understand – is that Beijing has telegraphed a much larger devaluation, which means the pressure on the yuan will likely continue.

  So yes, as difficult as this is to come to terms with, this is a scenario where China played the deval card and is looking to ever-so-gradually move from a 3% deval to an export-boosting double-digit deval, but in the meantime, Beijing must manage the pace, which means supporting the yuan via direct interventions. But the last week it appears that The IMF's decision to include the Yuan in the SDR basket has green lit another round of devaluation…

  

  *  *  *

  And the result is obvious, virtual currencies are surging once again as the Chinese find another route to get their savings out of the country…

  

   

  It appears the moves are becoming increasingly aggressive among those wishing to get their capital out, as we detailed here, it is starting to directly correlate with Yuan movements…

  

   

  And most clearly on increasingly heavy volume… Notice the surge in October and again now as capital controls increase once again…

  

  So, evidently, the last week or two suggest, perhaps more importantly, that China easing (and outflows implict from further devaluation) now appears to go straight to Bitcoin.
  As Overstock's Chairman noted previously: gold is great, but tough to transport; thus, forcing Chinese into Bitcoin as we previously explained:

  As we concluded previously, while China is doing everything in its power to not give the impression that it is panicking, the truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which – as every Cypriot and Greek knows by now – is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out.

   

  So what happens then: well, China's propensity for gold is well-known. We would not be surprised to see a surge of gold imports into China, only instead of going to the traditional Commodity Financing Deals we have written extensively about before, where gold is merely a commodity used to fund domestic carry trades, it ends up in domestic households.

   

  However, while gold has historically been the best store of value in history and has outlasted every currency known to man, it is problematic when it comes to transferring funds in and out of a nation – it tends to show up quite distinctly on X-rays.

   

  Which is why we would not be surprised to see another push higher in the value of bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented "forking" with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.

  Charts: Bloomberg

  

  

  

  

  

• Kinder Morgan – Poster Boy For Bubble Finance

  Submitted by David Stockman via Contra Corner blog,

  The graph below belongs in the “what were they thinking category”.

  After Tuesday’s dividend massacre, it’s plain as day that Kinder Morgan (KMI) wasn’t the greatest thing since slice bread after all. That is, a “growth” business paying rich dividends out of rock solid profit margins and flourishing cash flow.

  In fact, it was just a momo stock on a borrowing spree.

  During the 27 quarters since the beginning of 2009, the consolidated entities which comprise KMI generated $20.8 billion of operating cash flow, but spent $24.3 billion on CapEx and acquisitions.

  So the “growth” side of the house ended-up in the red by $3.5 billion. Presumably that’s because it was “investing” for long haul value gains.

  But wait. It also had to finance those juicy dividends, and there was a reassuring answer for that, too. The payout was held to be ultra safe owing to KMI’s business model as strictly a toll gate operator in the oil and gas midstream, harvesting risk-free fees from gathering systems, transportation pipelines and gas processing plants.

  Accordingly, even when its stock price was riding high north of $40 per share, the yield was 5%. So over the last 27 quarters KMI paid out $17.3 billion in dividends from cash it didn’t have.

  It borrowed the difference, of course, swelling its net debt load from $14 billion at the end of 2009 to $44 billion at present. And that’s exactly the modus operandi of our entire present regime of Bubble Finance.

  Kinder Morgan is the poster boy.

  

  KMI data by YCharts

  Yes, you can chalk this off to another “lesson learned” in the Wall Street casino. After all, some definable group of investors and speculators thought they owned $98 billion of market cap a few months ago, and now their accounts are suddenly $60 billion lighter—–including about $7 billion of bottled air that evaporated from the net worth of its founder and indefatigable promoter, Richard Kinder.

  But in the alternative, perhaps its time to recognize that healthy, properly functioning free markets do not make egregious $60 billion “mistakes”  such as this one over and over. What surely led to the insane peak valuation of KMI is the relentless scramble for yield that has been triggered by 84 months of ZIRP and endless coddling of the stock market by the Fed and other central banks.

  The fact is, during the last 31 quarter (i.e. since Q1 2008) KMI has posted the grand total of $900 million in cumulative net income. This means that at its peak April valuation it was trading a 100X the totality of what it had earned during nearly an entire decade; and that during that period it paid out 17 times more in dividends than it earned.

  That’s right. The Wall Street gamblers and punters had followed the pied piper of Houston right out of Enron, and into an even greater bubble predicated on the same old scam.

  Indeed, KMI is a pipeline company just like Enron. It’s original building block, Enron Liquids Pipeline, was purchased by Richard Kinder and his partner for $40 million back in the late 1990s.

  Yet it had no more chance of being worth $100 billion than Enron had of being worth $60 billion before its implosion. It didn’t even have the razz mataz of a fiber optics trading business or a franchise to bring power and light to impoverished villages of India.

  The apologists are want to argue, of course, that net income doesn’t mean anything when it comes to valuation. Perhaps we should therefore dispense with the several billions spent annually by the SEC, DOJ and sundry state attorneys general hauling business executives to court and jail for violating GAAP.

  On the other hand, there is a reason why GAAP accounting statements require that asset write-offs, goodwill impairments, restructuring charges and stock option costs be charged to net income. At one point or another every one of these charges involved the waste of cash or other corporate assets.

  They are not merely “non-recurring” expenses. They always and everywhere generate a recurring loss of value because these charges reflect a business mistake or the impact of Mr. Market’s penchant for “creative destruction”.

  Even then, clamber on board with the LBO boys and consider the LTM results for KMI on a so-called cash flow basis. During the year ended September, it posted $5.89 billion of EBITDA and spent $3.9 billion on CapEx and $1 billion on acquisitions. So its free cash flow was a round $1 billion.

  Let’s see. At its April stock market peak, Kinder Morgan’s total unlevered enterprise value (TEV) was $140 billion. So the casino was valuing the company at 24X EBITDA, 70X EBITDA less CapEx and 140X free cash flow! 

  If you have another pipeline company in Houston, I’ve got some swampland in Florida that I will swap for it.

  If not, at least believe this. Two decades of Wall Street coddling by the Fed and 84 months of free carry trade money means that the casino is riddled with momo plays and debt-fueled scams like Kinder Morgan.

  Now would be an excellent time to get out of harm’s way – as any sensible KMI shareholder would have done long before Bloody Tuesday.

  

  

  

  

  

• Bank of America: "Sadly, It Took World War II…"

  One week ago, we explained what happened to both the US economy and the stock market the last time the Fed tightened financial conditions back in 1936 when it, like now, erroneously thought the economy was strong enough to sustain it:

  “The Fed exit strategy completely failed as the money supply immediately contracted; Fed tightening in H1’37 was followed in H2’37 by a severe recession and a 49% collapse in the Dow Jones.”

  This is what it looked like courtesy of BofA strategist Michael Hartnett:

  

  We concluded with the following:

  As can be seen on the above, in 1938, the stock market began to recover some. However, despite the easing stocks didn’t fully regain their 1937 highs until the end of the war nearly a decade later.

   

  It needed a world war for that.

  Alas, the sad reality that a war is what will be needed to get out of the ridiculous broken market/record debt state the world finds itself in due to the unprecedented central bank intervention over the past 7 years to make the rich richer, is spreading.

  Today we read from none other than the same Bank of America strategist who points out that while the Fed’s next step may well be the opposite of success, i.e., quantitative failure, the resulting shock to the system will have to endure the same type of catharsis, as what “saved” the US financial system from the first Great Depression.

  To wit:

  The rotation from growth to value, DM to EM and so on, could occur in a bad way, following a potential Quantitative Failure.

   

  The clash between a tightening Fed, QE in Europe & Japan, and potential devaluations in China & Saudi Arabia mean 2016 “tail risks” are high in our view. BofAML forecasts a 10% devaluation of the Chinese renminbi in 2016, and regards a de-pegging of the Saudi riyal as a potential “black swan”. Like a game of Jenga, a bull market built by central banks can collapse if further BoJ/ECB QE and Fed hikes engender US dollar spikes and EM/commodity swoons, FX-wars and volatility. 1937, 1987 & 1994 were all years of “policy divergence” and all years of market crashes.

   

  If deflation intensifies, causing bear markets and recessions, investors should ultimately anticipate a major policy shift in 2016…in US/EU/Japan from QE to fiscal stimulus. A flip to fiscal stimulus is the most likely catalyst for a Great Rotation out of “deflation plays” into “inflation plays”, undoubtedly the biggest investment decision of 2016. Sadly it took the New Deal and WW2 to end the dominance of “growth” over “value” in the 1930s.

  What Mr. Hartnett failed to mention, is that in addition to forcing the rotation out of “growth” and into “value” stocks – hardly the most important consequence of, well, a global war – it also took World War 2 to pull the US out of the Second Great Depression.

  Which may also explain why currently in the Syria proxy war there already are US, British, French, German, Saudi, Turkish, Russian, Iranian (and shortly Chinese) forces in the air and on the ground. Because if the $200 trillion in global debt will not inflate itself on its own, it may just need the “push” of a few million tons of TNT to get it rolling.

  

  

  

  

  

  

• BRaCe YouRSeLVeS…

  

  

  

  

  

• 3 Signs We've Reached 'The Top' In The Financial System

  Submitted by Simon Black via SovereignMan.com,

  It was 1720, and Paris was completely mad.

  The city’s brand new stock exchange, located at the ultra-swanky Hotel de Soissons, swarmed with citizens of all stripes looking to get rich.

  Stocks were still a novel concept back then, and the allure of getting rich overnight was so appealing that people lined up for hours to buy shares.

  The most popular was the ill-fated Mississippi Company, whose share price frequently rose up to 20% in the course of a single morning.

  It was said fortunes changed so quickly that people often woke up poor and went to bed rich.

  Newfound wealth was visible everywhere. Luxury home construction boomed. Lucky speculators erected statues of themselves. The jewelry market surged.

  Of course, it didn’t last. Within a few years, the market crashed, and the Mississippi Company went down in history as one of the greatest bubbles of all times.

  Looking back it should have been obvious.

  In fact, all great financial bubbles often have watershed moments that in many ways signify the height of lunacy.

  Joseph Kennedy, for example, famously sold all of his stocks right before the great crash in 1929 after a shoeshine boy started giving him investment advice.

  Pets.com, a symbol of the 1990s tech bubble, IPO’d just two years after it was founded with a $300 million market capitalization.

  They were so flush with capital that they spent $2 million on a tacky Superbowl ad, only to go bust 268 days later.

  Duh. It’s so obvious looking back.

  I’ve long believed our entire financial system is in a similar position.

  Western banking systems are dangerously illiquid and in many cases undercapitalized.

  Meanwhile the central banks and governments meant to support them are nearly insolvent and bankrupt themselves.

  There are a lot of flashing warning signs right now that the system is quickly running out of steam.

  China’s vast, multi-trillion dollar stockpile of foreign reserves is dropping rapidly, down by $87 billion in November, the third highest decline on record.

  A whopping $1.2 trillion worth of corporate bonds in the United States has just been downgraded by rating agencies.

  Median home prices in over a third of major American cities have once again surpassed all-time highs from the last bubble.

  US government debt is at an all-time high after rising an astounding $674 billion just in the month of November.

  It’s pretty clear there’s an incredible amount of risk in the system.

  And in the future when we look back and say, “It should have been so obvious,” here are a few events that may become famous watershed moments:

  1) The $75 billion loan

   

  AB InBev just secured an astonishing $75 BILLION loan to buy rival SABMiller.

   

  This is the biggest commercial loan in the history of the world, roughly equivalent to the GDP of Azerbaijan.

   

  It’s incredible that anyone is able to borrow an amount like this, let alone at the low rate of just 1.1% above LIBOR.

   

  It’s not a stretch to think that we may look back at this and say, ‘that was the top… what an obvious example of how much money central bankers have printed.’

   

  2) The junk bond collapse

   

  Back in 2013, the yield on ‘high yield corporate bonds’ aka junk bonds dipped below 5% for the first time in history.

   

  It shouldn’t have taken a rocket scientist to figure out how absurd that was, but now that the trend is reversing and the junk bond market is stalling investors are losing their shirts.

   

  One hedge fund that had invested heavily in junk bonds just suspended redemptions for its investors, something only really done in times of crisis.

   

  This could be the historical watershed moment that signals the beginning of the end of our massive financial bubble.

   

  3) The POPPY Loan [my favorite]

   

  San Francisco Federal Credit Union wants to help its customers buy unaffordable homes in the astonishingly overpriced region of northern California.

   

  So they just rolled out a new loan program called the Proud Ownership Purchase Program for You, or POPPY for short.

   

  POPPY loans allow customers to borrow up to $2 MILLION with absolutely no money down.

   

  And no, I am not making this up.

   

  $0 down. $2 million. At 4% interest.

   

  Oh, and you don’t have to take out private mortgage insurance (PMI) either.

   

  If you’re not familiar, PMI is something that banks typically require when borrowers don’t contribute a sufficient down payment; it insures the bank against loss in case the borrower defaults.

   

  So here the bank is taking 100% of the financial risk lending against property in an overpriced market that’s near its all-time high.

   

  And they’re doing it with your money.

   

  This is a story so familiar it’s as if they ripped it from the playbook of the 2006 housing bubble.

   

  We know what happened. We know how that bubble ended.

  Central banks have printed so many trillions of dollars that there’s hardly anything that makes sense in the financial system anymore.

  This is not a consequence-free environment… it’s time to find safety.

  Gold and silver are traditionally great hedges against systemic risk.

  Physical cash, as we’ll discuss next week, may also be a good option. Especially given that there’s minimal downside in doing so.

  Private equity investments in productive, undervalued companies are also traditionally safe bets in both good times and bad.

  Most of all, don’t ignore the risks or assume everything’s going to be OK because our politicians and central bankers are so smart that they can solve anything.

  They’re not.

  And they’ve obviously missed the message that 2006 called: he wants his bubble back.

  

  

  

  

  

• What Drives Gun Sales In America

  Several days after releasing a historic front-page Op-Ed calling for gun control in the aftermath of the San Bernardino shooting, the NYT decided to actually do the analysis to find out just what it is that drives gun sales.

  In an article title “What Drives Gun Sales“, the NYT tries to spread the blame around, accusing everything from loose restrictions, to higher handgun sales, to hurricanes, but the real reason is a simple one. It begins with the letter O, ends in bama, and has made the crusade for gun control one of the core prerogatives of its presidency, as the following chart from the NYT itself shows.

  

   

  Which, incidentally, is what we showed just a few days ago:

  

   

  So in case Smith & Wesson, whose stock just hit an all time high today, wants to thank someone, just thank the top gun salesman of the century.

  

  

  

  

  

• "Inconvenient Truth" Chart Of The Day

  Submitted by Jim Quinn via The Burning Platform blog,

  The three quotes below sum up my views on the chart below. 

  “Facts do not cease to exist because they are ignored.” – Aldous Huxley

   

  “That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.” – Aldous Huxley

   

  “Sooner or later we all sit down to a banquet of consequences” – Robert Louis Stevenson

   

  

   

  The stock market is the most overvalued in history.

  You’ve been warned.

  

  

  

  

  

• Is This What Happens On Monday?

  Four months ago, China decided to devalue the Yuan sending a shudder up and down collateral chains globally and forcing carry trade unwinds and derisking everywhere. Friday August 21st saw notable weakness as that weakness washed ashore in US equities.. and then Black Monday struck. The ensuing debacle stalled The Fed and shocked markets.

  The last week, we have seen China devalue the Yuan very significantly, EM capital markets turmoiling, and today, that was ashore in US equities… what happens next?

  Deja vu?

  

   

  Deja vu?

  

   

  As a reminder, JPMorgan’s “seer” Marko Kolanovic warned this week that…

  “As for near-term risks—we believe the most imminent market catalyst will be the December Fed meeting in which we are likely to see the first rate hike of the cycle.“

  But to a market which has traded mostly on technicals and program buying (and selling) in recent months, there is something far more troubling than just what the Fed will announce:

  This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

  What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers, and since the vol surface of the market will be well-known to everyone in advance, there is a very high probability the implied “stop loss” level will be triggered, and the market could trade to a level equivalent to the strike price, somewhere in the 1,800 area, or nearly 200 points below current levels.

  Which would be a tragedy for the Fed: after all, nothing is more important to Yellen, Draghi et al, than affirmative market signaling – pointing to the (surging) market’s reaction and saying “look, we did the right thing”, just as Draghi did on Friday when he explicitly talked the market higher in the aftermath of the ECB’s disastrous announcement.

  The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

  Whether this happens remains to be seen, and we are confident the Fed’s “arm’s length” market-moving JV partner, Citadel, is currently scrambling to prevent any imminent selloff. However, considering Kolanovic’ track record of hinting at key risk inflection risk, it is quite likely that whatever the ultimate closing price on December 16 and, more importantly, December 18, volatility may very soon have an “August 24” type event.

   

  Charts: Bloomberg

  

  

  

  

• Why Liberals Oppose a Gun Ban for People On Terror Watchlist

  Everyone agrees – other than ISIS and a handful of crazies – that we have to stop the epidemic of mass shootings  (mass shootings have skyrocketed under Obama; 5 of the 12 deadliest mass shootings in history took place during Obama’s first term alone).

  President Obama plans to introduce – through executive action – a gun ban on those on no-fly lists.   So does the governor of Connecticut.

  Sound like a no-brainer … stopping terrorists from having guns?

  But as Daily Beast points out, in an article called “My Fellow LIBERALS, DON’T Support Obama’s Terror Watch List Gun Ban“:

  As Americans we understand well how important due process is. No one, for instance, should be thrown in jail just on the say-so of some government official who declares they deserve it. Such is the behavior of tyrants, the Founding Fathers understood, and so we enshrined in our Constitution the right to counsel, the right against being compelled to testify against oneself, the right to trial by jury, etc.All of these rights are checks to ensure the government can’t simply pluck innocent people out of their lives and strip them of their life, liberty, or property. Only after fairly testing the charges against them can the government punish people with such deprivation.

   

  But none of these hurdles must be overcome for the government to put someone on a list, especially not a list like this, which is a watch list. It is a list of people that for whatever reason (a reason that no one outside the government knows) the government has decided deserve closer scrutiny of their actions.

   

  Is the government right to be concerned about these people? Maybe yes, but maybe not, and there is no way for ordinary citizens to know. Which means there is also no way for ordinary citizens to know whether any of them, even people who in no way intend to commit acts of terrorism, are also on that list.

   

  In other words, there is no way to know whether you are on that list. Nor is there any way to know how to get off it.

   

  That there is any list at all should give us all pause. It has not historically been the hallmark of a healthy democracy when governments have kept lists of people they didn’t like. It is hard to be a government of the people, by the people, and for the people when the government keeps track of the people, including those dissidents who would challenge it (which is something that in a democracy they are allowed, and even supposed, to do).

   

  ***

   

  What this proposal calls for is the government using the list as a basis to deny the people on it a right to which they were otherwise entitled.

   

  ***

   

  Based on the plain text of the Second Amendment and subsequent jurisprudence it is clear that some right is in there somewhere, and what this proposal calls for is for the government to arbitrarily and un-transparently deny this right to certain people without any sort of the due process ordinarily required. And that’s a problem.

   

  ***

   

  With this proposal we would be authorizing the government to act capriciously and unaccountably for any reason, including—and this point cannot be emphasized enough—bad reasons or no reasons at all, and against anyone, including—and this point cannot be emphasized enough, either—people just like you. There would also be no reason why, if the government could take away this right this way today, it couldn’t take away other rights you depend on having tomorrow the same way.

  Liberal journalists Jeremy Scahill and Ryan Devereaux document:

  The Obama administration has quietly approved a substantial expansion of the terrorist watchlist system, authorizing a secret process that requires neither “concrete facts” nor “irrefutable evidence” to designate an American or foreigner as a terrorist, according to a key government document obtained by The Intercept.

   

  The “March 2013 Watchlisting Guidance,” a 166-page document issued last year by the National Counterterrorism Center, spells out the government’s secret rules for putting individuals on its main terrorist database, as well as the no fly list and the selectee list, which triggers enhanced screening at airports and border crossings. The new guidelines allow individuals to be designated as representatives of terror organizations without any evidence they are actually connected to such organizations, and it gives a single White House official the unilateral authority to place entire “categories” of people the government is tracking onto the no fly and selectee lists. It broadens the authority of government officials to “nominate” people to the watchlists based on what is vaguely described as “fragmentary information.”

   

  ***

   

  The document’s definition of “terrorist” activity includes actions that fall far short of bombing or hijacking. In addition to expected crimes, such as assassination or hostage-taking, the guidelines also define destruction of government property and damaging computers used by financial institutions as activities meriting placement on a list. They also define as terrorism any act that is “dangerous” to property and intended to influence government policy through intimidation.

   

  This combination—a broad definition of what constitutes terrorism and a low threshold for designating someone a terrorist—opens the way to ensnaring innocent people in secret government dragnets. It can also be counterproductive. When resources are devoted to tracking people who are not genuine risks to national security, the actual threats get fewer resources—and might go unnoticed.

   

  “If reasonable suspicion is the only standard you need to label somebody, then it’s a slippery slope we’re sliding down here, because then you can label anybody anything,” says David Gomez, a former senior FBI special agent with experience running high-profile terrorism investigations. “Because you appear on a telephone list of somebody doesn’t make you a terrorist. That’s the kind of information that gets put in there.”

   

  ***

   

  In 2004, [liberal] Sen. Ted Kennedy complained that he was barred from boarding flights on five separate occasions because his name resembled the alias of a suspected terrorist. Two years later, CBS News obtained a copy of the no fly list and reported that it included [liberal] Bolivian president Evo Morales and Lebanese parliament head Nabih Berri. One of the watchlists snared Mikey Hicks, a Cub Scout who got his first of many airport pat-downs at age two. In 2007, the Justice Department’s inspector general issued a scathing report identifying “significant weaknesses” in the system. And in 2009, after a Nigerian terrorist was able to board a passenger flight to Detroit and nearly detonated a bomb sewn into his underwear despite his name having been placed on the TIDE list, President Obama admitted that there had been a “systemic failure.”

   

  ***

   

  The rulebook appears to invert the legal principle of due process, defining nominations as “presumptively valid.”

  Left-leaning Nation tells how two middle-aged, lesbian peace activists got put on the no-fly list.

  Bleeding heart Huffington Post noted last year:

  You could post something on Facebook or Twitter that raises “reasonable suspicion.”

   

  ***

   

  Or somebody else could just think you’re a potential terror threat.

   

  ***

   

  You could be a little terrorist-ish, at least according to someone.

   

  ***

   

  Or you could just know someone terrorist-y, maybe.

   

  ***

   

  Finally, you could just be unlucky.

   

  ***

   

  A federal judge ruled in June that the government must develop a new process under which individuals can challenge their inclusion on the no-fly list. The judge found the current process “wholly ineffective.”

  Progressive Salon reports:

  In fact, the rules for putting someone on the list are so weak that it’s acceptable for entire “categories” of people to be considered threats at a White House official’s choosing.

   

  ***

   

  Scahill told HuffPost Live. “The government will not tell you if you are on the list, but it will share its labeling of you as a ‘known or suspected terrorist’ with foreign governments and private contractors. These policies make it nearly impossible to challenge your secret designation. The American public has a right to understand the policies of what amounts to a shadow legal system.”

  Liberal Slate writes:

  The U.S. government’s reliance on “predictive judgments” to deprive Americans of their constitutionally protected liberties is no fiction. It’s now central to the government’s defense of its no-fly list—a secretive watch list that bans people from flying to or from the United States or over American airspace….

   

  Worse, the U.S. government launched its predictive judgment model without offering any evidence whatsoever about its accuracy, any scientific basis or methodology that might justify it, or the extent to which it results in errors. In our case, we turned to two independent experts to evaluate the government’s predictive method: Marc Sageman, a former longtime intelligence community professional and forensic psychologist with expertise in terrorism research, and James Austin, an expert in risk assessment in the criminal justice system. Neither found any indication that the government’s predictive model even tries to use basic scientific methods to make and test its predictions. As Sageman says, despite years of research, no one inside or outside the government has devised a model that can predict with any reliability if a person will commit an act of terrorism.

   

   

  ***

   

  Because the government’s predictive model results in the blacklisting of people who are not terrorists, individuals on the no-fly list need a meaningful method of redress—a fair way to demonstrate their “innocence” of crimes they will never commit. The government refuses to provide these safeguards in its current so-called redress system, which violates the due process guarantees of the Constitution. It refuses to tell our clients all the reasons the government has for predicting future misconduct, leaving them to guess. It won’t provide the evidence underlying those reasons, including government evidence that would undermine its predictions. And it refuses to provide a hearing for our clients to press their case to a neutral decision-maker and challenge government witnesses’ hearsay or biases.

  Indeed, the government has a history of labeling dissident as terrorists.  Any type of criticism of the fatcats may get you labeled as a terrorist in post-9/11 America.

  Are any of the government’s so-called “terrorism” programs really only focused on stopping terrorism?  Of course not.

  Liberals might remember that George W. Bush said that “you’re either with us or against us” … and stripped Americans of many of our liberties.

  One specific example: spying on Americans is all about power, control and money … not protecting Americans from terrorists.

  Another example: indefinite detention.

  So we've got to stop mass shootings … but using a Kafkaesque, fatally flawed watchlist system is not the way.

  Postscript: What does the Daily Beast article linked above mean when it says that – while liberals may dislike the Second Amendment – it’s still a Constitutional right?

  A top liberal Constitutional law expert explains:

  Like many academics, I was happy to blissfully ignore the Second Amendment. It did not fit neatly into my socially liberal agenda.

   

  ***

   

  It is hard to read the Second Amendment and not honestly conclude that the Framers intended gun ownership to be an individual right. It is true that the amendment begins with a reference to militias: “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.” Accordingly, it is argued, this amendment protects the right of the militia to bear arms, not the individual.

   

  Yet, if true, the Second Amendment would be effectively declared a defunct provision. The National Guard is not a true militia in the sense of the Second Amendment and, since the District and others believe governments can ban guns entirely, the Second Amendment would be read out of existence.

   

  ***

   

  More important, the mere reference to a purpose of the Second Amendment does not alter the fact that an individual right is created. The right of the people to keep and bear arms is stated in the same way as the right to free speech or free press. The statement of a purpose was intended to reaffirm the power of the states and the people against the central government. At the time, many feared the federal government and its national army. Gun ownership was viewed as a deterrent against abuse by the government, which would be less likely to mess with a well-armed populace.

   

  Considering the Framers and their own traditions of hunting and self-defense, it is clear that they would have viewed such ownership as an individual right — consistent with the plain meaning of the amendment.

   

  None of this is easy for someone raised to believe that the Second Amendment was the dividing line between the enlightenment and the dark ages of American culture. Yet, it is time to honestly reconsider this amendment and admit that … here’s the really hard part … the NRA may have been right. This does not mean that Charlton Heston is the new Rosa Parks or that no restrictions can be placed on gun ownership. But it does appear that gun ownership was made a protected right by the Framers and, while we might not celebrate it, it is time that we recognize it.

  And liberal icons Gandhi and the Dalai Lama accept gun ownership as moral.

  

  

  

  

• Watch Jimmy Carter Ban Iran Immigrants And Deport Students During The Hostage Crisis

  One of Donald Trump’s recurring refrains ever since the San Bernardino shooting, ostensibly the one which prompted him to declare he would bar Muslims from entering the country – an announcement which has unleashed an unprecedented media scandal – is that the “US is at war.” Whether or not that is the case remains to be seen (we expect tens of thousands of US troops to be deployed soon, this time  without the protective cloak of CIA “covert ops”) but what is certain is that Trump is merely proposing to do what Democrat Jimmy Carter did back on April 7, 1980, when he banned Iranians from the US and deported Iranian students during the Iran hostage crisis – a time when some could argue the US was likewise in war with the Iranian regime.

  Courtesy of the Gateway Pundit, here is a screengrab from the ABC News report of President Carter’s Iran speech regarding US cutting relations with Khomeini’s regime in Iran.

  

   

  The full video of Carter’s speech is below:

  ABC Breaking News | Latest News Videos

   

  And here is the full transcript from ABC News:

  Ever since Iranian terrorists imprisoned American Embassy personnel in Tehran early in November, these 50 men and women—their safety, their health, and their future—have been our central concern. We’ve made every effort to obtain their release on honorable, peaceful, and humanitarian terms, but the Iranians have refused to release them or even to improve the inhumane conditions under which these Americans are being held captive.

   

  The events of the last few days have revealed a new and significant dimension in this matter. The militants controlling the Embassy have stated they are willing to turn the hostages over to the Government of Iran, but the Government has refused to take custody of the American hostages. This lays bare the full responsibility of the Ayatollah Khomeini and the Revolutionary Council for the continued illegal and outrageous holding of the innocent hostages. The Iranian Government can no longer escape full responsibility by hiding behind the militants at the Embassy.

   

  It must be made clear that the failure to release the hostages will involve increasingly heavy costs to Iran and to its interests. I have today ordered the following steps.

   

  First, the United States of America is breaking diplomatic relations with the Government of Iran. The Secretary of State has informed the Government of Iran that its Embassy and consulates in the United States are to be closed immediately. All Iranian diplomatic and consular officials have been declared persona non grata and must leave this country by midnight tomorrow.

   

  Second, the Secretary of the Treasury will put into effect official sanctions prohibiting exports from the United States to Iran, in accordance with the sanctions approved by 10 members of the United Nations Security Council on January 13 in the resolution which was vetoed by the Soviet Union. Although shipment of food and medicine were not included in the U.N. Security Council vote, it is expected that exports even of these items to Iran will be minimal or nonexistent.

   

  Third, the Secretary of Treasury will make a formal inventory of the assets of the Iranian Government, which were frozen by my previous order, and also will make a census or an inventory of the outstanding claims of American citizens and corporations against the Government of Iran. This accounting of claims will aid in designing a program against Iran for the hostages, for the hostage families, and other U.S. claimants. We are now preparing legislation, which will be introduced in the Congress, to facilitate processing and paying of these claims.

   

  Fourth, the Secretary of Treasury [State] and the Attorney General will invalidate all visas issued to Iranian citizens for future entry into the United States, effective today. We will not reissue visas, nor will we issue new visas, except for compelling and proven humanitarian reasons or where the national interest of our own country requires. This directive will be interpreted very strictly.

  

  

  

  

  

• Here Is "Gate" #2: $1.3 Billion Hedge Fund Founded By Ex-Bear Stearns Traders, Just Suspended Redemptions

  Yesterday, in the aftermath of the shocking news that the Third Avenue Focused Credit Fund was liquidating and had gated investors due to its “illiquid” portfolio, we had one simple prediction:

  “What this means is that now that the dreaded “gates” are back, investors in all other junk bond-focused hedge funds, fearing they too will be gated, will rush to pull what funds they can and submit redemption requests, in the process potentially unleashing a liquidity – and liquidation – scramble within the hedge fund community, which will first impact bonds and then, if the liquidity demands continue, equities as well.“

  We had to wait just over 24 hours to be proven correct, because moments ago Dow Jones reported that the $1.3 billion Manhattan-based Stone Lion Capital, a distress-focused hedge fund, has just suspended redemptions after “substantial requests.”

  The WSJ adds:

  It is the latest example of the sudden crunch facing traders across Wall Street looking to sell beaten-down positions.

   

  Stone Lion manages around $1.3 billion and specializes in distressed debt and other risky investments that have plunged in value lately.

   

  It received “substantial redemption requests” in its oldest hedge fund, the $400 million Stone Lion Portfolio LP, precipitating the decision, the firm said.

  At least the had a pretty logo:
  

  
  

   

  The management team via CapIQ:

  

   

  And here is the punchline:

  • Alan Jay Mintz, CPA, a co-founder of Stone Lion Capital was Co-Head of the Distressed Debt and High Yield trading group at Bear Stearns
  • Gregory Augustine Hanley, a co-founder of Stone Lion Capital was Co-Head of the Distressed Debt and High Yield trading group at Bear Stearns

  One really couldn’t make this up.

  

  

  

  

  

• Putin Orders Military To "Immediately Destroy" Any Threat To Russian Forces

  Russian President Vladimir Putin has ratcheted up the rhetoric in what appears to be one step closer to the potential for direct conflict with The West. While not detailing 'who' he was focued on, amid the obvious Turkey-Russia tensions, Putin told a session of the Defense Ministry's collegium that "I order to act extremely tough. Any targets that threaten Russian forces or our infrastructure on the ground should be immediately destroyed."

  During the meeting of the most senior defense officials, ITAR TASS reports that Putin also warned against "those who will again try to organize any provocations against our servicemen."

   "We have already taken additional measures to ensure security of Russian servicemen and air base. It was strengthened by new aviation groups and missile defense systems. Strike aircraft will now carry out operations under cover of fighter jets,"

  Putin said that the Russian military have caused a substantial damage to terrorists in Syria, adding that the actions of the Russian Armed Forces are worthy of praise.

  "The combined operation of the Aerospace Defence Forces and the Navy, the use of newest high precision weapons systems has caused a serious damage to the terrorist infrastructure, thus qualitatively changing the situation in Syria," the president said.

  The president also ordered the defense ministry to coordinate actions in Syria with Israel’s command post and the US-led international coalition.

  "It’s important to develop cooperation with all countries really interested in destroying terrorists. I am talking about contacts on ensuring flight safety with the command post of Israel’s air force and forces of the US-led coalition," Putin said.

  According to the official, terrorists in Syria pose a direct threat to Russia and Moscow’s actions are carried out to protect the country rather than due to abstract interests.

  "Our soldiers in Syria are, first and foremost, defending their country. Our actions there aren’t motivated by some obscure and abstract geopolitical interests or a desire to train our forces and test new weapons – which is of course an important goal as well. Our main objective is to avert a threat to the Russian Federation,"

  As we noted previously, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub). 

  On that note, we present the following update graphic prepared by Louis Martin-Vézian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.

  

  

  

  

  

  

• Prince Of World Beheading Champion Saudi Arabia Calls Trump "A Disgrace To America"

  You know you’ve ‘made it’ when the prince of one of the world’s biggest human rights abuser (and leading ‘beheader’) nations calls you a “disgrace to America.”

   

  From “respected investor” – just ask him about Citi and Twitter – Prince Alwaleed bin Talal…

   

  Prince Alwaleed slams @realDonaldTrump, calls him a “disgrace” & says he should withdraw from the presidential race.
  https://t.co/Zk6G1uNwzE

  — CNBC Now (@CNBCnow) December 11, 2015

   

  We wonder if all these detractors and critics realize they are all, massively boosting Trump’s case? Probably not.

  Meanwhile, we anxiously await Trump’s twitter response.

  

  

  

  

  

• Stocks Slammed To Worst Week Since Black Monday Amid Crude & Credit Carnage

  Some folks were suddenly forced to sell…

  And for those "shocked" that credit markets sparked this…

  Before we start, summarizing the bloodbath…

  • Russell 2000 (Small Caps) Down 4.8% – worst week since May 2012
  • Trannies Down 4.8% – worst week in 4 months (Black Monday)
  • S&P 500 Down 3.5% – worst week in 4 months (Black Monday)
  • FANGs Down 3.75% – worst week in 3 months
  • HYG (HY Bond ETF) Down 3.75% – worst week since March 2009
  • HY CDX Up 60bps – biggest weekly spike in spreads since Dec 2014
  • USD Index Down 2.5% – worst 2-week drop in 4 months
  • JPY Stronger by 1.9% – worst week in 4 months
  • CAD Weaker by 2.75% – worst week in 5 months
  • EUR Stronger by 3.75% – best 2 week gain since Sept 2012
  • Yuan down 6 weeks in a row to weakest since July 2011 – longest losing streak in history
  • WTI Crude Down 10.9% – worst week since Dec 2014
  • 5Y Yield Drops 13bps – biggest absolute drop in 2 months
  • 30Y Yield Drops 13bps – biggest absolute drop since March 2015

   

  The biggest news of the day/week was the sudden awakening of the rest of the world that credit's collapse is real…

  

   

  This was the biggest weekly collapse in High-Yield Bonds since March 2009… with today's move, HYG wipes out all total return back to 12/12/2012 (assuming divs reinvested)

  

  (h/t @groditi)

   

  Weakness in US equities began early this morning after the IEA report sent crude crashing…Dow Futs down 400 from overnight highs!

  

   

  Ugly day with high beta Nasdaq and Small Caps smashed lower…

  

   

  On the week Trannies and Small Caps were the biggest losers…

  

   

  Financials and Energy were butchered this week…

  

   

  Dow joins S&P, Russell, and Trannies in red post-Paris… we're gonna need more radicals!!

  

   

  Small Caps were monkey-hammered…

  

   

  FANGs had their worst week in 3 months…

  

   

  Led by NFLX..

  

   

  But Guns were in great demand…

  

   

  VIX term structure inverted short-term…

  

   

  HYG had its worst day since Aug2011…

  

   

  Treasury yields collaped…

  

   

  2Y Yields dropped 6.5bps today… the biggest drop in 3 months…

  

   

  The FX markets also turmoiled… USD weakness against all the majors (but EM FX and commodity producers crushed)…

  

   

  The Yuan plunged for the 6th week in a row…

  

   

  EM FX crashed by most since June 2013 (Taper Tantrum)…

  

   

  Gold rallied today, but ended the week lower (along with silver) despite a weaker dollar. Copper rallied, crude didn't…

  

   

  Black Gold Baumgartner'd…

  

   

  Charts: Bloomberg

  Bonus Chart: What Happens Next?

  

  

  

  

  

• Weekend Reading: Risk – That Is All

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  While the world patiently waits for Janet Yellen to raise interest rates this month, the markets have been unable to decide as of yet whether such an event is good or bad thing.

  As I discussed earlier this week, there is an ongoing belief that despite the rest of the world struggling with deflationary pressures and weak economic growth pushing Central Bankers globally toward further negative interest rate environments and more liquidity, the U.S. can remain an “island of economic prosperity.” To wit:

  “International And Emerging Market Divergence. As I stated above, there is currently a belief that the U.S. can remain isolated from the rest of the world.  Given the global interconnectedness of the world today, there is little ability for the U.S. to permanently diverge from the rest of the world. As shown below, historically when international and emerging markets have declined, the U.S. has been soon to follow.”

  

  The reality is that such divergences have rarely lasted for very long and the ultimate reversion to reality have been brutally painful to investors.

  This week’s reading list is a compilation of articles and research notes dedicated to understanding more clearly the “risks” that are currently building within the financial markets and economic environment. What you choose to do with that information is entirely up to you, however, ignoring it has generally never worked out well.

  ---

  1) Give Me Only The Good News by Jeremy Grantham via GMO

  “This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff ‘that just ain’t so.’

   

  We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.”

  But Also Read: Voters Know The American Dream Is Over by Charles Hugh-Smith via OfTwoMinds

   

  2) Reasons “Not To Hike” Pile Up by Caroline Baum via MarketWatch

  “What do Larry Summers, market monetarists, gold bugs and other hard-money types have in common?

   

  No, it’s not a trick question, but it yields a surprising answer. Three different economic philosophies are aligned in challenging the wisdom of the Federal Reserve’s stated intention to raise interest rates next week.

   

  The better question is why the Fed is determined to raise rates now. The world’s major economies are diverging, with Europe, Japan and China requiring additional stimulus from their central banks. The dollar is likely to strength further, crimping U.S. exports and restraining import prices. A renewed decline in oil prices is going to prevent inflation from moving up to the Fed’s 2% target, a premise for any Fed action.

  The 5% unemployment rate remains the only reason for starting to normalize rates, and that’s based on the Fed’s flawed Phillips-Curve thinking. A sustained increase in wages is more hope than reality at this point. And since wages lag prices, not the other way around, forecasts of higher compensation may have to wait.”

  

  But Also Read: OK Jobs Report Paves Way For $6.8B Fed Giveaway by Louis Woodhill via Real Clear Markets

   

  3) Rare Data Point Sighting Sends Warning by Tim Mullaney via CNBC

  “The S&P 500 has a big performance issue that should be a focus for investors: Too much of the index return is coming from too few of its stocks.

   

  The 10 most valuable companies in the market are up roughly 21.4 percent as a group this year, versus a loss of 2.6 percent for the rest of the stock market.

   

  That 24 percentage-point spread between the biggest stocks and the index as a whole is the widest since 1999, heading into the dot-com bust.”

   

  

  But Also Read: A 20-Year-Old Perversion In The Stock Market Is Ending by Sam Ro via Business Insider

  Contra-Take: Is It Time To Go Full Zero Hedge? by Cam Hui via Humble Student Of The Markets

   

  4) The Junk Bond Market’s Early Warning Signals by Ben Wright via The Telegraph

  “The relatively high global equity prices point to expectations of strong economic growth; the historically very high bond prices point to expectations of weak economic growth. How does one reconcile these two wildly inconsistent worldviews? The short answer is quantitative easing, which has pumped up asset values far beyond what the fundamentals would justify. Any bad news that comes along – and there has been a fair bit of that in recent months – merely serves to highlight that growing disconnect.

   

  With the paths of the US Federal Reserve, the Bank of England and the European Central Bank starting to diverge as we enter the new year, it is clear that, at the very least, investors are in for a bumpy ride in 2016.”

  But Also Read: Corporate Loan Charge-Offs & Delinquencies Surge by Pater Tenebrarum via Acting-Man Blog

  

  And Also Read: This Time Is Not Different For Credit by David Keohane via FTAlphaville

   

  5) When Forward Guidance Leads To Misdirection by Joe Calhoun via Alhambra Partners

  “As we approach the Fed meeting expect markets to get more volatile. While the odds favor a move, it isn’t a sure thing until it is actually done. We found out last week what happens when forward guidance turns out to be forward misdirection. All those traders who thought they had a sure thing, who assumed that Draghi wouldn’t dare disappoint the market, got whipped. Whipped good.”

  But Also Read: Fed’s Decisions Really Come Down To Guessing by Alex Pollock via AEI

  ---

  MUST READS

  • Jason Zweig: Wall Street’s Big Lie by Matt Phillips via Quartz
  • American’s Self Deception About Debt by Catey Hill via MarketWatch
  • Likelihood Of A Correction Has Increased by John Hussman via Hussman Funds
  • American Prosperity Requires Capital Freedom by J. Giancarlo via Cato Institute
  • What Are The Odds Stocks Rise In 2016 by Mark Hulbert via MarketWatch
  • How Companies Massage Their Earnings by Buttonwood via The Economist
  • The Apex Of Market Stupidity by Charles Gave via John Mauldin/ZeroHedge
  • A Whole Lotta New Lows With Near Market Highs by Dana Lyons via Tumblr
  • Like Clockwork They’re Bashing Buffett Again by Jesse Felder via Felder Report
  • A Compendium Of Market Wisdoms For November by Meb Faber via Meb Faber Research

  ---

  “There are few things more important than the preservation of capital” – Dick Davis

  

  

  

  

  

• Carl Icahn Warns "Meltdown In High Yield Is Just Beginning"

  Amid the biggest weekly collapse in high-yield bonds since March 2009, Carl Icahn gently reminds investors that he saw this coming… and that it's only just getting started!

  As we warned here, and confirmed here, something has blown-up in high-yield…

  

   

  With the biggest discount to NAV since 2011…

  

   

  The carnage is across the entire credit complex… with yields on 'triple hooks' back to 2009 levels…

  

   

  As fund outflows explode..

  

  And here's why equity investors simply can't ignore it anymore…

  

  

   

  If all of that wasn't bad enough… the week is apocalyptic…

  

   

  Icahn says, it's only just getting started…

  If you haven’t seen ‘Danger Ahead’ watch it on https://t.co/4rVAcLBsH9. Unfortunately I believe the meltdown in High Yield is just beginning

  — Carl Icahn (@Carl_C_Icahn) December 11, 2015

  He followed up with a brief appearance on CNBC:

  As we detailed previously, to be sure, no one ever accused Carl Icahn of being shy and earlier this year he had a very candid sitdown with Larry Fink at whom Icahn leveled quite a bit of sharp (if good natured) criticism related to BlackRock’s role in creating the conditions that could end up conspiring to cause a meltdown in illiquid corporate credit markets. Still, talking one’s book speaking one’s mind is one thing, while making a video that might as well be called “The Sky Is Falling” is another and amusingly that is precisely what Carl Icahn has done. 

  Over the course of 15 minutes, Icahn lays out his concerns about many of the issues we’ve been warning about for years and while none of what he says will come as a surprise (especially to those who frequent these pages), the video, called “Danger Ahead”, is probably worth your time as it does a fairly good job of summarizing how the various risk factors work to reinforce one another on the way to setting the stage for a meltdown. Here’s a list of Icahn’s concerns:

  • Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso’s Women of Algiers (Version O) for proof of this.
  • Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. 
  • Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there’s something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn’t exactly been quiet about his opinion with regard to Apple’s buyback program (he does add that healthy companies with lots of cash should repurchases shares). 
  • Fake earnings: Companies are being deceptive about their bottom lines.
  • Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates. 
  • Corporate taxes are too high: Inversions are costing the US jobs.

  Ultimately what Icahn has done is put the pieces together for anyone who might have been struggling to understand how it all fits together and how the multiple dynamics at play serve to feed off one another to pyramid risk on top of risk. Put differently: one more very "serious" person is now shouting about any and all of the things Zero Hedge readers have been keenly aware of for years.

  Full video below.

   

  * * *

  Finally, here is Bill Gross also chiming in:

  Gross: HY Fund closes exit doors. Who will get in if you can't get out? Risk off.

  — Janus Capital (@JanusCapital) December 11, 2015

  

  

  

  

  

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• Jeremy Grantham Urges "Easily Manipulated" Americans To "Become More Realistic" About World's Demise

  Authored by Jeremy Grantham via GMO,

  Give Me Only Good News!

  “It ain’t what you don’t know that gets you into trouble.    It’s what you know for sure that just ain’t so.”

  (Attributed to Mark Twain)

  It takes little experience in the investment business to realize that investors prefer good news. As a bear in the bull market of 1999 I was banned from an institution’s building as being “dangerously persuasive and totally wrong!” The investment industry also has a great incentive to encourage this optimistic bias, for little money would be made if the market ticked slowly upwards. Five steps forward and two back are far more profitable.

  Similarly, we environmentalists were shocked to realize how profoundly the general public preferred to believe good news on our climate, even if it meant disregarding the National Academies of the world. The fossil fuel industry, not surprisingly, encouraged this positive attitude. They had billions of dollars to protect. If the realistic information were to be widely believed, most of their assets would be stranded.

  When dealing with realistic limits to growth it is also obvious how reluctant everyone is to accept the natural mathematical limits: There simply cannot be compound growth in a finite world. A modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times!1 Yet, the improbability of feeding ten billion or so global inhabitants in 50 years is shrugged off with ease. And the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.

  Hard realities in these three fields are inconvenient for vested interests and because the day of reckoning can always be seen as “later,” politicians can always find a way to postpone necessary actions, as can we all:  “Because markets are efficient, these high prices must be reflecting the remarkable potential of the internet”; “the U.S. housing market largely reflects a strong U.S. economy”; “the climate has always changed”; “how could mere mortals change something as immense as the weather”; “we have nearly infinite resources, it is only a question of price”; “the infinite capacity of the human brain will always solve our problems.”

  Having realized the seriousness of this bias over the last few decades, I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics.

  Let me start with one of my favorites. For the 50 years I have been in America, Business Week and The Wall Street Journal have been telling us how incompetent at business the French are and how persistently we have been kicking their bottoms. If only they could get over their state socialism and their acute Eurosclerosis. And as far as I can tell we have generally accepted this thesis. Yet Exhibit 1 shows what has actually happened to France’s median hourly wage. It has gone from 100 to 280. Up 180% in 45 years!  Japan is up 140% and even the often sluggish Brits are up 60%. But the killer is the U.S. median wage. Dead flat for 45 years! These are the uncontestable facts. So, all I can say is that it is just as well the French have not been kicking our bottoms. But how is it that we can believe so firmly in something that just ain’t so, and by such a convincing amount?

  

  Exhibit 2 examines the proposition that although our wages may have done poorly, we are still the place that creates jobs. The left-hand panel certainly seems to confirm that with our modest official unemployment rate for 25- to 54-year-olds of below 5% compared to 9% for the E.U. The righthand panel, though, shows the true picture. It looks at the unemployment rate adjusted for the nonparticipation rate, the percentage of all 25- to 54-year-olds who are not actually working (i.e., it includes those discouraged, uninterested, or even sitting in jail). There are now 21% not employed in the U.S. compared to 20.5% for the E.U., and our long-suggested job creating skills are looking a little thin.

  

  The problem lies in the so-called participation rate, as shown in Exhibit 3. The U.S. was one of the leaders in the percentage of women working, and from 1972 to a peak in 1997 the U.S. participation rate rose from 70% to 80%. From 1984 on, the U.S. spent 20 years ahead of most other countries in participation rates, but after 1997 something appears to have gone wrong: While other developed countries continued to increase their participation rate, that of the U.S. declined from first to last in fairly rapid order.

  

  What a far cry this reality is from the view generally accepted by our business world.

  Exhibit 4 examines our belief that we have the best health care system in the world. And why shouldn’t we, given the money we put in (left-hand bar chart), over twice the average cost paid by the E.U. But the right-hand bar chart shows what we get back. Two years less life than the median. And watch out for when the Turks, Poles, and Czechs cut back on smoking, for then we may find our way to the bottom of the list.

  

  But if you really want to be worried about our comparative health you should take a look at  Exhibit 5, which comes hot off the press from the guy who was just awarded the Nobel Prize for Economics (wait a minute, must be some mistake, this work seems perfectly useful). The data shows the death rate for U.S. whites between the ages of 45 and 54, which happily these days is when very few people drop off. Since 1990 there has been a quite remarkable decline for other developed countries, about a one-third reduction, as you can see, including for U.S. Hispanics. But for U.S. whites there is a slight increase!  Further analysis for that group reveals that the general increase is caused by quite severe increases in deaths related to alcoholism, drug use, and suicides. Had the rate for U.S. whites declined in line with the others there would have been about 50,000 fewer deaths a year!  (For scale, this is nearly twice the yearly number of traffic deaths in the U.S.)

  

  You have to be careful these days when you suggest connections. For example, people have been told off for proposing that dramatic increases in population can help destabilize societies. Syria had two and a half million people when I was born and has 29 million people now. You can guess how much worse the situation is because of this but you should not talk about it. Similarly, Prince Charles has been extensively criticized by professors in The Guardian for suggesting that a several-year drought in Syria exacerbated social tensions by ruining many farmers. As if!  (You cannot prove precisely what effect climate damage had, but you certainly cannot prove that it did not have a large effect. It certainly had a contributory effect.)

  With that caveat, let me seriously suggest a connection between Exhibit 1, which shows no increase in the U.S. median wage for over 40 years following a wonderful prior 30 years of a rise of over 3% a year, and Exhibit 5, which shows the uptick in unnecessary deaths among U.S. non-Hispanic whites aged 45 to 54. This is precisely the age group that was led to expect better for themselves and much better for their children. But those aspirations have not been generously fulfilled. The U.S. Hispanics, in contrast, mostly arrived later and had different expectations. All in all, this data is quite bleak. The point here is that it bears absolutely no similarity to the more optimistic belief set that is generally accepted.

  The data presented in Exhibit 6 examines the proposition that “more and more goes to the government and soon they will have everything.”  You have heard that many times recently in the political debate. Sorry, “bull sessions.”  You can see that the U.S. share going to the government in taxes is about the least in the developed world and that it has barely twitched for 50 years. Yet, apparently we have been steadily going to hell. How is it possible that such a view is given such credence in the face of the data, which is, after all, official and simple, not ingeniously manipulated by some perfidious Brit. (Yes, I admit it, I consider myself American or British depending on whether the context is favorable or not.)

  

  “At least we live in a fair society” is the proposition examined in Exhibit 7. The Gini Ratio is a measure of income inequality. Low is good. Only Turkey and Mexico outflank the U.S. as more unequal amongst the richer countries. I was a bit surprised to see how high the U.S. already was in 1980 (I had been drinking from the same culture dissemination trough after all), but it was at least importantly lower.

  

  “We have a democracy where people really count” is an idea that is built into the background cultural noise. Exhibit 8 (also covered last quarter) on the left shows how the probability of a bill passing through Congress is affected by the general public’s enthusiasm or horror. In a nutshell, not at all!  The financial elite, on the other hand, can double the chance of a bill passing or, much more disturbingly, can completely block passage. Clearly these facts are totally incompatible with the concept of participatory democracy and equally entirely at odds with the much more favorable and optimistic beliefs we share about our democracy. We really, really want to believe good news and to believe that we have a superior system that only needs fine-tuning. But, it ain’t necessarily so.

  

  “We have the best education system in the world” is a proposition that goes without saying in Boston, with Harvard, MIT, and literally dozens of other universities. But Exhibit 9 shows the more downto-earth fact: mediocrity.

  

  Less than mediocre, though, is the data in Exhibit 10, which shows the percentage of 3- to 4-year-olds enrolled in school. This is an area of emphasis where the returns on investment are said to be particularly high – six for one – although I would not like to guarantee such returns myself. However, our relatively low ranking at the start of the process is not heartwarming.

  

  Exhibit 11 moves on to our production of CO2, which per capita is the largest in the world, just ahead of Australia. The two of us also worry the least, except for one Middle Eastern oil producer. There is a nice, i.e., interesting, negative correlation here of -0.54. Not bad at all. The greater your fossil fuel intensity, the more ingenious your fossil fuel propaganda is to create doubt and the more we are encouraged to think beautiful optimistic thoughts: clean coal and clean oil. And even as more people can see the climate damage, the richer countries can convince themselves that the damage is not that serious. Poorer countries, meanwhile, do not have that luxury and about 20% more are actively concerned (about 80% vs. 60%) than are the richer countries.

  

  And this brings me to the last and my absolute favorite of these false propositions, which I label, “I wish the U.S. government wouldn’t give so much to foreign countries (especially when times are bad)!” Now, I do not think I have met a single American who does not believe that the U.S. government is generous in its foreign aid. Yet, it just ain’t so, and by a remarkable degree. Exhibit 12 shows what other developed countries give, with the usual goody-goody Sweden leading the way with 1.4% of their GDP and the U.K. having quite recently shot up to 0.8%, for once ahead of Japan and Germany. Dead last is the U.S. at 0.2% of GDP, which it has averaged forever. This is the item with the biggest and most permanent gap between reality and perception. And, as always, the misperception is in favor of the favorable, the data that we would wish to be true.

  

  Conclusion

  This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff “that just ain’t so.”  We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.

  

  

  

  

  

• China 'Stealth' Devaluation Continues – Yuan Plunges For 6th Day, Default Risk Soars, Fosun Bonds Crash

  USDCNY broke above 6.4500 for the first time since the August devaluation, extending its post-IMF plunge to 6 days. This is the largest and longest streak of weakness since March 2014 as China seems to have taken the SDR-inclusion as blessing to devalue its currency drip by drip. Default risk is once again stomping higher as CDS surge from 94bps to 112bps (2-month highs). The biggest news in China tonight is the disappearance of Fosun International's Chairman, China's 17th richest man (and the collapse in the company's bonds, since stocks are suspended).

  For the 6th day in a row (something which has not happened since March 2014), Yuan has plunged, now below the Augsut devaluation lows….

  

   

  The pressure on onshore Yuan (above) is being driven by even more significant selling pressure in offshore Yuan as outflows appear to be accelerating… and PBOC seems happy to "allow" the onshore Yuan to devalue alongside it

  

   

  to its lowest since July 2011…

  

   

  And Chinese default risk is on the rise…

  

   

  But what everyone is talking about is the disappearance of Fosun International's chairman.

  Its USD 2020 bonds plunged by a record and the company suspended its shares in Hong Kong after Caixin magazine reported that billionaire Chairman Guo Guangchang had gone missing.

  

   

  The shares declined for a sixth consecutive day on Thursday in Hong Kong, losing 1 percent to close at HK$13.34, and tumbled more than 11 percent to $1.55 in over-the-counter trading in New York. Fosun International dollar bonds fell by a record, with the $400 million of 6.875 percent bonds due in 2020 slumping 16.1 cents to 88.3 cents on the dollar as of 9:10 a.m. in Hong Kong.

  Closely held Fosun Group, which controls Fosun International, has “lost contact” with Guo, 48, the magazine said, citing people it didn’t identify.

  “The news that the chairman went missing will take a toll on the bond prices and until the company can clarify the situations, we’d expect further weakness in the near term,” Nuj Chiaranussati, a Singapore-based debt analyst at Gimme Credit LLC.

  Broadly speaking, Chinese stocks continue to drift lower after the rescue from carnage into month-end…

  

   

  Charts: Bloomberg

  

  

  

  

  

• War Is On The Horizon: Is It Too Late To Stop It?

  Authored by Paul Craig Roberts,

  One lesson from military history is that once mobilization for war begins, it takes on a momentum of its own and is uncontrollable.

  This might be what is occuring unrecognized before our eyes.

  In his September 28 speech at the 70th Anniversity of the United Nations, Russian President Vladimir Putin stated that Russia can no longer tolerate the state of affairs in the world. Two days later at the invitation of the Syrian government Russia began war against ISIS.

  Russia was quickly successful in destroying ISIS arms depots and helping the Syrian army to roll back ISIS gains. Russia also destroyed thousands of oil tankers, the contents of which were financing ISIS by transporting stolen Syrian oil to Turkey where it is sold to the family of the current gangster who rules Turkey.

  Washington was caught off guard by Russia’s decisiveness. Fearful that the quick success of such decisive action by Russia would discourage Washington’s NATO vassals from continuing to support Washington’s war against Assad and Washington’s use of its puppet government in Kiev to pressure Russia, Washington arranged for Turkey to shoot down a Russian fighter-bomber despite the agreement between Russia and NATO that there would be no air-to-air encounters in Russia’s area of air operation in Syria.

  Although denying all responsibility, Washington used Russia’s low key response to the attack, for which Turkey did not apologize, to reassure Europe that Russia is a paper tiger. The Western presstitutes trumpeted: “Russia A Paper Tiger.”

  The Russian government’s low key response to the provocation was used by Washington to reassure Europe that there is no risk in continuing to pressure Russia in the Middle East, Ukraine, Georgia, Montenegro, and elsewhere. Washington’s attack on Assad’s military is being used to reinforce the belief that is being inculcated in European governments that Russia’s responsible behavior to avoid war is a sign of fear and weakness.

  It is unclear to what extent the Russian and Chinese governments understand that their independent policies, reaffirmed by the Russian and Chinese presidents On September 28, are regarded by Washington as “existential threats” to US hegemony.

  The basis of US foreign policy is the commitment to prevent the rise of powers capable of constraining Washington’s unilateral action. The ability of Russia and China to do this makes them both a target.

  Washington is not opposed to terrorism. Washington has been purposely creating terrorism for many years. Terrorism is a weapon that Washington intends to use to destabilize Russia and China by exporting it to the Muslim populations in Russia and China.

  Washington is using Syria, as it used Ukraine, to demonstrate Russia’s impotence to Europe— and to China, as an impotent Russia is less attractive to China as an ally.

  For Russia, responsible response to provocation has become a liability, because it encourages more provocation.

  In other words, Washington and the gullibility of its European vassals have put humanity in a very dangerous situation, as the only choices left to Russia and China are to accept American vassalage or to prepare for war.

  Putin must be respected for putting more value on human life than do Washington and its European vassals and avoiding military responses to provocations. However, Russia must do something to make the NATO countries aware that there are serious costs of their accommodation of Washington’s aggression against Russia. For example, the Russian government could decide that it makes no sense to sell energy to European countries that are in a de facto state of war against Russia. With winter upon us, the Russian government could announce that Russia does not sell energy to NATO member countries. Russia would lose the money, but that is cheaper than losing one’s sovereignty or a war.

  To end the conflict in Ukraine, or to escalate it to a level beyond Europe’s willingness to participate, Russia could accept the requests of the breakaway provinces to be reunited with Russia. For Kiev to continue the conflict, Ukraine would have to attack Russia herself.

  The Russian government has relied on responsible, non-provocative responses. Russia has taken the diplomatic approach, relying on European governments coming to their senses, realizing that their national interests diverge from Washington’s, and ceasing to enable Washington’s hegemonic policy. Russia’s policy has failed. To repeat, Russia’s low key, responsible responses have been used by Washington to paint Russia as a paper tiger that no one needs to fear.

  We are left with the paradox that Russia’s determination to avoid war is leading directly to war.

  Whether or not the Russian media, Russian people, and the entirety of the Russian government understand this, it must be obvious to the Russian military. All that Russian military leaders need to do is to look at the composition of the forces sent by NATO to “combat ISIS.” As George Abert notes, the American, French, and British aircraft that have been deployed are jet fighters whose purpose is air-to-air combat, not ground attack. The jet fighters are not deployed to attack ISIS on the ground, but to threaten the Russian fighter-bombers that are attacking ISIS ground targets.

  There is no doubt that Washington is driving the world toward Armageddon, and Europe is the enabler. Washington’s bought-and-paid-for-puppets in Germany, France, and UK are either stupid, unconcerned, or powerless to escape from Washington’s grip. Unless Russia can wake up Europe, war is inevitable.

  Have the totally evil, dumbshit neocon warmongers who control the US government taught Putin that war is inevitable?

  

  

  

  

  

• Credit Suisse Warns On China: "Some Companies Are Having To Borrow To Pay Staff Salaries"

  During October, the credit impulse in China rolled over and died. 

  To be sure, the writing was on the wall before the data was released. Early in November, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. As we noted at the time, that would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily.  “One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI added. 

  Sure enough, when the numbers came in, new RMB loans to households fell 60% M/M and new loans to corporates declined nearly 40% from September. 

  

  To some, this was a shock. After all, multiple rate cuts and round after round of liquidity injections should have given banks plenty of dry powder to lend. But as we discussed at length (see here), liquidity isn’t the issue. 

  An acute overcapacity problem means corporates don’t need to invest and even if they did, overleveraged borrowers are beginning to have problems servicing their debt which makes banks reluctant to extend credit. Indeed, we really have no idea what the NPL picture really looks like in China thanks to the fact that lenders are encouraged to roll debt and thanks to the fact that some 40% of credit risk is carried off balance sheet or classified as something other than what it is (i.e. carried as an “investment”). 

  So what did China do? Well, they increased fiscal stimulus by a whopping 36%:

  

  In short, when monetary policy fails to give the economy the defibrillator shock it needs, authorities must resort to fiscal stimulus and if the likes of Citi’s Willem Buiter have their way, China will just print bonds for the PBoC to monetize (nothing like printing a liability and buying it from yourself with another liability that you also print). 

  For their part, Credit Suisse doesn’t think any of this is going to work. Not the easing, not the fiscal stimulus, nothing. In a note out out today, the bank goes point by meticulous point to explain why “the impact from stimulus is muted.”

  First there’s the big picture: 

  The government has become more active in terms of counter-cyclical measures since late summer. The PBoC has injected liquidity into the policy banks, through its selective easing program, and policy banks have invested in special infrastructure projects approved by planning agency NDRC. On top of the two batches launched at the end of August and October, NDRC is preparing another batch, probably for launch before the end of 2015. However, the impact of these stimulus measures on the real economy has been weak. 1) The private sector has not appeared enthusiastic about following Beijing’s lead. 2) Banks seem reluctant to lend. 3) Government officials and SOE executives have been demoralized by the anti-corruption campaign and salary cuts. 

  The “weak impact” of stimulus means that although the economy may “stabilize” in Q4, it will “slide again” in Q1 201

  Export order flows have been slow while export manufacturers are shutting down factories amid surging costs and the recent threat from the TPP agreement. The private sector does not seem keen to invest because of poor profitability in the manufacturing sector. Private consumption is not weak, but is by no means robust. Property developers have substantially slowed down construction activity in order to cut inventories. 

  And although Credit Suisse contends that a hard landing isn’t their base case (which is odd because frankly, the hard landing has already occurred), the bank does offer the following rather alarming account of corporate health and the read through for bank balance sheets:

  Still, we expect corporate profits to deteriorate significantly in 2016, as indicated by industrial sector nominal GDP growth. Feedback from the ground also suggests that not only are account receivables on the rise, but that some companies are now having to borrow to pay staff salaries. Corporate balance sheet deterioration may well be a theme in 2016, raising market concerns, in our view. A mirror image of that is the rise in bank non- performing loans. Our contacts among the banks seem increasingly concerned about the NPL issue in 2016.  

  Somehow, Credit Suisse’s takeaway from that assessment is that there’s no “systemic risk,” but we would beg to differ. We’re not at all surprised to learn that Chinese corporates are borrowing to pay employees. It was just three weeks ago when we reported that, just as we predicted in March of 2014, China is reaching its dreaded Minsky Moment, as companies are set to borrow some $1.2 trillion just to service the debt they already have and otherwise remain operational:

  

  As for what comes next, Credit Suisse says “the PBoC is likely to look at a deep cut in RRR in order to create more space for the banks combatting a rise in NPLs.” What counts as “deep” you ask? Up to 400 bps. 

  Here, courtesy of RBS’ Alberto Gallo, is a look at Chinese NPLs. Note that although the graphics also show special mention loans and doubtful accounts, the “real” numbers are still far, far higher:

  

  Finally, note that Credit Suisse is now “less concerned” about the possibility that Chinese corporates that have borrowed in dollars will run into trouble should a Fed hike and China’s desire to gradually let the yuan depreciate hurt the corporate sector’s ability to service its debt: “Fed tightening may create turbulence for Chinese dollar debt borrowers, but we are less concerned now than we would have been before as the domestic debt market is now available to fund the rollover.” Here’s a chart that shows Chinese corporate USD borrowings – decide for yourself if the domestic market will fund the rollover:

  

  

  

  

  

  

• Texas Police Chief Warns Obama Of "Approaching Revolution", Urges Citizens To Arms Themselves

  Randy Kennedy, the chief of the Hughes Springs Police Department (in Texas), is the latest in a string of police chiefs across the nation urging citizens to arm themselves following the recent mass shootings in Colorado Springs and San Bernardino.

  In this brief clip, Kennedy warns President Obama that trying to take away American's guns will "cause a revolution," adding that the 2nd Amendment is "there to protect us against a government that has over-reached its power," exclaiming "you are not our potentate, sir. You are our servant."

  As AP reports, Kennedy said his call to arms was the result of his disappointment with Obama's Oval Office speech Sunday in which the president vowed the U.S. will overcome a new phase of the terror threat that seeks to "poison the minds" of people here and around the world. The police chief told The Associated Press on Wednesday that he's not asking residents to turn into vigilantes or "become super action heroes."

  He warned people in his town to prepare themselves: "Be ready when the wolf comes to the door, because it's on its way."

  Kennedy is not the first to warn his citizens…Law enforcement officials in Arizona, Florida and New York also have recently prompted citizens to arm themselves – some using similar comments aimed at terrorism.

   Wayne Ivey, the sheriff in Brevard County, Florida, said in a video post on the department's Facebook page over the weekend that political leaders appear more interested in being politically correct than protecting people. He urged residents to arm themselves as a first line of defense against an active shooter.

   

  "The only thing that stops a bad guy with a gun is a good guy with a gun," Ivey said.

   

  Another Florida sheriff, Steve Whidden in Hendry County, this week encouraged more people to carry weapons because "we as a nation are under attack by radical Islamic terrorists."

   

  Maricopa County Sheriff Joe Arpaio in Arizona issued a statement Tuesday asking "legally armed citizens to take a stand, and take action during a mass shooting/terrorist event until law enforcement arrives."

   

  And last week, Ulster County Sheriff Paul Van Blarcum in upstate New York called for licensed gun owners in his county to arm themselves when leaving home, citing mass shootings in Paris and San Bernardino, California.

  

  

  

  

  

• Declassified U.S. Government Report on Fukushima: “100% of The Total Spent Fuel Was Released to the Atmosphere from Unit 4”

  We reported in 2011 that the International Atomic Energy Commission knew within weeks that Fukushima had melted down … but failed and refused to tell the public.

  The same year, we reported in 2011 that the U.S. knew within days of the Fukushima accident that Fukushima had melted down … but failed to tell the public.

  We noted in 2012:

  The fuel pools and rods at Fukushima appear to have “boiled”, caught fire and/or exploded soon after the earthquake knocked out power systems. See this, this, this, this and this.

  Now, a declassified report written by the U.S. Nuclear Regulatory Commission on March 18, 2011 – one week after the tidal wave hit Fukushima – states:

  The source term provided to NARAC was: (1) 25% of the total fuel in unit 2 released to the atmosphere, (2) 50% of the total spent fuel from unit 3 was released to the atmosphere, and (3) 100% of the total spent fuel was released to the atmosphere from unit 4.

  NARAC is the the U.S. National Atmospheric Release Advisory Center, located at the University of California’s Lawrence Livermore National Laboratory. NARAC “provides tools and services that map the probable spread of hazardous material accidentally or intentionally released into the atmosphere“.

  The fuel pools at Units 3 and 4 contained enormous amounts of radiation.

  For example, there was “more cesium in that [Unit 4] fuel pool than in all 800 nuclear bombs exploded above ground.”

  

  

  

  

• TEPCO Admits Fukushima Radiation Leaks Have Spiked Sharply

  Just weeks after the completion (and failure) of one supposed 'containment' wall (and as the construction of the "ice wall" begins), TEPCO, the operator of the crippled Fukushima nuclear plant, has admitted that the levels of radioactivity in underground tunnels has risen sharply (4000x last year's levels). As NHKWorld reports, TEPCO officials have stated that they plan to investigate what caused the spike in radiation… yes, that would seem like a good idea.

  With the newly constructed 780-meter 'containment' wall "already leaning," news that the radiation leaks are growing is a grave concern. As NHKWorld details,

  Tokyo Electric Power Company has detected 482,000 becquerels per liter of radioactive cesium in water samples taken from the tunnels on December 3rd. That's 4000 times higher than data taken in December last year.

   

  The samples also contained 500,000 becquerels of a beta-ray-emitting substance, up 4,100 times from the same period.

   

  Around 400 to 500 tons of radioactive water, including seawater washed ashore in the March 2011 tsunami, is still pooled in the tunnels.

   

  The tunnels lie next to a structure used to temporarily store highly radioactive water, which cooled melted nuclear fuel inside the damaged reactors.

   

  TEPCO officials say it is unlikely the wastewater stored in the building has seeped into the tunnels.

   

  They say the water level in the tunnels is higher than that in the building and measures are in place to stop the toxic water from leaking out.

   

  They plan to investigate what caused the spike in radiation.

  Do not panic though, since…

  They say there has been no leakage out of the tunnels as radiation levels in underground water nearby have not risen.

  Because why would they lie (again)?

  

  

  

  

  

• Playing Chess With Putin

  Submitted by Nick Giambruno via InternationalMan.com,

  “What’s it like playing chess with Obama?” asks a top aid of Russian president Vladimir Putin.

   

  Putin replies, “It’s like playing chess with a pigeon. First it knocks over all the pieces, then it shits on the board, and finally it struts around like it won.”

  Now, Putin hasn’t actually said this on record. It’s just a popular joke circulating in Russia.

  But I wouldn’t be surprised if he really did say it. It’s not far off base.

  Putin outmaneuvered the West in Ukraine and most recently in Syria. Most importantly, he has outflanked Western sanctions through increased financial and economic cooperation with China and other Eurasian powers.

  No matter what happens in the West, Russia’s recent power plays are creating tectonic shifts in geopolitics. This could be the largest shift in global power since World War II.

  Ultimately, this could threaten the U.S. dollar’s role as the world’s premier reserve currency. That would have huge negative implications for your personal freedom and financial prosperity.

  Will Russia End the Unipolar World?

  Actually, it’s not just Russia we have to watch. China, Iran, and other Eurasian powers are working with Russia on an ambitious goal. They’re trying to end U.S. dominance in global trade, finance, and military power.

  These countries want to create what Russian officials call a “multipolar world.” It would replace the unipolar world that’s existed since the early 1990s, when the Soviet Union collapsed. The U.S. has been the world’s sole superpower ever since.

  In short, Russia and its partners want to completely redraw the lines of global power. Here’s how they’re doing it…

  First, there’s China’s New Silk Road. It’s the biggest and most comprehensive infrastructure project in all of human history. The plan is to link Asia to Europe via modern land transit corridors.

  The project includes high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. Much of this new infrastructure will flow through Russia.

  If everything goes as planned, the New Silk Road will be a reality by 2025.

  This will free Russia, China, Iran, and others from dependence on ocean transport. At that point, control of the high seas, which the U.S. has had for many decades, won’t be nearly as important.

  In addition to the New Silk Road, a set of interlocking international organizations is emerging. These new organizations are supporting Russia’s plans for a multipolar world.

  Trade – The Eurasian Economic Union

  The Eurasian Economic Union (EEU) is a Russian-led trading bloc.

  The EEU allows for free movement of goods, services, money, and people through Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. It’s gradually expanding as countries along the New Silk Road remove trade barriers.

  Security – The Shanghai Cooperation Organization

  In the military and security realm, there’s the Shanghai Cooperation Organization (SCO). It could become a NATO of the East.

  Current members include Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and Pakistan will join by 2016. Iran is also likely to join in the future.

  A Parallel International Financial System

  China’s Asian Infrastructure Investment Bank (AIIB) will provide funding for international infrastructure projects. It’s an alternative to the International Monetary Fund (IMF) and World Bank, which are both dominated by the U.S.

  The BRICS countries – Brazil, Russia, India, China, and South Africa – all support Russia’s goal of creating a multipolar world. Like the AIIB, the BRICS New Development Bank (NDB) is an international financial institution based in China. It’s another alternative to the IMF and World Bank.

  The NDB and AIIB will complement, not compete with, each other in financing New Silk Road projects. The NDB will also finance infrastructure projects in Africa and South America.

  It’s important to note that the NDB will use members’ national currencies, not the U.S. dollar. It won’t depend on U.S.-controlled institutions for anything. This reduces the NDB’s exposure to U.S. pressure.

  The BRICS countries are also looking to build an alternative to SWIFT, the major international payments system.

  SWIFT is truly essential to the current international financial system. Without it, it’s nearly impossible to move money from a bank in country A to a bank in country B.

  The U.S. kicked Iran out of SWIFT in 2012. This crippled Iran’s international trade. It also showed that the U.S. could use SWIFT as a political weapon. The BRICS countries want their own system so they can neutralize that power.

  AIIB, NDB, and the potential SWIFT alternative are the seeds of a parallel international financial system. Together, they will reduce the importance and demand for U.S. dollars.

  What it Means for You

  Today, most international trade is done in U.S. dollars. When one country wants to trade with another, it almost always has to buy U.S. dollars on the foreign exchange market first. This creates demand for U.S. dollars – much more than there would be otherwise. That boosts the value of the dollar.

  Imagine how much this arrangement props up the U.S. dollar. It’s incredible.

  This arrangement has allowed the U.S. government (and U.S. citizens) to live way beyond its means for decades. It also gives the U.S. unchecked geopolitical leverage. The U.S. could exclude virtually any country from the U.S. dollar-based financial system…and by extension the vast majority of international trade.

  The U.S. takes this unique position for granted. But it will disappear once the dollar loses its premier status.

  This will likely be the tipping point…

  Afterward, the U.S. government will be desperate enough to implement capital controls, people controls, nationalization of retirement savings, and other forms of wealth confiscation.

  It would be wise to prepare for the economic and sociopolitical fallout while you still can. Expect bigger government, less freedom, shrinking prosperity…and possibly worse.

  It’s probably not going to happen tomorrow. But it’s clear where the bankrupt governments of the U.S. and most of the West are headed.

  Once the dollar loses its status as the world’s premier reserve currency, you will have few, if any options, to protect yourself.

  This is why it’s essential to act before that happens.

  If Putin continues to outmaneuver the U.S. on the geopolitical chessboard, the dollar could collapse sooner rather than later.

  The sad truth is, most people have no idea how bad things could get, let alone how to prepare…

  There are straightforward steps you can start taking today to protect your savings and yourself. You don’t have to be on the losing team in this high-stakes chess match with Putin.

  This just-released video will show you where to begin. Click here to watch it now.

  

  

  

  

  

• "Straddle-Up" Goldman's 'Winning' Options Strategy Into Year-End

  As 2015 draws to a close, Goldman identifies 15 straddle-buying opportunities on stocks with liquid options, reporting in December. Our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event. Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.

  As Goldman Sachs writes, our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event.

  Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.

  

   

  The average cost of a straddle on this list is only slightly above the historical earnings move despite capturing more than a week of trading days outside earnings. We see KMX, ACN and ORCL particularly inexpensive compared to prior earnings moves.

  

   

  Straddle buyers risk losing the premium paid if shares close at the strike price on expiration.

  

  

  

  

  

• FT Bombshell: EU Unveils Standing Border Force That Will Act "Even If A Government Objects"

  Last weekend we wrote that in Europe’s attempt to contain the greatest refugee crisis since WWII, it would directly take control over the border control of the one country which over the summer lost its sovereignty (but at least it still has the euro), and which serves as a springboard for tens of thousands of migrants to proceed onward with their journey to Germany (where as reported earlier, they are no longer desired, as their continued arrival results in a plunging approval rating for Angela Merkel).

  We added that the deployment of additional officers will begin next week, and noted that as our friends at Keep Talking Greece wrote:

  “the masks have fallen. Hand in hand, the European Union and the Frontex want to cancel national sovereignty and take over border controls in the pretext of “safeguarding the Schengen borders”. With controversial claims, they use the case of Greece to create an example that could soon happen “in the border area near you.”  And the plan is all German.”

  Finally, we asked whether this was merely Paranoia…

  “or just another confirmation that the Eurozone is using every incremental, and produced, crisis to cement its power over discrete European state sovereignty and wipe out the cultural and religious borders the prevent the amalgamation of Europe into a Brussels, Berlin and Frankfurt-controlled superstate? “

  It was not paranoia, because according to blockbuster FT report released moments ago, “Brussels is to propose the creation of a standing European border force that could take control of the bloc’s external frontiers — even if a government objected.“

  As even the otherwise pro-EU FT cautiously notes, “The move would arguably represent the biggest transfer of sovereignty since the creation of the single currency.”

  We agree, because this is precisely what we said would happen.

  … the European Commission will unveil plans next week to replace the Frontex border agency with a permanent border force and coastguard — deployed with the final say of the commission, according to EU officials and documents seen by the Financial Times.

   

  The blueprint represents a last-ditch attempt to save the Schengen passport-free travel zone, by introducing the kind of common border policing repeatedly demanded by Paris and Berlin. Britain and Ireland have opt-outs from EU migration policy, and would not be obliged to take part in the scheme.

  Naturally, the first guniea pig wil be Greece: the state which has already lost its sovereignty courtesy of capital controls that will likely persist in some form in perpetuity, and which is most distressed and thus least equipped to say no. It will spread from there and promptly become the norm for a “project” which the European apparatchiks think is long overdue.

  Indeed, as the FT adds, “European leaders have discussed a common border force for more than 15 years, but always struggled to overcome deep-seated objections to yielding national powers to monitor or enforce borders — one of the core functions of a sovereign state. Greece, for instance, only recently agreed to accept EU offers to send border teams, after months of wrangling over their remit.”

  However now in the aftermath of the Paris suicide bombings and the indefinite emergency “pre-crime” laws instituted in France, conventional wisdom in Brussels is that Europeans’ eagerness to trade sovereignty (and thus liberty) in exchange for (border) security, is far greater.

  The result: a loss of border sovereignty, which woul effectively make the customs union one big superstate controlled by Brussels:

  One of the most contentious elements of the regulation would hand the commission the power to authorise a deployment to a frontier, on the recommendation of the management board of the newly formed European Border and Coast Guard. This would also apply to non-EU members of Schengen, such as Norway.

  And the absolute kicker:

  Although member states would be consulted, they would not have the power to veto a deployment unilaterally.

  And just like that, goodbye sovereignty… all in the name of halting the endless onslaught of Syrian refugees, which ironically was unleashed in the first place just so Europe could get its supplies of natural gas from Qatar instead of Russia.

  Europe has a prepared response, of course, saying that individual states are clearly unable to defend themselves against the barbarian refugee hordes:

  “Dimitris Avramopoulos, who is responsible for EU migration policy, said: “The refugee crisis has shown the limitations of the current EU border agency, Frontex, to effectively address and remedy the situation created by . . . the pressure on Europe’s external borders.” He said the EBCG would be a way to “protect and strengthen Schengen”.

  Actually, it would be a way to hand over all military control to a body of unelected bureaucrats. Here’s why:

  If the plan is approved by EU states, Frontex’s replacement will have a slew of new powers, including the ability to hire and control its own border guards and buy its own equipment. It will also be allowed to operate in non-EU countries — such as Serbia and Macedonia, which have become transit countries for people trying to reach northern Europe — if requested.

  One doesn’t have to even be a member of the EU any more to become a vassal state of Brussels.  But the scariest aspect is the following:

  The new agency will be able to deport people who do not have the right to remain in Europe — a power Frontex lacked.

  And just like that, the decision of who can and who can’t stay in any one European country will be delegated to some faceless bureaucrat in Brussels, circumventing all sovereign laws.

  The new force will also be able to call on a pool of border guards set aside by member states in reserve, as well as its own guards. National capitals will retain day-to-day control of their borders, but the new agency will be able to monitor their efforts and step in if it feels the protection on offer is inadequate.

  * * *

  Now we admit that some of this may come as a shock to some naive Europhiles, who still do not realize that all of this was preplanned, and predicted as long ago as 2008 when an internal AIG presentation answered the simple question: What Europe Wants. The answer:

  To use global issues as excuses to extend its power:

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

  All have been spot on, but not even this aggressive and accurate forecast predicted that Europe would be so bold as to effectively take over border and population control sovereignty across the entire continent. It is about to do just that.

  

  

  

  

  

• Trump Takes Nation By Storm: More Americans Agree With Muslim Ban Than Reject It

  In case you were confused how it is that Donald Trump's polling numbers could increase following his Muslim-ban comments (which have beeen widely denigrated by any and all talking head who can fog a mirror – from The White House down…), here is the "surely not us?" answer.

  As The Hill reports, a new post-Trump survey by Rasmussed finds that 46% of likely voters would favor a policy preventing Muslim immigrants from entering the country until tighter screening procedures can be implemented, while only 40% would oppose such a measure.

   

  

   

  In direct opposition to what The White House said (that Trump’s proposal is "totally contrary to our values as Americans,") it is apparent from this survey that the Obama Administration does not know its 'constituents' as well as it may have thought.

  Simply put, based on this poll, more Americans – republicans and democrats – support Trump's idea of banning the entry of Muslims into America than oppose it, and now that it is 'polling' as a populist idea, we await Hillary Clinton to jump on the bandwagon.

  Wow, my poll numbers have just been announced and have gone through the roof!

  — Donald J. Trump (@realDonaldTrump) December 10, 2015

  

  

  

  

  

• Rand Paul Backs Trump, Unleashes "Top Ten Things That Make Obama Unqualified" For Office

  Submitted by Mac Slavo via SHTFPlan.com,

  The White House, which is running a blatantly unconstitutional regime, is now attempting to vet potential successors to the Oval Office, and yet again take out opposition leaders.

  First, Obama said that Assad lost all legitimacy, and should step down, and partnered with al Qaeda and ISIS to back up his opinions.

  Now, Obama’s press secretary has claimed that Donald Trump has lost all legitimacy and has been “disqualified” from running for office. Just how does the White House plan to back up its opinions this time? Trump claims that he won’t be intimidated and exit the race, but one has to wonder how far the system will go to get its way.

  “The fact is the first thing a President does when he or she takes the oath of office is to swear an oath to preserve, protect and defend the Constitution of the United States. And the fact is that what Donald Trump said yesterday disqualifies him from serving as President… And any Republican who’s too fearful of the Republican base to admit it has no business serving as president either,” Earnest said.

  See video and details of White House press secretary Josh Earnest’s comments here.

  Senator Rand Paul, who is also running for the GOP nomination, but who has received only a fraction of the coverage that Trump has, blasted back at the arrogance of the Obama White House, suggesting that President Obama should address his own “disqualifying” characteristics first:

  Today I would like to put a mirror in front of the Obama White House and show them the top ten things that make HIM unqualified:

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  Rand Paul did make a list of his top reasons, and tweeted them out in succession. Of course, there are many more examples that should be dealt with. Here are Rand’s reasons, listed on the Washington Examiner, or here on Twitter:

  1. “Tried to take over 1/6 of the economy in Obamacare, wrecked the system and hurt patients and taxpayers.”

  1. Tried to take over 1/6 of economy in Obamacare, wrecked the system and hurt patients and taxpayers

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  2. “Thinks an executive order is legislation and how you make law.”

   

  2. Thinks an executive order is legislation and how you make law

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  3. “Fought an undeclared, unconstitutional war in Libya, turned it into Jihadist wonderland.”

  3. Fought an undeclared, unconstitutional war in Libya, turned it into Jihadist wonderland

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  4. “Fighting an undeclared, unconstitutional war in Syria, [and] trying to put ISIS in Damascus.”

  4. Fighting an undeclared, unconstitutional war in Syria, trying to put ISIS in Damascus.

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  5. “Signed into law the indefinite detention of American citizens.” (Paul is referring to the National Defense Authorization Act (NDAA) signed by Obama in 2011, which earned heavy criticism from groups like the American Civil Liberties Union).

  5. Signed into law the indefinite detention of American citizens — Dr. Rand Paul (@RandPaul) December 9, 2015

  6. “His copy of the bill of rights obviously goes from 1 to 3, skipping the 2nd amendment.”

  6. His copy of the bill of rights obviously goes from 1 to 3, skipping the 2nd amendment.

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  7. [A federal appeals] Court ruled his NSA spying on every American was illegal.”

  7. Court ruled his NSA spying on every American was illegal. — Dr. Rand Paul (@RandPaul) December 9, 2015

  8. “He has added more debt than anyone in history.”

  8. He has added more debt than anyone in history.

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  9. “Appointed an attorney general who thinks speech against Muslims is a bigger threat than terrorism.”

  9. Appointed an attorney general who thinks speech against Muslims is a bigger threat than terrorism. — Dr. Rand Paul (@RandPaul) December 9, 2015

  10. “[Environmental Protection Agency] rules by executive FIAT trying to kill an entire American industry and way of life (coal).”

  10. EPA rules by executive FIAT trying to kill an entire American industry and way of life (coal).

  — Dr. Rand Paul (@RandPaul) December 9, 2015

  Not sure how Rand interprets the first amendment, but it’s pretty obvious that the administration that has punished more whistleblowers than any other, and allowed the NSA, intelligence community and private business to spy on and censor anyone it wishes, has no respect for the 1st Amendment or 4th Amendment either. Due process and whole back of the original ten amendments has definitely eroded to point where the ink is no longer legible.

  Benghazi/Gaddafi, Fast and Furious and the use of drones all belong on this list as well, but it is only 10 and a good start. ISIS and the covert support of terrorism is its own giant issue that should be a nationwide scandal, with impeachments, prosecutions and a gutting of the entire staff of every major office in Washington, D.C. But it will never happen.

  Obama’s role in the bankers bailout and the failure to prosecute Wall Street executives, or end legalized derivatives are all crimes that will also escape any notion of justice, even if the criminals strike again.

  Though none of these men are perfect or trustworthy with ultimate power, President Obama and his team make Donald Trump and Rand Paul look like founding fathers.

  

  

  

  

  

• Visualizing Russia's Intervention In Syria

  Earlier this week, a rather amusing piece appeared on Sputnik entitled “Ahead of the Game: Russia Moving Faster in Syria Than US Media Can Report.” In it, Russian media outlined five steps US diplomacy expert Robert Farley thinks Russia will take next in Syria. The point of the article is this: Russia had already taken four of the five steps by the time Farley produced his list. 

  That is in many ways emblematic of Moscow’s deployment in Syria. From the time a Russian three star general strolled into the US embassy in Baghdad and informed the staff that airstrikes “start in one hour,” the rapidity with which Putin’s forces have established a base, sent in equipment, and launched a coordinated campaign with the IRGC and Hezbollah has been nothing short of astonishing. 

  That said, the mission hasn’t been without setbacks. There was of course the downing of a warplane by Turkey and the subsequent destruction of a Russian search and rescue helicopter by the FSA and as Bloomberg correctly points out (although the article is absurdly biased), “many senior officials in Moscow underestimated how long the operation in support of Bashar al-Assad would take when Putin entered Syria’s civil war on Sept. 30 and no longer talk in terms of just a few months, with one saying the hope now is that it won’t last several years.”

  But Putin isn’t Obama and irrespective of how long the campaign will ultimately take, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub). 

  On that note, we present the following update graphic prepared by Louis Martin-Vézian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.

  

  

  

  

  

  

• The Fed's Painted Itself Into The Most Dangerous Corner In History – Why There Will Soon Be A Riot In The Casino

  Submitted by David Stockman via Contra Corner blog,

  The chart below crystalizes why the Fed is stranded in a monetary no man’s land. By the time of next week’s meeting the federal funds rate will have been pinned at about 10 bps, or effectively zero, for 84 straight months.

  Yet during that same period, the consumer price level has risen by 1.75% per year. And that’s if you give credit to all of the BLS gimmicks, such as hedonic adjustments for quality change, homeowners “imputed” rents and product basket substitution, which cause inflation to be systematically understated.

  On a basis that is close enough for government work, therefore, the real money market interest rate has been negative 2% for seven years. But that’s so crazy, unjustified, and unprecedented that even the Keynesian money printers who run the Fed have run out of excuses.

  Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.

  So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino – the very outcome that has filled them with fear and dread all these years.

  

  Indeed, Yellen and Bernanke before her have made a huge deal out of communications clarity and forward guidance. But how do you explain to even the credulous gamblers and day traders on Wall Street that the business cycle has not been outlawed and that free money can not last forever, world without end?

  Likewise, after all these years of saying that the dollar’s exchange rate is the responsibility of the US Treasury— and that the Eccles Building only does domestic monetary policy—– how will the Fed heads explain that they have wrapped themselves around the axle of an unrelentingly strong dollar?

  And that they are impotent to stop the gale force of global deflation and recession being imported into the domestic economy by the inexorable unwinding of the massive dollar short that they have spent years fueling?

  For years now the dollar has been a “funding” currency in the global casino—-something the gamblers borrowed or effectively sold short in order to pile into higher yielding EM debt, equities and commodities until they peaked awhile back.

  But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.

  This time the correction will not be in the overbuilt and over-valued domestic (and other DMs like Spain) housing market. Instead, there will be a global CapEx depression and its contractionary cascade will cause the entire global economy to shrink for the first time since the 1930s.

  In fact, it is already happening, even by the lights of the IMF. The world’s nominal GDP has dropped 5% in dollar terms during the past year, and that’s what counts because the world’s $225 trillion tower of debt is heavily denominated in dollars, or linked to it through exchange rates, most especially the Chinese RMB.

  But unlike the short-lived recessionary dips of the past, the southward turn in the graph below still has a long way to go. Brazil is plunging into its so-called hard-landing and China is not far behind—-along with its supply chain and DM materials exporters like Canada and Australia.

  Figure 1. Gross Planet Product at current prices (trillions of dollars, 1980 – 2015)

  

  Source: IMF World Economic Outlook Database, October 2015.

  Shrinking GPP (Gross Planet Product) is not even in the Fed’s vocabulary yet, and even when they do latch on to it, they won’t dare explain it honestly and cogently.

  That’s because contracting GPP measures the abysmal failure of the two-decade long global experiment in massive central bank money printing, and the unsustainable credit fueled economic boom it enabled. And it is a stark reminder that the world’s effective leverage ratio will be rising—even as income and cash flow sink deeper into deflation.

  So the Fed will have some heavy duty “splanin”  to do, but it will be hard-pressed to come up with words that comfort the casino, rather than spook it.

  After all, for most of this century the Fed’s post meeting statements and minutes have been progressively degenerating into embarrassingly empty pabulum; and its seemingly rock solid voting consensus was an artifact of being on the Easy Button 80% of the time.

  In that environment there was little to debate and less to explain. They simply delivered an economic weather report and urged Wall Street to hang on for the ride.

  

  But now the Fed must emerge from the shaded zone shown above for the first time on a sustained basis since the 1980s. Yet as it seeks to explain a macro-economic slump that it absolutely did not see coming, and confesses to its complete lack of policy tools to reverse the worldwide deflationary tide now lapping at these shores, its statements will be reduced to self-evident and self-contradictory gibberish.

  Likewise, the 19 members of the Board will take to noisy public quarrelling right in front of the boys and girls on Wall Street for the first time in their lives.

  The reason that there will soon be a riot in the casino, therefore, is not owing to the prospect of a 25 bps pinprick after all this time on the zero bound.

  The hissy fit will happen because the Fed’s words and actions starting next week will not say “we have your back, keep buying”.

  The message will be “we are lost and you are on your own”.

  And that’s not “priced in”. Not even close.

  Evidence that a completely new monetary policy ball game is commencing comes from JM Keynes’ current vicar on earth himself, Larry Summers. Three days ago he penned a strange op ed in which he apparently reminded himself that the business cycle has not been outlawed——something most non-PhDs presumably already knew:

  U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds. Because normal growth is now below 2 percent rather than near 3 percent, as has been the case historically, the risk may even be greater now. While the risk of recession may seem remote given recent growth, it bears emphasizing that since World War II, no postwar recession has been predicted a year in advance by the Fed, the White House or the consensus forecast.

  Well now. If you wait until month 78 of a business expansion to end the emergency policy, and then hesitate to venture more than a few basis points off the zero bound, you will indeed use up the remaining runway right quick.

  That’s because the average of ten business cycle expansions since 1948 have lasted but 61 months; and the only expansion that was appreciably longer than the present tepid affair was the 119 month stretch of the 1990s.

  

  Historical Length of Recoveries

  But let’s see. Back then the Fed’s balance sheet was $300 billion, not $4.5 trillion. The world had less than $40 trillion of debt or about 1.4X GDP, not $225 trillion or nearly 3X global income.

  

  And, most importantly, China was still a quasi-agrarian victim of Mao’s destructrutive experiments in collectivist economics and state generated famine, not today’s towering Red Ponzi.

  That is, it was irrelevant then, but is now a bloated economic whale sinking under the weight of $30 trillion of debt and the most reckless spree of over-investment and mindless public and private construction in recorded history.

  So as this domestic business expansion cycle get long in the tooth, the US economy is confronted by a veritable engine of global deflation in the form of China and its EM supply chain. After a 20-year credit driven boom, it now payback time. All of these economies find their exports stalled, their exchange rates falling, and their debt service exploding higher.

  What this means, of course, is that Wall Street’s “decoupling” myth will soon be on the scrap heap. US exports and imports are now crumbling, and even the standard measures of goods transit are cliff diving.

  

  Likewise, today’s wholesale report for November was a red alert warning that a big recession inducing inventory liquidation is just around the corner.  Even if Janet Yellen won’t find this chart on her dash board of 19 lagging labor indicators, the message is unmistakable.

  

  According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain’t going to happen this time.

  Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.

  Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

   

  Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

  So if the endlessly clever word-splitter who currently heads the church of Keynes on earth can do not better than the above ill-disguised punt, can you imagine what blithering incoherence will be contained in the meeting statements as the recession gathers force next year?

  Yes, there will be a riot in the casino.

  

  

  

  

  

• "Let's Just Hope Shipping Isn't Telling the Real Story of China"

  One of the recurring topics we have focused on extensively in the past few months has been the dramatic collapse of all shipping-related metrics when it comes to seaborne trade with China, from the recent record plunge in the Baltic Dry index…

  

   

  … to Shanghai Containerized Freight…

  

   

  … both of which are taking place even as China exports record amount of commodities to the outside world…

  

   

  We have also repeatedly noted that the implications for both China, and the entire world, from these charts are dire because they suggest that not only is China not growing, but the entire world is now gripped in not only an earnings and GDP (in USD-denominated terms, global GDP is set to decline by several trillion dollars) recession, but also suffering its first trade contraction since the financial crisis.

  

   

  And now, Bloomberg has turned its attention to just these, and other comparable charts, and published an article titled “Let’s Just Hope Shipping Isn’t Telling the Real Story of China“, prudently adding that investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news.

  Here’s why:

  For the first time in at least a decade, combined seaborne imports of iron ore and coal – commodities that helped fuel a manufacturing boom in the world’s second-largest economy — are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong.

  

   

  The article notes that China accounts for two in every three iron-ore cargoes in the world, and is the largest importer of soybeans and rice. But this year, demand has slowed to the point where any speculation that China may be growing at anything near to 7% is a joke.

  Combined seaborne imports of iron ore and coal will drop 4.8 percent to 1.097 billion metric tons, the first decline since at least 2003, according to data from Clarkson Plc, the biggest shipbroker. A year ago, Clarkson was anticipating a 5.5 percent increase for 2015. The broker expects growth to increase just 0.04 percent next year.

  

   

  It will get worse: “The China Iron and Steel Association predicted crude-steel output will tumble by 23 million tons to 783 million tons next year. That lost output is more than a quarter of what U.S. steelmakers produce.”

  A big reason for the collapse in Chinese demand are Beijing’s attempts to crack down on excess leverage.

  Imports are weakening even as China’s economy keeps expanding because of reduced spending by local governments that are dominant players in the economy, according to Fielding Chen, a Hong Kong-based economist for Bloomberg Intelligence. The central government in January withdrew guarantees for Local Government Financing Vehicles used to finance infrastructure projects during the country’s boom years, when domestic capacity surged over the past decade, he said.

   

  “This has reduced China’s appetite for steel and copper and other commodities that are used to build roads, subways and reservoirs,” Chen said. “It is not good for the economy and is one of the main reasons China cannot import more.”

  While China has attempted to boost the economy using monetary (cutting RRR ratios and interest rates) and fiscal (boosting spending at the local government level) stimulus, for now it appears to have cut back on the traditional growth dynamo which propelled China as the focus of global growth during the financial crisis – its relentless debt creation, which has doubled its total debt/EBITDA from just over 150% in 2007 to over 300% as of this year (282% as of 2014).

  

  It is this slowdown in China’s debt creation that is the true reason behind the global growth slowdown experienced both in China and around the globe.

  Bloomberg offers a ray of hope when it notes that the rout in buying showed signs of easing last month. China’s iron-ore imports rose to 82.13 million tons, a jump of 22 percent compared with a year earlier. Even so, the extra shipments are mostly because of rising Chinese steel exports, or tolling, rather than the nation’s own demand, according to Andy Xie who predicted in February that iron-ore prices would sink into the $30s this year, compared with $71 at the start of the year.

  Unfortunately, there is only so much time China can buy: Chinese steel mills have been pressured by losses, low prices and overcapacity as demand drops to levels unseen since 2009, cutting profits and reducing incentive for re-stocking. Worse, as we first showed two months ago, as a result of until recently soaring debt levels and collapsing commodity prices, more than half of indebted Chinese commodity companies are facing the grim prospect of imminent bankruptcy as they can’t even cover one year of interest with their existing cash flows.

  

  As a result, the commentary is downright disastrous:

  “For dry bulk, China has gone completely belly up,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, talking about ships that haul everything from coal to iron ore to grain. “Present Chinese demand is insufficient to service dry-bulk production, which is driving down rates and subsequently asset values as they follow each other.”

   

  “China’s slowdown has come as a major shock to the system,” said Hartland Shipping’s Prentis. “We are now caught in the twilight zone between shifts in China’s economy, and it is uncomfortable as it’s causing unexpected slowing of demand.”

  So what can one do?

  There are two options: do as the Blooomberg article sarcastically suggests, and Hope Shipping Isn’t Telling the Real Story of China, or one can prepare for the mother of all mean reversions: after all it was China that dragged the world out of the second great depression (if only temporarily) when it unleashed the biggest debt-creation spree in history (one putting the Fed and all its peers to shame as we showed previously). It will be only fitting that China’s drags it back in.

  

  

  

  

  

• Czech President: Turkey “Behaves As If [It’s] An Ally of the Islamic State; Removes Oil … Which Finances [ISIS]]

  Czech President Milos Zeman said yesterday (English translation):

  I think [Turkey] is indeed a member of NATO, but sometimes behaves as if more was an ally of the Islamic Republic: removes oil from the Syrian sites, which finances the Islamic state.

   

  ***

   

  They do not like the Kurds, which are the only ones who fought effectively with the Islamic state. That is why Turkey [should be viewed] with caution and why it should not be an EU member.

  He is one hundred percent right …

  Postscript: The date of the article is “9.12.2015”, which 0 in the Czech way of writing dates – means December 9, 2015.

   

  

  

  

  

• This Is The Scariest Chart For Angela Merkel

  Having won Time’s “Person of the Year” award, German chancellor Angela Merkel may have little time, or cause, for celebration.

  The reason for that is that, as we noted yesterday when commenting on Donald Trump’s snub of Time in which he said that it “picked person who is ruining Germany”, is that according to increasingly more Germans, Trump just may be – in his trademark politically incorrect way – right.

  Recall:

  In past years, Angela Merkel has been feted like a superstar at annual meetings of her Christian Democratic Union (CDU) party, earning thunderous ovations for defending German interests in the euro crisis and facing down Vladimir Putin over Ukraine. But a CDU congress in the southwestern city of Karlsruhe next week is shaping up to be a very different affair. Under intense pressure from conservative allies to reduce the flood of refugees into Germany, the 61-year-old chancellor faces the biggest test of her authority from within the party in years.

   

  Her Bavarian allies, the Christian Social Union (CSU), have been pressing for a cap for months, and even some of Merkel’s own ministers are lobbying openly for a tougher stance from the chancellor, who marked 10 years in office last month and must decide by next autumn whether she will seek a fourth term in 2017.

   

  “Merkel has never endured such sharp criticism from within her own ranks since becoming chancellor,” read a front-page editorial in conservative daily newspaper Frankfurter Allgemeine Zeitung on Monday. “Under no circumstances can she allow the congress to approve a resolution on refugee policy that includes the word ‘Obergrenze’.” 

   

  “The mood among conservative members of parliament is really catastrophic right now,” said one senior CDU lawmaker, declining to be named. “Merkel is totally isolated.” “She needs to wake up,” said another top ranking party member.

  Why this dramatic shift in opinion about a chancellor who until recently was seen as untouchable and simply indestructable, and suddenly appears to be all too fragile? The answer is shown in the simple chart below, which shows the soaring numbers of migrant arrivals in Germany.

  

   

  The chart has major implications for Merkel’s political career because, as the WSJ notes, the higher the number of migrants, the lower her approval rating… and the higher the rating of her conservative ally, Bavarian Premier Horst Seedorf.

  

   

  Suddenly invincible Angela does not seem so unshakable. For those who have missed the story, here is what happened from the WSJ:

  When refugees marched from Budapest Sept. 4, paralyzing Hungary’s main highway to Austria, Mr. Orban phoned Vienna. Mr. Faymann wouldn’t take his calls, aides to each say. Mr. Orban convened his national-security cabinet and decided to bus the migrants to the border. “If Austria wants them, they can have them,” Mr. Orban said, according to a person present.

   

  Hungary’s foreign minister told his shocked Austrian counterpart the news at an EU meeting that day. Austrian officials, unprepared for mass arrivals, urgently sought German help.

   

  The emergency caught Ms. Merkel on a day of party events in Essen and Cologne. In a volley of phone calls, she and Mr. Faymann shared a calculus, say aides to each: Only force could halt the migrants at the border; inaction could result in exhausted refugees dying on the highway. 

   

  Ms. Merkel made a snap decision that sent shock waves around Europe: Throw Germany’s doors open. Bypassing Europe’s asylum rules and skeptical members of her government, she ordered trains to carry the migrants to Munich.

   

  Her aides couldn’t reach her coalition partner, Bavaria’s premier Mr. Seehofer. He, like Mr. Orban, wanted to stop the migrants; the two men became Ms. Merkel’s most outspoken adversaries. Mr. Seehofer declined to be interviewed.

  Initially the Germans were delighted…

  As Germans greeted refugees in Munich with sweets, toys and hugs, Mr. Orban told Ms. Merkel by phone her decision undermined the fight against illegal immigration and lured migrants to Europe, aides to each say. He lambasted German and Austrian volunteers who drove into Hungary to give Syrians a lift: “Legally they are human traffickers. Is that what you want?”

   

  He told her Hungary was fencing off its southern border. If all EU countries did the same, he said, the crisis would end. “The Hungarian solution,” he said, “is the only solution.”

   

  Ms. Merkel replied that if Europe wanted a wall, it would have to be high and defended with violence against civilians, and Greece could hardly wall the Aegean Sea. A fence might work for Hungary, she told Mr. Orban, but she sought answers for all Europe.

  … But then the mood at home turned decidedly sour:

  Backlash built against Ms. Merkel at home, where pro-refugee euphoria faded while as many as 10,000 arrived daily. Local governments struggled to house and feed them. In overstretched Bavaria, Mr. Seehofer threatened to sue the federal government unless Ms. Merkel set a cap on arrivals.

   

  She dismissed the demand. “If we have to start apologizing now for showing a friendly face in emergencies,” she told reporters, “then this is not my country.” She knew she had to convince voters the situation wasn’t out of control. Immersing herself in the logistics of accommodating migrants, she learned details about heated tents and housing containers. She tightened rules on asylum-seekers’ benefits. She pushed for EU migrant-processing centers in Greece and Italy to block bogus asylum claimants.

  Merkel then did half a U-turn, doing everything in her power to court not only Turkey but Eastern European nations in hopes they would accommodate the bulk of the refugees.

  She courted Turkish President Recep Tayyip Erdogan, whom she had long mistrusted but whose help she needed to reduce the migrant flow. Mr. Erdogan’s demands, EU officials say, included money for refugee camps, visa-free European travel for Turks, revitalizing stalled talks on EU membership and regular summits with EU leaders. Visiting Istanbul in October, Ms. Merkel told him she was willing to talk about everything. One problem: Her party opposes Turkey’s joining the EU.

  No problem: two weekends ago, Turkey was fast tracked for EU accession, with visa requirements set to be reduced, even as Turkey gets billions in “aid” to help with the refugee settlement

  Then it was the Balkans’ turn:

  Balkan countries struggled with the buildup of migrants south of Hungary, whose anti-migrant fence created bottlenecks elsewhere. And many governments criticized Greece for waving migrants through.

   

  At a summit of countries along the Balkan migration trail, called at Ms. Merkel’s behest, leaders warned they would build fences if Germany closed its border. Ms. Merkel said that, having grown up in communist East Germany, she opposed walling off countries but that there might be no alternative unless Greece and others helped manage the flow.

   

  Under German pressure, the Balkan countries agreed to put up 100,000 people until the EU could find long-term homes. By November, far more were entering Europe. Germany alone expects to receive a million asylum-seekers this year.

  When it came to vassal state Greece, Germany, pardon Europe, had a simple solution: threaten the country with expulsion from Schengen and an indefinite isolation from the European Union. Greece promptly threw in the towel and handed over control of its border to Brussels.

  Meanwhile, the Paris terrorist event has rendered Merkel’s initial “welcoming” stance impossible:

  The Paris attacks have made Ms. Merkel’s remedies harder to sell. Eastern European leaders are still balking at taking Muslim refugees, although the EU quota decision is binding. Mr. Orban blames Germany’s open-door policy for admitting terrorists. “We are monitoring every Muslim in our territory,” Slovakian Prime Minister Robert Fico said publicly after visiting the French embassy there following the Paris attacks. He declined to comment.

  In the end the biggest loser may be Europe itself, whose “union” is unraveling before our eyes. However, before Europe falls, the first casualty will be the person for whom a united Europe, at any means and at any cost, will be her one legacy, or perhaps epitaph.

  In Germany, pressure on the chancellor is mounting inside her coalition. At their Nov. 19 party congress, Mr. Seehofer’s Bavarian conservatives voted to cap migration. Ms. Merkel told the congress turning refugees away was unworkable: “Isolation is not a solution in the 21st century.” Applause was sparse.

   

  “You know we’re unrelenting,” Mr. Seehofer replied. “You haven’t heard the last of this.” He earned a thunderous ovation.

  How does this end? Keep an eye on Merkel’s “scariest chart” for hints: unless Germany can stem the influx of refugees (while making other European nations increasingly angry and unhappy with their lot in the EU) the damage to Germany’s chancellor (who once cried when faced with the prospect of a Greek default) inflicted by five years of an insolvency European periphery will seem like a walk in the park compared to what the “refugee tsunami” will unleash first in Germany and then across all of Europe.

  

  

  

  

  

• Two US Military Servicemen Claim 'Doctors Without Borders' Hospital Was Intentionally Targeted

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Over the last month or so, there’s been a bit of a flurry of U.S. military members with conscience coming forward to tell the truth about incidents or practices they deem unethical.

  For example, just last month, four former drone operators came forward to denounce the program publicly, coupled with a letter addressed to President Obama. As noted in the post, Drone Whistleblower Claim – Pilots Often High on Drugs; Refer to Children as “Fun Size Terrorists”:

  The killings, part of the Obama administration’s targeted assassination program, are aiding terrorist recruitment and thus undermining the program’s goal of eliminating such fighters, the veterans added. Drone operators refer to children as “fun-size terrorists” and liken killing them to “cutting the grass before it grows too long,” said one of the operators, Michael Haas, a former senior airman in the Air Force. Haas also described widespread drug and alcohol abuse, further stating that some operators had flown missions while impaired.

   

  Haas also described widespread alcohol and drug abuse among drone pilots. Drone operators, he said, would frequently get intoxicated using bath salts and synthetic marijuana to avoid possible drug testing and in an effort to “bend that reality and try to picture yourself not being there.” Haas said that he knew at least a half-dozen people in his unit who were using bath salts and that drug use had “impaired” them during missions.

  Moving along to today’s piece, two U.S. servicemen have come forward to claim that, as opposed to the Pentagon’s official story, the military intentionally targeted the Afghan Doctors without Borders hospital, in an attack that killed 31 civilians.

  The AP reports:

  WASHINGTON (AP) — Two servicemen have told Congress that American special forces called in an air strike on a hospital in Afghanistan because they believed the Taliban were using it as a command center, contradicting the military’s explanation that the attack was meant for a different building.

   

  Rep. Duncan Hunter, a California Republican who serves on the House Armed Services Committee, quoted the servicemen without naming them in a letter he sent Tuesday to Defense Secretary Ash Carter. The letter highlights gaps in the military’s explanation of an October air strike on a Doctors Without Borders hospital in Kunduz that killed 31 civilians.

   

  Hunter said the accounts provided to him raise the possibility that the U.S. was manipulated by its Afghan partners into attacking the hospital. If true, that would be a setback in the U.S. effort to work with and train a local force capable of securing that country.

   

  The two servicemen told Hunter the U.S. special forces soldiers who called in the air strike were not aware the Doctors Without Borders building was still being used as a hospital. Afghan forces, they say, told them it had become a Taliban command and control center.

   

  Doctors Without Borders leaders and independent witnesses insist there were no armed men in the hospital, and the military’s investigation supported that contention.

   

  The military’s official account, a summary of which was disclosed on Nov. 25 by the commanding U.S. general in Afghanistan, says the soldiers and airmen intended the air strike to hit a different building a half mile away — an Afghan intelligence facility said to be occupied by the Taliban.

   

  It was only because of technical failures and human error, Gen. John Campbell told reporters, that an AC-130 mistakenly struck and destroyed the trauma center in the Doctors Without Borders hospital.

   

  Campbell’s account didn’t address the evidence that the U.S. had been focusing on the hospital.

   

  The day before the attack, a senior special forces commander wrote in a report that the hospital was in Taliban hands and his objective was to clear it. A senior Pentagon official called Doctors Without Borders to ask whether their hospital had been overrun; he was told it had not.

   

  Hunter wrote to Carter of his concern “that inaccurate information and poor intelligence was provided by Afghan forces — including information that was both incorrect and unverified by U.S. intelligence and personnel.”

   

  Campbell said the AC-130 was sent to attack a different building, but when its sensors malfunctioned, the crew used visual cues to home in on what turned out to be the wrong building. One minute before the attack, he said, the crew passed on the coordinates of the building it was about to strike to its headquarters, which knew Doctors Without Borders was in that compound but was unable to detect the mistake in time.

   

  Hunter’s letter questioned how the military could misidentify an internationally run hospital that had been operating for years, given the billions of dollars that have been spent on technology designed to help commanders understand their battlespace.

  Mistakes happen. In war and in pretty much everything in life. That’s simply unavoidable. What is avoidable is lying after the fact, which is clearly what the U.S. military has chosen to do in this case. It is also what it chooses to do in all sorts of cases in which the truth would be embarrassing or harmful to the agenda of empire and the military-industrial complex. Which is precisely why people are increasingly distrustful of all institutions. “We the people” suspect we’re constantly lied to in the pursuit of an elitist agenda which is counter to our best interests.

  We are right.

  

  

  

  

  

• Brazil Faces Disastrous Downgrade Debacle: Here's What You Need To Know

  Back on September 9, S&P threw Brazil in the junk bin. 

  “We anticipate that within the next year [another] downgrade could stem in particular from a further deterioration of Brazil’s fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet,” the ratings agency noted, explaining its negative outlook. “A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment.”

  Suffice to say that the political “dynamics” have not become more favorable despite some observers’ contention that the further we move down the road to a Rousseff impeachment, the happier the market will be given her track record. House Speaker Eduardo Cunha faces an investigation by the ethics committee in connection with his alleged role in the Carwash scandal while the relationship between Rousseff and VP Michel Temer looks increasingly tenuous. Meanwhile, the arrest of Delcidio Amaral seemed to have ushered in a new era wherein sitting lawmakers aren’t above the law and may be too busy looking over their shoulders going forward to legislate. All of this casts considerable doubt on the country’s ability to overcome fractious politics on the way to adopting some semblance of fiscal rectitude. 

  As for “economic turmoil,” well, Brazil has effectively descended into a depression since S&P’s downgrade. GDP is collapsing, inflation is sitting at 10.5%, a 12-year high, and unemployment is soaring. Everything that could possibly go wrong economically is going wrong and thanks to rising prices and the incipient threat of lagged FX pass through, Copom is powerless to adopt counter-cyclical policies and will in fact be forced to hike in January. 

  Against this backdrop, Moody’s put the country’s investment grade rating on review Wednesday, suggesting it may not be long before Brazil gets junked again (don’t worry, Cunha says it’s priced in). 

  For those wondering how long it will be before the “B” in BRICS gets junked by everyone, look no further than the following slides from Credit Suisse who notes that “the continuation of unfavorable fiscal balances, prolonged recession, high inflation, and continued rise in public debt as a percentage of GDP are compatible with the expectation of additional downgrades in 2016 and 2017.” 

  

  

  

  

  And it’s not just the sovereign. Brazilian corporates are in trouble as well. As Bloomberg reports, “Fitch Ratings estimates it may slash the ratings of as many as 10 companies for every one it upgrades in 2016.” Here’s more: 

  Fitch has a negative outlook on Brazil and on the grades of more than half of the Brazilian companies it rates. Its BBB- ranking for sovereign bonds is the lowest possible investment grade. Standard & Poor’s cut the country to junk in September.

   

  Brazilian companies have accounted for 11 of 15 bond defaults in Latin America this year as a widening bribery probe into Petroleo Brasileiro SA roils the nation’s construction and banking industries.

   

  Rising yields threaten to make it harder for Brazil’s debt-laden businesses to refinance obligations as $30 billion of overseas bonds come due in the next two years.

  Needless to say, if the BRL continues to weaken in the face of still depressed commodity prices and a worsening political situation, it will become more and more difficult for Brazilian corporates that have borrowed in dollars to service their debt. Don’t forget, Brazil has some $89 billion in USD bonds trading above 9% (a large chunk is Petrobras paper). Here’s the full breakdown: Petrobras (USD37bn), USD20bn of industrials, USD15bn of banks (mostly subordinated), USD6bn of rigs, USD3bn of royalty-backed bonds and USD8bn of other sectors. 

  We’ll close with two tables. One from Deutsche Bank and one from the BIS. The first gives you an idea of what Brazil is facing in terms of USD bond maturities going forward and the second shows you the aggregate burden.