• Falling Interest Causes Falling Profits

  by Keith Weiner

   

  Most people assume that prices move as a result of changes in the money supply. Instead, let’s look at the effect of changes in interest. To start, consider a hamburger restaurant. Suppose that the average profit in the burger business is ten percent of invested capital. If MacDowell’s is thinking about expanding, it has to consider the interest rate. Why?

  Typically, most of the capital to expand a business is borrowed. MacDowell’s has to borrow the cash to build out its new store. If the cost of capital is greater than the return on capital, then it makes no sense to expand. Let that sink in, because it is vitally important. You cannot borrow at 10% to earn 8%.

  Of course not all of the capital is borrowed. MacDowell’s also puts up some of its own funds (or at least it would in a normal world without a central bank drowning the markets with liquidity). The company has to consider what else it could do with that cash. If it could earn more on a bond portfolio, why should it take business risk? Let this sink in also. You should not invest in business equity to earn less than the yield on bonds.

  We have just looked at two connections between interest and profit margins. It is both impossible and undesirable, to expand a business which earns less than the interest rate. Now let’s look at the connection in the other direction. MacDowell’s profit-seeking behavior actually affects interest.

  What happens to the interest rate if MacDowell’s borrows at two percent to build a hamburger stand that makes ten percent? The very act of borrowing pushes up the interest rate slightly (in a normal world). The very act of opening another hamburger store pushes down the rate of profits on hamburger stores.

  To oversimplify for this example, the rate of interest goes up to three and the rate of profit comes down to nine. That’s still pretty attractive, so Burger Emperor opens up a store. Interest is pushed up to four, and profit pulled down to eight. And so on, until the next would-be burger baron walks away. Certainly, if the rate is six and profit is six, then no one else will want to enter this business. The same process happens in every industry.

  Today, of course the central banks pin the interest rate down. So MacDowell’s and Burger Emperor’s borrowing do not push up the interest rate. However, they still do pull down the rate of profit. They will keep adding to the burger supply, until the rate of profit is just above the Fed-administered interest rate.

  Monetary policy claims to try to affect consumer prices—but it’s working its deadly effect on profits. Interest rates can’t go up, but profits can come down.

  It turns out that this monetary policy does affect prices, though not in the way supposed by the mainstream theory. Suppose Wednesday’s is the last burger business to borrow, the last to pull the rate of profit as close as possible to the rate of interest. How is Wednesday’s supposed to make this work? Worse yet, how is Burger Emperor staying alive with its higher interest rate, and McDowell’s with its even-higher rate?

  They are locked in a desperate scramble to squeeze out every cost. They develop processes to do without inventory, depending on just-in-time delivery. They automate and lay off as much labor as possible. Executives fly coach when they get travel budget at all. They redesign their packaging to be cheaper, etc.

  I don’t normally use the term unintended consequences. I prefer to discuss perverse outcomes, rather than emphasize policy maker real or claimed intentions. However, in this case I think it’s safe to say that the Fed is getting the opposite of what it intends. It wants prices to rise by 2 percent. What is it actually getting?

  Just look at the wreckage in the crude oil chart, copper, or even wheat markets.

   

  This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.

  

  

  

  

• What's In Store For Our Freedoms In 2016? More Of Everything We Don't Want

  Submitted by John Whitehead via The Rutherford Institute,

  “Those who cannot remember the past are condemned to repeat it.” – George Santayana, The Life of Reason, Vol. 1

  In Harold Ramis’ classic 1993 comedy Groundhog Day, TV weatherman Phil Connors (played by Bill Murray) is forced to live the same day over and over again until he not only gains some insight into his life but changes his priorities. Similarly, as I illustrate in my book Battlefield America: The War on the American People, we in the emerging American police state find ourselves reliving the same set of circumstances over and over again—egregious surveillance, strip searches, police shootings of unarmed citizens, government spying, the criminalization of lawful activities, warmongering, etc.—although with far fewer moments of comic hilarity.

  What remains to be seen is whether 2016 will bring more of the same or whether “we the people” will wake up from our somnambulant states. Indeed, when it comes to civil liberties and freedom, 2015 was far from a banner year.

  The following is just a sampling of what we can look forward to repeating if we don’t find some way to push back against the menace of an overreaching, aggressive, invasive, militarized surveillance state.

  More surveillance. The surveillance state is alive and well and kicking privacy to shreds in America. Whether you’re walking through a store, driving your car, checking email, or talking to friends and family on the phone, you can be sure that some government agency, whether the NSA or some other entity, will still be listening in and tracking your behavior. This doesn’t even begin to touch on the corporate trackers that monitor your purchases, web browsing, Facebook posts and other activities taking place in the cyber sphere. We are now in a state of transition with the police state shifting into high-gear under the auspices of the surveillance state. In such an environment, we are all suspects to be spied on, searched, scanned, frisked, monitored, tracked and treated as if we’re potentially guilty of some wrongdoing or other. Even our homes provide little protection against government intrusions. Police agencies, already empowered to crash through your door if they suspect you’re up to no good, now have radars that allow them to “see” through the walls of your home.

  More militarized police. Americans will continue to be rendered powerless in the face of militarized police. In early America, government agents were not permitted to enter one’s home without permission or in a deceitful manner. And citizens could resist arrest when a police officer tried to restrain them without proper justification or a warrant. Daring to dispute a warrant with a police official today who is armed with high-tech military weapons would be nothing short of suicidal. Moreover, as police forces across the country continue to be transformed into extensions of the military, Americans are finding their once-peaceful communities transformed into military outposts, complete with tanks, weaponry, and other equipment designed for the battlefield. Having already transformed local police into extensions of the military, now the Department of Homeland Security, the Justice Department and the FBI are preparing to turn the nation’s police officers into techno-warriors, complete with iris scanners, body scanners, thermal imaging Doppler radar devices, facial recognition programs, license plate readers, cell phone Stingray devices and so much more.

  More police shootings of unarmed citizens. Owing in large part to the militarization of local law enforcement agencies, not a week goes by without more reports of hair-raising incidents by police imbued with a take-no-prisoners attitude and a battlefield approach to the communities in which they serve.

  More so-called “terrorist” attacks. Despite the government’s endless propaganda about the threat of terrorism and even in the wake of the shootings in San Bernardino and Paris, statistics show that you are 17,600 times more likely to die from heart disease than from a terrorist attack. You are 11,000 times more likely to die from an airplane accident than from a terrorist plot involving an airplane. You are 1,048 times more likely to die from a car accident than a terrorist attack. You are 404 times more likely to die in a fall than from a terrorist attack. And you are 8 times more likely to be killed by a police officer than by a terrorist.

  More costly wars. The military industrial complex that has advocated that the U.S. remain at war, year after year, is the very entity that will continue to profit the most from America’s expanding military empire. The U.S. Department of Defense is the world’s largest employer, with more than 3.2 million employees. Thus far, the U.S. taxpayer has been made to shell out more than $1.6 trillion to wage wars in Afghanistan and Iraq. When you add in our military efforts in Pakistan, as well as the lifetime price of health care for disabled veterans and interest on the national debt, that cost rises to $4.4 trillion.

  More attempts by the government to identify, target and punish so-called domestic “extremists.” In much the same way that the USA Patriot Act was used as a front to advance the surveillance state, the government’s anti-extremism program will, in many cases, be utilized to render otherwise lawful, nonviolent activities as potentially extremist. To this end, police will identify, monitor and deter individuals who exhibit, express or engage in anything that could be construed as extremist before they can become actual threats. This is pre-crime on an ideological scale and it’s been a long time coming. Moreover, under the guise of fighting violent extremism “in all of its forms and manifestations” in cities and communities across the world, the Obama administration has agreed to partner with the United Nations to take part in its Strong Cities Network program and hire a domestic extremism czar.

  More SWAT team raids. More than 80% of American communities have their own SWAT teams, with more than 80,000 of these paramilitary raids are carried out every year. That translates to more than 200 SWAT team raids every day in which police crash through doors, damage private property, kill citizens, terrorize adults and children alike, kill family pets, assault or shoot anyone that is perceived as threatening—and all in the pursuit of someone merely suspected of a crime, usually some small amount of drugs.

  More erosions of private property. Private property means little at a time when SWAT teams and other government agents can invade your home, break down your doors, kill your dog, wound or kill you, damage your furnishings and terrorize your family. Likewise, if government officials can fine and arrest you for growing vegetables in your front yard, praying with friends in your living room, installing solar panels on your roof, and raising chickens in your backyard, you’re no longer the owner of your property.

  More debt. Currently, the national debt is somewhere in the vicinity of a whopping $18.1 trillion and rising that our government owes to foreign countries, private corporations and its retirement programs. Not only is the U.S. the largest debtor nation in the world, but according to Forbes, “the amount of interest on the national debt is estimated to be accumulating at a rate of over one million dollars per minute.”

  More government contractors. Despite all the talk about big and small government, what we have been saddled with is a government that is outsourcing much of its work to high-paid contractors at great expense to the taxpayer and with no competition, little transparency and dubious savings. According to the Washington Post, “By some estimates, there are twice as many people doing government work under contract than there are government workers.” These open-ended contracts, worth hundreds of millions of dollars, “now account for anywhere between one quarter and one half of all federal service contracting.”

  More overcriminalization. The government’s tendency towards militarization and overcriminalization, in which routine, everyday behaviors become targets of regulation and prohibition, have resulted in Americans getting arrested for making and selling unpasteurized goat cheese, cultivating certain types of orchids, feeding a whale, holding Bible studies in their homes, and picking their kids up from school.

  More strip searches and the denigration of bodily integrity. The Fourth Amendment to the U.S. Constitution was intended to protect the citizenry from being subjected to “unreasonable searches and seizures” by government agents. While the literal purpose of the amendment is to protect our property and our bodies from unwarranted government intrusion, the moral intention behind it is to protect our human dignity. Unfortunately, court rulings undermining the Fourth Amendment and justifying invasive strip searches have left us powerless against police empowered to forcefully draw our blood, forcibly take our DNA, strip search us, and probe us intimately. Accounts are on the rise of individuals—men and women alike—being subjected to what is essentially government-sanctioned rape by police in the course of “routine” traffic stops.

  More injustice. Americans can no longer rely on the courts to mete out justice. The courts were established to intervene and protect the people against the government and its agents when they overstep their bounds. Yet the courts increasingly march in lockstep with the police state, while concerned themselves primarily with advancing the government’s agenda, no matter how unjust or illegal. As a result, Americans have no protection against police abuse. It is no longer unusual to hear about incidents in which police shoot unarmed individuals first and ask questions later. What is increasingly common, however, is the news that the officers involved in these incidents get off with little more than a slap on the hands.

  More political spectacles. Americans continue to naively buy into the idea that politics matter, as if there really were a difference between the Republicans and Democrats (there’s not). As if Barack Obama proved to be any different from George W. Bush (he has not). As if Hillary Clinton’s values are any different from Donald Trump’s (with both of them, money talks). As if when we elect a president, we’re getting someone who truly represents “we the people” rather than the corporate state (in fact, in the oligarchy that is the American police state, an elite group of wealthy donors is calling the shots). Politics in America is a game, a joke, a hustle, a con, a distraction, a spectacle, a sport, and for many devout Americans, a religion. In other words, it’s a sophisticated ruse aimed at keeping us divided and fighting over two parties whose priorities are exactly the same.

  More drones. As corporations and government agencies alike prepare for their part in the coming drone invasion—it is expected that at least 30,000 drones will occupy U.S. airspace by 2020, ushering in a $30 billion per year industry—it won’t be long before American citizens who will be the target of these devices discover first-hand that drones—unmanned aerial vehicles—come in all shapes and sizes, from nano-sized drones as small as a grain of sand that can do everything from conducting surveillance to detonating explosive charges, to middle-sized copter drones that can deliver pizzas to massive “hunter/killer” Predator warships that unleash firepower from on high.

  More dumbed down, locked down public schools. Our schools have become training grounds for compliant citizens. Despite the fact that we spend more than most of the world on education ($115,000 per student), we rank 36th in the world when it comes to math, reading and science, far below most of our Asian counterparts. Even so, we continue to insist on standardized programs such as Common Core, which teach students to be test-takers rather than thinkers. Making matters worse is the heavy police presence in schools, which have become little more than quasi-prisons in which classrooms are locked down and kids as young as age 4 are being handcuffed for “acting up,” subjected to body searches, and suspended for childish behavior.

  More ignorance about our rights. Americans know little to nothing about their rights or how the government is supposed to operate. This includes educators and politicians. For example, 27 percent of elected officials cannot name even one right or freedom guaranteed by the First Amendment, while 54 percent do not know the Constitution gives Congress the power to declare war.

  More prisons. Our prisons, housing the largest number of inmates in the world and still growing, have become money-making enterprises for private corporations that manage the prisons in exchange for the states agreeing to maintain a 90% occupancy rate for at least 20 years. And how do you keep the prisons full? By passing laws aimed at increasing the prison population, including the imposition of life sentences on people who commit minor or nonviolent crimes such as siphoning gasoline. Little surprise, then, that the United States has 5% of the world’s population, but 25% of the world’s prisoners.

  More corruption. If there is any absolute maxim by which the federal government seems to operate, it is that the American taxpayer always gets ripped off. This is true, whether you’re talking about taxpayers being forced to fund high-priced weaponry that will be used against us, endless wars that do little for our safety or our freedoms, or bloated government agencies such as the National Security Agency with its secret budgets, covert agendas and clandestine activities. Rubbing salt in the wound, even monetary awards in lawsuits against government officials who are found guilty of wrongdoing are paid by the taxpayer.

  More censorship. First Amendment activities are being pummeled, punched, kicked, choked, chained and generally gagged all across the country. The reasons for such censorship vary widely from political correctness, safety concerns and bullying to national security and hate crimes but the end result remains the same: the complete eradication of what Benjamin Franklin referred to as the “principal pillar of a free government.” Free speech zones, bubble zones, trespass zones, anti-bullying legislation, zero tolerance policies, hate crime laws and a host of other legalistic maladies dreamed up by politicians and prosecutors have conspired to corrode our core freedoms. As a result, we are no longer a nation of constitutional purists for whom the Bill of Rights serves as the ultimate authority. We have litigated and legislated our way into a new governmental framework where the dictates of petty bureaucrats carry greater weight than the inalienable rights of the citizenry.

  More fascism. As a Princeton University survey indicates, our elected officials, especially those in the nation’s capital, represent the interests of the rich and powerful rather than the average citizen. We are no longer a representative republic. With Big Business and Big Government having fused into a corporate state, the president and his state counterparts—the governors, have become little more than CEOs of the Corporate State, which day by day is assuming more government control over our lives. Never before have average Americans had so little say in the workings of their government and even less access to their so-called representatives.

  More fear. We’re being fed a constant diet of fear, which has resulted in Americans adopting an “us” against “them” mindset that keeps us divided into factions, unable to reach consensus about anything and too distracted to notice the police state closing in on us.

  James Madison, the father of the Constitution, put it best: “Take alarm,” he warned, “at the first experiment with liberties.” Anyone with even a casual knowledge about current events knows that the first experiment on our freedoms happened long ago. Worse, we have not heeded the warnings of Madison and those like him who understood that if you give the government an inch, they will take a mile. Unfortunately, the government has not only taken a mile, they have taken mile after mile after mile after mile with seemingly no end in sight for their power grabs.

  If you’re in the business of making New Year’s resolutions, why not resolve that 2016 will be the year we break the cycle of tyranny and get back on the road to freedom? No matter what the politicians say about the dire state of our nation, you can rest assured that none of the problems that continue to plague our lives and undermine our freedoms will be resolved by our so-called elected representatives in any credible, helpful way in the new year.

  “We the people”—the citizenry, not the politicians—are the only ones who have ever been able to enact effective change, and there is a lot that needs to change.

  All of the signs point to something nasty up ahead.

  

  

  

  

  

• Dozens Of Protesters Swarm Disputed Island As China Demands Withdrawal Of Filipino Troops

  Two days ago, an armed Chinese ship and two other vessels entered the waters north of Kuba Island and encroached on Japanese territorial waters starting at around 9:30 a.m. Kuba is part of the Senkakus which are at the center of a longstanding dispute between Beijing and Tokyo.

  

  As BBC wrote last year, “the eight uninhabited islands and rocks in the East China Sea matter because they are close to important shipping lanes, offer rich fishing grounds and lie near potential oil and gas reserves.” Perhaps more importantly – especially in the context of what’s going on in the South China Sea – they are “in a strategically significant position, amid rising competition between the US and China for military primacy in the Asia-Pacific region.”

  Some argue that Beijing’s move to encroach on what are supposed to be jointly developed oil and gas fields (“I drink your milkshake”) may stem from Japan’s purchase of three of the islands from a private owner in 2012. Saturday’s “incident” marks “the first time that an armed Chinese vessel has intruded into the areas [around the islands] that Japan’s claims as its territory,” Bloomberg writes, adding that although the former PLA vessel “is now operated by another department, the ship was armed with an auto-cannon.” Here’s more: 

  The Japanese government protested to the Chinese embassy in Tokyo and to China’s Ministry of Foreign Affairs in Beijing, according to the foreign affairs ministry official. The entry of the three ships on Saturday was the 139th time that Chinese government vessels have entered Japan’s waters since September 2012, the official said.

   

  When Japan’s coast guard warned the Chinese to leave its territorial waters Saturday, they responded by saying that the Japanese vessel was in Chinese waters and should leave immediately, Kyodo reported.

  This comes just ten days after Reuters, citing Japanese officials, reported that Tokyo is preparing a missile blockade along the First Island chain in an effort to, i) deter what the US and Japan say is a regional maritime powergrab by China, and ii) effectively split the ocean into spheres of Chinese and US influence.

  

  All in all, the waters around China and Japan are becoming an increasingly dangerous place and in the latest kerfuffle, 50 Filipinos have occupied Pagasa in the Spratlys to protest Beijing’s island building efforts. The protesters “reached Pagasa in the Spratly archipelago on Saturday, saying they planned to stay for three days [in a demonstration against] Chinese encroachment in a Philippine exclusive economic zone,” BBC says.

  

  The island is Philippine-held, but officials were wary of the trip. “The Philippines was also concerned about China’s reaction to trip as Manila has been trying to calm tensions,” The Sidney Morning Herald wrote, earlier today.

  

  On Monday, Chinese Foreign Ministry spokesman Lu Kang called on The Philippines to leave the Spratlys altogether. Here’s the quote: 

  “We once again urge the Philippines to move out its troops and facilities from the illegally occupied islands and refrain from doing anything that would undermine regional peace and stability and also relations between our two countries.”

  You’re reminded that three years ago next month, the Philippines asked the UN Arbitration Court to settle China’s maritime claims over the South China Sea. For its part, Beijing wants nothing to do with the proceedings which China views as illegitimate.

  Lu’s declaration in the wake of the Pagasa occupation harkens back to comments made last month by Chinese Vice Foreign Minister Liu Zhenmin. Beijing has actually shown “great restraint” in the South China Sea, Liu told the press ahead of the Asia-Pacific Economic Cooperation summit held in Manila.

  China, Liu went on to explain, has tolerated the “occupation” of the disputed waters even as Beijing has “both the right and the ability to recover the islands and reefs illegally occupied by neighboring countries.” Essentially, Liu said China would be well within its rights to forcibly expel The Philippines, Malaysia, and Vietnam from the Spratlys. 

  And so, will a peaceful protest by a few dozen students be the indignity that causes China to demand, once and for all, the withdrawal of all non-Chinese military personnel from the Spratlys? Probably not, but Beijing clearly doesn’t appreciate the fact that an island which China believes is sovereign territory is occupied by Filipino soldiers and now, by Filipino activists who are essentially calling the Chinese a belligerent occupying force in the archipelago.

  

  

  

  

  

• "Political Correctness" Is About Control, Not Etiquette

  Submitted by Jeff Deist via The Mises Institute,

  I’d like to speak today about what political correctness is, at least in its modern version, what it is not, and what we might do to fight against it.

  To begin, we need to understand that political correctness is not about being nice. It’s not simply a social issue, or a subset of the culture wars.

  It’s not about politeness, or inclusiveness, or good manners. It’s not about being respectful toward your fellow humans, and it’s not about being sensitive or caring or avoiding hurt feelings and unpleasant slurs.

  But you’ve heard this argument, I’m sure. PC is about simple respect and inclusiveness, they tell us. As though we need progressives, the cultural enforcers, to help us understand that we shouldn’t call someone retarded, or use the “N” word, make hurtful comments about someone’s appearance, or tolerate bullies.

  If PC truly was about kindness and respect, it wouldn’t need to be imposed on us. After all, we already have a mechanism for the social cohesion PC is said to represent: it’s called manners. And we already have specific individuals charged with insuring that good manners are instilled and upheld: they’re called parents.

  Political Correctness Defined

  But what exactly is PC? Let me take a stab at defining it: Political correctness is the conscious, designed manipulation of language intended to change the way people speak, write, think, feel, and act, in furtherance of an agenda.

  PC is best understood as propaganda, which is how I suggest we approach it. But unlike propaganda, which historically has been used by governments to win favor for a particular campaign or effort, PC is all-encompassing. It seeks nothing less than to mold us into modern versions of Marx’s un-alienated society man, freed of all his bourgeois pretensions and humdrum social conventions.

  Like all propaganda, PC fundamentally is a lie. It is about refusing to deal with the underlying nature of reality, in fact attempting to alter that reality by legislative and social fiat. A is no longer A.

  To quote Hans-Hermann Hoppe:

  [T]he masters … stipulate that aggression, invasion, murder and war are actually self-defense, whereas self-defense is aggression, invasion, murder and war. Freedom is coercion, and coercion is freedom. … Taxes are voluntary payments, and voluntarily paid prices are exploitative taxes. In a PC world, metaphysics is diverted and rerouted. Truth becomes malleable, to serve a bigger purpose determined by our superiors.

  But where did all this come from? Surely PC, in all its various forms, is nothing new under the sun. I think we can safely assume that feudal chiefs, kings, emperors, and politicians have ever and always attempted to control the language, thoughts, and thus the actions of their subjects. Thought police have always existed.

  To understand the origins of political correctness, we might look to the aforementioned Marx, and later the Frankfurt school. We might consider the work of Leo Strauss for its impact on the war-hungry think tank world. We might study the deceptive sloganeering of Saul Alinsky. We might mention the French philosopher Foucault, who used the term “political correctness” in the 1960s as a criticism of unscientific dogma.

  But if you really want to understand the black art of PC propaganda, let me suggest reading one of its foremost practitioners, Edward Bernays.

  Bernays was a remarkable man, someone who literally wrote the book on propaganda and its softer guise of public relations. He is little discussed in the West today, despite being the godfather of modern spin.

  He was the nephew of Sigmund Freud, and like Mises was born in Austria in the late nineteenth century. Unlike Mises, however, he fortuitously came to New York City as an infant and then proceeded to live an astonishing 103 years.

  One of his first jobs was as a press agent for President Woodrow Wilson’s Committee on Public Information, an agency designed to gin up popular support for US entry into WW1 (German Americans and Irish Americans especially were opposed). It was Bernays who coined the infamous phrase “Make the World Safe for Democracy” used by the committee.

  After the war, he asked himself whether one could “apply a similar technique to the problems of peace.” And by “problems,” Bernays meant selling stuff. He directed very successful campaigns promoting Ivory Soap, for bacon and eggs as a healthy breakfast, and ballet. He directed several very successful advertising campaigns, most notably for Lucky Strike in its efforts to make smoking socially acceptable for women.

  The Role of “Herd Psychology”

  Bernays was quite open and even proud of engaging in the “manufacturing of consent,” a term used by British surgeon and psychologist Wilfred Trotter in his seminal Instincts of the Herd in Peace and War published in 1919.

  Bernays took the concept of herd psychology to heart. The herd instinct entails the deep seated psychological need to win approval of one’s social group. The herd overwhelms any other influence; as social humans, our need to fit in is paramount.

  But however ingrained, in Bernays’s view the herd instinct cannot be trusted. The herd is irrational and dangerous, and must be steered by wiser men in a thousand imperceptible ways — and this is key. They must not know they are being steered.

  The techniques Bernays employed are still very much being used to shape political correctness today.

  First, he understood how all-powerful the herd mind and herd instinct really is. We are not the special snowflakes we imagine, according to Bernays. Instead we are timorous and malleable creatures who desperately want to fit in and win acceptance of the group.

   

  Second, he understood the critical importance of using third party authorities to promote causes or products. Celebrities, athletes, models, politicians, and wealthy elites are the people from whom the herd takes its cues, whether they’re endorsing transgender awareness or selling luxury cars. So when George Clooney or Kim Kardashian endorses Hillary Clinton, it resonates with the herd.

   

  Third, he understood the role that emotions play in our tastes and preferences. It’s not a particular candidate or cigarette or a watch or a handbag we really want, it’s the emotional component of the ad that affects us, however subconsciously. 

  What We Can Do About It

  So the question we might ask ourselves is this: how do we fight back against PC? What can we do, as individuals with finite amounts of time and resources, with serious obligations to our families, loved ones, and careers, to reverse the growing tide of darkness?

  First, we must understand that we’re in a fight. PC represents a war for our very hearts, minds, and souls. The other side understands this, and so should you. The fight is taking place on multiple fronts: the state-linguistic complex operates not only within government, but also academia, media, the business world, churches and synagogues, nonprofits, and NGOs. So understand the forces aligned against you.

  Understand that the PC enforcers are not asking you, they’re not debating you, and they don’t care about your vote. They don’t care whether they can win at the ballot box, or whether they use extralegal means. There are millions of progressives in the US who absolutely would criminalize speech that does not comport with their sense of social justice.

  One poll suggests 51 percent of Democrats and 1/3 of all Americans would do just that.

  The other side is fighting deliberately and tactically. So realize you’re in a fight, and fight back. Culturally, this really is a matter of life and death.

  We Still Have Freedom to Act

  As bad as PC contamination may be at this point, we are not like Mises, fleeing a few days ahead of the Nazis. We have tremendous resources at our disposal in a digital age. We can still communicate globally and create communities of outspoken, anti-PC voices. We can still read and share anti-state books and articles. We can still read real history and the great un-PC literary classics. We can still homeschool our kids. We can still hold events like this one today.

  This is not to say that bucking PC can’t hurt you: the possible loss of one’s job, reputation, friends, and even family is very serious. But defeatism is never called for, and it makes us unworthy of our ancestors.

  Use humor to ridicule PC. PC is absurd, and most people sense it. And its practitioners suffer from a comical lack of self-awareness and irony. Use every tool at your disposal to mock, ridicule, and expose PC for what it is.

  Never forget that society can change very rapidly in the wake of certain precipitating events. We certainly all hope that no great calamity strikes America, in the form of an economic collapse, a currency collapse, an inability to provide entitlements and welfare, energy shortages, food and water shortages, natural disasters, or civil unrest. But we can’t discount the possibility of these things happening.

  And if they do, I suggest that PC language and PC thinking will be the first ornament of the state to go. Only rich, modern, societies can afford the luxury of a mindset that does not comport with reality, and that mindset will be swiftly swept aside as the “rich” part of America frays.

  Men and women might start to rediscover that they need and complement each other if the welfare state breaks down. Endless hours spent on social media might give way to rebuilding social connections that really matter when the chips are down.

  More traditional family structures might suddenly seem less oppressive in the face of great economic uncertainty. Schools and universities might rediscover the value of teaching practical skills, instead of whitewashed history and grievance studies. One’s sexual preferences might not loom as large in the scheme of things, certainly not as a source of rights. The rule of law might become something more than an abstraction to be discarded in order to further social justice and deny privilege.

  Play the Long Game

  I’m afraid it might not be popular to say so, but we have to be prepared for a long and hard campaign. Let’s leave the empty promises of quick fixes to the politicians. Progressives play the long game masterfully. They’ve taken 100 years to ransack our institutions inch by inch. I’m not suggesting incrementalism to reclaim those foregone institutions, which are by all account too far gone — but to create our own.

  PC enforcers seek to divide and atomize us, by class, race, sex, and sexuality. So let’s take them up on it. Let’s bypass the institutions controlled by them in favor of our own. Who says we can’t create our own schools, our own churches, our own media, our own literature, and our own civic and social organizations? Starting from scratch certainly is less daunting than fighting PC on its own turf.

  Conclusion

  PC is a virus that puts us — liberty loving people — on our heels. When we allow progressives to frame the debate and control the narrative, we lose power over our lives. If we don’t address what the state and its agents are doing to control us, we might honestly wonder how much longer organizations like the Mises Institute are going to be free to hold events like this one today.

  Is it really that unimaginable that you might wake up one day and find sites with anti-state and anti-egalitarian content blocked — sites like mises.org and lewrockwell.com?

  Or that social media outlets like Facebook might simply eliminate opinions not deemed acceptable in the new America?

  In fact, head Facebook creep Mark Zuckerberg recently was overheard at a UN summit telling Angela Merkel that he would get to work on suppressing Facebook comments by Germans who have the audacity to object to the government’s handling of migrants.

  Here’s the Facebook statement:

  We are committed to working closely with the German government on this important issue. We think the best solutions to dealing with people who make racist and xenophobic comments can be found when service providers, government, and civil society all work together to address this common challenge.

  Chilling, isn’t it? And coming soon to a server near you, unless we all get busy.

  

  

  

  

  

• 2015 – The Year Of FX Reserve Rundowns (Or Playing The "Fool's Game")

  2015 was the year of considerable FX drawdown as desperate EM central banks attempted to rescue themselves from reality.

  

   

  As Barry Eichengreen noted,

  "Intervening to support an exchange rate that’s fundamentally overvalued is a fool’s game and a no-win situation, akin to a sovereign attempting to sustain an unsustainable debt burden rather than yielding to inevitable restructuring."

  Goldman holds on to some hope as EM central banks’ reserves appear to have stabilized on aggregate, at least for now.

  In October (the latest month of comprehensive EM data from the IMF), declines in reserves ex gold in Saudi Arabia, Argentina, and to lesser extent Mexico and Russia, were offset by modest accumulation in a number of other emerging markets, led by India and—somewhat surprisingly—China. (The People’s Bank of China or PBOC unexpectedly reported an $11n increase in reserves in October, but factoring in other data suggests that FX outflow persisted that month at an estimated $26bn.)

  But China’s FX reserves have on balance continued to decline, albeit at a slower pace. The latest reports from the PBOC (more recent than the IMF reporting for EMs discussed above) showed a large $87bn decline in FX reserves in November. However, more than half of this may be attributed to valuation effects given relative currency moves; indeed, our reading of a broader set of data from the State Administration for Foreign Exchange (SAFE) suggests that FX outflow amounted to about $39bn—up from October but still well below the monthly average of $144bn in August-September. This likely reflects the effect of a tightening in administrative control (including intensified crackdown on underground outflow), as well as some possible frontloading of corporate FX hedging activity and a slight moderation in bearish RMB sentiment.

  US Treasury yields continue to show little impact from reserve selling. We maintain that a 1pp decline (roughly equivalent to US$125bn in net flows) of the share of Treasury stock held by the foreign official sector increases US 10-year yields by around 5bp, all else equal. However, macro drivers often dominate this effect. In the 16 months between the peak of EM FX reserves in June 2014 and October 2015, the roughly 2pp decline in the share of US Treasuries held by the foreign official sector has likely added around 10bp to the level of 10-year yields. This reduction in holdings, however, has not prevented 10-year Treasury yields from falling 30bp over the corresponding period.

  Some observers attributed negative spreads between US interest swaps and underlying Treasury yields to central bank reserve selling, along with bank funding and balance sheet strain.

  Quantitative tightening (QT) fears have faded for now. With EM reserve decumulation fading somewhat for now, fears that central bank reserve selling could offset the easing impact of central bank asset purchases—and ultimately tighten developed market financial conditions—seem to have subsided.

  But this is what Goldman says to look for in 2016…

  An environment that remains conducive for EM reserve drawdowns, or at least less friendly for reserve accumulation, amidst rising US interest rates, low commodity prices, and the ongoing bumpy deceleration in China’s growth.

  • Oil exporters: Expectations of still-low oil prices through 2016 suggest that reserve assets of the oil economies with pegged currencies (e.g., SAR) should remain under pressure, albeit likely at a slower pace, as the required fiscal adjustment is starting to kick in. Further downside to oil prices would clearly mean faster reserve declines. Oil exporters with floating currencies (RUB, MXN, COP) will likely continue to allow their currencies to bear the burden of adjustment in case of any fresh terms of trade shocks.
  • China: Pressures on reserves will likely continue to arise occasionally as growth decelerates, the PBOC responds with monetary easing, and currency uncertainty lingers, although pressures should not be as severe as during summer 2015. However, efforts to stabilize the currency, such as potential movement towards targeting a basket of currencies (which could be on the table, given the publication of the trade-weighted CNY index by the authorities), may reduce currency uncertainty and, in turn, outflow and reserve drawdown risk, barring implementation difficulties.

  Some headwinds to US Treasuries from FX reserve selling, though this factor will remain secondary to macro drivers.

  A potential resurgence in QT fears should reserve selling pick-up again, especially in China.

  *  *  *
  So more "Fool's games" and more unwind risks for massive carry trades.

  

  

  

  

  

• Offshore Yuan Tumbles As China Devalues Fix To Weakest Since June 2011

  On the heels of the collapse in China ‘B’ shares last night, and continued stress in money-markets, China weakened the the Yuan fix to its lowest since June 2011 tonight. This has sent offshore Yuan spiraling lower breaking above 6.5700 for the first time since the August devaluation’s collapse. Chinese stocks are on the weaker side, extending losses, and we now await the money-markets to see if this stress is escalating.

  PBOC fixes the Yuan at new June 2011 lows…

  

   

  Sending offshore Yuan tumbling…

  

   

  The devaluation implied in offshore Yuan is back to recent cycle wides…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Caught On Tape: Russia Unleashes Massive Bombing Raid On Militant Convoy

  There’s been some debate over the last two months about whether the concerted effort on Moscow’s part to release hundreds upon hundreds of MoD clips depicting airstrikes in Syria on the way to embarrassing Washington paints an accurate picture of what’s really going on. 

  That is, if one simply compares the Russian footage to what we know or have seen with regard to America’s 15-month air campaign against Islamic State, it would be easy to conclude that the US simply hasn’t been trying very hard – or at least not compared to The Kremlin. 

  While that’s probably an accurate assessment, it’s not always easy to tell what exactly the Russians are hitting when it comes to the targets being vaporized in the videos (although it’s pretty clear in the clips depicting strikes on oil tankers) and the US contends that one reason The Pentagon has been cautious is that Washington is concerned with civilian casualties, especially as it relates to the drivers in the crude truck convoys. For those who follow the US’s exploits in the Mid-East that’s a hard pill to swallow given what we know about collateral damage in drone strikes and given what happened in October in Kunduz, but the point is, taking Moscow at its word when Russia’s intent is quite clearly to make a mockery of the West’s efforts is just as dangerous as taking Washington at its word when The White House swears the US is doing everything in its power to fight terror. 

  All of that said, there’s also been what certainly feels like a marked increase in the number of independently released videos since Russia began bombing rebel and extremist targets. That is, in addition to what Moscow has released on social media, there have been dozens upon dozens of videos shot from the ground which depict either Russian airstrikes themselves or the aftermath. Although it’s not always easy to discern what precisely is going on in the amateur footage, there almost unquestionably seem to be more videos from on the ground cameramen then there were prior to the Russian intervention which in turn suggests that when it comes to the war on terror, Moscow, not Washington, is clearly taking the lead.

  With all of that in mind we present the following clip which purports to show a Russian strike on a “militant convoy.”

  

  

  

  

• The Odds Are Never In Your Favor

  Submitted by Jim Quinn via The Burning Platform blog,

  

  The irony of the phrase “may the odds be ever in your favor” is not lost on the readers of the Hunger Games trilogy of novels or the film adaption. Despite the grimness of the story, over 65 million copies of the books have been sold. The total box office take so far has exceeded $1.4 billion for the four movies. The dystopian series tackles real issues like severe poverty, starvation, torture, oppression, betrayal and the brutality of war. It doesn’t fit into the standard film making success recipe of feel good fluff, politically correct storylines and happy endings. Each film in the series gets progressively darker, with the final episode permeating doom and gloom. The books and the movies capture the deepening crisis mood engulfing the world today. And they realistically portray the world as a place where there are no good guys in positions of power. The ruling class, in all cases, is driven by a voracious appetite for supremacy, wealth, and control.

  An Ambiguous, Confusing, Dangerous World

  The world is a morally ambiguous place where those in power and those seeking power utilize the influence of media propaganda and PR campaigns built around “heroes” and “icons” to psychologically control the masses, while enriching themselves and their crony capitalist sponsors. Endless war against the latest “bad guys” further enriches the arms dealers and their political lackeys who joyfully use faux patriotism and nationalistic fervor to insist upon more boots on the ground, drones in the air, bombs dropped, and missiles launched.

  War is good for business and keeps the masses distracted, while the Wall Street financiers harvest the wealth of the citizens. The division of the country into 12 districts, sending their bounty to the capital of Panem at the point of a gun, while they are allocated a pittance to survive, is no different than our corporate fascist government as they extract hundreds of billions in taxes, fees, levies, tolls, and fines from the productive class, while regulating, enforcing, mandating, and authorizing the plebs to death.

  We live in a confusing world of anxiety, hate, greed, deceit and immorality, where governments throughout the world are nothing but rotting cesspools of psychotic despots desperately clinging to power while using any means necessary to keep the masses sedated and docile. Good people, with noble intentions, still exist in this decadent world, but they do not seek power or have any say in the governance of this world. The oppressed are hopelessly enslaved in debt, kept submissive by welfare transfers from the corrupt state, dumbed down by the state education system, amused by technological gadgets and vacuous entertainment, and kept in perpetual fear of seen and unseen enemies. We are told who to hate, who to fear, who to love, and who to believe by a nameless faceless state run by people we didn’t elect, constituting the invisible government.

  The world is a dangerous place, made more dangerous by a willfully ignorant populace who mindlessly go about their day to day existence without thinking, questioning, or considering the possibility their leaders are corrupt lying thieves. We are told Putin, Assad, China, Iran and ISIS are the bad guys. Previously we had been told Hussein, Gadaffi, Bin Laden, Mubarak, Al Qaeda and the Taliban were the bad guys. It is true that none of these men or organizations are good.

  It is also true that no one in leadership positions in Washington DC, on Wall Street, in corporate America, or in the mainstream media are good. The entire world is under the control of deceitful, cunning, egomaniacal, corruptible, psychopaths who will stop at nothing to fulfill their personal agendas. They are human beings who have allowed their dark sides to dominate their actions. There are no good guys, just varying degrees of evil imposed upon the masses by erratic unpredictable people with wildly differing levels of intelligence, patriotism and judgement.

  The Power of Propaganda

  It’s a tribute to the propagandists who have taken Edward Bernays’ teachings to another level as they have molded the minds of millions, consciously manipulating the opinions and beliefs of the masses to further their agenda of world domination. Once the Cold War ended, the ruling class sought enemies to keep their military industrial complex and Wall Street financiers enriched and happy. 9/11 was used to further that agenda as war on a tactic (terror) will never end. Perpetual conflict is a chief goal of the establishment. Orwell would be impressed with how our keepers have perfected the “We‘ve always been at war with Eastasia” propaganda tool to perpetuate their goals. Both parties continue to promote war and increase the profits of the military industrial complex.

  The U.S. invaded Afghanistan fourteen years ago to get bin Laden and rid the country of the Taliban. Bin Laden was supposedly killed in 2011, but no documentary evidence has been revealed to substantiate that claim. The Taliban is stronger than ever in Afghanistan after hundreds of billions in expenditures and thousands of lives lost. The occupation continues. The neo-cons convinced the dimwitted Bush to invade Iraq in 2003 because Hussein was a bad guy with weapons of mass destruction. Amusingly, he was our buddy when he was fighting our Iranian enemies and we provided him with the WMD (gas) he used on the Kurds.

  After spending $1 trillion, we left Iraq as a festering quagmire of religious zealots with a bombed out infrastructure and a corrupt incompetent puppet running the show on our behalf. Then it was on to leaving Libya in a state of chaos because we overthrew another bad guy. We didn’t like the democratically elected leader of Egypt after we overthrew Mubarak, so we overthrew Morsi and installed another military dictatorship. The propaganda storyline is always about democracy and getting rid of bad guys, not the truth about securing oil resources, weakening the enemies of Israel, and keeping the profits flowing to our “vital” defense industry.

  It seems the empire ran into a bit of a snag with their plan to remove the latest “bad guy” in Syria. Another “bad guy” – Vladimir Putin – saw through the American plan to eliminate Assad and have their co-conspirators in Saudi Arabia and Qatar build a gas pipeline to Europe. After overthrowing the democratically elected president (and friend of Russia) of the Ukraine and waging an unsuccessful war against Russian backed rebels in Eastern Ukraine, Europe was left at the mercy of an angry Putin as far as not freezing to death during the upcoming winter.

  Putin is a strongman leader of a country with a nuclear arsenal capable of blowing up the earth several times over. He will do what is in the best interest of his country and will not blink when confronted with the likes of corrupt feckless toadies like Obama, Kerry, Hollande, Merkel, and Edrogen. His counter measures and revelations about the true nature of U.S. and Turkish actions in Syria and Iraq have blown the lid off of U.S. plans in the Middle East.

  The latest fear mongering propaganda device for the vested interests has been the dreaded ISIS. The captured mainstream corporate media fails to mention the U.S. created, armed and continues to fund ISIS as part of their master plan to overthrow Assad. The U.S. left Iraq in such a state of chaos and lawlessness, fanatical Islamist radicals used the vacuum of power and the billions of dollars’ worth of top notch U.S. military hardware to create a safe space for themselves within Iraq and Syria. The U.S. has been funding and arming the supposed “moderate” Islamic radicals fighting Assad for the last few years, while attempting to use a false flag gas attack to wage all-out war. The U.S., Saudi Arabia, and Turkey created ISIS in order to further their economic and political interests. Lead neo con warmonger, Maniacal McCain, even had a photo op with his ISIS homies.

  

  Once Putin decided to fully support Assad and actually concentrate on destroying ISIS, it became clear the U.S. was turning a blind eye to the billions in illicit oil profits being earned by ISIS refining, transporting and selling oil to Turkey. Putin began to destroy the oil infrastructure of ISIS and immediately saw a passenger plane blown out the sky and a bomber shot down by Turkey. So the organization we created is now the most feared terrorist organization on the planet, but we refuse to cooperate or coordinate its defeat with Assad or Putin because they are “bad guys”.

  Turkey financially supports ISIS and is fighting hardest against our allies the Kurds, but we fully support their crazed dictator leader Erdogan. Iran is fighting ISIS, but more than half of Congress and all presidential candidates want to obliterate them on behalf of Israel. Virtually all domestic terrorism has a link to Saudi Arabia, they treat women like cattle, behead anyone not following Islamic law and are pumping oil at a prodigious pace in an effort to destroy the U.S. shale industry, but they are considered a close ally in the Middle East. It is quite clear there are no good guys running the show in this bizarro world of unholy alliances, backstabbing, revenge, and fear mongering.

  A Lot of Hope is Dangerous

  No one in positions of power can be trusted. Betrayal, violence, money, power and war are the weapons of the state. Loyalty, courage, sacrifice, love and hope are the domain of the people. The state walks a fine line between keeping the masses controlled through entertainment, debt, fear and hope. If the people lose all hope, despair leads to anger as those with nothing to lose take to the streets. President Snow of Panem explains the fine line between control and revolution:

  “Hope. It is the only thing stronger than fear. A little hope is effective. A lot of hope is dangerous. Spark is fine, as long as it’s contained.”

  

  In the Mockingjay portion of the Hunger Games trilogy you are left with the evil President Snow attempting to maintain the status quo, with Panem ruling over the formally subservient districts, while President Coin leads the rebels in attempting to overthrow the rotting immoral government of Snow. Both sides use the power of media propaganda, symbolism, false heroes, and despicable tactics to win. In the standard good guy/bad guy plot used to entertain the American masses, the rebels would be the good guys fighting for a noble cause.

  Their symbolic mockingjay leader – Katniss Everdeen – is portrayed as the fearless revolutionary of the people. She is the hope which ignites a revolution and turns despair into a war against the oppressive state and the wealthy vested interests in Panem. The rebels have the moral high ground, but the underlying feeling of distrust is always evident. The good guys might not be so good.

  The central question of the final episode was, real or not real? Who can be believed? Are heroes really heroes or are they just created by public relations propaganda specialists? When an icon used to inspire a revolution has served their purpose, will the “good guys” purposefully sacrifice them for the good of the establishment? Can any government be trusted? Can any politician be trusted? Can the media be trusted?

  The truth is that no one in a position of power can be trusted. The only people who can be trusted are family and friends. And even they can turn on you with enough monetary incentive. It’s a confusing, brutal world driven by greed, endless military conflict, religious zealotry, and controlled by shadowy unelected men using their ill-gotten wealth to pull the strings on all aspects of society. We are living in a dystopian nightmare where the masses have been induced to love their enslavement.

  Katniss undergoes a metamorphosis after seeing her sister blown up while rushing to the aid of victims and later confronting President Snow after the rebels succeeded in overthrowing his regime. President Coin, the leader of the “good guys”, reveals herself to be even more duplicitous and evil than the leader of the “bad guys”. She used the deep-seated characteristic of human compassion to kill Katniss’ sister along with hundreds of children and rescue workers as a tactic to turn the war in her favor. Those in positions of power will use any means necessary to gain or maintain power.

  When Coin proposes a last Hunger Games sacrificing the children of the previous regime’s leadership, Katniss realizes Coin is going to just replace Snow as a dictator, perpetuating the despotic policies which created the rebellion in the first place. Katniss rightly decides that killing innocents, and especially children, is never justifiable. Therefore, she decides to kill Coin, while the rioting crowds kill Snow. She sacrifices her status as a national hero in order to give her country a chance to regain its former glory as a republic. The personal sacrifice on behalf of her country is almost unbearable, but ultimately sacrifice, courage, love, strength and hope for a better future are able to sustain her during the dark days.

  Turnkey Tyranny

  As the former Republic known as America has descended towards the tyranny of a corporate fascist surveillance state, there have been two true patriots who have dedicated their lives to inspiring a revolution in thought and action to help this country regain its former glory based on the U.S. Constitution. One patriot is young and the other patriot old, but their message is the same – we must resist and oppose the ever growing oppressive power of a tyrannical state systematically dismantling the Constitution and stripping the people of liberty and freedom. Their words speak for themselves.

  

  

   

  “The great fear that I have regarding the outcome for America of these disclosures is that nothing will change. People won’t be willing to take the risks necessary to stand up and fight to change things… And in the months ahead, the years ahead, it’s only going to get worse. The NSA will say that… because of the crisis, the dangers that we face in the world, some new and unpredicted threat, we need more authority, we need more power, and there will be nothing the people can do at that point to oppose it. And it will be turnkey tyranny.” – Edward Snowden

  “The original American patriots were those individuals brave enough to resist with force the oppressive power of King George. I accept the definition of patriotism as that effort to resist oppressive state power. The true patriot is motivated by a sense of responsibility and out of self-interest for himself, his family, and the future of his country to resist government abuse of power. He rejects the notion that patriotism means obedience to the state.” – Ron Paul

  Edward Snowden is our modern day Paul Revere, but instead of riding across the countryside warning “the British are coming”, he used the power of modern technology to warn the world “the NSA is watching, listening, and monitoring”. He sacrificed his citizenship, high paying job, freedom, and possibly his life (if the U.S. government had its way) in order to blow the whistle on the blatant destruction and disregard for the Fourth Amendment being perpetrated by the NSA, with the full knowledge and approval of the executive, legislative and judicial branches of the U.S. government.

  He knew his revelations would result in his persecution, attempted apprehension and ultimate imprisonment, as the corrupt malevolent establishment and their mass media mouthpieces would brand him a traitor for revealing the truth about the illegal malfeasance being conducted at the highest levels of government. He realized true patriotism is sacrificing your life for something bigger.

  “I had been looking for leaders, but I realized that leadership is about being the first to act. I understand that I will be made to suffer for my actions, and that the return of this information to the public marks my end.” – Edward Snowden

  Snowden’s revelations exposed the U.S. government for what it really is, a corporate fascist organization designed to benefit a chosen few while oppressing the masses through debt, currency debasement, and perpetual war, while implementing Orwellian surveillance measures designed to capture dissenters and critical thinkers. The sustenance of the welfare/warfare state requires a dumbed down, passive, distracted populace who can be manipulated and controlled through propaganda and baubles.

  Thus far, the vested interests have successfully convinced more than half the population that Snowden is a traitor. The power of propaganda in conjunction with a willfully ignorant public is a potent combination. Even though Snowden’s disclosures have not spurred a revolution yet, they have sparked an underlying dissent that has been growing, as trust in government, politicians, bankers, media and corporate leaders wanes.

  “I can’t in good conscience allow the US government to destroy privacy, internet freedom and basic liberties for people around the world with this massive surveillance machine they’re secretly building. I do not want to live in a world where everything I do and say is recorded. That is not something I am willing to support or live under. Everyone everywhere now understands how bad things have gotten — and they’re talking about it. They have the power to decide for themselves whether they are willing to sacrifice their privacy to the surveillance state.” – Edward Snowden

  Snowden worked within the system until his conscience made it unbearable for him to support an immoral, rogue organization bent on trashing the U.S. Constitution at the behest of leaders’ intent on retaining their power, control and wealth through any means necessary. Ron Paul has taken a different, but equally noble path as one of the few patriots who worked within the system, but never became corrupted by the system. He has been a voice in the wilderness for decades, condemning the relentless march towards tyranny that he saw firsthand while in Congress.

  The establishment, media and leadership of both political parties have scorned and ridiculed him as ineffective and inconsequential. There was never a piece of legislation with his name on it that passed during his time in Congress. His nickname was Dr. No, as he voted against anything that added to the national debt or took away freedoms or liberties.

  This disparagement reveals the fallacy of what constitutes success in Washington D.C., as there are now over 5,000 Federal laws, 180,000 pages of Federal regulations, $18.8 trillion of Federal debt, $200 trillion of unfunded Federal liabilities, and every politician of both parties completely captured by corporate and special interests. There is one ruling party and the appearance of choice is nothing but a farce designed to make the masses think they have a say in the governance of their country.

  “We’ve slipped away from a true republic. Now we’re slipping into a fascist system where it’s a combination of government, big business and authoritarian rule, and the suppression of the individual rights of each and every American citizen. When it comes to any significant differences on foreign policy, economic intervention, the Federal Reserve, a strong executive branch, a welfarism mixed with corporatism, both parties are very much alike.  The major arguments in hotly contested presidential races are mostly for public consumption to convince the people they actually have a choice.” – Ron Paul

  The vitriol and bile hoisted upon Snowden and Paul expose the weakness of the ruling class, as truth, honesty, personal courage, and sacrifice for a higher purpose are attributes they cannot subvert or buy off. It’s the words and actions of men like Edward Snowden and Ron Paul that provide hope for critical thinking liberty minded citizens. The ruling class knows a lot of hope is dangerous, so they must undermine the messages of these patriots. Ideas matter. Words matter.

  These two men have inspired me and an unknown number of other citizens who still believe in the Constitution and will do everything in our power to provoke a revolution of reason, truth and honesty. The odds will never be in our favor. Carroll Quigley understood the odds were stacked against the American people over 50 years ago. The domination of the world by central bankers representing private interests has never been more evident than it has since the Federal Reserve created 2008 financial crisis and the traitorous actions taken by politicians and central bankers in the last seven years.

  “The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank… sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.” – Carroll Quigley

  Even though the odds are never in our favor, there is still hope. Not everyone has to make the extreme sacrifice like Edward Snowden or dedicate their life to the message of liberty like Ron Paul in order to contribute to the revolution. There are thousands of small acts which will weaken the establishment. Arm yourself. Stop watching and listening to the mainstream media. Take your money out of Wall Street banks. Grow your own food. Barter with others and starve the beast. Reduce your tax footprint. Buy locally and boycott mega-corporations. Build relationships with neighbors and reduce your dependency on the government.

  Don’t be a slave to debt. Live beneath your means and accumulate some physical silver and gold. Don’t vote for candidates selected by the vested interests. Spread the message of liberty and freedom to anyone who will listen. Support the alternative media and send pertinent articles to family, friends and acquaintances. Think critically. Do not trust your government. Prepare for the inevitable collapse of this rotten, fetid, corrupt paradigm. Hope, love, courage, and persistence will ultimately win. The tide is turning. Panem will fall. What replaces the existing social order will be up to us.

  

  

  

  

  

• Ship Carrying Over 11 Tons Of Low-Enriched Uranium Leaves Iran For Russia

  Earlier today, a ship carrying over 25,000 pounds (11,000 kg) of low-enriched uranium materials allegedly departed from Iran for Russia, in what was dubbed a key step in Tehran’s implementation of this year’s historic nuclear accord with world powers. According to John Kerry this was “one of the most significant steps Iran has taken toward fulfilling its commitments.”

  “I am pleased to report that we have seen important indications of significant progress towards Iran completing its key nuclear commitments under the deal,” Kerry said in a statement.

  The Russian foreign ministry confirmed the report after Ali Akbar Salehi, head of Iran’s Atomic Energy Organization, told the ISNA news agency: “The fuel exchange process has taken place.”

  The shipment included the removal of all of Iran’s nuclear material enriched to 20 percent that was not already in the form of fabricated fuel plates for the Tehran Research Reactor, he said.

  Monday’s shipment more than triples the previous two- to three-month breakout timeline for Iran to acquire enough weapons grade uranium for one weapon, Kerry said, hailing it “an important piece of the technical equation that ensures an eventual breakout time of at least one year by Implementation Day” according toa  Xinhua report.

  

  AFP adds that according to ISNA’s report, Iran had sent 8.5 tons of low-enriched nuclear material to Russia and received “around 140 tons of natural uranium in return.”

  State Department spokesman Mark Toner described the cargo as a 25,000-pound “combination of forms of low-enriched uranium materials” including five and 20 percent enriched uranium, scrap metal and unfinished fuel plates.

  “So that actually constitutes, I think, almost all of Iran’s current stockpile of enriched uranium,” he added.

  Under the nuclear deal reached by Iran and world powers in July, Iran is required to ship out all except 300 kilograms of low-enriched uranium.

  The French media outlet adds that under the deal struck in July in Vienna between Iran and the P5+1 group of world powers, Tehran agreed to cut its low-enriched uranium (LEU) stockpile to less than 300 kilograms (660 pounds).

  This would mean that it would not have enough fuel on hand to rapidly enrich enough to the levels needed to build a nuclear weapon — lengthening its so-called “breakout time” to more than a year.

   

  Kerry said that Iran’s shipment to Russia had already tripled the amount of time it would take to produce enough fuel for a bomb from two or three months up to six or nine.

   

  And he dubbed it “a significant step toward Iran meeting its commitment to have no more than 300 kilograms of low-enriched uranium by Implementation Day.”

  Kerry promised that the United States would repeal its nuclear-related sanctions once Implementation Day arrives. But he warned “we will remain vigilant to ensure that its implementation achieves exactly what we set out to do from the very beginning of these negotiations, to ensure that Iran’s nuclear program is and always remains exclusively for peaceful purposes.“

  Meanwhile, even though the IAEA was not able to independently verify Iran’s claim, it was said the atomic agency would be given greater access to Iranian facilities for its inspectors, “and will install seals and monitoring devices to ensure there is no backsliding.” The United States would wait until the UN agency makes a ruling to say formally whether Washington now accepts that Iran has less than 300 kilos of LEU.

  In other words nobody actually knows whether or not Iran did as it says it did.

  So, in a nutshell, this is how Iran’s compliance with Obama’s historic nuclear deal took place:

  • Iran, whose parliament has still not signed the “landmark” historic deal, has self-inspected a ship loaded with 11 tons of low-enriched uranium which has been dispatched toward Russia, or so Iran promises.
  • The Russian foreign ministry, which is supposed to receive Iran’s 11 tons of low-enriched uranium, or “almost all of Iran’s current stockpile of enriched uranium”, has taken Iran’s word for what is on the ship and has confirmed that the exchange process has taken place.
  • This is the same Iran, which has already breached the terms of the nuclear deal (which it has not signed) by launching a ballistic missile test several weeks ago.
  • Assuming the ship is indeed loaded with weapons-grade uranium, Putin is quite grateful as he just got a free gift of enough material to create another several nuclear warheads assuming of course, Russia does not just turn around and send back the Iran cargo under a different ship, one which will not be “self-reported” by Iran.

  Finally, assuming Iran has complied with the nuclear shipment, once this has been verified, the United States and its allies will begin to dismantle the sanctions imposed on Tehran in response to its nuclear program. This means all those 30 million barrels of Iran oil currently loaded up on tankers somewhere around the globe, just waiting for the official lifting of sanctions, will promptly flood the physical market and send the price of oil plunging even more.

  

  

  

  

  

• What Are The Chances For Peace In 2016?

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

  Each year more than one trillion dollars goes up in smoke. More accurately, it is stolen from the middle and working classes and shipped off to the one percent. I am talking about the massive yearly bill to maintain the US empire. Washington’s warmongers have sold the lie that the military budget has been gutted under President Obama, but even when the “Sequester” was in effect military spending continued to increase. Only the pace of increase was reduced, not actual spending.

  None of this trillion dollars taken from us is spent to keep us safe, despite what politicians say. In fact, this great rip-off actually makes us less safe and more vulnerable to a terrorist attack thanks to resentment overseas at our interventions and to the blowback it produces.

  The money is spent to maintain existing conflicts and to create new areas of conflict overseas that in turn feeds the demands for more military spending. It is an endless cycle of theft and deceit.

  Billions were spent not long ago overthrowing an elected government in Ukraine and provoking Russia. A new Cold War is a bonanza for the military industrial complex, the pro-war think tanks, and the politicians. NATO is on the move in eastern Europe, placing heavy weapons right on Russia’s border and then blaming the Russians when they complain about the rising militarism. NATO military exercises on Russia’s border have increased and become more confrontational.

  In the Middle East, more billions have been spent attempting to overthrow the secular government of Syria over the past five years. The big winners in this grand scheme have been the Islamist extremists, who are funded directly and indirectly by the US and its allies. NATO is planning to go back into Libya, an admission that its 2011 “liberation” of that country has been a disaster.

  In Asia, the US empire challenges and provokes China, sending military ships and aircraft into territory China claims in the South China Sea. How much will they continue to escalate before China gets fed up?

  The more money sent to the Pentagon and other parts of the Washington war apparatus, the more danger we are in.

  Meanwhile, almost all of the presidential candidates promise more military spending and more war if they are elected. Did no one tell them we are broke and making enemies fast with our interventions? Do they think Fed-created money will really continue to fuel the US empire indefinitely?

  What are the prospects for a u-turn toward peace and prosperity in 2016? We must be realistic. Presently the numbers are not on our side. But the good news is we do not need a majority to succeed in our fight for peace and liberty. We need only a dedicated and uncompromising critical mass to make great headway.

  What can we do to work for peace in 2016? First we must tune out the lying propaganda served up by the US mainstream media. We must educate ourselves so that we can help educate others. We can be sure to tune in and support alternative sources of news and analysis. We can tell others about the wealth of truth available to those who seek and question. We must not compromise and never accept the lesser of two evils.

  If the people demand peace, the politicians will follow. Let’s demand peace in 2016!

  

  

  

  

  

• The Fed's Rate Hike Trickles Down: JPM To Hike Deposit Rates… For Its Wealthiest Clients

  Moments after the Fed announced it would hike rates for the first time in 9 years on December 16, the ink on Yellen’s statement was not yet dry and one after another bank announced it would hike its respective Prime rate – the benchmark rate on everything from small business loans to credit card monthly fees – from 3.25% to 3.50%.

  Yet while banks scrambled to increase how much they collect courtesy of the Fed’s rate hike, none showed any interest in boosting the interest they pay on deposits, a rate which currenly averages below 0.1% across the US financial system. 

  As the WSJ put it two weeks after us, “hours after the Fed’s decision earlier this month, the largest U.S. banks announced increases in the prime rate, a reference rate for a variety of loans including credit-card debt. But most banks didn’t make any corresponding hikes to the interest they pay to depositors. The moves signaled that at least for now most banks hoped to pocket the gains from the Fed’s move.”

  And this is what we said two weeks ago, “those who have savings at US banks, please don’t hold your breath to see any increase on the meager interest said deposits earn: after all banks are still flooded with about $2.5 trillion in excess reserves, which means that the last thing banks care about is being competitive when attracting deposits.”

  We were wrong: some should certainly have held their breath, because as the WSJ reports today, “some bank customers won’t have to wait much longer to reap benefits from the Federal Reserve’s decision to raise interest rates.”

  Case in point: J.P. Morgan, which will begin raising deposit rates for some of its “biggest clients” in January. “Biggest” clients, of course, is a universal euphemism for “wealthiest.”

  The WSJ adds that J.P. Morgan’s deposit-rate increase will affect most institutional clients and the size of the increases will vary, the person said. They will apply to “operating” deposits, which are deemed stickier and less likely to be withdrawn in a crisis.

  Operating deposits are more attractive to banks than so-called excess or “nonoperational” deposits, which are considered riskier. New regulations require that banks hold bigger capital cushions for deposits considered riskier such as noninsured balances held by hedge funds.

  Another word for nonoperational deposits are “those held by 99% of the population”, or those who actually would benefit from an increase in the deposit rate.

  Banks in the U.S. have moved aggressively in the past two years to reduce those nonoperational deposits. State Street Corp. earlier this year took the unusual step of charging some clients for large deposits and J.P. Morgan cut that type of deposit by more than $150 billion in 2015.

  The decision to pay its wealthiest clients is a first, or as the WSJ calls it, “an early mover among its American rivals.”

  Representatives for Bank of America Corp. , Wells Fargo & Co. and Citigroup Inc. said there has been no change to deposit rates at the banks. A representative for Goldman Sachs Group Inc. had no immediate comment, while one for Morgan Stanley declined to comment.

  However, now that a first-mover has emerged, expect every other bank to follow suit, since as much as they don’t need deposits now, they are well aware that when (if) the Fed drains the $2.6 trillion in excess reserves and banks have to rely on deposit funding once more, those banks which lost the most clients with “operating” deposits will be severely disadvantaged.

  Unfortunately, for all those who have less than a few hundred thousand parked in a deposit account collecting nothing (and at a constant risk of “bail-in”) and are thus considered “nonoperational” accounts by the management teams of banks bailed out by taxpayers just a few years ago, you can continue holding your breath for a long time until the trickle-down generosity of Janet Yellen bathes you in the most immaterial of deposit rate hikes.

  

  

  

  

  

  

• ISIS Flees Ramadi, This Is What They Left Behind: Photo Album "From The Devil's Grasp"

  Last Tuesday, Iraqi troops made a concerted effort to retake Ramadi, which is around 60 miles west of Baghdad. 

  The city fell to Islamic State back in May when, according to Ash Carter’s assessment anyway, the army showed no will to fight in the face of the advancing ISIS hordes. Once the army, with the help of Sunni tribal fighters, retook a strategic command center they began to advance on a government complex where, according to sources, some 100 militants were dug in. 

  

  Despite sniper fire, suicide bombers, and IEDs the Iraqis were able to capture the government complex, marking the latest in a string of strategic and psychological victories for Baghdad’s much maligned forces. 

  Ramadi has been “fully liberated,” Brig. Gen. Yahya Rasool said on Monday. Here’s the statement from the Joint Operations Command:

  “Yes, Ramadi city has been liberated and security forces, like the heroes of the counter terrorism forces, flew the Iraqi flag over the government compound building in Anbar. The flag is flying now to write a new history, and with the grace of God, the rest of the cities will be liberated.”

  As you can see from the map shown above however, merely retaking the government complex doesn’t mean the city is an “ISIS-free zone” (to use the ridiculous term the US and Turkey made up for the area north of Aleppo and West of the Euphrates in Syria). “Operations continued Monday to clear remaining Islamic State militants from other areas of Ramadi, security officials said, particularly in the eastern suburbs where many of the group’s holdouts had fled the day before as Iraqi forces advanced,” WSJ notes.

  “Gen. Ismail al-Mahlawi, head of military operations in Anbar, quickly clarified that government forces had only retaken a strategic government complex and that parts of the city remained under IS control,” AP writes, adding that although “IS fighters have retreated from about 70 percent of city, [they] still control the rest and government forces still don’t fully control many of the districts from which the IS fighters have retreated.”

  Right. And it’s unlikely that they’ll ever regain “full control” of the city where “ever” means sometime in the foreseeable future. There’s been talk of stationing the Sunni tribesmen in captured areas to ensure “the terrorists” don’t come back. Ramadi is Iraq’s Sunni heartland and thus Abadi isn’t keen on enlisting the assistance of Iran’s Shiite militias either to help with the fight or to occupy the city once it finally is fully liberated. 

  In short, Iraq doesn’t want the city to descend into sectarian violence in the wake of the ISIS withdrawal, but the Sunni fighters are undertrained and ill-equipped which leads one to question how effective they’ll ultimately be when it comes to defending captured ground. 

  In any event, here are some images which depict the aftermath of the latest fighting and should give you a good idea of what the Iraqis found when they entered the city which The Daily Mail says has been wrenched from the “Devil’s grasp”:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  Source: AFP via DailyMail

  So there you have it. A smoldering pile of rubble is 70% of the way “liberated.” Hallelujah.

  Don’t forget that the scenes shown above are from a city that is just an hour by car from the capital of a country the US supposedly “saved” from a bleak future under a brutal dictator more than a decade ago. This, we suppose, is what a thriving democracy looks 12 years after a US intervention. 

  Next on the list is Mosul. In light of the following image which appeared in a piece of ISIS propaganda released earlier this year, we’re interested to see what the city actually looks like now that the group has been in control for some 18 months…

  

  

  

  

  

• Voluntary Enslavement

  Submitted by Jeff Thomas via InternationalMan.com,

  In recent years, I’ve been predicting that the governments, particularly those of the EU and US, will seek to eliminate paper currency. The objective will be to make monetary transactions between private parties as difficult as they can, by requiring that all transactions take place through financial institutions. If they can do this, they will effectively make a run on banks impossible in the future as the banks will simply shut off the money tap, as the Greek banks did. This power will additionally make negative interest rates and confiscations more possible.

  A few years ago, this forecast was seen by most as poppycock, but the prelude has now begun, with most of the world’s banks disallowing large transfers and some lowering these amounts over time. Many governments are aiding the effort, requiring reporting on some transfers.

  At some point, governments and banks will seek to eliminate paper currency, completing the encirclement of private party monetary transfer. From that point on, it would be illegal for any transfer of money to be undertaken except through a financial institution (most probably through the use of a plastic card or smartphone).

  At about the same time as I began predicting the above, I also began forecasting what I considered to be a companion campaign against virtual currencies, such as Bitcoin. Such currencies will prove to be a threat to a bank-only transfer system as they would provide an alternate method of payment between private parties – one that does not come under the control of any government. Governments and financial institutions will therefore seek to eliminate virtual currencies, or make them too difficult to use.

  The greatest weakness inherent in virtual currencies, in my view, is that they’re intangible. Unlike precious metals which, once physically possessed, exist forever, virtual currencies exist only as an idea. Like all fiat currencies, they have value only as long as two parties continue to have faith in their value. If one party decides that the value has ceased to exist, the other party is out of luck. The value of a virtual currency can go to zero if a willing recipient cannot be found.

  Presently, virtual currencies pass from one hand to another but, at some point, are often transferred into something tangible, such as paper banknotes, in order to deal with those who will not agree to accept the virtual currency. I believe the attack against Bitcoin will begin at this point – banks and/or governments would make Bitcoin unacceptable for transfer into some other form of money.

  Recently, the EU began a plan to crackdown on virtual currencies, with specific attention to Bitcoin. The European Commission plans to, “strengthen controls of non-banking payment methods such as electronic/anonymous payments and virtual currencies and transfers of gold, precious metals."

  The justification for the crackdown, as stated by EU ministers, is, “to curb more effectively the illicit trade in cultural goods." Clearly, this has been in the works for a while, but the EU has been waiting for a suitable event to occur that will help the public to believe that the crackdown is justified. Not surprising, then, that the crackdown was announced shortly after the Paris attacks.

  The two predictions described above are therefore coming together in quite a surprising way:

  • The EU proposes to eliminate electronic money transfer by Bitcoin, as electronic money transfer encourages and enables terrorism.

  • The EU proposes to convert all retail banking to electronic money transfer, as electronic money transfer discourages and disables terrorism.

  As blatantly self-contradictory as this is, the public will only absorb the claim that both measures are meant to kerb terrorism. Out of fear for their safety, they will blindly support both measures. Both measures will then take a portion of their freedom away.

  And that’s the point of this article – the recognition of methods governments utilise to push through policies that, when examined, are clearly not in the interests of freedom.

  One hundred years ago, in his Satyagraha campaign in South Africa, Mohandas Gandhi came before General Smuts, head of the Transvaal Government. He said quietly, “I want you to know I intend to fight against your government.” General Smuts laughed and replied, “You have come here to tell me that? Is there anything more you want to say?” to which Mister Gandhi answered, “Yes, I am going to win.” “Well,” said General Smuts, “and how are you going to do this?” Mister Gandhi replied, “With your help.”

  Mister Gandhi did win. His method was to get the General to work against his own interests without knowing that he had lost control of them. Mister Gandhi understood that, if he undertook specific actions, the General would respond with knee-jerk reactions, not realising that he was being led down Mister Gandhi’s desired path until he no longer had any wiggle-room.

  Today, leaders and policymakers are acutely aware of the complacency of the majority of people. Rather than use force to get people to give up their freedoms, they use the populace’s inclination to pay scant attention to the details of new policies – to instead follow the easy-to-absorb rhetoric instead. In this fashion, leaders can remove freedoms one after the other, no matter how transparent or even blatantly contradictory the methodology (as in the imposition of electric money transfers).

  It is the Nature of the State to Seek to Dominate the Populace

  Freedom is one of the most precious and hard-won of all conditions in life. A government applies the removal of freedoms in a ratchet effect; once a freedom has been taken away from a population, it’s rarely returned. Therefore, freedom tends to deteriorate over time in any nation, no matter how idealistically-founded it may have been. As an illustration, we may review the British Magna Carta of 1215, or the American Constitution of 1787, and find that virtually all the “inalienable rights” contained in them have been either removed or watered-down dramatically through subsequent legislation. Neither the UK nor the US qualifies as a “free” state at this point.

  But, if the reader is a UK or US citizen, he may not wish to accept this statement. If not, he might benefit from the advice of one Thomas Jefferson, who maintained that, "When governments fear the people, there is liberty. When the people fear the government, there is tyranny.” Today, in both countries, people are free to criticise candidates for election but, if they question the validity of the state to rule over them, they tend to look over their shoulder before speaking too loudly.

  To repeat: “Freedom is one of the most precious and hard-won of all conditions in life.” Freedom is not static. Those citizens who hope that it will simply remain intact if unattended will be mistaken, for the State will always seek to remove freedoms over time. It’s therefore the chore of every citizen to remain ever vigilant and to question everything that his government seeks to do to initiate change. It’s often a dull, tedious task, but a very necessary one if the citizen values his remaining freedoms.

  None of us can fully escape the more predatory tendencies of governments. We can, however, question their every move and adjust our lives so that the State’s impact on us is minimised.

  

  

  

  

  

• "It Really Brings It All Out": Seized Documents Detail Depth Of ISIS Bureaucracy

  On Saturday, we brought you “Secret” Documents Show ISIS May Be Flesh-Eating, Organ Harvesters, US Says,” in which we highlighted “Fatwa 68”, a decree handed down by Islamic State’s Research and Fatwa Committee and recovered in the raid that killed the group’s “gas minister” back in May. 

  Fatwa 68 sanctions organ harvesting from enemy captives when it would mean saving the life of an ISIS fighter. Amusingly (in a morbid kind of way), the group’s “scholars” justify pulling organs out of prisoners by noting that “a group of Islamic scholars have permitted, if necessary, one to kill the apostate in order to eat his flesh, which is part of benefiting from his body.” In short, if you can eat an enemy combatant, it’s not clear why you should be allowed to harvest his organs. 

  

  The document was part of a cache of evidence discovered in the raid, Reuters contends. More specifically, the US allegedly seized “seven terabytes of data in the form of computer hard drives, thumb drives, CDs, DVDs and papers.” 

  We suspected at the time that we’d likely see more of these “top secret” documents in the days and weeks ahead as the US attempts to provide the public with a plausible excuse for why – gun to our heads – America will be forced to take a more active role in Syria and Iraq in order to eradicate “the terrorists.”

  Sure enough, Reuters is out with more leaked ISIS papers including – hilariously – a fighter application form. Here’s more:

  Islamic State has set up departments to handle “war spoils,” including slaves, and the exploitation of natural resources such as oil, creating the trappings of government that enable it to manage large swaths of Syria and Iraq and other areas.

   

  They provide insight into how a once small insurgent group has developed a complex bureaucracy to manage revenue streams – from pillaged oil to stolen antiquities – and oversee subjugated populations.

   

  “This really kind of brings it out. The level of bureaucratization, organization, the diwans, the committees,” Brett McGurk, President Barack Obama’s special envoy for the anti-IS coalition, told Reuters.

   

  For example, one diwan, roughly equivalent to a government ministry, handles natural resources, including the exploitation of antiquities from ancient empires. Another processes “war spoils,” including slaves.

   

  “Islamic State is invested in the statehood and Caliphate image more so than any other jihadist enterprise. So a formal organization, besides being practical when you control so much contiguous territory and major cities, also reinforces the statehood image,” said Aymenn al-Tamimi, a fellow at the Middle East Forum think tank and an expert on IS’s structure. 

   

  In the documents, there is a ruling on proper procedure for filling out the personal details of prospective fighters: name, gender, and communications method – telephone, telegram, Skype or the mobile messaging service WhatsApp.

  So once again, we’re to understand ISIS not as a brazen band of desert bandits armed and funded by Washington’s regional allies for the sole purposes of destabilizing the Assad regime, but rather as an organized quasi-state with multiple levels of government and a hierarchy of officials who control everything from “natural resources” to the slave trade.

  The punchline, of course, is the contention by Brett McGurk that the US needed these documents to understand that there’s an bureacratic element to Islamic State’s operation. After all, it was The Pentagon which said the following more than three years ago:

  “…there is the possibility of establishing a declared or undeclared Salafist Principality in eastern Syria (Hasaka and Der Zor), and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.”

  So while the establishment of a proto-state located in the exact same place that ISIS currently operates was “exactly what the supporting powers to the opposition wanted” in 2012, Washington is somehow surprised at the “level of bureaucratization.”

  And while we’re skeptical of Reuters’ contention that the stash of documents “provide insight into how a once small insurgent group has developed a complex bureaucracy” (because again, that was the goal all along as proven by the “Salafist principality” quote), we would encourage Washington to study the “secrets” of Islamic State’s administrative structures closely because if you know anything about the bureaucracy in Washington, you know ISIS has to be doing a better job almost by default.

  *  *  *

  ISIS fighter recommendation form:

  Foreign Fighter

  

  

  

  

  

• Howard Marks Warns "Investor Behavior Has Entered A Zone Of Imprudence"

  Via Finanz und Wirtschaft's Christoph Gisiger,

  Howard Marks, Chairman and founder of Oaktree Capital, warns that investor behavior has entered the zone of imprudence and thinks that China is the biggest threat for the US economy.

  If you want to know from Howard Marks which stocks are going to do well next year, you’re going to be disappointed. The chairman of Oaktree Capital, one of the most successful investors on Wall Street, does not need to pretend that he can look into the future. Instead, he focusses on the things that are most important to investing for the long run: risk control, a good sense of market cycles and inspiration which, for example, he finds in the world of sports.

  Mr. Marks, we’re at an interesting point in time. For the first time since the financial crisis the Federal Reserve has raised the interest rate. How does the world look like from your perspective at this historical moment?
  We’re in a very strange market. Most people are doing a good job of thinking and the consensus is not necessarily wrong today. On one side, the world is a very uncertain place and I think the average investor understands that. Most people are sober and sensitive to all the uncertainty. You don’t see many people who are massively bullish. Nobody is saying stocks are going to the moon. Back in 1999 there was a book published with the title “Dow 36’000” predicting that the Dow Jones Industrial would almost triple. Well, that book is not being re-published today.

  And on the other side?
  Security prices are not low. I wouldn’t say high, but full. So people are thinking cautiously but they’re acting bullish and they’re behaving in a pro-risk fashion. While investor behavior hasn’t sunk to the depths seen just before the crisis, in many ways I feel it has entered the zone of imprudence.

  How do you explain this juxtaposition?
  The answer is that they are forced to be buyers by the central banks. The rate on money markets is close to zero and treasuries yield between one and two percent or even negative in Europe. Most investors can’t live with that. They have to move out the risk curve in order to try to get five, six or seven percent. That has induced or forced risky behavior. To me, this is the most important thing that’s been going on over the last few years, and it still is here at the end of 2015.

  There are a lot of risks lurking out there: Monetary policy divergence between the US and Europe, a high degree of stress in the emerging markets and the specter of further terrorist attacks. What’s the most important risk for investors?
  Academics say risk equals volatility and the nice thing about volatility is that it gives them a number they can manipulate and use in their formulas. But I don’t worry about volatility and I don’t think most investors are worried about volatility. We know prices will go up and down. But if something is going to be worth a lot more in the future than it is today we’re going to buy it regardless. So people don’t worry about volatility. What they worry about is the potential of losing money.

  You wrote extensively about risk in one of your recent memos. What does risk mean to you?
  Most people think that there is a positive relationship between risk and return: If you make riskier investments you can expect a higher return. That’s total nonsense! Because if riskier assets could be counted on for higher returns than they wouldn’t be riskier. The reality is that if you make riskier investments you have to perceive that there will be a higher return or else you have no motivation to make that investment. But it doesn’t have to happen: If you increase the riskiness of your investments the expected return rises. But at the same time the range of outcomes becomes greater and the bad outcomes become worse. That’s risk and that’s what people have to think about.

  Where do you see potential for bad outcomes?
  Investors are not doing what they want to do. They’re doing what they have to do. They are like “handcuff volunteers”. Today, if you want to make a decent return you have to take risks. And most people have been willing to do that. And because of that money has flown into high yield bonds and leveraged loans. For example, at one time there were ninety-five straight weeks of inflows into leveraged loans mutual funds.

  Now, credit markets have become quite nervous. What goes through your mind when you look at the rising spreads on high yield bonds?
  That’s a good thing. If you’re a buyer you would rather buy at a high risk premium than on a low one, everything else being equal. Maybe the onrush of money was too strong, maybe the attitudes were too optimistic. Now people are a little more worried, especially since they already had a little bad experience in Ukraine, in Greece and in China over the summer.

  Then again, the consequences of a full blown crisis in high yield bonds could be severe.
  The riskiest thing in the world is the belief that there is no risk. When people think there is no risk, they do risky things. By contrast, when people think there is risk than they behave in a safe manner and the world becomes a safer place. That’s why I welcome the recent developments. They remind us that today the risks are substantial and they should be undertaken only with considerable forethought. My dad used to tell the story of the gambler who went to the race track and said: “I hope I break even because I need the money.” The market is not an accommodating machine. It will not go where you want it to go just because you need it to go there. So if you’re talking about money that you can’t afford to lose then you can’t say: “Just give me the highest yield.”

  Investors aren’t the only ones who behave riskily. The central banks themselves have placed venturous bets on unconventional policies like quantitative easing and negative interest rates. What’s the price we’re going to have to pay for that?
  This is one of the factors that contributes to making the world a risky place today. In the United States, we had seven years of super low interest rates to try to stimulate. That has never happened before. What are the long term effects on the economy? What’s the effect on lending behavior? And, how will that go now that the Fed has started to raise rates? What will that do to the world? The answer is very simple: We don’t know. And anybody who thinks he knows is kidding himself.

  Some kind of wild card is the steep fall in energy prices. Has oil reached a bottom now?
  There is nothing intelligent to be said about the price of oil, as I wrote in a memo at the end of 2014. Oil prices have been controlled by OPEC (editor’s note: Organization of Petroleum Exporting Countries) for the last forty years. So clearly, the past doesn’t tell you anything about the free market price of oil. There are assets we feel we can value: stocks, bonds, companies and buildings. They all have in common that they deliver a stream of cash flows that can be valued through a proper discounting process. But how do you value an asset like a barrel of oil or an ounce of gold that doesn’t produce cash flow? You can’t!

  Oil was one of the most important factors for the financial markets this year. What’s your outlook on the eve of a new year?
  Everybody would like to know what’s going to happen a year from now. What the economy, interest rates, exchange rates, earnings and all that stuff is going to. But it’s very, very hard to know. My favorite quotation on this subject comes from the economist John Kenneth Galbraith: “We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.”

  So how should investors prepare themselves for the next year?
  The most important thing to do is to assess not the future but the present. Awareness and understanding of cycles is an essential tool for investment survival. That’s why I always say: “We may never know where we’re going, but we’d better have a good idea where we are.”

  Where are we today?
  The point is, we had a crisis in 2007-2008. The central banks all moved to stimulate the economies to get them going. But all around the world economies are growing slowly: Europe, America, Japan – and China is slowing down. That’s what’s happening today. The last six years have been slow and most people believe that the next ten or even twenty years will be slow compared to the ‘eighties and the nineties. And I must say, I am pretty convinced that they’re right. I happen to believe that the nineties especially, but maybe also the eighties, were in many ways the best of times and are not going to be duplicated. So in my opinion we’re not going back to a high growth environment.

  As a matter of fact, some people fear that the US economy could even fall into a recession.
  There will always be cycles and that means there will always be a recession coming. But is it one year away or five? That’s the question! I think we’re going to limp along in a slow growth mode. There is always a possibility of some acceleration. But there is no boom so there is no need for a bust. Booms usually create overexpansion and when it turns out that it was excessive it turns into a bust. Today, I don’t see boom and I don’t see bust. So I don’t see anything that could cause a recession in the short term, at least not in 2016 – and I’m not characterized an optimist.

  And how about further down the road?
  I don’t think the world has to worry about the US. But it has to worry about China. So if you’re asking me when the US will have a recession then the question is how long will China go without a recession?

  How come?
  China has been going for the last twentyfive years with superior growth and without a recession. It’s not going to grow 25 years in double digits again. China is going to grow in single digits and it may have ups and downs. And if China has a recession, that’s very significant for the whole world. Looking at the statistics you might say China is not too important for the US. For instance, the percentage of the profits of the S&P 500 (SP500 2053.13 -0.38%) companies that comes from China is just 1%. But a recession in China would have significant effects on other countries we sell to. The US would not be untouched. So if you need a culprit for a future recession in the US then it’s likely China will contribute.

  Another concern are weak earnings. Yet US companies are paying out dividends and buying back shares at a record pace. How healthy is that for Corporate America?
  One of the worst things is when a business behaves in a short term way. When the management does things which are not desirable just to please shareholders, either to make the stock go up or to hold on to their jobs. I’m not saying that all buybacks and dividends are wrong. But stock prices are on the high side of fair. The Price/Earnings ratio on the S&P 500 today is 19, whereas the post war average is 16. So if I wouldn’t buy the stock as an investor, why should the company be buying it? Don’t they have better use for their money?

  Obviously, there seems to be a lack of good ideas.
  There is an interesting book called “The Outsiders” by William Thorndike. He follows the careers of eight outstanding CEOs like Henry Singleton of Teledyne, Katharine Graham of the Washington Post, John Malone of Liberty Media and Warren Buffett of Berkshire Hathaway (BRK.A 199259.5 -0.93%). They all were outsiders because they behaved differently from the crowd. For example, when an industry would go through an acquisition wave these CEOs would not participate. They would think: “Everybody else is buying and that’s driving up the price of companies so we shouldn’t buy.” They were called capital allocators and they treated cash as a valuable resource. And today, with the average stock on the expensive side, these CEOs wouldn’t be buying their stocks back.

  Those CEOs were also good at investing. What does it take to be successful in investing?
  For me, the definition of a great investor is one who performs well in the good times and doesn’t get killed in the bad times. In other words: When the tide goes out he’s prepared because he has a margin of safety in his portfolio. It’s like in the world of sports: Pete Sampras for example, who is widely regarded as one of the greatest in tennis history wasn’t always an exciting player. His highlights were hard to distinguish from his low lights. But that means his worst moments were almost as good as his best moments. That would describe a terrific money manager: Consistent and not too much excitement, no big ups and downs – and that’s what we try to do at Oaktree Capital.

  In your recent memo you worte about inspiration taken from the world of sports. What else can investors learn from top athletes?
  If you want to be a superior player you have to have self confidence. The same is true for the superior investor. At some point you have to act boldly. You have to say: “This is my conviction” and you have to act on it. You can’t have five hundred different stocks and expect to have a great return because you’ll be diversified into mediocrity. Also, you have to think different from the crowd because if you think the same you act the same and you perform the same. That’s what I call second level thinking. A first level thinker says: “It’s a great company so I should buy the stock”. In contrast, the second level thinker says: “It’s a great company. But it’s not as great as everybody thinks so the price is too high and I should sell.”

  In your memo you also refer to the baseball star Yogi Berra. He was famous for saying things like “It’s too crowded, nobody goes there anymore”. What kind of trades are too crowded in today’s markets?
  Today, I don’t see any glaring exceptions. Of course, I see some asset classes that are somewhat more attractive than others. But I don’t see things that are dirt cheap or crazy high, except the possibility of social media stocks and technology IPOs. But other than that I don’t see anything glaringly wrong. I just think the whole world is priced for a better future than we have.

  So what’s your strategy in this kind of market?
  We are living in a low return world caused by the central banks pulling down the risk-free rate to zero. And yet, even though the returns are low, the risks are substantial. That’s why at Oaktree our mantra for the past four and half years has been “move forward but with caution.” The outlook today is not so bad and prices are not so high that they demand complete caution and defensiveness. But at the same time prices are not so low and the outlook is not so good that we should be aggressive. So our strategy is not maximum defensiveness, not aggressive. It’s somewhere in between, but with a significant emphasis on caution. And that means you have to select your investments carefully.

  

  

  

  

  

• One Of The Two Most Crowded "Consensus Trades" Of 2015 Just Ended With A Whimper

  Back in January we laid out the “two most crowded trades” in the hedge fund community as we entered 2015. The first was being long the US dollar, a trade which as we updated two weeks ago has gotten so big, it is now the biggest consensus trade by a factor of 3x…

  

  … one which when it finally does blow up, will wipe out many macro and micro “hedge” funds who have been frontrunning the Fed’s rate hike since mid-2014, and the second Yellen hints at a rate cut or worse the shockwave from the USD liquidation will be felt around the globe.

  For now, however, being long and strong the USD continues to be profitable in a world in which every other central bank is either desperate to crush their currency, like Europe and Japan, or even more desperate to boost it, like Nigeria, South Africa and Brazil.

  

  What about the other massive consensus trade in early 2015? Here is what we said then: 

  For the second year in a row are not only massively short the 10Y, but in fact as the latest CFTC net spec data shows, are even shorter than they were a year ago, when the 10 Year was trading about 100 bps wider. Worse: as the chart below shows the only time in history when specs were shorter the 10Y was five years ago, in early 2010. What happened then was that the 10Y went from 4% to 2.5% in the span of just a few months, facilitated largely by one of the biggest short squeezes in 10 Year history.

   

  

   

  The 10 Year is currently trading at 1.95%: a comparable short squeeze now to that that took place in 2010 would send the 10 Year yield crashing to level where the German Bund is trading now.

   

  Will that happen, and how much more pain can hedge funds absorb before they get a collective tap on the shoulder, we don’t know. We do know, however, that the unprecedented bearish sentiment toward 10Y US Treasuries among the speculative community makes it one of the two most crowded trades going into 2015.

  Since then the 10Y rose, dropped, meandered around, and is set to exit 2015 precisely where it entered it: just about 2.2%.

  One thing, however has changed.

  From being the “other” biggest consensus trade 12 months ago, hedge funds have decided there is no longer a point in “not fighting the Fed” (which as a reminder has also been desperate to push the long end of the curve higher and has not only failed, but with the curve flattening dramatically, has been told by the market it’s rate hike was a policy mistake) and have unwound their near record Treasury short position in droves.

  As Bloomberg reports, confirming what we said nearly a year ago, “hedge-fund managers and other large speculators spent December 2014 setting the biggest bets against Treasuries in four years. Fast forward 12 months and they’ve abandoned those positions.”

  “As long as U.S. inflation is stable, there’s some value in buying U.S. Treasuries,” said Kazuaki Oh’E, the head of fixed income at CIBC World Markets Japan Inc. in Tokyo.

  To be sure, the “value in buying US Treasurys” has nothing to do with stable inflation, and everything with frontrunning the recession and the Fed’s inevitable rate cut and/or QE4 (and more foreign central bank buying), which in turn will send the long end soaring as then and only then will the curve flattening trade unwind and those long TSYs will scramble to rush into equities.

  As Bloomberg further adds, “net short positions among futures traders — bets against the market — have been close to zero for the first two weeks of December, based on the latest data from the U.S. Commodity Futures Trading Commission. Shorts increased to as much as 261,282 on Dec. 30, 2014, the most since May 2010.”

  

   

  Meanwhile, never deterred by being wrong 5 years in a row in their forecasts for rising TSY yields, economists surveyed by Bloomberg project the 10-year yield will, once again, rise to 2.80% by the close of 2016, although even economists are starting to realize they can only lose so much credibility: at the start of July, the projection was for 3.3%.

  Ironically, now that the short overhang in the treasury complex is that much smaller, and as a result the threat of dramatic short squeezes is far lower, 2016 may be the first year when there is indeed a jerk higher in long end yields.

  That however, as Deutsche Bank explained a month ago in “How To Trade The Fed’s Upcoming “Policy Error” In Three Parts” will be the first part of a multi-leg move lower in yields. What  will follow this estimated blow out to as wide as 2.75% will be the buying phase, which will see the long end close 2016 at 2% if not less:

  With all else equal, the market can decide to interpret rates selloff and Fed liftoff as policy mistakes and price in the adverse impact on growth and position for further rate cuts in the future. This is the third phase, the twist of the curve – the front end remains constrained by the Fed, while the back end rallies. It is a bull flattener, after a continued rise in rates. We anticipate the 10Y UST yield to rally towards 2% after trading as high as 2.75% during the second phase. This is generally bearish for USD and for risk assets, and as such could mean higher equity vol. Given that rates vol should reach high levels during the bear-steepening phase, bull flatteners would bring back vol sellers and return of the carry trade.

  Of course, in a “market” manipulated beyond recognition (as BofA said earlier today), making any predictions is stupid, as such the best bet is to wait and see which side of the curve hedge funds congregate to as they inevitably will, and just do the opposite of what the crowd of “smartest people in the room” is doing, a trade which has been profitable for 7 years running.

  

  

  

  

  

• China Crash Sparks Holiday Hangover In Stocks & Commodities, Curve Flattens To 9-Month Lows

  Today's market summed up…

   

  The post-Christmas period started badly with a Bloodbath in Beijing… Biggest drop since August collapse

  

   

  And while today's damage took the shine off the Santa Rally, the S&P remains 90 points rich to the Fed Balance Sheet…

  

   

  Bonds remain the big winner post-Fed, stocks managed to scramble back into the green post-Fed in a VIX slamming panic and crude worst…

  

   

  But on the day – from the early close on Christmas Eve, everything closed red – despite the best efforts of the machines…

  

   

  But futures show that the weakness in China weighed in US stocks but as Europe closed a magical levitation began… Nasdaq futures were face-riupped into the cash close to go green….

  

   

  FANGs were bid (after NFLX took a big beating early on)

  

   

  Energy stocks hardest hit the damage was all at the open…

  

   

  As having decoupled from oil prices…

  

   

  Stocks took their lead from VIX ETFs… but even then they were not as correlated as normal (and note the very different behavior between the 'traded' VIX ETF and VIX itself)

  

   

  And just look what happened to VIX and S&P futures at their close…

  

   

  With VIX Futures & Options Total Open Interest dropping to a critical ledge…

  

   

  Credit and stocks continued their recent decoupling…

  

   

  Treasury yields leaked lower on the day… (thogh 2Y sold off) – we note YTD that 10y/30Y is down 11bps since the end of QE3 and 2Y up 52bps – can you say "policy error"?

  

   

  And notably flattened (to 9-month lows) – as Financials ignored it…

  

   

  The USD Index limped lower only to rally back to unchanged after EU close (amid notable AUD and CAD weakness)…

  

   

  Carnage once again in oil exporter FX markets… Ruble closes at record low against dollar…

  

   

  Commodities were all clubbed today… Crude dumped after Saudi deficit was exposed suggesting increased production possible. It is also interesting once again just how correlated silver and crude are…

  

   

  Except NatGas which has now soared over 26% in the last week…

  

   

   

  Charts: Bloomberg

  Bonus Chart: In summary – more red lasers than green lasers today…

  

  

  

  

  

• Monday Humor? Christmas Day Condom Catastrophe

  As Americans stuffed their faces with food and stuffed their sacks with gifts, three young German men had another 'stuffing' on their mind. As The Guardian reports, a man died on Christmas Day in Germany after he was hit in the head by a flying piece of metal from a condom machine that he and two accomplices blew up in an apparent robbery attempt.

  The 29-year-old man was taken to hospital in the western town of Schöppingen, near the Dutch border, by the two other men who fled the scene of the explosion in a car, leaving behind condoms and money scattered around the gutted vending machine.

   

  

   

  The two men told hospital officials that their friend had fallen down the stairs, injuring his head. Suspicious of their story, the officials called the police.

   

  During questioning, police said, one of them admitted that the three had blown up the condom machine, and that their fellow conspirator was hit in the head by metal as he tried to take cover.

  *  *  *

  Somewhere in here is a circular "Darwin"-esque joke, and/or a whole new meaning to the word "blow" – but we leave that to the reader. But for now – practicing "safe sex" seems even more relevant.

  

  

  

  

  

• 7 Investment Lessons From Mom

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  When I was growing up my mother had a saying, or an answer, for just about everything…as do most mothers. Every answer to the question “Why?” was immediately met with the most intellectual of answers; “…because I said so”.

  Seriously, my mother was a resource of knowledge that has served me well over the years and it wasn’t until late in life that I realized that she had taught me the basic principles to staying safe in the world of financial investments.

  So, by imparting her secrets to you I may be violating some sacred circle of motherhood knowledge, but I felt it was worth the risk to share the knowledge which has stood well the test of time.

  1) Don’t Run With Sharp Objects!

  It wasn’t hard to understand why she didn’t want me to run with scissors through the house – I just think I did it early on just to watch her panic. However, later in life when I got my first apartment I ran through the entire place with a pair of scissors, left the front door open with the air conditioning on, and turned every light on in the house. That rebellion immediately stopped when I received my first electric bill.

  Sometime in the early 90’s, the financial markets became a casino as the internet age ignited a whole generation of stock market gamblers who thought they were investors. There is a huge difference between investing and speculating, and knowing the difference is critical to overall success.

  Investing is backed by a solid investment strategy with defined goals, an accumulation schedule, allocation analysis and, most importantly, a defined sell strategy and risk management plan.

  Speculation is nothing more than gambling. If you are buying the latest hot stock, chasing stocks that have already moved 100% or more, or just putting money in the market because you think that you “have to”, you are gambling.

  The most important thing to understand about gambling is success is a function of the probabilities and possibilities of winning or losing on each bet made.

  In the stock market, investors continue to play the possibilities instead of the probabilities. The trap comes with early success in speculative trading. Success breeds confidence, and confidence breeds ignorance.

  Most speculative traders tend to “blow themselves up” because of early success in their speculative investing habits. The speculative trader generally fails to hedge against the random events that occur in the financial markets. This is turn results in the trader losing more money than they ever imagined possible.

  When investing, remember that the odds of making a losing trade increase with the frequency of transactions being made. Just as running with a pair of scissors; do it often enough and eventually you could end up really hurting yourself. What separates a winning investor from a speculative gambler is the ability to admit and correct mistakes when they occur.

  2) Look Both Ways Before You Cross The Street.

  I grew up in a small town so crossing the street wasn’t as dangerous as it is in the city. Nonetheless, I was yanked by the collar more than once as I started to bolt across the street seemingly as anxious to get to the other side as the chicken that we have all heard so much about. It is important to understand that traffic does flow in two directions and if you only look in one direction – sooner or later you are going to get hit.

  A lot of people want to classify themselves as a “Bull” or a “Bear”. The smart investor doesn’t pick a side; he analyzes both sides to determine what the best course of action in the current market environment is most likely to be.

  The problem with the proclamation of being a “bull” or a “bear” means that you are not analyzing the other side of the argument and that you become so confident in your position that you tend to forget that “the light at the end of the tunnel…just might be an oncoming train.”

  It is an important part of your analysis, before you invest in the financial markets, to determine not only “where” but also “when” to invest your assets.

  3) Always Wear Clean Underwear In Case You’re In An Accident

  This was one of my favorite sayings from my mother because I always wondered about the rationality of it. I always figured that even if you were wearing clean underwear prior to an accident; you’re still likely left without clean underwear following it.

  The first rule of investing is: “You are only wrong – if you stay wrong”

  However, being a smart investor means always being prepared in case of an accident. That means quite simply have a mechanism in place to protect you when you are wrong with an investment decision.

  First of all, you will notice that I said “when you are wrong” in the previous paragraph. You will make wrong decisions, in fact, the majority of the decisions you will make in investing will most likely turn out wrong. However, it is cutting those wrong decisions short, and letting your right decisions continue to work, that will make you profitable over time.

  Any person that tells you about all the winning trades he has made in the market – is either lying or he hasn’t blown up yet. One of the two will be true – 100% of the time.

  Understanding the “risk versus reward” trade off of any investment is the beginning step to risk management in your portfolio. Knowing how to mitigate the risk of loss in your holdings is crucial to your long-term survivability in the financial markets.

  4) If Everyone Jumped Off The Cliff – Would You Do It Too?

  At one point or another, we have all tried with our Mom’s what every other kid has tried to since the beginning of time – the use of “peer pressure.” I figured if she wouldn’t let me do what I wanted, then surely she would bend to the will of the imaginary masses. She never did.

  “Peer pressure” is one of the biggest mistakes investors repeatedly make when investing. Chasing the latest “hot stocks” or “investment fads” that are already overvalued and are running up on speculative fervor almost always end in disappointment.

  In the financial markets, investors get sucked into buying stocks that have already moved significantly off their lows because they are afraid of “missing out.” This is speculating, gambling, guessing, hoping, praying – anything but investing. Generally, by the time the media begins featuring a particular investment, individuals have already missed the major part of the move. By that point, the probabilities of a decline began to outweigh the possibility of further rewards.

  It is a well-known fact that the market works in what is called a “herd mentality.” Historically, investors all tend to run in one direction at one time until that direction falters, the “herd” then turns and runs in the opposite direction. This continues to the detriment of investor’s returns over long periods as shown by Dalbar investor studies.

  

  This is also generally why investors wind up buying high and selling low. In order to be a long-term successful investor, you have to understand the “herd mentality” and use it to your benefit – which means getting out from in front of the herd before you are trampled.

  So, before you chase a stock that has already moved 100% or more – try and figure out where the herd may move to next and “place your bets there.” This takes discipline, patience and a lot of homework – but you will be well rewarded for you efforts in the end.

  5) Don’t Talk To Strangers

  This is just good solid advice all the way around. Turn on the television, anytime of the day or night, and it is the “Stranger’s Parade of Malicious Intent”. I don’t know if it is just me, or the fact the media only broadcast news that reveals the very depths of human sickness and depravity, but sometimes I have to wonder if we are not due for a planetary cleansing through divine intervention.

  Back to investing – getting your stock tips from strangers is a sure way to lose money in the stock market. Your investing homework should NOT consist of a daily regimen of CNBC, followed by a dose of Grocer tips, capped off with a financial advisor’s sales pitch.

  In order to be successful in the long-run, you must understand the principals of investing and the catalysts which will make that investment profitable in the future. Remember, when you invest into a company you are buying a piece of that company and its business plan. You are placing your hard earned dollars into the belief the individuals managing the company have your best interests at heart. The hope is they will operate in such a manner as to make your investment more valuable so that it may be sold to someone else for a profit.

  This is also the very embodiment of the “Greater Fool Theory,” which states that there will always be someone willing to buy an investment at an ever higher price. However, in the end, there is always someone left “holding the bag,” the trick is making sure that it isn’t you.

  Also, you need to be aware that when getting advice from the “One Minute Money Manager” crew on television – when an “expert” tells you about a company that you should buy – he already owns it – and most likely he will be the one selling his shares to you.

  6) You Either Need To “Do It” (polite version) Or Get Off The Pot!

  When I was growing up I hated to do my homework, which is ironic, since I now do more homework now than I ever dreamed of in my younger days. Since I did not like doing homework – school projects were almost never started until the night before they were due. I was the king of procrastination.

  My Mom was always there to help, giving me a hand and an ear full of motherly advice, usually consisting of a lot of “because I told you so…”

  I find it interesting that many investors tend to watch stocks for a very long period of time, never acting on their analysis, buy rather idly watching as their instinct proves correct and the stock rises in price.

  The investor then feels that he missed his entry point and decides to wait, hoping the stock will go back down one more time so that he can get in. The stock continues to rise, the investor continues to watch becoming more and more frustrated until he finally capitulates on his emotion and buys the investment near the top.

  Procrastination, on the way up and on the way down, are harbingers of emotional duress derived from the loss of opportunity or the destruction of capital.

  However, if you do your homework and can build a case for the purchase, don’t procrastinate. If you miss your opportunity for the right entry into the position – don’t chase it. Leave it alone and come back another day when ole’ Bob Barker is telling you – “The Price Is Right.”

  7) Don’t Play With It – You’ll Go Blind

  Well…do I really need to go into this one? All I know for sure is that I am not blind today. What I will never know for sure is whether she believed it; or if was just meant to scare the hell out of me.

  When you invest into the financial markets it is very easy to lose sight of what your intentions were in the first place. Getting caught up in the hype, getting sucked in by the emotions of fear and greed, and generally being confused by the multitude of options available, causes you to lose your focus on the very basic principle that you started with – growing your small pile of money into a much larger one.

  My Dad once taught me a very basic principle: KISS: Keep It Simple Stupid

  This is the one of the best investment lessons you will ever receive. Too many people try to outsmart the market to gain a very small, fractional, increase in return. Unfortunately, they wind up taking on a disproportionate amount of risk which, more often than not, leads to negative results. The simpler the strategy is, the better the returns tend to be. Why? There is better control over the portfolio.

  Designing a KISS portfolio strategy will help ensure that you don’t get blinded by continually playing with your portfolio and losing sight of what your original goals were in the first place.

  1. Decide what your objective is: Retirement, College, House, etc.
  2. Define a time frame to achieve your goal.
  3. Determine how much money you can “realistically” put toward your goal each month.
  4. Calculate the amount of return needed to reach your goal based upon your starting principal, the number of years to your goal and your monthly contributions.
  5. Break down your goal into milestones that are achievable. These milestones could be quarterly, semi-annual or annual and will help make sure that you are on track to meet your objective.
  6. Select the appropriate asset mix that achieves your required results without taking on excess risk that could lead to greater losses than planned for.
  7. Develop and implement a specific strategy to sell positions in the event of random market events or unexpected market downturns.
  8. If this is more than you know how to do – hire a professional who understands basic portfolio and risk management.

  Conclusion:

  There is obviously a lot more to managing your own portfolio than just the principles that we learned from our Mothers. However, this is a start in the right direction, and if you don’t believe me – just ask your Mother.

  

  

  

  

  

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• Something Just Snapped Again In China

  We have seen this pattern before. In August, the first thing to tumble was Yuan FX rates, then money market rates exploded, and then the stock market tumbled. While it is a little premature, today's sudden plunge in Chinese stocks (as the afternoon session opens) following last week's spike in money market rates following the previous week's non-stop weakness in the Yuan does have a concerning smell of deja vu all over again.

   

  Just as we saw in August, Yuan weakness was followed by sudden surge in money market rates (which was followed by a collapse in stocks)

  

  (note – while we would expect some year-end window-dressing shenanigans in money-markets, the fact that 'panic' has not unspiked this time in 1 week HIBOR is concerning)

  And that has been followed by a serious slide in Chinese stocks as the afternoon session opens…

  

   

  The entire Chinese equity complex is being sold hard…

  

   

  That was then…

  

   

  And this is now…

  

   

  Time to call The National Team… or is this the inevitable blowback from The Fed's liquidty withdrawal rippling through the illiquid links of a holiday-stymied global collateral chain?

  US equity futures are below Christmas Eve's trading day lows (S&P 500 down 11 points from the late-day highs)

  Charts: Bloomberg

  

  

  

  

  

• Hey Goldman, Tell Us, Are These Countries Really That Stupid To Buy Gold?

  

  We’re nearing the end of this year, and that’s when the major banks come out with their Christmas shopping lists. And of course as you could have expected, not a single decent bank is even considering to add gold to the list, and the bearish voices are now stronger than ever before.

  

  Source: birchgold.com

  Goldman Sachs expects the price of the yellow metal to fall to $1000/oz whilst the Bank of America, BNP Paribas and ABN Amro all expect the gold price to fall below the $1000-level in 2016. That reminds us of the exact opposite stance just a few years ago when gold was skyrocketing. Back then everybody was saying the yellow metal was a very useful addition to a portfolio and even the common man in the street was considering buying gold.

  And of course, that has proven to be a good counter-indicator. The more gold is liked/hated by the common man, the higher the chance is its price will undergo a correction/put a bottom in place. And that might be exactly what we are seeing here at the $1080-1060-level. The gold price has tested this theoretical and technical bottom a few times but has repeatedly failed to fall towards a triple-digit number and always bounced slightly. Of course, that’s not a good enough reason to run out and increase your exposure to gold as we’re obviously not out of the woods just yet, but there’s a bigger picture we’d like to present here.

  

  Source: silverdoctors.com

  We all know the non-conventional countries are still keen on getting their hands on even more gold, and when the gold price falls, these countries are actually stepping up their buying pace. Russia, for instance, has purchased 5.27 million ounces in the first ten months of this year and will very likely end 2015 with a 6M oz higher gold position compared to the end of 2014. That by itself already is a very interesting and important fact as it shows that even when the Russian economy is falling apart it still considers gold to be a very important part of its strategic reserves. The next chart shows you how gold as a percentage of Russia’s official foreign assets has evolved.

  

  And Russia obviously isn’t alone. Its friends in Kazakhstan have increased their gold holdings by 13% YTD and gold now accounts for 28% of the total amount of official reserve assets.

  

  Source: bullionstar.com

  China also continues to buy more gold and is believed to have purchased no less than 35 tonnes of physical gold in just October and November alone, increasing the official stash by 1.1 million ounces in just two months. In fact, when the gold price was correcting in November, China stepped up its buying rate by a stunning 40%, and we wouldn’t be surprised to see the country having imported an additional 20-25 tonnes of gold in December.

  And no, it’s not just Russia & friends and China that are buying gold, but India has also confirmed it expects to import 1,000 tonnes of gold this year, roughly 100 tonnes more than originally anticipated as the jewelers are stepping up the plate to take advantage of the current low price.

  All of this leads us to one question. Please, Goldman Sachs, BNP Paribas, JP Morgan and other Bank of Americas, please tell us why these countries are so keen to destroy their own wealth? There’s no fundamental reason why the gold price should go further south and the country with probably the best long-term vision (China, which is also stockpiling as much oil as its strategic reserve tanks can hold) is filling the basement of its Central Bank with newly-smelted shiny bars.

  >>> 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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• Guest Post: Has There Ever Been A More Selfish Generation?

  Submitted by David Haggith via The Great Recession blog,

  It’s a good question to ask on the days after Christmas, when we have all used our credit cards to buy gifts for others. In spite of this seasonal gift buying, I think there has never been a more selfish generation.

  What is so selfish about this generation?

  What other generation has been so amenable toward letting future generations pay for their lavish lifestyles? Many live in MacMansions purchased with thirty-year loans they won’t live to repay. With minds at peace, they leave those mortgages to their children and grandchildren. Even those in the US who do not live in veneered mansions enjoy a lifestyle made possible only by compounding the greatest mountains of rotting, stinking national debt mankind has ever heaped. This rubbish is their gift to posterity as, again, they have no thought whatsoever of attempting to pay off this debt.

  It is not just politicians who are responsible for creating this debt. The average citizen slavishly votes for either Democrats or Republicans, knowing full well both parties have done their share to pile up debt. They either vote for the party that makes them feel generous to the poor or the party that makes them feel strong in defending our country; but the fact is they are not putting their own financial strength into either of those noble goals.

  Our generation has decided the next generation can pay the bill for all of our generosity. We create welfare programs that we finance far into the future. We do this so that we can feel like we take care of our poor, but we hand the actual burden of paying for our largess off to our children and grandchildren! We would never undertake these programs if we had to pay for them fully as we go. We also let the next generation pay for our security. We are not bravely defending ourselves by our own strength. We are sapping the strength of our grandchildren to defend ourselves now.

  We are generous with other people’s money — people who are not even alive today and who have no say in these decisions that they shall pay for. The majority remain committed to government that finances its love and war far into the future with piles of debt that no one can repay.

  Not a dime’s worth of difference between Republicans and Democrats

  The US Congress has stated over and over that it is just kicking the can further down the road, but that has never stopped them from doing it, no matter which parity is in charge! (Look at the latest Republican budget!) Both parties complain about kicking our national-debt problem further down the road, but they do it anyway. Democrats and Republicans are equally addicted to debt. US citizens who call themselves by either party monicker are part of a generation that wants to party but doesn’t want to pay for the punch. We are a nation drunk on debt.

  If you think the economy is in better hands with one party than the other, you are simply addicted to party ideology. Until you give up on the notion that either party attends to anything other than its own self-interest, this nation will never find a truly creative answer.

  Both parties are guardians of the status quo and defenders of the wealthy; and neither party has a genuinely creative idea in its collective head. The only difference between Democrats and Republicans economically is what things motivate them to spend other people’s money.

  The Welfare party, known as the the Democratic Party, enables its millions of members to feel generous by ordering their grandchildren to pay for the meals given today to hungry families. None of their generosity is paid for by present taxes. Lord knows how those grandchildren will afford to be charitable to the needs of their own generation when they are still footing the bill for the needs of our generation!

  We don’t care, of course. If we actually cared, we’d stop kicking the can down the road; but then we’d have to sell the MacMansion to fund our charity, and we are certainly not that charitable … to pay for welfare with our own mansions! Let the children pay! The next generation will just have to suck it up when the bill comes due. That is what our actions say, even though people may wince or even get angry at hearing it. (Anger is denial’s usual defense.)

  Republicans, on the other hand, like to pretend they are fiscally conservative; but they have always proposed budget deficits, too, and have repeatedly shown themselves willing to play brinksmanship games with the national credit rating. At one point (August 2011), they triggered what may have become the worst stock-market crash in US history because of their brinksmanship when they arrogantly failed to realize that credit-rating agencies might blink before the Democrats did. If you don’t think it could have been the worst stock-market crash in history, have you considered the fact that it took the world’s largest and most rapidly launched campaign of quantitative easing to spin the market back around?

  While Republicans claim they are against big government, they are really only against big-government regulations on businesses. They were more than willing to create an entire new department of government (Homeland Security) as their answer to intelligence agencies that weren’t communicating with each other prior to 9/11. They were more than willing to spend hundreds of billions of dollars to create a massive computer spying network to record every phone call and email in the nation. They have been more than willing to legislate against the constitutional requirements for search warrants. So, they have in every meaningful way expanded government’s intrusion into your daily life. They just don’t want to create more regulatory and welfare departments, but they are more than willing to expand the size of our military, which is entirely government.

  Republicans have created deficits to fund all of that government expansion. Why didn’t they create deficits to stimulate the economy with new jobs by building roads and improving dilapidated sewer systems, improving the efficiency of highways, upgrading infrastructure. At least, those kinds of projects would have given the next generation something for their money. Why? Because that kind of government spending actually does stimulate the economy by creating hundreds of thousands of jobs, and Obama might get the credit. It also is work that needs to be done and that is ordinarily the province of government, so it is work Republicans would normally be supportive of, but not if it’s going to make a Democrat president look good.

  So, you see, the only difference between the two parties fiscally is the things that make them willing to pile up mountains of debt. Republicans are the War Party, always ready and willing, since the days of Ronald Reagan, to pile up debt to finance a strong military. The size of their proposed debts are never any smaller than are those proposed by Democrats; the only difference is what they want to spend the money on.

  How pathetic and weak is it to defend your country with your children’s livelihood? If you’re going to do any of these Republican or Democrat programs, fine; but shoulder the full expense yourself! Work longer hours just so you can demand your government charge you more in taxes in order to fund the welfare or military that you believe are essential.

  If you’re a Republican, demand that your government tax you for every cent or that it reduce the military. If you’re a Democrat, demand that your government tax you for every cent or that it reduce its help to the handicapped and toward single mothers and toward aiding the drug-addicted and that it stop creating school programs for the underprivileged. Demand it!

  Just stop pretending that you are generous and thoughtful toward the poor or strong and wise in defending your country … if you are going to shove the cost of your largess or strength off to your grandchildren. Own your generosity. Pay for your strength.

  Democrats and Republicans, the BFF’s of banksters

  Both Democrats and Republicans leaped to the call to bail out bloated bankers when they got a bad case of the Wall Street Willies. Both created the lie that their bankster friends were “too big to fail,” even as they idly watched the banks made bigger by order of the Federal Reserve. The over-Fed solution to bankruptcy was repeatedly for one bank to consume another. Neither party has pressed hard to send busted bankers and broken brokers to jail, yet some have plenty of time on their hands to press on with lengthy campaigns to send the other party’s politicians to jail. They have time to jockey for political power but no time to make sure potbellied bankers go to debtors prison.

  If “too big to fail” was not a lie, why would both parties sit back all these years and allow the Fed to make those tipsy, top-heavy banks even bigger while it seemed to surreptitiously let a few banks fail? One has to wonder what secret vendettas were involved in letting Washing Mutual burn up and then selling its ashes, owned under receivership by the FDIC, to JP Morgan Chase while it chose to merge JP with Bear Sterns, rather than letting Bear Sterns burn up, too.

  What clandestine planning was involved in merging Bank of America with Merrill Lynch and Countrywide, creating a vastly bigger monstrosity? Why press Wells Fargo to acquire Wachovia when that match made in hell turned Wells Fargo into the largest bank in the nation? These are not the kinds of solutions put forward by people who genuinely believe institutions are already too big to fail. Wasn’t that just an excuse to get taxpayers to underwrite the full risk of those solutions?

  Your members of congress sat idly by as the largest mergers in the history of the world were encouraged and even force-fed by the Federal Reserve as the “necessary” solution to saving the little people from being bonked by banks. At the end of this program, the largest and most powerful banks in the Federal Reserve system are vastly larger.

  Democrats and Republicans equally participated in taking the status quo and amping it up on steroids. They have turned every major bank into a colossus. They took a national debt the size of Texas and turned it into a national debt the size of a continent. It seems the only solution to anything our greedy leaders understand is that bigger is better, even when they claim bigness is the problem.

  The Great Recession proved to be, as so often is the case (under the crony politics of both parties), a convenient opportunity for the fat-and-wealthy to become more rotund at fire-sale prices. While the largest banks on earth gobbled each other up in a government-encouraged feeding frenzy, the risks of such carnivorous ventures were underwritten by taxpayers.

  If we are not greedy and addicted to size as a generation, why did we willingly acquiesce to a size-matters solution? It is simply how we think. That’s why. Bigger is better in our collective mind, so the answer seems to make sense to the majority. Size is proof of success, and we want the successful people running things. We could have let large banks fail, and then we could have taken all that money that has been created out of thin air anyway and given it to small banks to create accounts for those who were FDIC insured; but putting all the new money into smaller banks didn’t fit our way of seeing success.

  “Oh, that would create terrible inflation!” you might say. Really? If the big banks were allowed to collapse, their money would simply disintegrate into the thin air from which it was originally created as the banks went up in smoke. In creating new fiat money, you are only making that lost, old fiat money back up. You are not expanding the total money supply; you are just relocating it … like double-entry bookkeeping.

  We created trillions in new money anyway through zero-interest expansion of our money supply and quantitative wheezing. That didn’t create any of the customary inflation we were concerned about because it all went to banks to invest in stocks and bonds and barely entered regular circulation. As a result, it inflated the stock and bond markets to the point of approaching collapse, which we will pay for dearly in the form of economic disruption.

  What is the inflationary difference between creating vast amounts of money in the reserve accounts of major banks as the Fed did via QE and creating that same amount of money, instead, in numerous smaller and healthier banks in the names of the people and institutions whose deposits would have been flushed away by the failure of colossal institutions? The difference is that the money would immediately flow into Main Street’s economy, instead of Wall Street, which might have actually created a little of the inflation the Fed has said it wants.

  That would still serve the interest of our wealthy patricians, as all money bubbles up. You cannot buy pajamas on Main Street at Christmas with the money in your newly recreated bank account without that money transferring to Macy’s or Walmart and eventually to bank accounts of their stockholders. So, the money always trickles up, but the Federal Reserve is owned by big banks, and they greedily wanted the money directly. Thus, the new money all bypassed Main St. and went straight to Wall St. where the wealthy bid up stock, which benefited only themselves.

  If “too big to fail” was a problem, why don’t we solve it now … before the next collapse?

  Why don’t we break apart big banks now, while they are healthy and can be divided into healthy segments? If they were too big to fail so that George Bush had a legitimate cause to put tax payers at risk in massive bailouts (perpetuated by Barrack Obama), then why has neither party lifted a finger to break them up as “Ma Bell” was broken up? Once they started to fail, they were apparently the greatest financial danger known to mankind because George Bush said he had to give up his capitalist principles in order to save capitalists from their own greed. So, why aren’t we solving the problem, instead of waiting for it to happen again?

  Apparently the Republicans and Democrats who stepped on to that program only like capitalism so long as it is creating wealth; they don’t like its “self-regulating” mechanisms for correcting greed when we fail to regulate people away from greedy actions in the first place. At that point, suddenly all the capitalists became collectivists and socialized the cost of their financial experiments. If you want a true Commie plot, there’s one: socialize the cost of bank failures!

  There is nothing to stop the government from breaking up big banks into healthy, smaller institutions now that we have “recovered.” The Federal Reserve says we have recovered, so why are we not taking the next step of making sure there is nothing hanging over our heads that is “too big to fail?” If these oligarchs are so big that they threaten the civilian populace by their morbid obesity, then they can be broken up by the government on the same basis that Ma Bell was broken up. Is the government leaving room to use the “too big to fail” excuse all over again?

  Perhaps more importantly, where is the outrage that this never happened? Is it possible that US society doesn’t want to express outage because we are not brave enough or self-sacrificing enough to endure the pain of economic reform from the problems we created?

  The fact is, we’ve done NOTHING to rectify those dangers. We’ve had seven years and have done nothing at all! Republicans and Democrats alike twiddle their thumbs and pretend they do not see that the banks that were too big to fail are now twice as large as they were back then. One has to conclude they were lying when they told us these institutions were too big to fail because they have presided over a process that guaranteed those institutions would become much bigger.

  Because we squandered our opportunity to correct our own problems, our problems shall be our legacy

  When recovery efforts began after the crashes of the Great Recession, I said we were just pushing the snow straight ahead. Snowplows are built to push the snow off to the side when they are set right. If you set the blade to push the snow straight ahead, you cannot move forward for long because you will build up such a mountain of snow in front of the plow that the plow loses traction and can no longer push the load forward.

  I’m afraid we are at that point. Congress, unwilling and unable to make brave decisions, was too willing to believe the Fed could engineer recovery on its own. Congress abdicated its authority and responsibility. The Fed sometimes warned congress it could not solve the problem on its own and that fiscal policy must be put in place to create a more sound economy, but those warnings were faint … I suspect because the Fed’s head was inflated by the idea that people thought the Federal Reserve could save the world. The Federal Reserve, in its pride, came to believe that itself.

  What the Fed gave us was anesthesia. Had we diligently used the past seven years we had under anesthesia to restructure our economy away from debt, it could have saved us a painful transition. Instead, we let the anesthesia numb us to the mending that needed to be done and then left the injuries untreated.

  Now the anesthesia has run out, but we still have all the corrections to make. Because we have piled up mountains of debt, we have no reserve strength left. We have squandered our opportunity for change in order to maintain the status quo by financing everything with even more debt so that we’d never have to feel the pain of correction.

  We continued with adjustable-rate mortgage traps. We continued our sloppy terms of credit. We continued to allow deregulated banks to speculate in the stock market. We don’t allow people with 401k’s to operate outside of the services of fund managers by letting them buy and hold actual bonds under tax advantages of a 401k plan. We instituted interest rates that discourage savings as if they were the plague. We tried to re-inflate the housing market with those same zero interest base rates, instead of letting housing prices deflate back to a level where people can afford a home without ridiculous terms of credit. We repeated the sloppiness of auto financing that extends years beyond the collateral value of the automobile with no downpayment required.

  It’s wretched how dumb we are in our greed to have everything right now in the cheapest way possible and how willing we are to force the debts of that consumption upon our grandchildren and to pretend that won’t hurt them. We live in economic denial. However, if you’re a regular reader of this blog, you’re a different kind of person because you’re willing to hear and think about such things and probably agree that this is no way to run a society. No way to build an economy for future strength. No way to treat those who must follow in our footsteps.

  

  

  

  

  

• Why Driving Behind Chinese Trucks May Be Hazardous To Your Health

  In one of the greatest analogies for China’s slow-moving, pollution-puking economy, the impact of this small bump in the road sums up the fragility of the credit-fueled slow-motion truck-wreck that the central planners have created…

  …and then the wheels fell off…

  And there are some ‘crashes’ that just cannot be manipulated back together again.

  

  

  

  

  

• Meanwhile, Over At The "New York" Stock Exchange… Many Lasers

  Back in March, when looking at the main antenna array at the real “New York” Stock Exchange located off Route 17 and MacArthur Boulevard in Mahwah, New Jersey, we noticed something peculiar: instead of just housing various now traditional microwave dishes…

  

   

  … a new device had quietly appeared.

  

  

   

  The “device”, as Extremetech explained in early 2014, was the AOptix IntelliMax laser (used in various US defense programs), and now generously provided by Anova to various very wealthy HFT clients – in exchange for a very generous installation and recurring monthly fee – who desired to eliminate the 0.18 millisecond microwave latency between the NYSE and Nasdaq, by going straight to laser.

  High-frequency trading — the practice of making thousands of algorithmic stock trades per minute — is about to get a big boost in the USA. Anova, a company that specializes in deploying low-latency networks for stock trading, is completing an ultra-high-speed laser network between the New York Stock Exchange (NYSE) and the NASDAQ. The link will be just a few nanoseconds faster than the current microwave and fiber-optic links — but in the world of high-frequency trading (HFT), those nanoseconds could result in millions of dollars in profits for the trading companies. Such is the insanity of the stock markets; such is the unbelievable capacity of HFT to create money out of almost nothing.

   

  If you want to get a signal quickly from point A to point B, you basically have three options: fiber-optic cables, a network of microwave dishes, or laser links. Electrical (copper wire) networks are feasible over short runs, but their reduced functionality and bandwidth over longer runs makes them less desirable than fiber. Microwave (and even higher-frequency millimeter wave) networks also aren’t very high-bandwidth, but because they’re purpose-built, they can take a very direct route, significantly undercutting the latency of an oft-congested and round-about fiber network. Laser networks have all the advantages of microwave/millimeter wave networks, but they have higher bandwidth, and some very clever adaptive optics means they’re not impacted by bad weather. (Microwaves really hate inclement weather.)

   

  Last year, Anova completed a laser network link between the London and Frankfurt stock exchanges, and now, it seems the company is nearing completion on a similar laser network between the NYSE and NASDAQ data centers in Mahwah and Carteret, New Jersey. In the case of both networks, Anova is using equipment provided by AOptix, an American company that is contracted by the US military to produce similar laser-based systems for ground-to-aircraft communications. Each AOptix base station is capable of “carrier-grade” availability (five nines, 99.999%) over a distance of 10 kilometers (6.2 miles). The route, which is about 35 miles as the crow flies and skirts the center of Newark, will probably feature around six or seven base stations, each of which will have a direct line of sight with its two nearest neighbors. The link speed, according to the AOptix tech specs, will be around 2Gbps — not exactly massive by fiber-optic standards, but more than enough for a few thousand trades per second.

   

  The cost of building the network won’t have been cheap — probably a few million dollars — but that’s absolutely pennies for stock traders. (The new fiber link between London and Tokyo, which is also primarily for stock traders, will cost $1.5 billion.)

   

  The exact latency improvement of the NYSE-NASDAQ laser network isn’t yet known, but over a distance of just 35 miles we’re probably talking about nanoseconds. A microwave system currently in place between Chicago and NYC — a straight-line distance of around 800 miles — has a latency of 4.13 milliseconds. Scaling that down to 35 miles (dividing it by 23), you get a latency of 0.18 milliseconds between the NYSE and NASDAQ. I don’t know how fast the existing fiber/microwave links are, but even a difference of a few nanoseconds would be enough to beat out other high-frequency trading companies that are using older, slower networks. Anova, unsurprisingly, says it has dozens of trading firms who want to use the new laser network, all of which could stand to boost their profits. Though, as with all HFT technology, once everyone is using it (or something comparable) profit levels will revert.

   

  And thus the craziness that is high-speed trading continues unabated, faster and more profitable than ever before

  The WSJ also chimed in:

  In 2011, [Anova CEO] Michael Persico read an article in a trade journal describing how a Silicon Valley company called AOptix Technologies Inc. had designed military technology using lasers to communicate in battlefield conditions. His first thought: “I wonder if they can put those on a tower?” The technology traced back to the 1990s, when two scientists designed a method to gather images from outer space that corrected for atmospheric distortions. They developed technology for telescopes with flexible mirrors that could adjust thousands of times a second.

   

  Soon, they realized the technology could also be used to transmit data using lasers. They formed AOptix and contracted with the U.S. government to provide communication devices for military aircraft.

   

  Mr. Persico asked AOptix whether its laser system could be used to send stock-market data. The company was confident it could, because stock data would only have to move from one fixed spot to another.

   

  “Finding a tower isn’t hard for us, because we can find airplanes” with the lasers, said the CEO of AOptix, Dean Senner.

  * * *

  The Treasury Department’s Office of Financial Research in December labeled high-speed trading a “key source of operational risk across all markets.”

  * * *

  “Speed makes markets way more efficient,” said Peter Nabicht, a former high-speed trader who is now a senior adviser to Modern Markets Initiative, a trade group.

  * * *

  Mr. Persico set about securing rooftops and other spots to place his lasers between the New Jersey communities housing the NYSE and Nasdaq data centers. Anova said it has dozens of trading firms waiting to try the lasers when they go live. One firm that plans to use the system is XR Trading LLC of Chicago. It is a “very compelling technology,” said XR’s president, Matthew Haraburda. He said if it behaves as intended, it could be “a huge development” in trading technology.

  * * *

  Some question whether Anova’s lasers will provide a meaningful speed improvement over networks that are already in place, since microwave and millimeter-wave order transmissions also travel at near light speed. 

  The answer, we now know, is a resounding yes.

  Because while a few months after our article showcasing the NYSE’s latest technical achievement we noticed that the Anova laser had been taken down from its primary location, perched among all the microwave dishes, in the past few days there was a drastic change.

  First, here is a quick look at the main microwave tower at the NYSE, highlighted below in yellow.

  

   

  The AOptix laser device, previously located on the main microwave tower, is still nowhere to be found.

  

   

  And yet, in the same photo, something unexpected has shown up in the backgroun: a new tower, erected just in the past few days, and highlighted in the image above in red.

  

   

  Here is the tower shown closer. In fact, unlike the microwave tower, this new, just erected one is located literally right on the main NYSE entrance.

  

   

  Wait, what’s that at the top, are those…? Yes, they are: not one, not two, not three, but four brand spanking new lasers.

  Here is the the best our zoom lens could do.

  

   

  And with that we can now close the case on the WSJ’s question “whether Anova’s lasers will provide a meaningful speed improvement over networks that are already in place” – because whereas 9 months ago there was only one laser unit, now there are four, all on a dedicated tower, and we are confident many more are coming in the next few weeks, as all users of the suddenly obsolete microwave technology, who until recently were used to having the latest and greatest in frontrunning technology, realize they are being frontrun by their even faster, laser-based peers.

  Which takes us back to the microwave tower, where we find not only what may be the world’s most important (if only for a few more months) fully-exposed power supply cables…

  

   

  …but the following sad remnant of a bygone era, and by bygone era we mean the peak in technological sophistication just 3 years ago, when microwaves ruled the financial world and were the absolute pinnacle of rigged market frontrunning: a sad microwave dish lying face down in the gravel.

  

  

   

  A zoom in of the now defunct technology for all to see:

  

  * * *

  Nine months ago we concluded by saying that everyone who splurged millions on the “brand-new” – as recently as 2013 – microwave technologies to give their HFT system a leg up… is now obsolete.

  Welcome to lasers: where you are either part of the very expensive club, or are being frontrun. Which also means that if Michael Lewis is indeed writing a sequel to Flash Boys focusing on microwave signals and towers as the “next big thing”, he may just want to burn the manuscript.

  As for what comes next, the WSJ suggested the following: “Some dream of a replacement for the fiber-optic cables across the Atlantic and Pacific. The idea: Turbocharge intercontinental trading by floating balloons carrying microwave dishes over the ocean.”

  Scratch that: the only option left now to trade ahead of everyone else with impunity – and entirely within the confines of post Reg NMS law – is to use lasers: laser beams encircling the globe, allowing speed-of-light quote stuffing, churning, momentum ingition, subpennying, spoofing, layering, intermarket sweeping and everything else that allows some to profit from everyone else in these rigged markets.

  Because this, ladies and gentlemen, is what “trading” has become.

  (That said, one wonders just what would happen if one flies, say, a drone in front of one or all of those lasers during, say, peak market hours or, heaven forbid, just a few milliseconds before the Fed announces its next “most important ever” policy decision.)

  

  

  

  

  

• This Is What Gold Does In A Currency Crisis, Canadian Edition

  Submitted by John Rubino via DollarCollapse.com,

  Along with the currencies of most other commodity-exporting countries, the Canadian dollar has been in near-freefall lately.

  

  Gold, meanwhile, has been sucked down with the rest of the commodities complex, falling hard since 2013. But only in US dollars. For Canadians, with their weak domestic currency, gold has been behaving just fine. It’s up 17% in C$ terms over the past two years and looks ready to rally from here:

  

  Protection from currency trouble is why people own it, and why in the vast majority of places it’s owners are very happy.

  Now combine a falling currency with a crashing oil price and the result is a surprisingly favorable environment for Canadian and other weak-currency-country gold miners. Big mostly-Canadian miner Goldcorp, for instance, has seen its production costs fall by almost 20% in USD terms in the past two years, with more to come based on the subsequent cheapening of the diesel fuel required to run its equipment.

  

  If 2016 plays out according to the script that has rising US interest rates producing an even stronger dollar (and correspondingly weaker currencies elsewhere) the terms of trade for non-US gold miners should become even more favorable. Many of them will report positive earnings comparisons while most other industries are doing the opposite, putting them on the radar screens of momentum traders and value investors who haven’t been paying attention since the last gold/USD bull market ended.

  

  

  

  

  

• Obama Scrambles To Create "New ISIS Narrative" After Putin Embarrasses Washington

  One of the most amusing things about Russia’s headlong plunge into Syria’s five-year conflict is the extent to which it effectively represented Moscow calling time on Washington’s strategy of seeking to bring about regime change in the Mid-East by intentionally destabilizing otherwise strong (if not always benign) governments.

  Until September 30 – which is the day a three star Russian general strolled into the US embassy in Baghdad and informed the staff that airstrikes in Syria begin “in one hour” – Washington, Riyadh, Ankara, and Doha seemed perfectly content to simply wait around for one group of rebels or another to finally succeed in taking Damascus. In the meantime, the US embarked on what one might call a “containment” strategy as it related to ISIS – the idea, basically, was to keep Frankenstein confined to the lab, but not to hit the monster hard enough to render it ineffectual in the fight to destabilize the Assad government. 

  Once Assad fell, the US would march in and “liberate” the country before promptly installing a puppet government – with the help of the Saudis of course. 

  All of that changed when the Russians arrived in Latakia.

  Once Moscow’s warplanes began to turn the tide in favor of the SAA with the help of Hezbollah ground forces and the IRGC, Putin promptly moved to blow the whole charade wide open by asking (loudly) why the US wouldn’t partner with Russia in the war on terror. He of course knew the answer, but the point was to make the general public question why, if ISIS really is the greatest threat to humanity since the Reich, Washington was unwilling to partner with Moscow and also with Tehran. Between that and the seemingly endless stream of Russian MoD clips depicting hundreds upon hundreds of airstrikes against terrorist targets, The Kremlin made the White House look as though the US was not serious about eradicating the very groups the Western media were holding up as public enemy number one.

  Since around mid-October, the US has embarked on a desperate attempt to counter the notion that maybe – just maybe – there’s a nefarious explanation for America’s perceived disinterest in eradicating terror. First, Washington released helmet cam footage of a raid on an ISIS prison which resulted in the first US combat death in Iraq since 2011. Next, the White House announced SpecOps would be sent to Syria. The Pentagon followed up by offering to send Apache helicopters and their crews to assist Baghdad in retaking Ramadi (assistance which PM Haider Abadi, under pressure from Shiite lawmakers and Iran to rollback American influence in the country, refused). Finally, the US began hitting ISIS oil tankers.

  Previously, the US claimed it didn’t destroy the oil convoys because The Pentagon was concerned about collateral damage. Once Putin blew the whistle on the Turkey-ISIS oil connection and began posting video clips of oil tanker trucks streaming across the border with apparent impunity, Washington was forced to drop the “collateral damage” excuse and start bombing the trucks (although Russia will tell you that there’s not much bombing going on from the US side of things). All in all, this reinforces the notion that Washington has no strategy. Actually, that’s not true. There’s probably a strategy, but it doesn’t involve an all out effort to degrade and defeat ISIS and so, the narrative needs to be spun in way that makes sense to an increasingly incredulous public. 

  As The Hill reports, the US is now scrambling to craft a “new narrative” to feed to the impatient electorate. “Military officials on the Operation Inherent Resolve task force have recently formed a working group to formulate a ‘new narrative,’ The Hill writes, citing defense officials. 

  “The steps are preliminary, and are part of a larger effort to better communicate the U.S.’s military strategy amid heavy criticism from Republican presidential candidates who say Obama is losing the battle against the terrorist group,” the article continues.

  “To say there’s no strategy is just flat out wrong,” Army Col. Christopher Garver, public affairs officer for the Combined Joint Task Force — Operation Inherent Resolve insists. 

  “The new working group will look at how best to articulate what it is we’re trying to do … and do it in a concise easy to understand way,” he adds. 

  Yes, the US wants to “articulate what it is they’re trying to do,” because as it stands, it’s Vladimir Putin, Sergei Lavrov, and Maria Zakharova that are doing the articulating when it comes to explaining what Washington is up to in Syria. The US desperately needs to recapture the narrative or else end up like Turkey, which is now widely understood to be what amounts to Islamic State’s number one state sponsor, all thanks to Moscow’s PR blitz in the wake of Erdogan’s move to shoot down a Russian Su-24 last month. 

  Here’s Obama: “There is a legitimate criticism of what I’ve been doing and our administration has been doing in the sense that we haven’t, you know, on a regular basis I think described all the work that we’ve been doing for more than a year now to defeat ISIL,” he said. 

  

  Here’s a list of steps the US has taken in the mad scramble to counter the notion that the US military has either failed, or is under orders to avoid eradicating the group:

  • On Nov. 30, the White House announced the president had tapped a new ISIS czar, Robert Malley. He held a Twitter chat two weeks later, answering questions from the general public and journalists. 
  • On Dec. 6, the president addressed the nation on ISIS from the Oval Office, reiterating and defending his strategy.
  • On Dec. 8, the National Security Council press team began emailing to journalists daily summaries of “key developments” “in our unyielding campaign to degrade and destroy ISIL.” 
  • On Dec. 14, the president himself visited the Pentagon, to convene a National Security Council meeting on ISIS. While he issued remarks afterwards, he did not take any questions from journalists.
  • On Dec. 15, a senior State Department official briefed Pentagon reporters on efforts to target ISIS’s oil assets. 
  • And on Dec. 16, Adam Szubin, Treasury undersecretary for terrorism and financial crimes, briefed White House reporters on efforts to shut down ISIS’s financing. 

  For his part, Paul Ryan says the problem isn’t the messaging, it’s the strategy itself. 

  “This isn’t the first time the president has stressed that the American people just don’t get it, blaming poor communication for America’s discontent rather than the failed policies themselves,” said a statement from Ryan’s office. 

  The issue was not with “a communications plan” to defeat ISIS but rather over the need for a “comprehensive plan to destroy this enemy and protect our homeland,” it said.

  Right. But what Ryan apparently either doesn’t get or simply can’t say, is that this isn’t about destroying ISIS, it’s about achieving larger geopolitical goals like rolling back Iranian influence in the Arabian Peninsula and helping ensure that the Mid-East balance of power doesn’t shift too dramatically towards Iran once sanctions are lifted next year. As Amb. James Jeffrey, a former Army infantry officer put it, “if you’re not willing to change policy … or you’re not willing to change your goals, then what you do is you reorganize the deck chairs on the Titanic.”

  In other words, the only way the US is going to reclaim some shred of its lost credibility is to simply stop trying to overthrow the Assad government and focus on “the terrorists.” Of course that isn’t going to happen despite the best efforts of Tulsi Gabbard and the handful of other lawmakers inside the Beltway who actually “get it.”

  

  

  

  

  

• Abenomics Is Dead – Japanese Data Collapses Across The Board

  With recent JPY strength not helping, last week ended on a down-note for Japan as its jobless rate ticked up from 3.1% to 3.3% (the biggest rise since January) and Household spending collapsed. However, as the last week of the year begins, things have not improved as a double whammy of awfulness just hit the shores of Abe's nation with retail sales (worst since the tsunami) and industrial production ugly and missing across the board. We are sure, of course, that just one more dose of faith-based QE will fix this.

  Household Spending has been a disaster…

  

   

  And Retail Sales is therefore terrible… (away from the effects of the pre- and post-tax hike moves, this is the worst monthtly drop in Retail Sales since The 2011 Tsunami!!!)

  

   

  And so Industrial Production is lagging…

  

   

  So to summarize – with JPY strength amid carry unwinds, Kuroda worriedly stuck on the sidelines, and global economic collapse, Japan's Abenomics 'program' just created the following disaster trhee years later:

  • Household Spending plunges 2.9% YoY – worst since March (post-tax-hike)
  • Jobless Rate jumps to 3.3% (from 3.1%)
  • Industrial Production drops 1.0% MoM – worst in 3 months
  • Retail Trade tumbles 1.0% YoY – biggest drop since March (post-tax-hike)
  • Retail Sales plunges 2.5% MoM – Worst drop since Fukushima Tsunami (absent tax-hike)

  But apart from that – everything is awesome.

  *  *  *

  Finally, in the interests of keeping things light over the holiday period, we note that when asked if this means trouble ahead for President Shinzo Abe, he allegedly replied "Depends."

  

  

  

  

  

• How The Public Get Suckered By "News" Media Ignoring Reality

  Submitted by Eric Zuesse, originally posted at strategic-culture.org,

  According to Russian Television on December 25th, Russian intelligence has counted “up to 12,000” tanker trucks filled with oil “on the Turkish-Iraqi border,” and “the final destination remains to be Turkey.” In addition, some of those trucks are still heading into Turkey from Syria, but their number is “decreased” because Russia’s Syrian bombing campaign, which started on September 30th, has, ever since they began bombing the oil trucks on November 18th, destroyed “up to 2,000” of those trucks, that were in Syria heading into Turkey.

  According to the news report, Russia is requesting help from the U.S. coalition to bomb the “up to 12,000” trucks that are in Iraq carrying ISIS oil into Turkey. ISIS drives them there so that ISIS can become self-sustaining by the oil-sales. ISIS, which had long been supported by America’s allies the Arab oil potentates — all of whom are fundamentalist Sunnis — aims to be self-sustaining now on the sales of this stolen oil through Turkey, which is operating the black market in ISIS’s stolen oil. That’s why Russia wants to stamp out this market. “However, so far, Washington says that it is not ready for such a move,” the report says.

  Whereas Russia had begun on November 18th to bomb those trucks en-route into Turkey, and eliminated around 500 of them at that time, the U.S. coalition hadn’t bombed any such trucks until later that day, November 18th, in order to pretend to be competitive with what Russia had been doing since it started on 30 September 2015, to bomb in Syria. Before the U.S. bombed the 116 trucks it destroyed, it warned the drivers 45 minutes in advance.

  Here was the shocking admission that was made by the U.S. Defense Department’s press-spokesman at his 18 November 2015 presentation, in which he voluntarily acknowledged that, throughout all of the 14 months during which the U.S. had been bombing in Syria and in Iraq, the U.S. hadn’t previously destroyed any  of the tens of thousands of oil tank-trucks that had been transporting ISIS's stolen oil out from Iraq and from Syria — the stolen-oil sales that bring $2B per year into ISIS coffers — and that the U.S. had warned 45-minutes in advance:

  This is our first strike against tanker trucks, and to minimize risks to civilians, we conducted a leaflet drop prior to the strike. We did a show of force, by — we had aircraft essentially buzz the trucks at low altitude.

   

  So, I do have copy of the leaflet, and I have got some videos, so why don't you pull the leaflet up. Let me take a look at it so I can talk about it.

   

  As you can see, it's a fairly simple leaflet, it says, "Get out of your trucks now, and run away from them." A very simple message.

   

  And then, also, "Warning: airstrikes are coming. Oil trucks will be destroyed. Get away from your oil trucks immediately. Do not risk your life."

   

  And so, these are the leaflets that we dropped — about 45 minutes before the airstrikes actually began. Again, we combine these leaflet drops with very low altitude passes of some of our attack aviation, which sends a very powerful message.

  So: not only had the U.S. previously avoided destroying ISIS’s main current source of income (besides the multimillion-dollar donations made by members of the royal families of Saudi Arabia, Qatar, UAE, and Kuwait — all of whom are protected by the U.S.) (and Secretary of State Hillary Clinton had urged all of them on 30 December 2009 please to stop funding their terrorists), but, when the U.S. now started to bomb those tank-trucks filled with stolen oil, the U.S. warned in advance the drivers, who were also assets to the jihadist cause the U.S. pretended to oppose, and thus were enemies of the public (and were participants in the evils of ISIS). The U.S. Department of Defense (DOD) wanted to protect them — not  to kill them. That was done “to minimize risks to civilians.” Wow!! After the U.S. history of slaughtering millions of civilians in wars, and torturing many, including complete innocents in Iraq and elsewhere, we’re now protecting ISIS’s drivers? Can any hypocrisy exceed this? If the United States were a democracy, its press would have been focusing on this issue for a week. The U.S. protecting ISIS’s financial base, and assets, has mind-boggling implications. On what side are ‘we’ — and who are “we,” and who are “them”? We are not the aristocracy. The aristocracy are them. It includes the top stockholders in firms such as Lockheed Martin. Warren Buffett said in 2006 “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” That’s shocking honesty.

  Did any of the major U.S. news media, all of which have reporters attending those press conferences, report the U.S. Government’s open admission  there, that the U.S. Government had protected ISIS all along, not bombed any  of ISIS’s oil tank-trucks (until Russia did)? Those trucks providing $2B per year to ISIS terrorists? None  of them reported it. None of them conveyed to their audience this astounding information — essentially, that the U.S. was protecting the money-flow to the jihadists in Syria, and was even protecting their truckers, and its ‘press’ were protecting them.

  Another major revelation at this same press conference was that "we right now have no plans to conduct coordinated operations with the Russians” in Syria. And this was reconfirmed on December 25th from the Russian side, as being still the U.S. policy. In other words: the U.S. President is so hostile toward Russia, that, even months after Russia’s request to Washington on September 30th to cooperate in killing all jihadists in Syria,Obama still refuses to work together with Russia, or even just to “coordinate operations with the Russians,” to kill the jihadists. (And, in the Democratic debate on 19 December 2015, Hillary Clinton insisted that eliminating the jihadists in Syria mustn’t have higher priority than, nor occur before, Bashar al-Assad is permanently removed from Syria’s leadership. Her position is at least as anti-Russian as Obama’s.)

  The jihadists had flocked into Syria to oust the non-sectarian leader of that country, Assad, and to replace him with an Islamist leader, a Sharia-law Sunni, whom the U.S. Government, and the royal families of Saudi Arabia, Qatar, UAE, and Kuwait, approve of as being better than the non-sectarian Assad (who is personally a Shiite, but runs a decidedly unsectarian, secular, government). The jihadists work for the American alliance.

  Russia’s position on the matter is that no foreign power possesses the right to determine whom the President of Syria will or won’t be; only the Syrian people do, in an election. Russia insists that it be determined in internationally monitored and overseen elections. However, polls taken by Western polling firms indicate that Assad would overwhelmingly win any such election; so, U.S. President Barack Obama has rejected democracy for Syria. And yet, the U.S. accuses Putin of being dictatorial, and claims itself to be ‘democratic.’ And the U.S. President demands that Syria’s legal President be removed from power and excluded from any possibility of ever again becoming that nation’s President. This is America’s version of ‘democracy’ in Syria.

  The DOD spokesperson, Steve Warren, spoke contemptuously of Russia. He said that in Russia’s war against jihadists in Syria, "the Russians are using dumb bombs. Their history has been both reckless and irresponsible.” This statement was being made by a military spokesman for the same Government that in the most “reckless and irresponsible” manner had invaded and destroyed Iraq in 2003. However, his statement here was also, itself, simply false. Russia’s bombings have been with both precision-guided weapons and unguided munitions that are under no control after being fired.

  Warren there was reaffirming a reporter’s question which had asserted: “Getting back to Raqqa, as we all know, the Russians are not using precision munitions. Any sense of any increased civilian casualties in Raqqa as a result of that?” So, Warren was here reaffirming a reporter’s (or actually, a press-appointed government stenographer’s) falsehood — reaffirming an assertion that was either unprofessionally ignorant, or else a knowing lie. On September 30th, when Russia had started its air strikes, the U.S. had said that they were “doomed to failure.” That, too, seems increasingly likely to have been false (that it was “doomed to failure”). (And any such pretended foresight is also a lie when it comes from an official source such as a government. It was mere propaganda.)

  Instead of the mainstream U.S. press reporting that the U.S. Government lied there (and this Government does it routinely, because the ‘press’ never report that a lie by the President is  a lie), only a small number of only non-mainstream sites, all online-only, picked up anything from this stunning press conference, regarding any of the important and much-discussed issues that it addressed; and the first such site to do so was a fundamentalist Christian one, which is obsessively pro-Israel, and generally hard-rightwing Republican. Bridget Johnson at PJ Media headlined, on the same day as the press conference (the only site to report at all upon it that day, November 18th), “ISIS Oil Tankers Hit for First Time – With 45-Minute Warning.” This was an admirable reporting coup (though it wasn’t really “for First Time,” since Russian bombers  had already done it), because it covered all of the main points, including the shocking admissions by Mr. Warren. Her news coup had over 1,400 reader-comments.

  Paul Joseph Watson, at the generally conservative Republican site InfoWars, bannered on November 23rd, "WHITE HOUSE GAVE ISIS 45 MINUTE WARNING BEFORE BOMBING OIL TANKERS,” and he placed these matters honestly into their geostrategic context, of the Obama Administration’s placing a higher priority upon defeating Russia than defeating jihadism. As is so often the case with the terrific journalist Watson, he penetrated deeply into these matters, and was not at all shy to acknowledge, for example, the following stark contrast, which U.S. ‘news’ media hide:

  Compare the Obama White House’s approach to fighting ISIS to that of Russia.

   

  While it took the U.S. fifteen months to even begin targeting ISIS’ oil refineries and tankers, air strikes by Moscow destroyed more than 1,000 tankers in a period of just five days.

   

  In comparison, Col. Steve Warren said that the U.S. had taken out only 116 tanker trucks, the “first strike” to target ISIS’ lucrative black market oil business, which funds over 50 per cent of the terror group’s activities.

   

  So: this, too, like Bridget Johnson’s report, was honest and first-rate news-reporting, from another non-mainstream Republican site. (Note, however, that the mainstream  Republican news-sites, such as Fox News, Wall Street Journal, and Rush Limbaugh, were no more forthcoming on this matter than all of the Democratic Party sites were.)

  The aristocracy’s control over all the mainstream ‘news’ is ironclad – and this includes the political magazines, such as National Review, and The Nation;  as well as ‘intellectual’ magazines, such as Harpers  and The Atlantic.  American ‘news’ media stifle democracy in America; they’re not part of  democracy, in America. They’re like poison that’s presented as being ‘medicine’ instead. Suckers don’t just swallow it; they come back for more of that propaganda.

  The next day, November 23rd, “Tyler Durden,” the pseudonymous genius behind his own Zero Hedge blog, headlined "'Get Out Of Your Trucks And Run Away': US Gives ISIS 45 Minute Warning On Oil Tanker Strikes,” and he reported using some of the same sources as the others, but supplementing it with additional good sources. He had around 400 reader-comments.

  In addition, there were some trashy news-reports at far-right Republican sites, such as one, on November 19th, crediting Bridget Johnson’s news report the day before as its source, "The Obamization of the military, pt. 243.” This was by J.R. Dunn, at the fundamentalist Republican, American Thinker, blog. He pretended that Obama was being bad here because Obama was too concerned to avoid bloodshed: “You see, the important thing isn’t hurting ISIS. No – the important thing is not hurting civilians.” Picking up from the standard Republican meme that torture should be used against ‘bad people’ in order for ‘good people’ to be kept safe, and that civilians in ‘enemy’ nations are okay to be victims of American military attacks, Dunn took Bridget Johnson’s news-report merely as confirmation of his own bigotries and hatreds. He had about 150 reader-comments. Typical was this one: "The Left in America has known that in order to succeed with their agenda the US military had to be infiltrated, compromised, and weakened.” For such suckers, the ‘source’ of America’s problems wasn’t America’s aristocracy; it was America’s Democrats.

  On November 24th, Michael Morell, Obama’s CIA Director during 2011-2013, said on the trashy PBS Charlie Rose show (hosted by Mr. Rose, who is such an incompetent interviewer that he’s beloved by aristocrats for his reliably softball interviews), “We didn’t go after oil wells, actually hitting oil wells that ISIS controls, because we didn’t want to do environmental damage, and we didn’t want to destroy that infrastructure.” Of course, Mr. Rose avoided drilling down there to find out why the U.S. Government treats jihadists as being such a minor matter — especially after all of the environmental damage the U.S. routinely does in its invasions, such as the depleted uranium that contaminates today’s Iraq, from the U.S. attacks. And, of course, almost all of the news-media that picked up on that stunning admission from Obama’s former CIA Director, were Republican sites, such as Daily Caller, Washington Times, Breitbart, Real Clear Politics, and American Thinker. In addition, there were a few high quality journalistic sites reporting it, such as Zero Hedge, The Hill, The Economic Collapse, and Moon of Alabama. In other words: only very few Americans came to know about this jaw-dropping stunning admission from an Obama official — and most who did were people who hate Obama for his being such things as ‘against torture’ (in other words: Republican stooges of the aristocracy).

  Basically, in America, only marginal, and mainly right-wing, audiences were being informed even badly, regarding the sensational things that were revealed — and in some instances proudly  revealed — at the November 18th DOD press conference, and also in the November 24th TV interview of Morell. What is traditionally viewed as being America’s “news media” were entirely absent from their job of reporting even one of these two important statements by U.S. Government officials. And none of the news-reports on that astounding DOD press conference, and of that Morell interview, reached Democratic Party voters at all. Republicans hate Obama because he’s a communist Islamic Kenyan, while Democrats love Obama because the wacko Republican Party lies about him constantly and because Obama is to the left of those blithering wackos.

  A press like this makes it impossible for there to be intelligent, informed, rather than misinformed and/or stupid, voting in national political elections in the United States.

  Perhaps the biggest scandal in America is its rigid aristocratically controlled ‘press,’ which is really nothing more than a whored propaganda-operation that’s run by and for the nation’s aristocracy. The owners of America’s ‘news’ media know that the way for the press to make money in this type of dictatorship is to sell to the aristocrats’ corporations access to the public, and to ‘report’ only ‘news’ that the corporate sponsors don’t mind the public’s knowing about.

  So: this is how the public get suckered, in America.

  It wouldn’t be so bad if the American Government didn’t hypocritically claim to be a ‘democracy.’ That’s just piling it on, with a shovel.

  *  *  *

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

  

  

  

  

  

• Ontarians Urged To "Voluntarily" Pay More Taxes To Cut Province's Debt

  Christmas is a time for giving and that is what Ontario Premier Kathleen Wynne is asking of her citizenry. With almost $300 billion in debt, and almost 1 in 10 dollars of revenue going to pay interest, and already facing the highest tax rates in North America, The Star reports that Ontario officials are asking that 'patriots' voluntarily donate their tax refund or write a cheque to defray the province's massive debtload.

  

   

  As The Toronto Sun reports, Canada’s largest province has asked its taxpayers to donate their hard-earned money to the cause of bailing out the much indebted provincial government.

  For a mere $21,000 for every man, woman and child in the province, Ontario could be debt free.

   

  No, this is not some kind of holiday joke about the Grinch who stole Christmas.

   

  On top of paying among the highest taxes in North America, and coping with skyrocketing hydro prices — hikes directly caused by the decisions made by this Liberal administration and the previous one — the Wynne government wants more.

   

  Treasury Board Chair Deb Matthews made the bold request last week, and specifically asked folks to donate their tax return rebate to help pay off the provincial debt.

   

  “It’s an unusual thing for someone to do, but I would encourage any Ontarian who wants to make a contribution to feel free to do so,” said Matthews.

  A government asking for donations isn’t just unusual. It’s like a stranger taking your car and then coming back the next day to ask if you’ll chip in some money for the gas. Maybe you can pay for an oil change, too?

  But the Wynne government is desperate for cash.

  For the past decade, they’ve spent and borrowed like there’s no tomorrow and wasted public funds with little concern for taxpayers.

   

  Thanks to all the government’s reckless spending, including a pile of billion-dollar scandals that have led to criminal charges, Ontario’s government is dealing with spiralling debt.

   

  Nearly one in every ten dollars spent by the Ontario government goes towards paying interest on the provincial debt.

   

  

  Ontario’s provincial government owes approximately $300 billion. That is $300,000,000,000 — with 11 zeros.

   

  And so the government constantly looks for ways to get its hands on more cash.

  Perhaps most surprisingly, the government’s plea for donations has not gone unanswered.

  Ontario collected $135,289 in voluntary tax return donations last year. Around 36,000 people chose to donate an average of $3.75 to this bizarre cause.

   

  At that rate, the government only needs another 80 billion donors and Ontario’s debt will be paid off.

   

  Of course, there are only about 14 million people in Ontario, and we imagine most taxpayers would rather lose their wallets than enable this government with more resources.

  As The Toronto Sun concludes, rather "cynically" and "unpatriotically":

  Tell the government to cut wasteful spending, and save your donations for those truly in need. 

  One wodners how long before non-volunteer-donators will be labelled enemies of the state?

  

  

  

  

  

• 2015: The Year That Exposed The "Experts" And Left The "Smart-Crowd" Dumbfounded

  Authored by Mark St.Cyr,

  It wasn’t supposed to be this way. We were all told by the “experts” and the so-called “smart crowd” ad nauseam the economy and markets of 2015 were “ready for lift off.” Proclamations that GDP and other economic metrics were indeed going to be the unquestionable catalyst to help propel not only the markets themselves ever higher, but also, prove all the nay-sayers as well as data-deniers wrong. The problem? It was the exact opposite.

  2015 exposed the sole overarching fundamental principle the “experts” refused to calculate into their qualitative analysis. That fundamental? Without the continuing interventionism of the Federal Reserve – there is no market. Period. i.e., The capital markets today are to a world-class marketplace for capital formation – as a Potemkin village is to any world-class capitol city. Welcome to today’s financial markets brought courtesy of the Fed.

  As the year began the markets continued their ascent to increasingly higher and higher historic levels (yes, historic.) It seemed near weekly another headline of “Historic Highs!” were proclaimed across the financial media as the markets zigzagged up and down yet, in effect, actually going nowhere. Here every selloff was met with an ever more forceful BTFD (buy the dip) recovering a prior days triple digit selloff with some stop running, HFT fueled, triple digit rally rewarding the Bulls (as well as the delivering the subsequent headlines) that the markets were indeed “on fire!” For surely it was insinuated; one would be a fool to be on the sidelines and miss out on all these “fundamental” based gains. Another problem? “Fundamental” was no longer anything real. It was only in the eyes of the beholder. And those beholders were and are “the experts.”

  Nowhere was this meme more prevalent, or on display, as the example I used earlier in the year in an article titled, “The Coming Credibility Hammer.” In that piece I quoted an exchange I watched on Bloomberg™ in response to an assertion that it was easy to beat tepid earnings estimates. The guest Tony Dwyer responded with the following push-back:

  “They haven’t been the entire cycle and we’ve had a 300% gain. Look, I’m trying to understand how we keep coming on every quarter, that the earnings are terrible, revenue growth is terrible, this is going to be bad – and we’re up 300%” He added as to reaffirm he still believes double-digit gains just 6 months out from here.

  Just to make it clear; I have no issue with Mr. Dwyer or anyone else. All I’m doing is pointing out glaring examples on the mindset that appeared not only prevalent, but also unquestioned within the rarefied air many still believed they were breathing on Wall Street. What many failed to consider was maybe, just maybe; the opinions of where and how these markets were not only going, or for that matter stayed at these levels, while additionally arguing against any premise as to question the how and why of these ever higher prints; was not actually breathing rarefied air, but had more in common with – inhaling one’s own exhaust. Let me demonstrate this using a more recent example.

  Over the past 5 years since the inception and implementation of the Fed’s QE (quantitative easing) programs the markets have done two things that have been extraordinary. One: They have gone up in a near linear fashion. And Two: That progression appeared unshakable if not unbreakable. It seemed no matter what took place in the world, or any economic uncertainties, the markets met it with a rally! So stable was this progression skyward a selloff of 5% (something quite ordinary as well as expected in normal markets) was all but nonexistent. And when there was a selloff for any reason – it was met with a buying frenzy that erased not only the loss but usually propelled the indexes even higher the following day. Selloffs now took on the tagline of Servpro™ “Like it never even happened”®

  So ridiculous had the markets acted to what would cause normal concerns one meme encapsulated the lunacy: “Bad news is now good news, and horrible is terrific!”

  This was now the only term that could explain just what the heck was going on within the capital markets. For nothing made sense any longer. Now, the only way one could make sense of the markets was to look at just how bad the economy was, and calculate the probabilities that it would force the Fed. to relinquish any thoughts of backing off the stimulus. All other economic principles or calculations were now laid bare. They didn’t matter. The only calculation that mattered was: QE = Investing genius. Buy, Buy, Buy!

  Nowhere was this more prominent than what became manifest with another one of Barrons™ now infamous “experts” market calls “Stick With The Bull.”

  The issue? Well, as of today if the S&P 500™ were to falter or just tread water for the remaining week of 2015 (a shortened holiday session in fact) all, let me repeat, all as in 10 out of the 10 “experts” polled would be de facto wrong. The average close of the polled is 2209. And if not for the vapid market action that has been taking place since the Fed. actually went ahead and “just did it” (e.g., raised rates) Even the most conservative remain in jeopardy.

  It is still quite possible that another out-of-the-blue, HFT fueled, algo-based, headline initiated, stop running mania could indeed be released into this worse than paper-thin market and make all these “experts” correct. (And one should never, ever, underestimate the lengths Wall Street will go to save a year-end bonus) But is that a call of expertise? Or; is it a saved by the cowbell call?  That’s an important call you need to make. Remember, none of these experts seemed to had ever contemplated just how ailing these fragile “markets” were in the first place. And after all, if your price target is off – just state it again for 2016. Now that’s analysis you can use, and will pay handsomely (as well as dearly) for, no?

  Does anyone remember this past August? (I know I do) If you were to poll many of the so-called “smart crowd” I would wager dollars to doughnuts the response would be to dismiss or, echo that of what many now imply for the Fed’s latest move: “One and done.” You would think a market rout of historic proportions so vehement, and so cascading, that it caused a historic first time ever halting of the three major indexes would be front-of-mind. Nope, just a blip. After all “Just look at the resiliency of these markets” is the usual response. However, there seems to be just a tiny bit more of a quiver in the voice when it’s expressed today, as compared to the all-out snorting one would hear at the beginning of the year. Funny how no QE suddenly brings about a diminished Bull forecast. Or should I say: just plain bull?

  Again, who knows where we go from here. After all it seems pretty clear the “experts” don’t have a clue either. Yet, if you want a glimpse of just how ardent this bull—- narrative is going to be spun, it was on full parade this past week.

  As I was watching a segment on Bloomberg’s <GO>™ the 22nd of this month. There was an intense discussion forming around the bull narrative and how or why it may not be as fundamentally sound as many imply that it is. During this discussion Barry Ritholtz interjected why he takes umbrage when it comes to “bubble calling.” He goes on to state and imply (I’m paraphrasing): “Those who have called bubble of late have been wrong.” Fair enough. However, the reasoning? I’ll let you be the judge.

  He then goes on to explain why those who lived through the last few bubbles yet missed recognizing them while they were happening – are the ones who should be discounted for their possible recognition that we may be in one once again. (No really. I’m not making that up.)

  The logic was absolutely breathtaking as I sat and listened. Let me illustrate this absurdity with this analogy for it really does sum it up:

  In order to not get burned by the hot stove, what you need to do is not take any advice from people with scars on their hands because, to them, now every stove is hot. And whatever you do, don’t ever bring up the fact that our houses have burned down more than once – for we don’t agree with the fire department’s findings that it was caused by an unattended, speculation fueled stove with visible cracks, leaking supply lines, and no preventive maintenance reviews in years. Remember: we’re the experts in stoves – not the fire dept.

  Think I’m kidding? Here’s another as he went on to explain what a “bubble” is as opposed to what it is not. Ready? (I’m paraphrasing – but not by much)

  “There is a huge difference between a bubble which is a collective crowd delusion. And parts of the art market that might have got overheated because of a few billionaires competing – that’s not the same as all of the stocks in the U.S. running amok.”

  Does not the first line of that statement tell you all you need to know? Do you think that maybe, just maybe, the “collective crowd delusion” might be held by the very one’s stating we’re delusional? And what by-golly fueled the “art market?” You just can’t make this stuff up. Yet, it doesn’t end there, there’s more.

  As I iterated if one wanted to see precisely how this “bull” market narrative was going to be conditionally spun the narrative was on full display coming once again from Mr. Ritholtz.

  In response to James Bianco (President of Bianco Research™) where Mr. Bianco went on to illustrate why this time it’s different (for the bull narrative that is) he stressed that for the first time in 80 years: Cash beat Asset allocation. Again, for the 1st time in 80 years. The “push back” to this argument was again stunning, as it was revealing. Mr. Ritholtz tried to make the case of… (again I’m paraphrasing)

  “Aren’t we due for just a digestion of gains and catching up to valuations? You’re not going to go up every year and blah, blah, blah.(I found it quite illustrative that his “longer view” analysis was 5 years. Funny how that view just so happens to coincide with QE, no? But I digress.)

  To which Mr. Bianco responded, “Yes, stocks can correct, but everything is correcting right now, and it’s the reduction of stimulus.”

  Remember, Mr. Bianco’s point about “Cash” vs “asset allocation” is a data point derived from over 80 years of backward looking research and this is – a first. Funny how suddenly all these historically bad data points seem to be propagating with more frequency, as well as intensity since the ending of QE. But we’re the one’s called “data-deniers” or “idiots” by people like Mr. Ritholtz. So there’s another really important question that needs to be asked of oneself as we approach 2016 and beyond.

  Exactly who is the idiot? Those who question these so-called “experts” or “smart crowd?” Or, the so-called “experts” and “smart-crowd” themselves? You know, the ones that like to tell us “It’s different this time” along with “Everything is awesome!”

  For 2016 that answer has never been more important to answer for yourself, honestly. Because, what is glaringly obvious: The “experts” won’t. After all, they think we’re all idiots. Just ask them.

  

  

  

  

  

• WalMart Works With FBI, MIC To Spy On "Problem" Employees

  Earlier this year, Wal-Mart had some “plumbing” problems.

  As regular readers might recall, the retailer shuttered five geographically distinct locations across the country citing intractable and persistent “clogs and leaks.” 

  

  The story gave birth to a variety of conspiracy theories including the contention that the closures were part and parcel of a plan to use the locations as internment camps in connection with the US SpecOps command’s Jade Helm 15 drills. 

  Another plausible explanation was that the closures were connected to the company’s desperate attempt to preserve margins in the wake of what now looks like an ill-advised decision to implement an across-the-board wage hike. Raising wages for the retailer’s lowest-paid associates led directly to a mad scramble aimed at extracting more savings from suppliers and ultimately resulted in a stunning guidance cut in October that sent the company’s shares plunging. Predictably, the pay raises also led to layoffs in Bentonville and fewer hours for employees. The store closures, we suggested back in April, could simply be another attempt to offset the cost of the wage hikes.

  Finally, some contended that at least one location may have been closed for its connection to organized labor. As we documented extensively in “Did WalMart Close A California Store To Punish Employees Who Protested Wages And Working Conditions?,” the Pico Rivera, California store had been a hotbed for wage and labor protests over the years. It was among the locations that were closed on short notice.

  First, a little background.

  When we began to look into each of the locations marked on the map shown above, we came across something rather interesting involving the Pico Rivera, CA store. As it turns out, it’s been the site of wage and working condition protests on a number of occasions, the most recent of which was late last year.

  Almost exactly one year prior to the latest picket, the Pico Rivera store was (along with multiple other locations across the US) the site of protests alleging that the company did not pay enough to keep many of its workers from seeking government assistance to supplement their meager wages (recall that 73% of those receiving public assistance in the US come from working families).

  And just a little over a year before the 2013 Black Friday protests, more than 200 workers at Pico Rivera went on strike and protested in front of the store waving signs that read “On Strike for the Freedom to Speak Out,” suggesting the company was retaliating against those who fought for better wages and working conditions. 

  What’s especially interesting here is that one of the groups which has consistently backed protests at the Pico Rivera store is the The United Food and Commercial Workers International Union or, UFCW.

  The UFCW has a history with the company. Back in 2004, when workers at the Jonquiere, Quebec location voted to join the organization, WalMart closed the store six months later noting that “you can’t take a store that is a struggling store anyway and add a bunch of people and a bunch of work rules.” This case ended up before the Supreme Court in Canada and just last year, the high court ruled against the company.

  So here is a WalMart location which has staged protests each and every year dating back to at least 2012, the latest of which led to two dozen arrests and these protests are backed by the same organization which was involved in a Canadian Supreme Court case against the company for closing a store where workers had agreed to adopt the UFCW as their representative.

  For those who might have missed it, here’s a hilarious anti-union training video that leaked online:

  Now, thanks to documents produced in discovery ahead of a National Labor Relations Board hearing into OUR Walmart’s (and offshoot of UFCW) allegations of retaliation against employees who joined protests in June 2013, we have an idea of just what lengths WalMart is willing to go to when it comes to keeping an eye on potential “problem” stores and associates. The documents, provided to Bloomberg, contain some “1,000 pages of e-mails, reports, playbooks, charts, and graphs, as well as testimony from its head of labor relations at the time.” 

  “Walmart considered OUR enough of a threat that it hired an intelligence-gathering service from Lockheed Martin, contacted the FBI, staffed up its labor hotline, ranked stores by labor activity, and kept eyes on employees (and activists) prominent in the group,” Bloomberg reports. Here’s more:

  During October 2012, OUR Walmart members and supporters began a series of walkouts and protests across the country to increase pressure on the retailer before the holiday shopping season. The group called a National Day of Action for Oct. 10 and sent a few people to Bentonville, where Walmart executives were meeting with Wall Street analysts. Two hundred calls to the labor hotline from almost as many stores were logged around that time.

   

  Some calls betrayed the paranoia of beleaguered managers.

   

  2:30 p.m., Store 5880 in Fairfax, Va.: “A customer began talking to a cashier about the strikes at Walmart this week, and the cashier responded that maybe she should go on strike. AM [assistant manager] feels the cashier was joking when she made the comment.”

   

  4:19 p.m., Store 3893 in Zion, Ill.: “Three associates made comments surrounding the ‘strikes’ in other stores to Grocery ZMS [zone merchandising supervisor]. Grocery ZMS shared his opinion but didn’t state our philosophy. He will do so the next time the associates are at work.”

   

  The last call in the log, on Oct. 15, came from Yuma, Ariz.: “An associate asked what would happen to associates if they walked out on Black Friday.”

   

  Walmart was watching Colby Harris. He was a full-time employee in the produce department in Store 471 in Lancaster, Texas. He joined protests in California, picketed stores in Dallas, and showed up in Bentonville for the analysts’ meeting. In November 2012, he said he had given more than 45 interviews to journalists. “People want to hear from us,” he said.

   

  On Oct. 17, Casey, the labor relations executive, sent an e-mail to one of her senior staff: “Colby Harris, what’s his story?” Casey said in her testimony that she asked about Harris because he had appeared in press accounts of the walkouts, and Walmart’s media relations group asked her for information about him. She also said that Walmart tracked associates “who may be engaged in the demonstrations and strikes to figure out who was working and who wasn’t.”

  And here’s where the story gets particularly unnerving:

  As momentum for the Black Friday protests was building, the Delta team raced to respond. The Black Friday Labor Relations Team Daily Meeting had its own acronym: the BFLRTDM. An e-mail on Oct. 24 from a member of the labor relations team to four executives had the subject line: “Blitz Planning (Re-visited due to new information).” The document they updated—the Labor Relations Blitz/Black Friday 2012 Plan—noted some of the latest tactics they expected from OUR Walmart: “work stoppages, mic checks, 1 post of a human chain, social media calls for boycotts and Sponsor a Striker for Black Friday food card program.” It also included this request to Walmart’s Analytical Research Center: “When does Lockheed provide more analysts?”

   

  The Analytical Research Center, or ARC, is part of Walmart’s global security division. Ken Senser, a former FBI officer, oversees the entire group. The executive responsible for ARC was Steve Dozier, according to Casey’s testimony. He was director of the Arkansas State Police before he joined Walmart in 2007. “When we received word of potential strikes and disruptive activity on Black Friday 2012, that’s when we started to ask the ARC to work with us,” Casey said during her testimony. “ARC had contracted with Lockheed leading up to Black Friday to help source open social media sites.”

   

  Lockheed Martin is one of the biggest defense contractors in the world. Although it’s best known for making fighter jets and missile systems, it also has an information technology division that offers cybersecurity and data analytics services. Tucked into that is a little-known operation called LM Wisdom, which has been around since 2011. LM Wisdom is described on Lockheed’s website as a tool “that monitors and analyzes rapidly changing open source intelligence data … [that] has the power to incite organized movements, riots and sway political outcomes.” A brochure depicts yellow tape with “crime scene” on it, an armored SWAT truck, and a word cloud with “MAFIA” in huge type.

   

  In mid-April 2013, Walmart executives began hearing about plans for “Ride for Respect,” a bus caravan that would arrive in Bentonville during the weeklong annual shareholder meeting in June. About 14,000 people—hand-picked associates, managers, shareholders, investors, the Walton family—would be in town. Elton John was performing. It was a time of particularly uncomfortable scrutiny for Walmart.

   

  A Delta team began operations. When global security heard that members of the Occupy movement might join the protests at corporate headquarters, they began working with the FBI Joint Terrorism Task Forces.

  
  

  “With some assistance from LM [Lockheed Martin] we have created the attached map to track the caravan movements and approximate participants,” Kris Russell, a risk program senior manager, wrote to colleagues on May 30. The map showed the predicted routes for five buses. By then, 96 associates had announced their intent to strike. Another 115 “uninvited guests” were expected in Bentonville.

   

  

   

  There’s much, much more in the full Bloomberg piece, but the takeaway here is that WalMart doesn’t just despise union sympathizers, the retailer equates them with terrorism and indeed, the company monitors their activities at certain locations just as the government would track jihadi sleeper cells. 

  The FBI is involved as is one of the world’s foremost defense contractors and at one point, the Bureau’s Joint Terrorism Task Forces were called to the scene in a kind of nightmarish “evil corporate America meets oppressive police state” scenario.

  As for OUR WalMart, they’re not giving up the fight. In fact, they’re adopting new and innovative strategies. This year, for instance, they decided to highlight the problems associates face feeding their families on meager wages by – starving themselves:  

  “This year, instead of striking, OUR Walmart staged a 15-day fast leading up to Black Friday. The hunger strike is in support of a $15-an-hour minimum wage and to highlight the problems some Walmart workers have feeding their families, Cynthia Murray, one of the founders of OUR Walmart said. 

  We wonder if waterboarding is coming soon to WalMart breakrooms or if perhaps a drone strike or two on a picket line will be necessary to disperse the living wage “jihad.”

  

  

  

  

  

• David Collum: The Next Recession Will Be A Barn-Burner

  Submitted by David Collum via PeakProsperity.com,

  For those who enjoyed his encyclopedic 2015: Year In Review, this week we spend an hour with David Collum to ask: After processing through all of that information, what do you think the future is most likely to bring?

  Perhaps it comes as little surprise that he sees the global economy headed back down into recession, one that will be deeper and more damaging than the 2008 crisis:

  In 2008/9, while the equity markets when down, the bond markets went up. And that buffered an awful lot of pensions and 401Ks and endowments and things like that. And so people felt pain, but they didn’t realize that there was an offsetting gain. They did not notice that part as much, but I think the next downturn is going to be concurrent bond market collapse and equity collapse and there will be no slack in that downturn.

   

  I think stocks and bonds are both at ridiculously high levels now. The bond market can only go down from here, right? I mean, it can keep going up for a while, but there is just nothing left to be squeezed out of it. Interest rates are at seven hundred-year lows, supposedly – they’re certainly at stupid lows, right. You have a third of Europe at negative rates… And so I think at some point the bond market’s got to collapse. It will start in the high yield market, and that is happening right now. Then it’ll spread, maybe treasuries will get bid to the stratosphere, but at some point you’ve got to get a real return. And so bonds have to sell off to get back to that real return — after all, all crises are credit crises, right,? And then equities are going to go once there’s not leverage out there for share buy backs and stuff like that.

   

  That's why I think the next recession is going to be a barn-burner. 

  Click the play button below to listen to Chris' interview with David Collum (74m:53s)

  

  

  

  

  

• Warmongering Pays – US Foreign Arms Sales Soar 35%

  If ever there was a clearer indication of America's "need for war" it was the latest Durable Goods orders data, which confirmed, absent defense spending, the US economy is in a tail-spin. However, as NYTimes reports, foreign arms sales by the United States jumped by almost $10 billion in 2014, about 35 percent, even as the global weapons market remained flat and competition among suppliers increased, thanks to multibillion-dollar agreements with Qatar, Saudi Arabia and South Korea.

   

  Defense Spending New Orders has soared 148% in the last 3 months… the biggest rise since 2007

  

   

  But it is the US arms sales to foreigners that is really flourising. Despite a stagnant international weapons market and increased competition among suppliers, American foreign weapons receipts rose from $26.7 billion to $36.2 billion last year. According to a new congressional report, as The NY Times reports…

  The United States remained the single largest provider of arms around the world last year, controlling just over 50 percent of the market.

   

  Russia followed the United States as the top weapons supplier, completing $10.2 billion in sales, compared with $10.3 billion in 2013. Sweden was third, with roughly $5.5 billion in sales, followed by France with $4.4 billion and China with $2.2 billion.

   

  South Korea, a key American ally, was the world’s top weapons buyer in 2014, completing $7.8 billion in contracts. It has faced continued tensions with neighboring North Korea in recent years over the North’s nuclear weapons program and other provocations. The bulk of South Korea’s purchases, worth more than $7 billion, were made with the United States and included transport helicopters and related support, as well as advanced unmanned aerial surveillance vehicles.

   

  Iraq followed South Korea, with $7.3 billion in purchases intended to build up its military in the wake of the American troop withdrawal there.

   

  Brazil, another developing nation building its military force, was third with $6.5 billion worth of purchase agreements, primarily for Swedish aircraft.

   

  The report to Congress found that total global arms sales rose slightly in 2014 to $71.8 billion, from $70.1 billion in 2013. Despite that increase, the report concluded that “the international arms market is not likely growing over all,” because of “the weakened state of the global economy.”

  So, as has been explained so many times ad nauseum that even the most hawkish warmongerer cannot avoid it, the truth is, America (well it's corporatocracy) has a 3-step plan to make money…

  Step 1: Put on Pants

   

  Step 2: Start Warmongery in Middle-East

   

  Step 3: Reap Rewards

  Of course, this is hardly news, as Ron Paul told RT:

   

   

  Seen from the proper angle, the dollar is revealed to be a paper thin instrument of warfare, a ripple effect on the people, a twisted illusion, a weaponized money now engaged in a covert economic warfare that threatens their very livelihood.

  The former Congressman and presidential candidate explained:

  Almost all wars have been paid for through inflation… the practice always ends badly as currency becomes debased leading to upward pressure on prices.

   

  “Almost all wars, in a hundred years or so, have been paid for through inflation, that is debasing the currency,” he said, adding that this has been going on “for hundreds, if not thousands of years.”

   

  “I don’t know if we ever had a war paid though tax payers. The only thing where they must have been literally paid for, was when they depended on the looting. They would go in and take over a country, and they would loot and take their gold, and they would pay for the war.”

   

  As inflation has debased the currency, other shady Wall Street tactics have driven Americans into a corner, overwhelmed with debt, and gamed by rigged markets in which Americans must make a living. The economic prosperity, adjusted for the kind of reality that doesn’t factor into government reports, can’t match the costs of a military industrial complex that has transformed society into a domestic police state, and slapped Americans with the bill for their own enslavement.

   

  Dr. Paul notes the mutual interest in keeping the lie going for as long as the public can stand it… and as long as the gravy keeps rolling in:

   

  They’re going to continue to finance all these warmongering, and letting the military industrial complex to make a lot of money, before it’s admitted that it doesn’t work, and the whole system comes down because of the debt burden, which would be unsustainable.”

  Unsustainable might be putting it lightly. The entire thing is in shambles from the second the coyote looks down and sees that he’s run out over a cliff.

  

  

  

  

  

• "Trump Voters Are Not Just Angry – They Want Revenge"

  Authored by Frank Lutz, originally posted at The FT,

  Outraged by what Donald Trump says? You are not alone. No high-polling presidential candidate in the modern era has so intrepidly drawn the ire of so many within the American electorate. And there remains no end in sight.

  Yet in rendering one voting bloc utterly apoplectic, he has appealed viscerally to another. The balance of middle ground politics is not, shall we say, Mr Trump’s bailiwick. But America is no longer a middle ground country. We are already scared by our division — and it is getting worse.

  The simple truth is, the more provocative his language, the deeper and more passionate his support. He is no dummy; there is a method to his proverbial madness. Mr Trump says — to the growing legions who will listen — what tens of millions of Americans are already thinking. Respect or revile him, the man has hit a vein.

  I spent three hours in a deep dialogue focus group with 29 Trump supporters. The phenomenon of “The Donald” is rooted in a psyche far deeper and more consequential than next November’s presidential election. His support denotes an abiding distrust in — and disrespect for — the governing elite. These individuals do not like being told by Washington or Wall Street what is best for them, do not like the direction America is headed in, and disdain President Barack Obama and his (perceived) circle of self-righteous, tone-deaf governing partisans.

  Trump voters are not just angry — they want revenge.

  Mr Trump has adroitly filled the vacuum of vitriol, establishing himself as the bold, brash, take-no-prisoners megaphone for the frustrated masses. They see him as the antidote to all that Mr Obama has made wrong with America. So to understand why millions love Mr Trump so much, you have to take a step back and listen to why they hate Mr Obama so much.

  Here, my Trump voter focus group was particularly illuminating. Some still believe the president is not Christian. Many believe he does not love America. And just about all of them think he does not reflect the values the country was built upon. Indeed, within this growing faction, Mr Trump has licence to say just about anything. As we have seen repeatedly, the more outrageous the accusation, the more receptive the ear.

  Mr Trump delights in unleashing harsh attacks on Jeb Bush, the Republican establishment and the “mainstream media”. His childlike joy in ridiculing his critics is tantamount to healing balm for the millions who have felt silenced, ignored and even scorned by the governing and media elite for so long. Is it any wonder that his declaration of war against “political correctness” is his most potent and predictable applause line?

  Straight-talking candidates are nothing new in American politics. From Ross Perot in 1992 to John McCain in 2000, from Howard Dean in 2004 to Sarah Palin in 2008, they rise like a rocket on the fuel of their seemingly fresh and unencumbered aversion to traditional politics. They purport to say what they mean and mean what they say — bucking established electoral trends and ruffling established political feathers. Then they crash. The media turn sour. The message grows stale. The electorate gets bored.

  Mr Trump is different. The media attacks on him have been fast and furious. Yet he has defied electoral gravity because the blows are delivered by an institution that is distrusted and an elite political and business establishment that is detested.

  

  Meanwhile, voters consistently tell pollsters like me that negative attacks do not work; they hate the ad hominem assaults. Mr Trump? He dines out on them. As his devotees see it, it is not Mr Trump going negative. It is him telling the truth. And when he fights back, he’s throwing punches on their behalf. He said something outrageous? “He’s simply raising an important issue nobody else has the courage to talk about.” He insulted someone? “That’s just him campaigning. He won’t do that as president.” He changed his position? “That was a long time ago. Everyone’s entitled to change their mind.” He doesn’t have many policy specifics? “He doesn’t need them. He’ll surround himself with smart people.” They will justify any action, explain away any contradiction, and dismiss any criticism because they are so personally and passionately invested in him.

  And here is the prediction that will furrow brows on both sides of the Atlantic. Mr Trump’s supporters today will be Mr Trump’s supporters next November if he is still a candidate — no matter what party banner he runs under. Half will follow him out of the Republican Party if he breaks his promise and declares as an independent. For better or worse, his supporters will follow him to the ends of the Earth — or to the White House. Whichever comes first.

  

  

  

  

  

• Another Bubble Pops: Used Boeing 777 Sells For 97% Off List Price

  While the US economy may have unofficially entered an industrial recession in recent months with the dip in the manufacturing ISM below the critical 50 level, one sector has continued to do surprisingly well: automotive manufacturing, as a result of vibrant car sales. The reason for this, as we have repeatedly demonstrated, has been the record surge in auto loans, which have long surpassed both total credit card debt (and the $1 trillion mark), and continue to fund an unprecedented auto buying spree as they rush to catch up to the $1.2 trillion in total student loans.

  

   

  Furthermore, recent Experian data confirms what most have known: the only reason auto sales are as strong as they are is because for the second time in under a decade, there is a substantial car loan bubble. As noted pbefore, here are some of its key characteristics:

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

  

   

  Still, despite persistently record easy credit terms, the final days of the car loan bubble appear to be at hand: with US auto inventories already at their highest levels relative to sales since 2009 – suggesting US consumers can hardly absorb any incremental auto production – all it would take to pop the bubble, is a small exogenous event: like a rate hike by the Fed.

  

   

  But while the car loan bubble has been extensively documented there is another mode of transportation where the bubble in prices may have easily eclipsed anything seen in the auto space, and which, pardon the pun, has flown right below the radar.

  Airplanes.

  According to Air Transport World, Delta recently signed a letter of intent to buy a used Boeing 777 for $7.7 million, according to CEO Richard Anderson.

  The Delta CEO raised some eyebrows in October when he said there was a “huge bubble” in used widebody aircraft, pricing a 10-year-old 777-200 at $10 million. Anderson said that the market would be “ripe” for Delta to buy used 777s.

  To be sure, Boeing president and CEO Dennis Muilenburg was among those who pushed back against Anderson, saying the Delta CEO was valuing used 777’s much too low.

  It wasn’t. Although, as it turns out, Anderson was indeed wrong when he said used 777s were on the market for $10 million. “It was actually $7.7 million. We just signed a letter of intent to buy one.”

  Anderson’s comments came during Delta’s investor day and, for added emphasis, were posted on Twitter by Delta. Just as happened when Anderson made the original remark about used 777 values, Boeing’s stock price immediately dropped.

  CEO: I was wrong when I said used 777s were on market for $10M. It was actually $7.7M. We just signed a letter of intent to buy one.

  — Delta News Hub (@DeltaNewsHub) December 17, 2015

  Here is the punchline: Boeing’s list price for a new 777-200ER is $277.3 million, meaning Delta is buying a used 777 at a price 97.2% lower than the value of a new 777.

  

  Delta did not give details on the 777 for which it signed the LOI, such as who the seller is and which airline previously operated the aircraft.

  This stunning “price discovery” leaves a few key questions wide open:

  • Was this just a one off transaction in which Delta found a very “motivated” seller and took advantage of what was beyond a firesale price? If so, who was the seller and why liquidate in such a hurry?
  • Alternatively, if this deal is indicative of prevailing “used plane” market prices, and judging by Anderson’s comment one can find more 777-200ERs for the low price of $10 million, this means that either the market for new plane widebody airplanes is indeed an unprecedented bubble funded by such government vehicles as the Ex-Im bank, or the used plane market is a ticking time bomb for all those billions in EETFs and various aircraft-backed pass through securities which are collateralized by planes such as the the Boeing 777. It explains the stink Boeing made when Ex-Im bank’s charter was temporarily revoked by Congress.
  • At the micro level, if new plane prices are just a “huge bubble” as the Delta CEO alleges, that means that the valuation of Boeing is about as “credible” and sustainable as that of New Century just a few days before the subprime bubble burst.
  • Finally, if there is such a dramatic cliff between new and used airplanes, what does that mean for bank amortization assumptions on billions in airplane inventory which is still carried by banks on their books, and just how massive would be the valuation deficit once loans collateralized by airplane “assets” are marked to market.

  Granted, while it is becoming increasingly difficult to track all of the bubbles and capital misallocations that have resulted from 7 years of ZIRP, NIRP and QE, we hope to present readers with some answers to these questions ideally before the serial, or parallel, and long overdue bursting of said bubbles takes place.

  

  

  

  

  

• Atlas Shrugged-er: Government Now Preying On High School Graduates

  Via Investment Research Dynamics,

  A friend sent me a news item from U.S. News and World Report which reported that Louisiana’s board of education is going to implement a new policy which requires all students to fill out a Free Application for Federal Student Aid in order to receive a high school diploma.

  Think about that for a moment.  In order to receive a high diploma, the State of Louisiana is requiring that high school seniors fill out an application which would enable them to go into debt the moment they receive their diploma.

  This is a mind-blowing event.  Most jobs available to high school grads do not require a college degree.  But some might require a high school diploma.  I have to wonder what the motive is behind this.  A significant portion of student debt is now being used for corporate-owned “universities” which are largely worthless to everyone except the entities who own the schools.  Goldman Sachs is a big player in this space.   Student debt, backed by the Taxpayer, is just another form of wealth transfer from the public to the banks and big corporations.

  

  The amount of student debt issued and outstanding is now over $1.3 trillion. Obama pats himself on the back because student loan delinquency rates are falling a bit.  But this is because he has made it easier to defer payment. While 11.5% – roughly $150 billion – is in delinquency, about 50% of this debt is in some form of grace period, deferment or forebearance.  Loans in deferment are not part of the delinquency rate calculation.  The true level of delinquency and technical default is probably somewhere in the 35-45% range.

  I have to believe that the requirement being implemented in Louisiana is violating some part of the Constitution.  Of course, with the simple stroke of a pen, Obama can override the Constitution with yet another Executive Order upholding this requirement.

  This requirement in Louisiana is exactly the type insane laws which were imposed by the Government as described in the narrative laid out in “Atlas Shrugged.”  Acts of mandate which enabled the Government and the corporate friends of the Government to suck wealth from the populace and from productive workers and redistribute the largesse amongst themselves.

  We know how the story unfolds in “Atlas Shrugged.”  Unfortunately, I see the same type of story unfolding in the United States.

  If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.  – Thomas Jefferson

  

  

  

  

  

• ISIS Head Calls For Global Jihad; Here Are Some Muslim Responses

  On Saturday, Bakr al-Baghdadi released a rare audio recording in which the ISIS leader threatened Israel (“we are getting closer to you everyday”), insisted that the Russian air campaign had not weakened the group (“hear the good news that our state is doing well”), and called upon Muslims to join the caliphate and take up arms against its enemies. 

  “Joining (its fight) is a duty on every Muslim. We are calling on you either join or carry weapons (to fight) wherever you are,” Baghdadi said, adding that “there is no excuse for any Muslim not to migrate to the Islamic State.” 

  Muslims, apparently, do not agree and took to Twitter to list a number of “excuses” for their unwillingness to drop what they’re doing to wage jihad in Syria and Iraq. Here are some amusing examples.

  I’ve got Star Wars on Sunday. Maybe later. https://t.co/UQ71PkUi4j

  — Saadat Ali Zia (@my69cents) December 26, 2015

  Sorry #ISIS. This Muslim is just waking up. Needs coffee. Also, it’s Christmas weekend family time. Run along now. https://t.co/gUODLPdDy6

  — Salman Anees Soz (@SalmanSoz) December 26, 2015

  Sorry, I am busy watching Netflix. https://t.co/YyLJ9cQ2nS

  — Mohamed Djingo (@TheDjingo) December 26, 2015

  Would do, but there’s engineering work on the trains around London Bridge. Soz https://t.co/Rx2ucColWo

  — radio_shak (@radio_shak) December 26, 2015

  Are you telling me I should join you rather than witness Leicester City win the league?? Noooo wayyyy! https://t.co/CqtIZBesM9

  — Anjum Rauf Meer (@anjum_meer) December 26, 2015

  As The Independent notes, the Twitter reaction is “a reminder that the overwhelming majority of people follow Islam peacefully and detest the message that Isis spreads.” 

  One country that does not detest the message ISIS spreads is of course Saudi Arabi, where wahhabism is openly promoted and championed. It’s interesting to note that Baghdadi also threatened Riyadh in the audio recording, asking Saudi citizens to overthrow the government. And then on Sunday, we get this from al-Jazeera: 

  While recent spectacular terror attacks either directed or inspired by the Islamic State of Iraq and the Levant (ISIL) have mostly taken place against the West and Russia, a new priority for ISIL could be the Gulf.

   

  The two countries that appear to be more at risk now are Saudi Arabia and the United Arab Emirates (UAE).

   

  The likelihood of a full-blown ground operation by troops from that newly formed coalition is at the moment quite low, as it would mean Saudi soldiers fighting alongside its arch-enemies – the Shia militias – against ISIL. 

  This assessment might change instantaneously if there were to be a spectacular ISIL-directed terror attack in either Saudi Arabia or the UAE.

  Did Baghdadi just set the stage for a Saudi-led ground intervention in Syria? And if so, how convenient is that for Riyadh and its newly formed anti-terror “coalition” who would like nothing more than to rollback the Iranians (who were left out of the alliance) and tip the scales back in favor of the rebels fighting Assad?

  

  

  

  

  

• Bank of Montreal Asks If "Oil Prices Could Collapse To $20"; Answers: "Yes"

  When looking at the price of oil in 2015, Canada’s Bank of Montreal admits it was wrong. Very, very wrong.

  In our “2015 Year Ahead” report we laid out three plausible scenarios: (1) our base case, which forecast Brent crude oil prices of $50-60/bbl over the first half of 2015 and $60-80/bbl over the second half of the year; (2) a bull case, which forecast a Brent trading range of $85-95; and a bear case, which suggested a Brent trading range of $50-60/bbl. The actual trading range in 2015 proved to be even more ‘bearish’ than our bear case, with Brent generally trading between $36 and $60/bbl. So what did we get wrong?

  The answer: pretty much everything but mostly the fact that in the race to the production bottom (“we’ll make up for plunging prices with soaring volumes”) only dramatic outcomes, which shock the status quo, have any impact, to wit:

  “we assumed that Iraq production would average 2.9 million bpd; actual production was roughly 1 million bpd higher. We also assumed that Saudi Arabia would be content to hold production at 9.2 million bpd whereas actual production was roughly 800,000 bpd higher. In our view, this incremental 1.8 million bpd of production was the principal reason that global oil inventories swelled by more than 340 million barrels to a record high of approximately 3.1 billion barrels and why crude oil prices have collapsed.”

  Well, that, and the fact that the financial BTFD community finally threw in the towel on the most financialized commodity, and following two failed attempts at dead cat bounces, may have thrown in the towel. That said, just looking at speculative positions, oil may have a long way to drop still.

  

   

  Which may also explain why, as noted last week, someone has made material directional (and/or hedge) bets via puts that oil will slide to $25, $20, even as low as $15.

  

   

  However, now that the financial overhang from the price of oil has been stripped away, the supply/demand fundamentals once again matter. Which brings us back to BMO, and its latest oil price forecast for the coming year. According to the far more downbeat (compared to last year) Canadian bank, “the current supply-demand balance is not sustainable; something has to give.” More:

  If OPEC production increases with the return of Iran and non-OPEC production declines only modestly, global inventories could test capacity in 2016. Since this can’t happen either OPEC and/or non-OPEC has to voluntarily (or involuntarily in the case of a disruption) reduce supply. We believe that crude oil prices will need to remain low enough for long enough to force non-OPEC producers to reduce production. We believe that Brent oil prices in the range of $35-45/bbl are required to force a further reduction in the U.S. rig count and/or shut-in oil production from higher cost sources such as stripper wells, conventional heavy oil and mature offshore platforms. Our base case assumes that Brent crude trades in the $35-40/bbl range over the first half of 2016. We believe that this could lead to a reduction in non-OPEC supply in the second half of 2016 that balances supply and demand and supports modestly higher prices in $45-55/bbl range over the second half of the year. The reduced activity should also allow inventories to begin being drawn down in 2017, which should support prices in the $50-60/bbl range in 2017.

  More on the near record supply/demand imbalance:

  We believe that the weakness in crude oil prices reflects a combination of fundamental factors and financial flows. Fundamentally there is simply too much oil. The main culprit is Iraq, which increased production by roughly 1 million bpd over the last 12 months, along with Saudi Arabia which added an additional 800,000 bpd over the same period. In our view, this incremental 1.8 million bpd of production was the principal reason that global oil inventories swelled by more than 340 million barrels to a record high of approximately 3.1 billion barrels and why crude oil prices have collapsed.

   

  

  * * *

  In other words, in order to avoid embarrassment for the second year in a row, BMO is merely parroting the Goldman base-case of a reduction in the net supply imbalance in the second half of 2016, which should push prices of oil higher. On paper, sure. In reality, who knows.

  Which is also why BMO, prudently, hedges by laying out the biggest downside risk to any forecast: a full-on price implosion.

  Could oil prices collapse to $20?

   

  The short answer is ‘yes.’ We believe that crude oil prices could fall further unless global oil production is reduced. As shown in Table 2, we estimate that the global oil market could be oversupplied by roughly 920,000 bpd in 2016. The key assumptions are year-over-year growth in global demand of 1.2 million bpd, Saudi Arabia, Iraq and Libya hold production at current levels, Iran ramps up production at moderate pace over the course of the year and the U.S. rig count remains at current levels.

   

  

   

  This would translate to a build in global crude oil inventories of roughly 231 million barrels over the course of the year and potentially result in OECD crude oil inventories reaching capacity by the end of the year, as shown in Chart 14. Another risk is that Libya increases production. The countries two warring factions recently signed a UN-brokered agreement to form a national government. This could lead to higher levels of production, potentially adding another 1 million bpd to the already over-supplied market. Under this scenario, we believe that crude oil prices could plunge to $20/bbl to ensure that enough crude oil is taken off the market to prevent inventories from breaching capacity.

  Good luck with that “voluntary” reduction thesis. If anything, the worse the fiscal outlook of any given oil-exporter gets, the more it will export to offset declining prices, as Chinese steel producers have been kind enough to demonstrate.

  

  Which is why, for anyone focusing on the fundamentals instead of the financials (and the biggest upside price risk has nothing to do with geopolitical events but more with a central bank -coughnorwaycough – announcing it would launch a commodity-focused QE) a $20 case should be the base-case around which to hedge, especially since last week Dennis Gartman turned “Very, Very Quietly Bullish Of Crude.“

  In a follow-up article we will show what $20/oil means for the key industry participants in the context of everyone’s specific oil price floor, and what happens if and when it is breached.

  

  

  

  

  

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• Washington's "Empire Of Chaos" & The Cold War 2.0 'New Normal'

  Authored by Pepe Escobar, Op-Ed via RT.com,

  In his seminal 'Fall of Rome: And the End of Civilization,' Bryan Ward-Perkins writes, "Romans before the fall were as certain as we are today that their world would continue forever… They were wrong. We would be wise not to repeat their complacency.”

  The Empire of Chaos, today, is not about complacency. It’s about hubris – and fear. Ever since the start of the Cold War the crucial question has been who would control the great trading networks of Eurasia – or the “heartland”, according to Sir Halford John Mackinder (1861–1947), the father of geopolitics.

  We could say that for the Empire of Chaos, the game really started with the CIA-backed coup in Iran in 1953, when the US finally encountered, face to face, that famed Eurasia crisscrossed for centuries by the Silk Road(s), and set out to conquer them all.

  Only six decades later, it’s clear there won’t be an American Silk Road in the 21st century, but rather, just like its ancient predecessor, a Chinese one. Beijing’s push for what it calls “One Belt, One Road” is inbuilt in the 21st century conflict between the declining empire and Eurasia integration. Key subplots include perennial NATO expansion and the empire’s obsession in creating a war zone out of the South China Sea.

  As the Beijing-Moscow strategic partnership analyses it, the oligarchic elites who really run the Empire of Chaos are bent on the encirclement of Eurasia – considering they may be largely excluded from an integration process based on trade, commerce and advanced communication links.

  Beijing and Moscow clearly identify provocation after provocation, coupled with relentless demonization. But they won’t be trapped, as they’re both playing a very long game.

  Russian President Vladimir Putin diplomatically insists on treating the West as “partners”. But he knows, and those in the know in China also know, these are not really “partners”. Not after NATO’s 78-day bombing of Belgrade in 1999. Not after the purposeful bombing of the Chinese Embassy. Not after non-stop NATO expansionism. Not after a second Kosovo in the form of an illegal coup in Kiev. Not after the crashing of the oil price by Gulf petrodollar US clients. Not after the Wall Street-engineered crashing of the ruble. Not after US and EU sanctions. Not after the smashing of Chinese A shares by US proxies on Wall Street. Not after non-stop saber rattling in the South China Sea. Not after the shooting down of the Su-24.

  It’s only a thread away

  A quick rewind to the run-up towards the downing of the Su-24 is enlightening. Obama met Putin. Immediately afterwards Putin met Khamenei. Sultan Erdogan had to be alarmed; a serious Russian-Iranian alliance was graphically announced in Teheran. That was only a day before the downing of the Su-24.

  France’s Hollande met Obama. But then Hollande met Putin. Erdogan was under the illusion he fabricated the perfect pretext for a NATO war, to be launched following Article 5 of the NATO Charter. Not by accident failed state Ukraine was the only country to endorse – in haste – the downing of the Su-24. Yet NATO itself recoiled – somewhat in horror; the empire was not ready for nuclear war.

  At least not yet. Napoleon knew history turns on a slender thread. As much as Cold War 2.0 remains in effect we were, and will remain, just a thread away from nuclear war.

  Whatever happens in the so-called Syrian peace process the proxy war between Washington and Moscow will continue. Hubristic US Think-Tank Land  can’t see it any other way.

  For Exceptionalist neocons and neoliberalcons alike, the only digestible endgame is a partition of Syria. The Erdogan system would gobble up the north. Israel would gobble up the oil-rich Golan Heights. And House of Saud proxies would gobble up the eastern desert.

  Russia literally bombed all these elaborate plans to ashes because the next step after partition would feature Ankara, Riyadh – and a “leading from behind” Washington – pushing a Jihadi Highway all the way north to the Caucasus as well as Central Asia and Xinjiang (there are already at least 300 Uyghurs fighting for ISIS/ISIL/Daesh.) When all else fails, nothing like a Jihadi Highway plunged as a dagger in the body of Eurasia integration.

  In the Chinese front, whatever “creative” provocations the Empire of Chaos may come up with, they won’t derail Beijing’s aims in the South China Sea – that vast basin crammed with unexplored oil and gas wealth and prime naval highway to and from China. Beijing is inevitably configuring itself by 2020 as a formidable haiyang qiangguo – a naval power.

  Washington may supply $250 million in military “aid” to Vietnam, Philippines, Indonesia and Malaysia for the next two years, but that’s mostly irrelevant. Whatever “creative” imperial ideas would have to take into account, for instance, the DF-21D “carrier killer” ballistic missile, with a 2,500 km range and capable of carrying a nuclear warhead.

  On the economic front, Washington-Beijing will remain prime proxy war territory. Washington pushes the TPP – or NATO on trade pivoting to Asia? It’s still a Sisyphean task, because the 12 member nations need to ratify it, not least the US featuring an extremely hostile Congress.

  Against this American one-trick pony, Xi Jinping, for his part, is deploying a complex three-pronged strategy; China’s own counterpunch to the TPP, the Free Trade Area of the Asia-Pacific (FTAAP); the immensely ambitious “One Belt, One Road”; and the means to finance a tsunami of projects, the Asian Infrastructure Investment Bank (AIIB) – the Chinese counter-punch to the World Bank and the US-Japan-controlled Asian Development Bank (ADB).

  For Southeast Asia, for instance, the numbers tell the story. Last year, China was the top ASEAN partner, to the tune of $367 billion. This will grow exponentially with One Belt, One Road – which will absorb $200 billion in Chinese investment up to 2018.

  Heart of Darkness – revisited

  Prospects for Europe are nothing but bleak. French-Iranian researcher Farhad Khosrokhavar has been one of the few who identified the crux of the problem. A jihadi reserve army across Europe will continue to feed on batallions of excluded youth in poor inner cities. There is no evidence EU neoliberalcons will be fostering sound socio-economic policies to extract these alienated masses from the ghettos, employing new forms of socialization.

  So the escape route will continue to be a virus-like version of Salafi-jihadism, sold by wily, PR-savvy profiteers as a symbol of resistance; the only counter-ideology available on the market. Khosrokhavar defined it as the neo-umma – an “effervescent community that never existed historically”, but now openly inviting any young European, Muslim or otherwise, afflicted by an identity crisis.

  In parallel, on our way into a full 15 years of the endless neocon war against independent states in the Middle East, the Pentagon will be turbo-charging an unlimited expansion of some of its existing bases – from Djibouti in the Horn of Africa to Irbil in Iraqi Kurdistan – into “hubs”.

  From sub-Saharan Africa to Southwest Asia, expect a hub boom, all of them merrily hosting Special Forces; the operation was described by Pentagon supremo Ash “Empire of Whining” Carter as “essential”; “Because we cannot predict the future, these regional nodes – from Moron, Spain to Jalalabad, Afghanistan – will provide forward presence to respond to a range of crises, terrorist and other kinds. These will enable unilateral crisis response, counter-terror operations, or strikes on high-value targets.”

  It’s all here: unilateral Exceptionalistan in action against anyone who dares to defy imperial diktats.

  From Ukraine to Syria, and all across MENA (Middle East and North Africa), the proxy war between Washington and Moscow, with higher and higher stakes, won’t abate. Imperial despair over the irreversible Chinese ascent also won’t abate. As the New Great Game picks up speed, and Russia supplies Eurasian powers Iran, China and India with missile defense systems beyond anything the West has, get used to the new normal; Cold War 2.0 between Washington and Beijing-Moscow.

  I leave you with Joseph Conrad, writing in Heart of Darkness:

  "There is a taint of death, a flavor or mortality in lies….To tear treasure out of the bowels of the land was their desire, with no more moral purpose at the back of it than there is in burglars breaking into a safe….We could not understand because we were too far and could not remember, because we were traveling in the night of first ages, of those ages that are gone, leaving hardly a sign – and no memories…”

  

  

  

  

  

• In Honor Of "The Big Short", Here Is Michael Burry's Historic Commencement Speech

  On the day after one of America's greatest for over-consumption, a few moments of quiet reflection on the state of our world seemed appropriate. With the launch of "The Big Short" movie (assuredly infuriating many Americans with its "dangerous for the establishment" expose of the greed, stupidity, hubris, and arrogance of Wall Street bankers gone wild), Dr. Michael Burry's infamous UCLA commencement speech has much to offer .

  Infamous for his correct predictions of the great recession, Europe's demise, and the collapse of the US financial system (as well as profiting handsomely from being right), the painful 'truthiness' of this brief speech stunningly summarizes the ominous truth facing most of the developed (and much of the emerging) world today:

  "In this age of infinite distraction… when the entitled elect themselves, the party accelerates, and the brutal hangover is inevitable."

  A quarter-of-an-hour well spent from a self-described 'chicken-little' who was "just trying to figure it all out".

   

  

  

  

  

  

• The Year In Charts: Presenting The Latest "PunchLine" Chartporn

  The Punchline’s Abe Gulkowitz is the author of our favorite chart-only newsletter, and as 2015 draws to a close, it is obvious that he has been very busy.

  Here are his parting thoughts for a year that had a lot of volatility and day-to-day excitement, which saw bear markets strike a countless S&P500 stocks, which saw the geopolitical situation careen right into another global proxy war, a year in which Greece almost again Grexited the Eurozone, in which EMs tantrumed violently ahead of the Fed’s rate hike, in which the Swiss revalued and China devalued their currencies, a year which saw junk bonds and commodities plunge to unprecedented levels… and yet where the S&P500 is set to close literally where it started.

  What a way to end 2015. The Federal Reserve voted Wednesday to raise interest rates and begin pulling back its unprecedented support for the American economy and financial markets. The shift, ending an era of easy money that helped save the nation from another Great Depression, had been slow in coming , and the years of easing had created its own distortions and dependencies. The Fed also pledged to wean the nation off its stimulus slowly, an acknowledgement that further progress is not guaranteed and that the central bank is operating in uncharted territory. In addition, the shift amounts to a vote of confidence that the American economy finally stands somewhat more resilient. – – perhaps uniquely in the world.

   

  Yet we cannot ignore the reality of a poor global growth trajectory, dogged by crashing commodity prices, a slowdown in China and new traumas in the speculative high-yield and emerging markets. Indeed, even the U.S. economy has yet to produce a full-throttled expansion. We will continue to highlight the nuances, peculiarities of the regional and sectoral differences in business recovery and worlds of finance. Fasten your seatbelts for 2016.

  And with that said, here is the year that was in charts.

  

  

  

  

• 90% Of Americans Said 2015 Was Not Better Than 2014

  With 29% of young Americans having lost faith in 'The American Dream' (for good reason as we detailed here), it is hardly surprising that a new poll by The Associated Press finds that just 10% of people believe 2015 was a better year for the world than 2014. That is half the number from 2013 and appears to confirm what we already tongue-in-cheek noted  – that 2015 was perhaps the worst year ever.

   

  As we noted previously, if the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over. 

  So, as CBS asks, was 2015 worse for the world than last year?

  Americans are also much less likely than they were a year ago to believe that the current year was better for the United States – only 17 percent compared with 30 percent in 2014. Worse still, just 10% saw 2015 as better for the world than 2014… down from a hubristic 20% in 2013.

  

  The new Associated Press-Times Square Alliance poll mass shootings and terror attacks weighed heavily on the minds of Americans in 2015, revealing that most polled believe this year was worse than 2014. But, for the world, while its leaders potter around proclaiming the solution to climate change, it appears that is near the bottom of people's fears…

  

  According to the poll, the most important events to Americans in the past year were the shootings in San Bernardino, California, as well as shootings in South Carolina, Oregon and Tennessee. Close behind came the Paris attacks and atrocities perpetrated by the Islamic State extremist group.

  *  *  *

  As we commented earlier, we apologize, but 2015 had so many negatives that we’re having trouble seeing the positives. It’s like we’re on the Titanic, and it’s tilting at an 85-degree angle with its propellers way up in the air, and we’re dangling over the cold Atlantic trying to tell ourselves: “At least there’s no waiting for the shuffleboard courts!”

  Are we saying that 2015 was the worst year ever? Are we saying it was worse than, for example, 1347, the year when the Bubonic Plague killed a large part of humanity?

  Yes, we are saying that. Because at least the remainder of humanity was not exposed to a solid week in which the news media focused intensively on the question of whether a leading candidate for president of the United States had, or had not, made an explicit reference to a prominent female TV journalist’s biological lady cycle.

  That actually happened in 2015, and it was not the only bad thing.

  

  

  

  

  

• The Mystery Of Dubai's Vaporized Gold: The Plot Thickens

  Earlier this week, we told a fascinating story about an unprecedented, multi-year smuggling ring involving Turkey, Iran, and Dubai (as well as China, Russia and countless other nations) which saw corruption reaching to the very top of the political and financial establishment: from president Erdogan in Turkey, to one of Turkey’s richest people, Iran-born Riza Sarraf, to Sheikh Sultan Bin Khalifa Al Nahyan, the son of the ruler of Abu Dhabi and one of the world’s richest people. The smuggled object in question was gold, billions of dollars worth of gold.

  The focus of the story was the previously unknown Dubai gold trading house, Gold.AE, until recently managed by one Mohammed Abu-Alhaj, which as we showed was the primary conduit by which Turkish physical gold found its way “legally” in Dubai, from where it subsequently left for Iran but not before pocketing millions in “commissions.”

  As we reported, Gold.AE – a subsidiary of Gold Holding, the largest gold-focused investment holding company headquartered in Dubai – and the company perhaps best known for launching gold ATMs in the Emirates back in 2010…

  

  … announced a few days ago that it had suddenly and unexpectedly gone out of business, after an inquiry by minority shareholders announced that the entire old “management team abruptly resigned with no notice” and that “there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.”

  In other words, the company which was used as a cover for billions in gold transactions over the last several years in the Turkey-Iran gold smuggling trade, was suddenly not only insolvent but had been thoroughly plundered of all its holdings, including a thorough plundering of client accounts.

  Think the Corzining of MF Global, only on steroids, goes to Dubai.

  To be sure the police was quickly involved:

  In order to try and secure/recover monies that had been taken out of the accounts of the company, Mr. Gauthier in his capacity as manager has filed various cases as against the recipients of the funds from the Company (Dubai Police ( Bur Dubai Police Station), Case No: 24378). The minority shareholders are doing everything within their powers to support him in his efforts to recover these monies that were withdrawn from Gold AE in questionable circumstances.

   

  DMCC has alleged that some of these activities undertaken by the previous management are in breach of DMCC’s rules and as such they have taken the decision to terminate the license of the Company. We are working closely with DMCC to find a solution and in the meanwhile, we request that you bear with us. In the meanwhile, as a statutory consequence of the license being terminated, the trading platform of the Company has to shut down as of the date of termination of the license which is 24th November 2015.

  However, since as Gold.AE admitted a Swiss bank account had been uncovered, it is very unlikely that any of the funds involved will be recovered.

  And now that the gold-trading company at the nexus of what may have been the world’s biggest gold smuggling ring in history has imploded seemingly overnight, vaporizing countless tons of physical gold and unknown amounts of client cash, even more questions remain.

  One attempt to answer some of these comes from the website of Arabian Business, which has picked up on this trail and reports that it is understood that the previous management team were replaced in March, resulting in the appointment of Andres Gauthier as CEO and Mo Nico Consari as managing director.

  It is unclear why or what prompted the removal of the previous management team, or why it took nearly 9 months for an update to clients to be issued, in which it was made abundantly clear that there was no money left in the gold trading organization.

  The article continues:

  Gold AE suspended its services without warning in October, according to a handful of its customers who claim not to have been able to access their accounts for several weeks.

   

  The December 16 Gold AE email to customers states that, during an internal investigation, Gold AE’s acting management found that members of the previous management team “had used significant amounts of client and shareholders’ money and transferred [it] to multiple locations, including Switzerland, Jordan, Turkey and Saudi Arabia.”

   

  It is understood that Gold AE’s customers have been urged to initiate arbitration in Dubai’s courts on an individual basis in order to recoup their lost investments.

   

  However, customers claim they have been left in the dark about what has been going on at the company and have been unable to trade their product or access their accounts.

  How much money have clients lost?  “One customer, who asked not to be named, told Arabian Business they were in touch with around 60 of Gold AE’s estimated 2,000 clients and that that minority alone claims to have around AED12 million ($3.2 million) locked up in the company.”

  This is just a small portion of what was supposed to be client “segregated” accounts, which lately we have seen are nothing but a piggy bank for corrupt management to borrow from, or steal outright, at whim.

  According to Arabian Business, it is thought the total amount of missing funds reaches $25-30 million. The reality, however, is that nobody knows and a far more important question is how many hundreds of millions or billions were funneled through Gold.AE in the period starting in 2012 when the company’s now disgraced former manager, Abu-Alhaj, became the Dubai frontman for all Turkish gold laundering.

  

  As for Gold.AE’s clients, they are understandably furious:

  The source claimed Gold Holding “has failed to take responsibility and that DMCC and DIFC are playing ping-pong with us customers while we go to appeal to try to solve this matter.” The source added: “No one is taking responsibility to resolve this and we as customers are feeling very helpless.

   

  “Even the police are not taking this up and are directing us towards the court. So we are in the process of appointing lawyers to represent us in court.” Dubai Police and Dubai Courts did not immediately respond to requests for comment.

  Considering a major shareholder of Gold.AE’s holding company is none other than Abu Dhabi’s second most important person, this is not a surprise.

  Additionally, the regulators are also now involved. Too bad that, just like in the US, they arrived on the scene just a little bit too late:

  A spokesman for the DMCC said in an emailed statement to Arabian Business: “DMCC is aware of allegations relating to Gold AE, a wholly-owned subsidiary of Gold Holding Limited – a DIFC-licensed entity.

  “We have conducted an internal investigation into the allegations of fraudulent activity by Gold AE. As a result of this investigation, DMCC has terminated the trade licence for Gold AE and have notified Gold Holding Limited accordingly.

  “By terminating the trade licence of Gold AE, the company is mandated by law to cease all of its trade operations and not undertake any further commercial activities. We are closely monitoring the matter and have verified information that relevant authorities are taking necessary next steps.

  “In its capacity as licensing authority, DMCC is unable to provide specific financial or legal advice to any customer of Gold AE. We encourage strongly that all customers of Gold AE contact Gold Holding Limited for further information.

  “In order to assist customers of Gold AE who are experiencing difficulty in receiving information from Gold AE, DMCC is preparing further guidance for all clients of Gold AE, which will be issued shortly.

  “In the meantime, please send any enquiries to goldcomplaints@dmcc.ae. We will forward them on to Gold Holding Limited who, we understand, is collating customer information at this time.”

  And now the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holdings is immediately severed. A spokesperson for the DIFC said: “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

  “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.“

  Why the scramble to exonerate Gold Holding Ltd? Because as we reported yesterday, it is owned by this man: Sheikh Sultan Bin Khalifa Bin Zayed Al Nahyan.

  Sultan is the advisor to the President of UAE, the eldest son of Khalifa Bin, President of the United Arab Emirates, Supreme Commander of the UAE Armed Forces, and Ruler of Abu Dhabi.

  

  Sultan may just be most important young person in Dubai, which makes him among the top 20 most important, not to mention wealthiest, in the world.

  It would not be good for his reputation if it emerged that not only is his holding company involved in the biggest gold smuggling scandal in history, but that said company just vaporized after an unprecedented case of management embezzlement.

   Or is it?

  When Arabian Business emailed the public enquiries email address for Gold Holding, info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.

  Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.

  So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE… or is he merely the fallguy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.

  And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf’s political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in Abu Dhabi without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world’s biggest gold smuggling ring, but that is implicitly gave Iran its blessing to use berterable Turkish gold in order to bypass sanctions imposed by… the United States!

  In the next installment of this action and mystery-packed series, we hope to uncover just what the role of the “developed” countries was in this massive smuggling operation, and perhaps even more importantly, where did Turkey end up buying hundreds of tons of gold which it subsequently sold to Iran and where did the Iranian gold ultimately end up?

  

  

  

  

  

• Tracking People Flows: Global Migration Summarized In 7 Charts

  With the topic of global (im)migration getting increasingly more
  prominence as we get ever closer to the presidential elections, not to
  mention Europe’s ongoing plight with the biggest refugee crisis since
  World War II, here is a
  handful of factual, and bias-free, charts summarizing the key aspects
  of global human mobility.

  First, here is a summary tracker of global people flows since the start of the century. The countries in gray are sources of net people outflows, while those in blue have seen cumulative immigration over the past 15 years.

  

  For some, actually make that many, nations the rise in the immigrant population is the only thing preventing the total population from shrinking.

  

   

  It’s not just Europe.

  

   

  But Germany definitely has a problem.

  

   

  The result is that, at least in Europe, the percentage of foreign-born residents is rising with every passing year.

  

   

  The US appears headed in the same direction.

  

   

  Even as the working foreigners do their best to share some of their newly-founded “wealth” with friend and family stuck back home and who have been less fortunate.

  

  

  

  

  

  

• The Downside Domino Effect Of The Auto "Recovery"'s Potemkin Village On Wheels

  Authored by Eric Peters (h/t The Burning Platform),

  When most people can’t afford to buy things outright, the cost of money – interest – becomes even more important than the cost of the things themselves.

   

  

   

  For the past eight years, interest rates have been held down to 3 or 4 percent (or even less, in some cases) such that it costs almost nothing to borrow money. The private banking cartel that controls interest rates – the (ahem) “Federal” Reserve – did this to “stimulate” the economy – which is built on debt and people’s ability and willingness to assume it – after the cratering of Wall Street (and with it, everything else) back in ’08.

  In particular, two areas of the economy: real estate and the car business. Both have “recovered” – somewhat – as a result of this. But it’s a shaky recovery, not based on underlying strength – which would be characterized by people’s increased ability to afford the things they’re buying. Instead, this is a “recovery” based on the fiction of affordability made possible via the Fed’s policy of effectively “free” loans.

  In the case of the car business, longer loans have been the key to maintaining the facade of this Potemkin village on wheels.

  By spreading out the payment over six or seven years as opposed to four or five (which was the usual not so very long ago) the cost of buying a new car has been made to seem more manageable. You pay less each month – even though you pay for more months.

  But this dodge only works when the cost of the loan – interest – is low.

  If it’s high, then the payment is going to be, too.

  

  And with cars – unlike houses – there is a built-in limit to how far out the loan can be stretched as way to tamp down the month-to-month costs down. Eight or nine years is probably the absolute maximum, because cars – unlike houses – always decrease in value over time and because unlike houses, cars are fundamentally throw-aways. Probably 95 percent of all cars made during the 1980s are in junkyards now.

  Axiom: The longer you own a car, the less it is worth  The mileage goes up – the value goes down. A car’s value lies chiefly in its newness, which inevitably wanes no matter how little it’s driven or how well cared-for it may be (there are some exceptions, such as exotic and collectible cars; but these are just that – exceptions.)

  Let’s run some numbers.

  A car you purchased for $30,000 (the average priced paid last year for a new car) will cost you about $416 each month on a 72 month loan, assuming zero percent financing.

  But what happens when you’re paying 6 percent interest on the $30k loan? Your payment swells to almost $500 a month. In addition to the $30,000 principle, you’re also paying another $5,797 in interest (see here for actual calculator).

  Put another way, the $30,000 car is now a $35,797 car … plus taxes and tags.

  

   

  In the past, the payments could be made more manageable by adding another year to the loan. Why can’t it be be done again? See that point above about the built-in time limit for car loans.

  You can push a house loan out to 40 years (from the formerly usual 30) because the house stands a decent chance of at least maintaining most of its original value – and a good chance, despite the crappy economy, of appreciating in value. Because it is a durable asset, not a throw-away.

  It is extremely rare for any car to retain even half its original value after as little as six or seven years from new. And cars almost never appreciate in value unless they are very rare, exotics or otherwise collectible. Your Camry is not going to be worth more than what you paid for it for ten years from now. You’ll be lucky if it’s still worth a third what you paid for it a decade from now.

  And that’s why no lender’s going to push the payment schedule out much farther than the current outer limit of seven years (84 months). Because there is the risk – the probability – that the borrower will find himself owing more on the car than it’s worth long before it’s paid off. That he will be under water.

  The temptation – an act of financial self-preservation – will be to cut bait and walk away. Just as so many people did from their homes during the real estate crash.

  

   

  This is why – I believe – we are going to see a car industry crash as a result of the Fed’s decision to begin raising interest rates. Like one of those domino chain-reaction things you see sometimes at the shopping mall, once the first domino (the cost of money) is set in motion, the rest of them falling is just a matter of time.

  Car prices are not going to go down.

  As a guy who writes reviews about new cars – and so keeps track of what they cost – I will affirm to you that even when a new car is what they call in the business a carryover (i.e., exactly the same car as last year, just a new model year) the price is almost always at least a couple hundred bucks higher, due to inflation mostly. But even if the price of the car remained exactly the same – even if it went down a little – if interest rates go up significantly, the car is going to cost more.

  Since no one has yet figured out a way to keeps cars from losing value the moment they are driven off the dealer’s lot, lenders aren’t going to go stupid and write loans for eight or nine years that put them in certain danger of being left holding the bag when the person decides to let them repo the damned thing rather than keep making payments on it.

  You can perhaps see where this is going… .

  When new car sales slow, the pressure to make more profit off each sale will increase. Which will drive costs higher.

  Or, the car companies could do what Mitsubishi did (zero down, zero percent financing and no payments for a year!) and sell cars at a loss, just to keep the production lines moving. You remember what happened to Mitsubishi…?

  It will be like the physical jerks of a corpse subjected to electrical shocks.

  It moves, but it’s not really alive.

  

  

  

  

  

• Confessions Of An ISIS Soldier: "The Training Took Place In Turkey"

  Over the past five weeks, Turkey’s role in facilitating the trafficking of illicit Islamic State crude has been exposed for the world to see. Ankara’s move to shoot down a Russian Su-24 near the Syrian border prompted a media blitz from Moscow, which has variously accused the Erdogan government of being complicit in a business that nets Bakr al-Baghdadi between $500 million and $1 billion per year in revenue.

  To be sure, those who have followed Islamic State’s meteoric rise are well aware of the fact that Turkey has played a rather decisive role in the group’s recruiting efforts by looking the other way as a steady stream of foreign fighters – emboldened by the ISIS propaganda machine – have streamed into Syria. 

  Ankara, like Riyadh and Doha, is keen on seeing the Assad government fall and has been instrumental in the effort (supported by the West) to funnel money and weapons to the various Sunni extremist groups fighting for control of the country. As Nafeez Ahmed put it in a recent piece posted first on Medium, “NATO is harbouring the Islamic State and France’s brave new war on ISIS is a sick joke, and an insult to the victims of the Paris attacks.” Here are some key excerpts from the article:

  A senior Western official familiar with a large cache of intelligence obtained this summer from a major raid on an ISIS safehouse told the Guardian that “direct dealings between Turkish officials and ranking ISIS members was now ‘undeniable.’”

   

  The same official confirmed that Turkey, a longstanding member of NATO, is not just supporting ISIS, but also other jihadist groups, including Ahrar al-Sham and Jabhat al-Nusra, al-Qaeda’s affiliate in Syria. “The distinctions they draw [with other opposition groups] are thin indeed,” said the official. “There is no doubt at all that they militarily cooperate with both.”

   

  In a rare insight into this brazen state-sponsorship of ISIS, a year ago Newsweek reported the testimony of a former ISIS communications technician, who had travelled to Syria to fight the regime of Bashir al-Assad.

   

  The former ISIS fighter told Newsweek that Turkey was allowing ISIS trucks from Raqqa to cross the “border, through Turkey and then back across the border to attack Syrian Kurds in the city of Serekaniye in northern Syria in February.” ISIS militants would freely travel “through Turkey in a convoy of trucks,” and stop “at safehouses along the way.”

   

  The former ISIS communication technician also admitted that he would routinely “connect ISIS field captains and commanders from Syria with people in Turkey on innumerable occasions,” adding that “the people they talked to were Turkish officials… ISIS commanders told us to fear nothing at all because there was full cooperation with the Turks.”

  As if all of that wasn’t enough, German media now contend that ISIS has an office in Turkey through which it sells slaves obtained fron conquered territory.

  Given all of the above, it comes as no surprise that according to an Islamic State soldier captured by the YPG (which Ankara regards with quite a bit of suspicion for the group’s ties with the PKK), Turkey serves as the training ground for new ISIS recruits. The following excerpts are from Sputnik Turkey, who spoke to the fighter:

  “There were 60 of us, and we trained in a village not far from the airport. We got up in the morning and played sport. Once a week we had target practice, they taught us how to use Kalashnikovs, machine guns and other kinds of weaponry.”

   

  “The training took place in Turkey because the Daesh command thought that it was safer there than in Syria. It wasn’t possible to carry out training in Syria because of airstrikes.”

   

  “In the media they wrote that we were training in an FSA military camp, but in fact, all 60 of us were members of Daesh. We were Syrian nationals, many of whom in the beginning moved to Turkey to earn some money, and then joined Daesh.”

   

  “I made contacts with Syrians on the internet, helped them to get to Turkey and begin training. After I undertook the training, for five months I lived together with a relative who was a Daesh commander in Adana. My task was to meet the new recruits arriving from Syria. After training we sent them to Urfa, and from there – to Raqqa. From Raqqa they distributed themselves across different regions of Syria.”

   

  “Heavy weapons were delivered from Ash-Shaddadi (a town in southern Al-Hasakah Governorate).”

   

  “I spent one night there, and the next night December 11 2015 YPG forces attacked our positions, and took both of us captive. In al-Hol the commander was a Frenchman called Abu Yahya.”

   

  “What I read about Daesh, and what I was faced with in reality were absolutely different things.”

  Note that this isn’t the first time we’ve heard Adana mentioned in the same breath as ISIS. As University of Greenwich’s George Kiourktsoglou and Dr Alec D Coutroubis wrote in “ISIS Gateway To Global Crude Oil Markets,” the militants’ supply chain comprises the following localities: Sanliura, Urfa, Hakkari, Siirt, Batman, Osmaniya, Gaziantep, Sirnak, Adana, Kahramarmaras, Adiyaman and Mardin. The string of trading hubs ends up in Adana, home to the major tanker shipping port of Ceyhan.” 

  Apparently then, ISIS commanders are living in and recruiting from the very same place where Islamic State oil is shipped to global markets. So we now have still more evidence of Erdogan’s role in harboring “the terrorists” (as the Russian MoD calls them) but once again we seriously doubt anyone in NATO cares. After all, it’s not like this is a secret and we’re quite sure Washington is well aware of what the West’s favorite autocrat is up to in Ankara. The question, of course, is why no one seems interested in putting a stop to it.

  

  

  

  

  

• Afghanistan's Billion Dollar Drug War – A Battle Authorities Are Losing

  Amid ISIS' spread, with NATO troops pulling out, and local law enforcement agencies ill-equipped and underfunded, Afghanistan has once again become the frontline in the so-called "War On Drugs." As Al-Jazeera reports, Afghanistan's poppy fields, which feed the habits of drug addicts worldwide, are thriving, with cultivation of the crop hitting record highs last year. The number of Afghan addicts is soaring, and with the Taliban funded by the drug trade, security fears are paramount; but Afghan authorities are struggling to control the resurgence in poppy farming.

   

  The following disturbing documentary investigates the escalating situation in Afghanistant, the implications for the global war on drugs, and what the future holds for this fragile nation.

  

  

  

  

  

• 12 Reasons Why One Advisor Is Betting Treasurys, Not Stocks, Is The Investment Of 2016

  While the traditional Barrons’ flock of sellside penguins advisors is out and about, for the second year in a row predicting that, after being wrong on its consensus forecast for 2015 of double digit growth in the S&P500, the broader market will rise 200 points to 2220 by December 31, 2016…

  

   

  … we are more inclined to go with the contrarian call by Prerequisite Capital Management which believes that Treasurys (deflation), not stocks (inflation) are the way to go in 2016.

  Here are their arguments why.

  1. Deleveraging has hardly started: Both in the developed world and Emerging Markets.
  2. Capital Misallocation & Oversupply: Caused by (a) the cost of capital being held too low for too long, (b) policies that have caused saving & investment (global current account) imbalances to persist much longer than they naturally would have persisted
  3. Demographic headwinds: Aging populations etc
  4. CAPEX peak and credit conditions tightening: Escalating credit spreads, lending officer surveys show tightening standards for Commercial loans
  5. Turn in the Earnings Cycle: Profits and margins starting to compress globally and in USA.
  6. Tide going out on Buybacks: Growing recognition of corporate irresponsibility
  7. Global Capital Flows shift: Material regime change in pattern of capital flows last 12 months potentially representing an unwind of the last 7-15 years, engendering instability especially in Emerging Markets (highly elevated risks of banking crises & other shocks in the seasons ahead). Global trade also weakening strongly.
  8. Prevailing expectations towards higher yields: ZEW survey related inflation and interest rate expectations at peak optimism, ‘late-stage’ bear market psychology towards key commodity markets still absent(with vicious supply dynamics still reinforcing to the downside particularly in energy and industrial metals)
  9. Velocity still falling (both structurally and tactically): broader liquidity still tightening globally (overwhelming liquidity supply)
  10. Speculative’ Positioning remains substantially negative towards Bonds: stronger ‘commercials’ persistent in multi-year accumulation of Treasuries. ‘Late-stage’ bull market psychology towards multi-decade rise in Bonds still absent(& under-owned)
  11. Geopolitical Escalation and increasing trade barriers growing at the margin.
  12. Fed & Central Banks backed into a corner: trapped by excessive reliance on low interest rate policies (last couple of decades) and QE (over the last 7 years), unable to unwind such programs due to the extreme fiscal constraints of both the public and private sectors.

  And some charts why it is TSYs that Barron’s “pundits” should – but won’t – be pitching.

  First, Tightening Lending Conditions, which according to Prerequisite means “we may possibly be about to see bond prices go much higher.”

  

   

  Then a rollover in margin, both profit and debt “increases the probability that the US Stock Market cycle is indeed turning down, and that NYSE Margin Debt will likewise fall from here. (Which is all usually bullish for Treasury Bonds)”

  

   

  PCM notes that capital flows – namely global FX reserve growth vs global economic growth – have decoupled. They say that “the contraction in Global FX Reserves is more indicative of a ‘regime change’ in global capital flows, which increase the near-term risks of growing instability in world markets & economies.”

  

   

  Next, there is spec positioning in commodities. A simple correlation shows that specs are still positioned far too bullishly, which also explains the stratospheric forward energy P/E mulitples.

  

   

  Then there is the observation of capital flows becoming more concentrated: “When conditions improve, capital tends to ‘disperse’ more within the economy and the capital markets (rising grey and green lines). However, when times get more challenging or participants are starting to get worried, capital will tend not to disperse, but concentrate into a few key areas (falling grey and green lines).”

  

   

  PCM’s Key Takeaways:

  • We do not yet believe we have seen a top in Bonds, and submit further an excerpt from Sidney Homer that captures the sentiments of the previous multi-decade top in Bonds (hat tip: Lewis M. Johnson, whose work we would recommend to anyone’s reading list).

    

  • Such sentiment extremes are more consistent with market tops, such psychology being noticeably absent at present.
  • The key risk is that the Bond markets collectively start to punish Government Policies, however, we believe there is still some way to go before such issues begin to gain traction. In fact, in order for Governments to take the more extreme policy actions required to cause Bond markets to revolt, it is highly likely that we would need to see a significant move higher in bond prices (amidst an environment of deflationary shock(s)) before policy-makers would have the tacit approval to escalate their policy experiments beyond the thresholds necessary to upset Bond markets and overwhelm the generally deflationary/low-or-no-growth conditions.
  • Due to regime change dynamics that are starting to force an unwind of the last 7-15 years worth of conditions, and some of the issues touched upon in this presentation, we believe that investors around the world are likely to experience an increasing amount of ‘disorientation’ in the seasons to come. Such will require, almost demand, a slightly more ‘active’ approach to portfolio management as the changes in capital flows are likely to be quite paradoxical (& sustained) at times, and we would anticipate some larger swings in Velocity and increasing volatilities as well. In fact, it is primarily with regards to global velocity measures that we would submit will be one of the key metrics to monitor in order to confirm (or pre-empt) any possible turn down in the Treasury Bond markets.

  Full presentation below

  

  

  

  

  

• Death Of Top Syrian Rebel Commander May Derail "Peace" Process, Evacuation Efforts

  “For sure it will cause a big delay and it may kill the whole process. Whoever committed this crime is pushing for a military solution, not a political process solution.” 

  That’s a quote from Hadi al-Bahra, a Syrian opposition leader. The comments come a day after an apparent Russian airstrike killed Zahran Alloush. Alloush, the son of Saudi-based cleric Abdallah Alloush, is (or, more appropriately “was”) the leader of Jaysh al Islam, a powerful Syrian opposition group whose forces number some 10,000. 

  The group controls Ghouta, the site of an infamous sarin gas attack that nearly served as the excuse for a US air campaign against the Assad regime in 2013. Alloush was violently anti-Shiite and anti-Alawite but was seen as “moderate” when compared to ISIS and al-Nusra. Jaysh al Islam has fought against Islamic State in various parts of Syria.

  In the wake of the commander’s death, some say UN “efforts” to negotiate a truce will now be all but impossible. As we noted on Friday, Jaysh al Islam was among the rebel groups invited to a summit in Riyadh earlier this month.”Two Army of Islam officials were among those who attended a meeting this month bringing together both the political and armed opposition,” WSJ writes, adding that “they signed a final declaration that envisioned a secular, democratically elected government in the future without Mr. Assad.”

  The Syrian government has said it’s willing to meet with opposition leaders in Geneva next month. According to Hezbollah (which functions as Putin’s ground force in Syria), “the strike also killed Abdul-Nasser Shmeir, an officer who defected from the Syrian army and headed another leading Damascus-area rebel group [as well as] Mr. Alloush’s brother Mahmoud and at least 16 other rebel commanders.” Here’s more: 

  Despite its name, the Army of Islam is considered one of the more moderate Islamist rebel groups in Syria. Mr. Alloush considered himself a bitter enemy of both Mr. Assad and the head of Islamic State Abu Bakr al-Baghdadi—often calling them both “gang leaders.” His group fought pitched battles to chase Islamic State out of the eastern suburbs of the capital.

   

  But the Syrian regime and its allies Iran and Russia consider the Army of Islam a “terrorist group” that like many other rebel factions should be precluded from any role in a future settlement. Some in the opposition also had misgivings about any prominent role for Mr. Alloush and his group, which has been accused of human rights abuses and extrajudicial killings.

  Mr. Alloush’s killing coincided with preparations on Friday by the Syrian regime to facilitate the transfer of up to 4,000 people, including many fighters linked to Islamic State and other extremist groups as well as their families, from rebel-held areas on the southern outskirts of Damascus as part of U.N.-mediated efforts to expand a local cease-fire.

  There are a couple of things worth noting there. First, there wasn’t anything “moderate” about “Mr.” Alloush. He essentially called for a genocide of Syrian Shiites in 2013. You can watch the video in the piece excerpted above. 

  The fact that anyone considers him a “moderate” undercores The Kremlin’s point that differentiating between terrorists is an exercise in futility and it’s also worth noting that there’s no coincidence inherent in Riyadh allowing someone who has pushed for the eradiction of Shiites a place at the negotiating table.

  Second, the plan to evacuate injured fighters as well as women and children from Damascus will likely now be placed on hold. “Jaish al-Islam was supposed to provide safe passage through areas east of Damascus for the buses heading to Raqa,” a source told AFP on Saturday. “About 1,200 people were supposed to leave today (Saturday), but the death of Zahran Alloush means we are back to square one.” Here’s a bit more color:

  The deal came after two months of intense talks between government and district leaders, according to the Britain-based monitor.

   

  Backed by Saudi Arabia, Army of Islam recently took part in a landmark opposition meeting in Riyadh aimed at forming a united front for eventual talks with Assad’s regime.

   

  It has remained firmly opposed to both Assad and IS.

   

  Analyst Karim Bitar said Alloush’s death is “a severe blow to the Riyadh negotiations process”.

   

  “Given Alloush’s authoritarian temper and strong rule, it will take time for Jaish al-Islam to recover from this blow and for the alternative leadership to emerge,” he said.

   

  Aron Lund, editor of the Carnegie Endowment’s Syria in Crisis website, said: “In a way, Zahran Alloush has been the rare successful centraliser in the Syrian rebel movement.”

   

  But with him gone, that cohesion could “unravel”, Lund added.

  And make no mistake, all of this is just fine with Assad, whose army took credit for the strike despite widespread speculation that is was in fact a Russian warplane that carried out the attack. A Saudi-backed coalition of Sunni rebels is just about the last thing the Syrian government (not to mention Tehran) wants to see coalesce in Syria and the death of Alloush will certainly help to create choas among one of the country’s most prominent opposition forces. 

  As for the Western media, the death of an extremist is being pitched as a blow the peach process. Here’s The New York Times: 

  Mr. Alloush and his faction had not been universally accepted in the Syrian opposition — they are widely blamed for the disappearance of four secular opposition activists from the Damascus suburb of Douma. But unlike harder-line armed groups, the Army of Islam has shown a recent interest in taking part in politics, said Ibrahim Hamidi, a Syrian correspondent for Al Hayat, a pan-Arab newspaper.

   

  Mr. Hamidi, who opposes the Syrian government, said that by having successfully targeted Mr. Alloush, Mr. Assad and his Russian allies had demonstrated their desire to pursue a military solution. “This is a rejection of the Riyadh talks,” he said.

  No, it’s not.

  It’s a rejection of the idea that someone who has variously called for the systematic extermination of a particular religious sect can somehow be part of a “political” solution to the crisis. Anyone who says otherwise is either living in a fantasy world constructed by the powers that be in Washington and Riyadh, or else has a vested interest in toppling the Assad government and undermining Iranian influence in the Arabian Peninsula.

  

  

  

  

  

• Guns, Gas, & "Selling Kidneys" – 'Off The Grid' Indicators Signal Slowing Economy

  Via ConvergEx's Nick Colas,

  Our quarterly survey of “Off the Grid” economic indicators finds that the U.S. economy is still growing, but the pace seems to be slowing from Q3 2015.

   

  On the plus side, used car prices remain robust and dealer inventories of new cars are in good shape.  Americans are driving more, with the growth rate for miles driven (and gas consumed) running at levels not seen in +10 years.  Lastly, workers are still quitting their jobs at a healthy clip.

   

  As for the indicators that give us pause: food stamp program participation rates are within 6% of their peaks, and the population here still runs +45 million people (15% of the entire U.S. population), money is flowing out of mutual funds but into gold coins at equally furious rates, and FBI background checks for gun sales look set to reach a new record in 2015 at 21.6 million. Before the Financial Crisis, that count never even reached 9 million.

   

  On a lighter note, our Bacon Cheeseburger Inflation index is still negative for the year. Good for lactose-tolerant carnivores, but perhaps bad news for the Fed.

  A few of us were sitting around the Convergex trading desk this morning, thinking about what surprise events had defined the capital markets and the world as a whole in 2015. In no particular order, a few common responses:

  • The dramatic drop in oil prices globally, and the relatively muted effect these declines had on consumer spending.
  • The migrant crisis in Europe and growing fears across much of the developed world about the threat of both home-grown and imported terrorism.
  • The thematic dominance of technology companies as the epicenter of investing, in everything from S&P 500 stocks to the unicorns roaming Sand Hill Road.
  • The challenges faced by China in keeping its capital markets from a wholesale meltdown in August/September.
  • The rise of ISIS in the Middle East, Africa and south Asia. 
  • The increasing presence of Russia on the world’s political stage despite both a weak economy and increasing isolation from its actions in the Crimea.
  • Donald Trump’s persistent popularity in the face of almost universal scorn from the mass media and “Very smart people”.

  We could go on, but the point is that all these “Surprises” were not hard to see 1-2 years ago but they certainly required some imagination to embrace as potential realities.  What comes along to bite markets and investors rarely saunters out of left field with no warning, but getting the timing right matters too. It is all well and good to have “Predicted” the fall of the Chinese market in early 2014; the problem is that your short from that time is only now back at breakeven.  The same hold true for calling tech stocks overvalued at the beginning of the year.  While many individual names have underperformed, the S&P Large Cap Tech Index is still up close to 4% on the year while the S&P 500 is down 1.0%.

  “Think differently”, to put the old IBM slogan into proper English, is easier said than done and requires a differentiated process to gather and process information.  It’s not enough to the early bird to get the worm; it also helps to be pecking on an uninhabited bit of earth right after it rains. In the spirit of that sentiment we’ve spent several years collecting various underfollowed datasets that we think help shape a more complete picture of the U.S. economy.  I doubt any of them will ever end up in a Federal Reserve briefing book or Fortune 500 board presentation.  But if they help you think about the economic world around you in a slightly different light, I think they serve their purpose. 

  Here’s what this quarter’s “Off the Grid” economic indicators have to say about the U.S. economy. 

  On the plus side:

  Pricing for used cars is holding very steady according to the Manheim (a large auto auction company) Used Vehicle Index.  Many auto analysts were looking for this to drop in 2015, hurting trade-in values and potentially limiting new car and truck sales.  No worries, though – the index is right where it was in 2011 and looks to start 2016 on a strong note.

   

  New car and truck dealer inventories are in great shape heading into 2016, at 65 days sales.  Americans don’t order new cars and trucks from the factory and wait for delivery; they buy them off dealer lots. Sixty days supply is optimal, giving consumers enough choice while not so heavy as to demand incremental discounting from the auto companies to clear aging inventory.

   

  

   

  Google autofills for “I want to buy” now feature an entry we haven’t seen in 5 years (the entire time we’ve been tracking this): “Timeshares”.  We noted in another recent report that Americans were finally Googling the term “Vacation” more, the first uptick since the Financial Crisis.  Now, interest in timeshares is so great that the search engine’s predictive software assumes you may just want a nice 2 bedroom condo in Boca to call your own 2 weeks a year.  

   

  Americans are driving more – a lot more. The DOT data of miles driven shows an average of close to 4% more in the back half of 2015 versus 2014. That growth rate hasn’t been this high since the Asia Crisis in the late 1990s cut the cost of filling up a Chevy Suburban to $20.

   

  Workers are still quitting their jobs at near-record rates according to the BLS’ JOLTS data.  Some 57% of all workforce “Separations” are the employee’s idea, not the employer.  That shows some confidence in the economy and presumably a decent labor market.  This statistic has only been higher during the tail end of the last expansion, and only for a short period of time.

  On the downside:

  Food stamp (now called the Supplemental Nutrition Assistance Program, or SNAP) participation totals are still +45 million Americans.  This means-tested assistance program peaked in terms of total enrollment at 48 million in late 2012/early 2013, but at current levels is still within 6% of that high water mark. This is 15% of all Americans, and 20% of all households.

   

  

   

  Mutual Fund money flows are negative, but gold sales in dollar terms are back to levels more commonly associated with the Financial Crisis and its aftermath.  In fairness, mutual fund flows are likely as much demographic as sentiment-based.  After all, the original cohort of retail mutual fund investors started saving money in the 1980s, during the industry’s first boom phase.  They are beginning to retire and shifting their risk preferences.  The U.S. Mint gold coin sale data is, however, more surprising.  Falling prices haven’t dented demand for the yellow metal – as a matter of fact the Mint is averaging over $100 million in monthly sales, on average, at the moment.  That level is more consistent with demand in 2009 – 2012 and early 2013, both volatile periods in the global economy.

   

  Large pickup truck sales have stalled out.  Despite the drop in gasoline prices, sales of Chevy Silverados, Ford F-Series, Dodge Rams, Toyota Tundras and Nissan Titans are now unchanged year over year.  These vehicles are the workhorses of the small business economy.  If demand is stagnating, that’s not a good sign.

   

  

   

  Our Bacon Cheeseburger Index is still down year over year, signaling deflation fears.  Based on the notion that consumer inflation expectations are grounded in real-world experiences, we look at the cost of ground beef, bacon and cheese.  Mostly because we like bacon cheeseburgers, but also because these are commonly and frequently purchased consumer food items.  Turns out that this mini-basket of food products is down 1.9% year over year, and the negative month comps go back to May 2015. That is 7 months of negative comps, and the last time we had that much “Greasy spoon deflation” was 2009.

  Head scratchers, or data points that make me go “Hmmmm”.

  Firearm sales, as measured by the FBI’s record of instant background checks, are set to make a new record in 2015. At current rates, the U.S. government will process 21.6 million background checks this year, more than the 21.0 million in 2014 or the 21.1 million in 2013. Since the Financial Crisis in 2008, the FBI has processed 139 million firearm background checks, and if each one resulted in a sale that would amount to a similar number of completed transactions.  Perhaps 10% are related to the renewal of carry permits, but there’s also the point that you can buy two firearms by completing one background check.

   

  

   

  Now, on the one hand firearms are expensive so this demand is a sign that consumers have money to spend.  On the other, 139 million firearms sold is a lot of guns. Take the populations of California, New York, Florida, and Texas and you only get to 105 million. Moreover, Google search volumes for the term “Buy a gun” are once again near record levels.

   

  Gallup surveys of personal out of pocket spending have been flat for 2 years at an average of $92/day. They were as high as $100/day in early 2008.

   

  For reasons we’ve never been able to figure out, people insist on Googling how to sell their kidneys.  Go type “I want to sell my” into Google and it will suggest autofills of “Car”, “house” and “kidney”.  Further down the list is “Eggs” (legal) and “hair” (also legal).  Just to be clear: selling your kidney is not legal in the U.S.

   

  

  To sum up this disparate data set, consider three conclusions.

  • First, the economic growth seen in the U.S. over the last several years has not reached the nation’s less fortunate citizens (Food stamp participation).
  • Second, the broad middle has seen some improvement (car sales, used car prices, willingness to make large purchases, quit their jobs) but remains worried about their personal safety (firearm sales) and economic security (gold coin sales).
  • Lastly, deflation is more prevalent (Bacon Cheeseburger Index) on Main Street than Constitution Avenue (where the Fed is based). 

  Somewhere in our list of Off The Grid indicators sits at least one “Surprise” for 2016. Will it be the resilience of the U.S. consumer? Or will inherent social brittleness and angst – a legacy of the Financial Crisis – play the lead roles?   We hope for the former.

  

  

  

  

  

• Everything Central Banks Have Tried Has Failed: According To Citi's Buiter Just One Thing Remains

  Seven years after ZIRP (then NIRP) was launched and central banks grew their balance sheets by $13 trillion, in the process inflating the biggest bubble the world has ever seen, sending risk prices to record highs and trillions in government debt to record negative yields, first the Fed admitted QE was a mistake, and now the investment banks – especially those who were bailed out and were the biggest beneficiaries of QE such as Citigroup – admit central bank quantitative easing failed.

  The reason for this failure? What we said from day one dooms all unconventional monetary policy – too much debt.

  Here is Citi’s Willem Buiter, finally catching up to what we said in early 2009.

  We believe that a common factor in the relatively low response of real economic activity to changes in asset prices and yields is probably the fact that the euro area remains highly leveraged. The total debt of households, non-financial enterprises and the general government sector as a share of GDP is higher now than it was at the beginning of the GFC. There has been some shift from the private sector to the public sector, but the overall debt burden remains unprecedentedly high for an economy in peacetime (and for which the debt incurred during the last major war (1939-1945) has long since been worked off).

   

  The wealth effect of higher stock prices appears to do little to boost private consumer expenditure and the lift given by higher stock prices to ‘Tobin’s q’ does not appear to have stimulated private capital expenditure much. The weaker external value of the euro has clearly increased profit margins in exporting and import-competing industries and may have boosted the stock market valuations of internationally active Eurozone-listed companies, but its effect on the volumes of exports and imports appears to be moderate (in part because a number of other countries are pinning their hopes on generating a bounce in inflation and activity through weaker exchange rates, too). Extremely low interest rates have boosted residential mortgage borrowing in Germany and caused German house prices to rise at a, by German standards, alarming year-on-year rate of six percent during several months in 2015.

   

  Excessive indebtedness means households save much of any increase in disposable income in an attempt to pay down the debt. Highly indebted governments, prompted by necessity (limited market access) and/or by the constraints of the Stability and Growth Pact, are less likely to cut taxes or to boost public spending on real goods and services when lower debt service costs raise their disposable incomes. Corporations, even if they are not debt-constrained, are unlikely to boost investment when interest rates go down and the cost of capital falls because of persistent excess capacity amid an uncertain outlook for top-line growth and profits. Profits generated by favorable movements in asset prices (including the exchange rate) are distributed to shareholders (who save a large share of this) and used for share buybacks or debt repayment.

   

  To the extent that monetary policy has had an effect on real activity, and will have some incremental effect on activity, it may not be entirely sustainable. This is because part of the effect has been by bringing forward demand from the future, such as major purchases, including for cars or construction. That suggests that monetary policy, even if and when it has been effective in stimulating activity, will run into diminishing returns even in sustaining the levels of activity it helped to boost.

   

  So while the Eurozone’s IS curve may not be exactly vertical, it may well be disconcertingly close to being vertical in the future.

  In short: the ECB’s attempts at reflating the economy, while admirable, have failed.

  The combination of a near-horizontal LM curve and a near-vertical IS curve suggests that expansionary monetary policy is by no  means guaranteed to boost demand sufficiently to achieve the ECB’s inflation target, regardless of the scale on which this is pursued. What is to be done?

  Well, since admission of failure means the end of the neo-Keynesian, and monetarist system, and according to some, the end of the fiat, fractional reserve system itself, one must – according to Citigroup’s chief economist – pursue the only option left.

  “Helicopter money drops (what else?)”

   

  Our conclusion is that, in a financially-challenged economy like the Eurozone, with policy rates close to the ELB, and with excessive leverage in both the public and private sectors, balance sheet expansion by the central bank alone may not be sufficient to boost aggregate demand by enough to achieve the inflation target in a sustained manner.

   

  This is more than an academic curiosity. Japan has failed to achieve a sustained positive rate of inflation since its great financial crash in 1990. The balance sheet expansion of the Bank of Japan since the crisis has been remarkable but ineffective as regards the achievement of sustained positive inflation and, since 2000, the inflation target. The balance sheet of the Swiss National Bank has expanded even more impressively, again with no discernable impact on the inflation rate.

   

  

   

  * * *

   

  We do expect the ECB’s asset purchase program will expand considerably further, with the Eurosystem’s balance sheet reaching €4,000-4,500bn over the next year or two. But we doubt that even this will be enough to achieve the inflation target of close to but below 2% on a lasting basis. It might take even greater ECB balance sheet expansion to achieve the target.

   

  But the larger central banks’ balance sheets get, the louder will become the voices of those that criticize the power vested in unelected and mostly unaccountable central banks. In addition, it is worth remembering that the laws and regulations that underwrite and circumscribe central bank actions were written at a time when their current range of actions, let alone the potentially even larger future ones, seemed exceedingly unlikely and maybe even (in the case of the ECB) inconceivable. Political concerns likely played a role in the SNB’s decision to rely less on its balance sheet and more on negative rates when managing its currency (and indeed allowing a sharp appreciation of the Swiss franc and greater exchange rate volatility). The ‘Audit the Fed’ movement is likely to be followed by ‘Audit the ECB’ movements and eventually by explicit limits on central bank actions as their balance sheets grow to politically unacceptable levels. We do not say that moment is near, but to dismiss the idea that political limits to the size of the central bank balance sheet exist seems naïve.

   

  Moreover, even if the ECB were to expand its balance sheet sufficiently to achieve the inflation target in the next few years (say, to €5tn or €6tn), the monetary policy toolkit would then seem to be rather empty, with little option for stimulus if and when the next downturn hits (as it inevitably will). Experience teaches that downturns do happen – either for internal or external reasons – and sometimes happen when output gaps have not been closed. What happens then? Draghi’s answer seems to be: perhaps a balance sheet expansion to €10tn or €15tn. We are doubtful that such a course of action would be both perceived to be politically legitimate and economically effective.

  Why thank you for telling us 7 years later that the entire path on which global central banks set off in 2009 had been a dead end. We could say we warned you but… well, we did. Every single day.

  So now what? Well, this.

  

  Buiter concludes:

  The case for helicopter money is therefore partly to ensure the euro area (and some other advanced economies) reflate powerfully enough to escape the liquidity trap, rather than settle in a lasting rut of low-flation and low growth, with “emergency” levels of asset purchases and interest rates becoming the norm.

   

  * * *

   

  In orderly markets and with the policy rate at the ELB, the central bank can talk loudly, but on its own – without the fiscal support required to turn its monetized balance sheet expansions into helicopter money drops – it carries but a small stick.

   

  * * *

   

  If, as seems possible, the ECB will increase, in H1 2016, the scale of its monthly asset purchases from €60bn to, say, €75bn, and if these additional purchases are concentrated on public debt, the euro area will benefit from a ‘backdoor’ helicopter money drop –something long overdue.

  He is right.

  So let’s stop pretending that the Fed has a chance in hell of reflating the economy by hiking rates just as the recession begins, and fast forward to the inevitable next step: the beginning of the end for fiat, starting with its widespread paradop above populated urban centers, much to the delight of millions of people everywhere, and a few very big and very underwater debtors, for whom runaway inflation is just what the Doctor (of economics) ordered.

  

  

  

  

  

• Dave Barry Answers – Was 2015 The Worst Year Ever? (Spoiler Alert: Yes)

  Authored by Dave Barry, originally posted at The Miami Herald,

  

  Sometimes we are accused – believe it or not – of being overly negative in our annual Year in Review. Critics say we ignore the many positive events in a given year and focus instead on the stupid, the tragic, the evil, the disgusting, the Kardashians.

  OK, critics: We have heard you. This year, instead of dwelling on the negatives, we’re going to start our annual review with a List of the Top 10 Good Things That Happened in 2015. Ready? Here we go:

  1. We didn’t hear that much about Honey Boo Boo.

   

  2.

  OK, we’ll have to get back to you on Good Things 2 through 10. We apologize, but 2015 had so many negatives that we’re having trouble seeing the positives. It’s like we’re on the Titanic, and it’s tilting at an 85-degree angle with its propellers way up in the air, and we’re dangling over the cold Atlantic trying to tell ourselves: “At least there’s no waiting for the shuffleboard courts!”

  Are we saying that 2015 was the worst year ever? Are we saying it was worse than, for example, 1347, the year when the Bubonic Plague killed a large part of humanity?

  Yes, we are saying that. Because at least the remainder of humanity was not exposed to a solid week in which the news media focused intensively on the question of whether a leading candidate for president of the United States had, or had not, made an explicit reference to a prominent female TV journalist’s biological lady cycle.

  That actually happened in 2015, and it was not the only bad thing. This was the year when American sports fans became more excited about their fantasy sports teams — which, for the record, are imaginary — than about sports teams that actually exist. This was the year when the “selfie” epidemic, which was already horrendous, somehow got even worse. Of the 105 billion photographs taken by Americans this year, 104.9 billion consist of a grinning face looming, blimplike, in the foreground, with a tiny image of something — the Grand Canyon, the pope, a 747 crashing — peeking out in the distance behind the person’s left ear.

  This was the year of the “man bun.”

  And if all that isn’t bad enough, this was the year they tricked us into thinking Glenn got killed on The Walking Dead. (By the way: spoiler alert.)

  At this point you are saying: “Wait a minute! Surely there were some positive developments in 2015! How about the fact that, after so many years of sneering judgmentalism and divisive, overheated rhetoric, we were able to have rational, open-minded conversations about such issues as gun ownership, gay marriage, race relations and abortion, so that, as a nation, we finally began to come together and … Whoa! Sorry! Evidently I am high on narcotics.”

  Yes, you are. And we intend to join you soon. But first we need to take one last look back at the hideous reality of 2015, which began, as so many ill-fated years have in the past, with …

  JANUARY

  … which finds the Midwest gripped by unusually frigid weather, raising fears that the bitter cold could threaten the vast herd — estimated in the thousands — of Republican presidential hopefuls roaming around Iowa expressing a newly discovered passion for corn. As temperatures plummet, some candidates are forced to survive by setting fire to lower-ranking consultants.

  For most Americans, however, the cold wave is not the pressing issue. The pressing issue — which will be debated for years to come — is how, exactly, did the New England Patriots’ footballs get deflated for the AFC championship game. The most fascinating theory is put forth by Patriot Head Coach Bill Belichick, a man who, at his happiest, looks like irate ferrets are gnawing their way out of his colon. He opines — these are actual quotes — that “atmospheric conditions” could be responsible, and also declares that “I’ve handled dozens of balls over the past week.” This will turn out to be the sports highlight of the year.

  
  JACK OHMAN / Tribune News Service

  In Paris, two million people march in a solidarity rally following the horrific terrorist attack on the French satirical magazine Charlie Hebdo.

  Eyebrows are raised when not a single top U.S. official attends, but several days later, Secretary of State John Kerry arrives in France with James Taylor, who — this really happened — performs the song You’ve Got a Friend. This bold action strikes fear into the hearts of terrorists, who realize that Secretary Kerry is fully capable, if necessary, of unleashing Barry Manilow.

  Meanwhile in Washington, a drone crashes on the White House lawn and immediately becomes a leading contender for the Republican presidential nomination.

  In sports, the first-ever NCAA Division I college football playoffs reach a surprising climax when the Oregon Ducks are defeated in the championship game 42-20 by the New England Patriots. Asked how this is possible, given that the Patriots play in the NFL, Coach Belichick opines that it could be a result of “global climate change.”

  Speaking of surprises, in …

  FEBRUARY

  … NBC suspends Nightly News anchor Brian Williams after an investigation reveals inaccuracies in his account of being in a military helicopter under fire in Iraq. “Mr. Williams did not actually come under fire,” states the network. “Also technically he wasn’t in a helicopter in Iraq; it was a Volvo station wagon on the New Jersey Turnpike. But there was a lot of traffic.” A contrite Williams blames the lapse on post-traumatic stress disorder resulting from killing Osama bin Laden.

  Abroad, Greece, under intense pressure to meet its debt obligations, gives Germany two of its three remaining goats.

  In the War on Terror, the White House, having struck a powerful blow with the James Taylor Tactical Assault Ballad, boldly follows up by — again, this really happened — hosting a three-day “Summit on Countering Violent Extremism,” featuring both workshops AND symposiums.

  In weather news, Boston’s public schools are closed because of glaciers.

  In the year’s biggest literary story, representatives of 88-year-old Harper Lee, denying allegations that they’re seeking to cash in on the beloved author’s literary fame, announce plans to publish what they claim is her recently discovered second book, Fifty Shades of a Mockingbird.

  In the Academy Awards, the Oscar for Best Picture goes to Birdman. Accepting the coveted statuette, director Alejandro G. Iñárritu tells the audience that “like you, I never actually saw this movie.”

  Leonard Nimoy is beamed up for the last time.

  In business news, troubled retailer RadioShack files for bankruptcy, citing the fact that in the past six years, the chain’s 4,000 stores had made a nationwide total of one sale, that being a home email server purchased by Hillary Clinton.

  In sports, the New England Patriots defeat the Seattle Seahawks 28-24 to win a Super Bowl marked by surprises, including one play in which the Patriots — undetected by game officials — had a grenade launcher on the field, an infraction that Coach Belichick later blames on “wind shear.”

  The most surprising play comes at the end of the game, when the Seahawks, on second and goal with 26 seconds left and Marshawn Lynch, who is basically a UPS truck only harder to tackle, in the backfield, elect to throw a pass, which is intercepted. After the game Seattle Coach Pete Carroll defends his decision to pass. He is immediately hired as a strategic consultant by the Jeb Bush campaign.

  As February draws to a close, 5,000 ISIS troops land in Mexico and march north. They are able to reach Cleveland unnoticed because the entire U.S. population is heatedly arguing over the color of a picture of a dress on the Internet.

  Speaking of heated, in …

  MARCH

  … over the strong objections of the Obama administration, Israeli Prime Minister Benjamin Netanyahu addresses a joint meeting of Congress. He immediately becomes a leading contender for the Republican presidential nomination, four points ahead of the drone.

  Abroad, Russian President Vladimir Putin mysteriously vanishes from public view for 10 days. It is later revealed that he was training customer-service representatives for Comcast.
   

  
  JACK OHMAN / Tribune News Service

  In finance news, shares on European financial markets plummet when German authorities announce that one of the Greek goats is actually a highly modified squirrel.

  Speaking of unnatural: The U.S. Food and Drug Administration approves the sale of genetically modified potatoes and apples, noting that they “offer many nutritional benefits” and are “completely safe” provided that consumers “do not anger them.”

  In a harsh reminder that the winter is not over, Boston Mayor Martin Walsh is eaten by a polar bear.

  Abroad, tensions mount on the Korean peninsula when North Korea, in an unprecedented cyberattack, posts an estimated 23 million negative Yelp reviews of South Korea, including several million containing the phrase “we ordered the dog, which arrived so undercooked that the tail was still wagging.”

  Speaking of tension, in …

  APRIL

  … there is troubling news from Baltimore, where the death of an African-American man in police custody touches off a conversation on race that lasts several days, resulting in 250 arrests and extensive property damage. The Rev. Al Sharpton rushes to the scene but is unable to prevent things from eventually calming down.

  In another alarming development, Washington, D.C., is hit by a power outage, meaning that for several harrowing hours the rest of the nation is forced to form its own policies. A week later Washington is again shaken when a Florida mailman, making a powerful statement for or against something, lands a gyrocopter on the lawn of the Capitol building. He immediately becomes a front-runner for the Republican presidential nomination.

  Elsewhere on the political front, Hillary Clinton declares her candidacy for president and sets out to demonstrate that she is a regular human by riding to Iowa in a custom van driven by Secret Service agents.

  In Maumee, Ohio, she stops at a Chipotle for takeout, a news event that produces a spasm of political journalism. The New York Times (we are not making this journalism up) breaks the story, reporting that Clinton wore sunglasses and ordered a chicken burrito bowl. Bloomberg gets a follow-up scoop, reporting that the Clinton party’s bill was “$20 and some change” but Clinton “did not leave a tip.” Politico runs a 1,200-word story headlined (we are still not making this up) “The ‘everyday people’ who made Hillary Clinton’s burrito bowl.” Incredibly, nobody thinks to do a profile of the chicken.

  In other journalism news, Rolling Stone apologizes for a discredited story about an alleged rape at a college fraternity and announces that it has disciplined its lead fact-checker, Brian Williams.

  Responding with drastic measures to California’s worsening drought, Gov. Jerry Brown announces the creation of a state Saliva Conservation Board.

  Abroad, Djoomart Otorbaev resigns as the prime minister of Kyrgyzstan, citing an inability to get business cards with everything spelled correctly.

  In sports, the NCAA men’s basketball tournament is won by the New England Patriots, who defeat the University of Wisconsin 2-0 in a game featuring a basketball inflated to basically the same pressure as a roadkill squirrel.

  Speaking of sports scandals, in …

  MAY

  … international soccer is rocked by allegations that bribery was involved in awarding the 2022 World Cup to Qatar, a nation with little soccer tradition, as evidenced by the fact that the 12 stadiums it has built for the tournament all feature large decorative fountains in the middle of the playing field.

  But the big sports story is the long-awaited — we’re talking decades — boxing match between Floyd Mayweather Jr. and Manny Pacquiao for the undisputed world title in the Older Guys Basically Standing Around division.

  Mayweather wins the fight and takes home $220 million, which works out to a little over $70 million per punch actually landed, then celebrates by attempting to wake up his entourage.

  Elsewhere in sports, the Kentucky Derby is won by New England Patriots quarterback Tom Brady, riding tight end Rob Gronkowski. All the actual horses in the race mysteriously collapse at the starting line from what Coach Bill Belichick speculates could be “allergies.” Brady also wins the Indianapolis 500 driving a U.S. Army M1 Abrams battle tank that averages only 30 miles per hour but proves to be extremely difficult for the other vehicles to pass.

  Abroad, there is big excitement in England, where Prince William and Catherine, Duchess of Cambridge, produce another royal baby, who, in a sign of the changing times, is christened Princess Brooklyn Dakota. She joins the line of royals destined to spend their lives gamely trying to appear interested in an endless series of building dedications.

  In Garland, Texas, two armed men are gunned down by police after they open fire on a security guard outside an exhibit of Muhammed cartoons, highlighting the need for a national conversation on the problem of cartoonists drawing things that leave religious fanatics with no choice but to try to kill them. James Taylor is unavailable, so federal authorities dispatch The Captain and Tennille to the scene, where they perform a powerful version of Muskrat Love.

  As California’s drought continues to worsen, Gov. Brown announces a controversial relief plan involving Lake Superior and a 17-million-foot hose.

  In a disturbing development, a Seattle convenience store is robbed at gunpoint by what police identify from the surveillance video as a genetically modified potato.

  Speaking of disturbing, in …

  JUNE

  … the federal Office of Personnel Management announces that hackers have gained access to the personal records of millions of current and former government employees. An OPM statement downplays the seriousness of the data breach, stressing that “if anybody publishes any photos allegedly depicting an alleged cabinet secretary with an alleged goat, those are fake,” further noting that “it was totally a consenting goat.”

  In another disturbing federal story, a report on an undercover investigation into airport security reveals that Transportation Security Administration screeners failed to detect banned items, including weapons and explosives, 67 out of 70 times. Responding to the report, TSA officials state: “What report? We don’t see any report.”

  In a historic decision on gay rights, the nation’s highest legal authority — Kim Davis, clerk of Rowan County, Kentucky — overturns the U.S. Supreme Court’s ruling that state laws banning same-sex marriage are unconstitutional.

  Meanwhile, in what is widely hailed as a brave and courageous display of bravery and courage, a 65-year-old woman allows herself to be pictured on the cover of Vanity Fair wearing only a corset.

  In other gender news, the Treasury Department asks for input from the public on which woman will be depicted on the redesigned $10 bill. The immediate front-runners are Mary Ann, Ginger, Taylor Swift and the two sisters from Frozen.
   

  
  JACK OHMAN / Tribune News Service

  On the political front, the big story is Donald Trump, who declares his candidacy for president and lays out a bold, far-reaching vision for America consisting of whatever thought is flitting through his mind at that particular moment. Trump is deemed to have no chance by veteran Washington-based political experts with vast knowledge of what all the other veteran Washington-based political experts think. Also declaring his candidacy, and predicted by the experts to do far better, is Jeb Bush, whose official campaign slogan is: “Jeb! — The Exclamation Mark Denotes Enthusiasm.”

  Speaking of excitement, in …

  JULY

  … the New Horizons interplanetary probe, having traveled more than three billion miles over nearly 10 years, finally reaches Pluto and transmits back data proving conclusively — in a discovery that sends shock waves of bladder malfunction throughout the astronomy community — that Pluto consists of both ice AND rocks.

  The nation reacts with horror to the news that a Minnesota dentist has killed Cecil the World’s Suddenly Most Beloved Lion. The dentist instantly becomes a less-popular version of Hitler and goes into hiding to escape animal-rights activists threatening to give him a root canal with a chainsaw. This story totally dominates the news for the better part of a week, which we will eventually look back upon as an innocent time.

  Hackers announce that they have broken into the Ashley Madison website and obtained personal data on millions of clients allegedly seeking to have affairs. A statistical analysis will later reveal that, of the 37 million accounts hacked, only 23 belonged to actual women, 21 of whom were Ashley Madison employees posing as clients. The remaining two belonged to Miley Cyrus.

  Elsewhere on the tech front, Microsoft releases Windows 10, which, in a widely hailed breakthrough, turns Windows 8 back into Windows 7.

  In political news, the crowded field of Republican presidential hopefuls is joined by a person named “John Kasich,” who claims to have at one time been governor of Ohio, although nobody can verify this. On the Democratic side, enthusiasm builds for the candidacy of 147-year-old socialist Bernie Sanders and his populist plan for reining in Wall Street via a combination of stricter financial controls and strategic beheadings.

  In other finance news, the International Monetary Fund sends a collection agent to Athens, only to discover that the Greek government has moved out of Greece without leaving a forwarding address. Also, the Acropolis is missing.

  Speaking of missing: In Mexico, infamous drug lord “El Chapo” (literally, “The Chap”) escapes from a “maximum-security” prison via an elaborate tunnel that somehow was dug to his cell without anybody noticing. Equally alarming is the fact that the other end of the tunnel turns out to be in Miami.

  But the big international news comes from Vienna, where Iran signs a deal with the United States and five other nations under which Iran, in exchange for a lot of money, promises to stop trying to build a nuclear bomb. President Obama says the deal “makes our country, and the world, safer and more secure.” For his part, Iran’s Supreme Leader Ayatollah Ali Khamenei says, quote, “Death to America,” but he says it in what U.S. negotiators describe as “a softer tone.”

  In sports, the U.S. wins the Women’s World Cup, defeating Japan 5-2, with three of the goals being scored by Tom Brady wearing a Brandi Chastain model sports bra.

  Speaking of hot, in …

  AUGUST

  … The U.S. National Oceanic and Atmospheric Administration reports that July was the hottest month globally ever recorded. With a renewed sense of urgency, the world’s industrialized nations vow to continue sending large delegations via jumbo jets to distant conferences on climate change until this darned thing has been licked.

  In politics, the Republicans hold their first presidential debate, featuring approximately 75 candidates ranging outward in popularity from Donald Trump at center stage to John Kasich and the late Warren G. Harding out at the far edges. Jeb Bush has an off night, falling asleep several times during his own answers. Ben Carson does better, except for when he identifies Pyongyang as “a kind of lobster.” Trump dominates the evening, at one point ordering everybody to shut up while he takes a call onstage from Beyoncé. Savvy Washington-based political insiders agree, after conferring with other savvy Washington-based political insiders, that Trump’s unorthodox behavior will alienate voters and he will be out of the race by fall.

  On the Democratic side, Hillary Clinton continues to have no choice but to roll her eyes over all these pesky scandals that her enemies keep dreaming up to prevent her from serving the American people, especially women. The current scandal involves the email server she used as secretary of state, which, in a deviation from government-security standards, was located in her home and had Mrs. Clinton’s personal secret password (“PASSWORD”) written on a sticky note stuck to the front. A Clinton spokesperson, speaking through another Clinton spokesperson who was briefed by a third Clinton spokesperson on condition of anonymity, denies that the server ever held classified emails and promises that it will be turned over to the FBI “as soon as it has been melted down to a softball-sized blob.”

  In financial news, the stock market unexpectedly plunges more than 1,000 points. Small investors are urged not to panic by financial experts who (a) did not predict the plunge, (b) cannot explain why it happened, (c) have no earthly idea what will happen next, and (d) have their own money invested in collectible refrigerator magnets.

  Abroad, the German parliament votes to give yet another financial bailout to Greece, in return for which Greece agrees not to publish photographs of Angela Merkel naked.

  In geography news, President Obama signs an executive order officially changing the name of North America’s tallest mountain, Mount McKinley, back to its traditional Native American name, Elvis.

  Speaking of rock stars, in …

  SEPTEMBER

  … the popular Pope Francis becomes the first pope ever to address a joint meeting of Congress, issuing a powerful challenge to the lawmakers to work together toward solving pressing world problems including hatred, poverty and pollution. Congress, inspired to take rare bipartisan action but apparently confused by Francis’ thick accent, votes unanimously to declare war on Greenland.

  In political news, The New York Times runs the following actual headline: “Hillary Clinton to Show More Humor and Heart, Aides Say.” Mrs. Clinton reportedly will display 17 percent more humor and 23 percent more heart, according to anonymous Clinton aides who were briefed by anonymous Clinton strategists who had direct access to what one source, who asked not to be named, described as “a high-level Clinton confidante.” The source said the Clinton team is also considering having Mrs. Clinton “directly engage selected voters in banter.”
   

  
  JACK OHMAN / Tribune News Service

  On the Republican side, Rick Perry and Scott Walker drop out of the presidential race after polls show them both trailing the late Warren G. Harding. Meanwhile Donald Trump continues to present his vision for America’s future in the form of a steady stream of hastily composed tweets insulting people who have offended him. This strategy has Trump easily leading the GOP field, to the consternation of knowledgeable Washington-based insiders with vast knowledge pertaining to the inside of Washington.

  Excited Apple fans line up to purchase the new iPhone 6s, which is identical to the iPhone 6 except it has a special alarm that will alert Apple fans exactly when to line up to purchase the next new iPhone, due out in approximately three months.

  In business news, the Environmental Protection Agency accuses Volkswagen of cheating on emissions testing, precipitating an international scandal that ultimately forces VW’s Martin Winterkorn to resign and take a job as equipment manager for the New England Patriots.

  Speaking of scandals, in …

  OCTOBER

  … Hillary Clinton testifies for 127 straight hours before the House Committee On Investigating Benghazi Until The Earth Crashes Into The Sun. There are many testy exchanges between Clinton and Republican congressmen, but in the end the American public has a much clearer picture of the extremely high level of mutual loathing that makes our government work the way it does.

  In other political news, a person calling himself “Lincoln Chafee” manages to get onto the stage of the Democratic presidential candidates’ debate on CNN and make several policy statements before he is noticed by security and escorted out. This might have been embarrassing for the Democrats, but fortunately nobody is watching CNN, including moderator Anderson Cooper, who is openly playing Candy Crush.

  After much agonizing, Vice President Joe Biden announces that he will not run for president, stressing that the decision had nothing to do with the severed horse head wearing a HILLARY! button he found in his bed, which Biden says he believes “was meant in a supportive way.”

  Meanwhile the Republican candidates’ debate on CNBC takes a lively turn when Ted Cruz, responding to a question about the federal budget agreement, throws a chair at moderator Carl Quintanilla, setting off a round of applause so loud that it awakens Jeb Bush, who notes that as governor of Florida he had a strong record of promoting furniture safety.

  Knowledgeable Washington insiders declare that the clear debate winners are Cruz, Marco Rubio and Chris Christie, so it is no surprise that Donald Trump and Ben Carson surge still farther ahead in the polls.

  In sports, FIFA, the scandal-plagued governing body of international soccer, suspends its president, Sepp “Sepp” Blatter. Among those seeking to replace him is a South African businessman named — we are not making this name up — Tokyo Sexwale.
   

  
  JACK OHMAN / Tribune News Service

  A huge military blimp breaks loose from its moorings and rampages across Pennsylvania, wreaking havoc and knocking out power for thousands before being lured back into captivity by a Hello Kitty blimp hastily borrowed from the Macy’s Thanksgiving parade and positioned in what a Pentagon source describes as “a provocative pose.”

  Speaking of havoc, in …

  NOVEMBER

  … the world reels in shock after horrific terrorist attacks in Paris and Mali. With rumors of new threats coming daily, the U.S. State Department briefly considers unleashing Neil Diamond and Barbra Streisand (code name “Doomsday Duet”) to sing You Don’t Bring Me Flowers but elects instead to issue a Worldwide Travel Alert, warning American citizens to avoid potentially dangerous areas, “especially the Northern and Southern Hemispheres.” The department assures Americans that “there is no need to panic,” stressing that they should “remain in bed paralyzed by butt-puckering fear.”

  But November is not just a time for fear: It is also a time, as Thanksgiving ushers in the holiday season, for all Americans, regardless of ethnicity, religion or political views, to be deeply offended. Nobody is more offended than college students, who stage a series of protests over the racism, sexism, fascism, heteronormism and — trigger warning — insensitive Halloween costumes that constitute the festering hellhole of hurtful things that is the modern American college campus and THERE IS NOTHING FUNNY ABOUT IT.

  Also deeply offended in November are people who have taken time out of their busy lives to notice that the 2015 Starbucks holiday cup is just plain red and — trigger warning — does not have snowflakes or reindeer on it. This is yet another salvo in the War On Christmas, which has completely eliminated Christmas from our lives except for Christmas carols playing on loudspeakers everywhere and huge Christmas displays in every store and Christmas movies on TV constantly and numerous Christmas-related news stories and an endless stream of Christmas-themed commercials running 24/7 since approximately Labor Day.

  In presidential politics, Ben Carson reacts angrily to CNN reports suggesting that he never tried to stab anybody or hit his mother with a hammer. Really. Donald Trump continues his two-pronged campaign of saying reprehensible things and then clarifying his statements by saying he didn’t really say them so STOP HATING YOU PATHETIC LOSERS, a strategy that continues to cost him vital support among knowledgeable Washington insiders. Jeb Bush seeks to revive his flagging campaign by unleashing an awesome new slogan —“Jeb Can Fix It!” — and immediately surges ahead in the coveted 3-year-old-boy voter demographic.

  On the Democratic side, Hillary Clinton continues to execute spontaneous acts such as smiling while campaigning on the theme that she is both a human being and a woman who cares about other humans in the middle class and women specifically.

  In a major sports upset, the seemingly invincible Ronda Rousey is defeated in a UFC title fight by Tom Brady, who uses a maneuver he calls the “crowbar,” although Coach Bill Belichick is quick to point out that in fact it is “just a regular claw hammer.”

  In the World Series, the Kansas City Royals defeat the New York Mets. The payrolls of these two teams combined are less than the payroll of the New York Yankees, who were eliminated immediately from the playoffs in the Wild Card game by the Houston Astros, whose payroll is less than a third of the Yankees’.

  As the month draws to a close, tensions in the Middle East run high amid rumors that the Obama administration, in what would be a major escalation of American presence, is considering staging a Black Friday sale in Syria. Fortunately these rumors prove to be false and the worst retail violence is confined within U.S. borders. But the world situation remains troubling in …

  DECEMBER

  … when, with the menacing specter of global climate change looming like some kind of spectral menace or something, 150 world leaders, finally getting serious about this urgent threat to the planet’s future, decide to stay home and confer via Skype.

  Ha ha! Seriously, the leaders all fly to Paris, where they and their security details and their vast minion entourages travel around in high-speed motorcades to attend dinners and make speeches about the importance of figuring out how to reduce these pesky carbon emissions. In the end they sign a Historic Agreement under which all parties commit to a concrete, legally binding and unbreakable schedule of potentially attending additional conferences at some point in the future, although skeptics note that Chinese President Xi Jinping signs his name on the official document as “Phil McCracken.”

  In another feel-good story, Facebook founder Mark Zuckerberg announces that he will give back the 45 billion hours that the average American has wasted on Facebook.

  On a more disturbing note, the Food and Drug Administration confirms reports that genetically modified fruits and vegetables have been escaping from supermarkets and mating in the wild with other species. The FDA stresses that this is “a manageable problem” and downplays sightings in Florida of a so-called “potator,” half potato and half alligator, which according to terrified locals lurks underground, has huge jaws and dozens of eyes and can be stopped only by bullets tipped with sour cream.

  

   

  Speaking of potatoes: Tensions rise in Europe when the Russian government announces that it is launching a new business startup called “Tuber,” described as “like Uber, except with tanks.”

  In entertainment news, 20th Century Fox denies rumors that in the movie The Revenant, the character played by Leonardo DiCaprio is raped by a bear. “The bear in the film is a female,” states a Fox spokesperson, referring to a computer-generated bear nicknamed “Judy,” who on the same day is nominated for a film industry animation award in the same category as the Hulk. This actually happened.

  In presidential politics, Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump Trump.

  But with the Iowa caucuses and New Hampshire primary just around the corner, analysts struggle to make sense of new polls showing that, suddenly, the clear leader in both states, for both parties, is Tom Brady.

  The scary part is: That wouldn’t be so bad.

  As the year finally staggers to a close, Americans set aside their differences, if only briefly, and join together in the cherished, time-honored tradition of pretending that New Year’s Eve is fun. So let’s raise a glass to toast the demise of 2015. Then let’s set the glass down untasted, in case God forbid it contains gluten. Then let’s go to bed.

  Happy New Year.

  

  

  

  

  

• "Christmas Is Dead" Hyperinflated Venezuelans Face Holiday Without Lights, Food, & Hope

  In 2013, Maduro’s first year in office, the government released a Christmas carol praising the Socialist utopia's dictator. Last year, Maduro debuted a “socialist Barbie” that almost bankrupted stores forced to sell it after the government forced the price down to a tenth of its value. And this year, as AFP reports, "Christmas is dead, there is not enough money," according to one resident, noting there is no Christmas decor anywhere and people do not have enough money to buy presents. Some cannot even afford the basic goods needed to put together a traditional feast of roast pork and assorted sides.

   The government’s take on Christmas celebrations has been significantly more muted this year than in 2014. As Breitbart reports,

  Last year, Maduro debuted a “socialist Barbie” that almost bankrupted stores forced to sell it after the government forced the price down to a tenth of its value.

   

  Barbie was the latest in a series of goods – eggs, milk, flour, vegetable oil – to suffer a similar fate. Fixed price controls forced the government to issue ration cards for basic goods in 2014. That year, Maduro also used his time on television to condemn the anti-socialist opposition for being “grinches” trying to “steal Christmas” from the people by condemning said price controls and demanding an end to the violent oppression of dissidents.

   

  In 2013, Maduro’s first year in office, the government released a Christmas carol praising Maduro titled “Knock Knock– Who Is It? People Of Peace, Lower Those Prices, Nicolás Is Here.”

  Maduro has been significantly less prominent in holiday celebrations this year following the overwhelming defeat of the Venezuelan United Socialist Party (PSUV) in the December 6 legislative elections.

  “This year, Christmas is dead, there is not enough money,” Elise Belisario, a resident of the Caracas suburb Petare, tells Agence France-Presse (AFP). She notes there is no Christmas decor anywhere and people do not have enough money to buy presents. Some cannot even afford the basic goods needed to put together a traditional feast of roast pork and assorted sides.

   

  The website El Colombiano estimates that a full Christmas dinner costs between 2,000 and 3,000 bolívares, which is the equivalent of about one third of a monthly minimum wage. Individual basic food items can rack that price up significantly if especially scarce in any particularly neighborhood. For example, a woman selling eggs on the black market in Caracas tells AFP a box of 30 eggs costs 1,300 bolívars alone.

   

  It is difficult to estimate how much these prices would translate to in dollars because the government insists on setting the value of its currency at a fixed rate most believe is intended to mask the nation’s hyperinflation problem, and is significantly higher than the real value of the bolívar on the black market. The Venezuelan website Dolar Today, which tracks the price of the bolívar on the black market, claims one American dollar is worth 841 bolívars today. This would make Venezuela’s minimum wage about $11 a month.

   

  In addition to food items, non-necessary goods have seen a massive spike in prices. El Colombiano estimates the price of a Christmas tree to be up to 33,000 bolívars. A toy doll costs around 15,000 bolívars. “You either eat or you dress your children,” Lucía González, a vendor in Caracas, tells the publication.

  *  *  *

  Socialist utopia… where everyone is equally pissed off…

  

   

  

  

  

  

  

• The After-Christmas Hangover: Why There Is No Peace On Earth

  Submitted by David Stockman via Contra Corner blog,

  After the Berlin Wall fell in November 1989 and the death of the Soviet Union was confirmed two years later when Boris Yeltsin courageously stood down the red army tanks in front of Moscow’s White House, a dark era in human history came to an end.

  The world had descended into what had been a 77-year global war, incepting with the mobilization of the armies of old Europe in August 1914. If you want to count bodies, 150 million were killed by all the depredations which germinated in the Great War, its foolish aftermath at Versailles, and the march of history into the world war and cold war which followed inexorably thereupon.

  To wit, upwards of 8% of the human race was wiped-out during that span. The toll encompassed the madness of trench warfare during 1914-1918; the murderous regimes of Soviet and Nazi totalitarianism that rose from the ashes of the Great War and Versailles; and then the carnage of WWII and all the lesser (unnecessary) wars and invasions of the Cold War including Korea and Vietnam.

  I have elaborated more fully on this proposition in “The Epochal Consequences Of Woodrow Wilson’s War“, but the seminal point cannot be gainsaid. The end of the cold war meant world peace was finally at hand, yet 25 years later there is still no peace because Imperial Washington confounds it.

  In fact, the War Party entrenched in the nation’s capital is dedicated to economic interests and ideological perversions that guarantee perpetual war; they ensure endless waste on armaments and the inestimable death and human suffering that stems from 21st century high tech warfare and the terrorist blowback it inherently generates among those upon which the War Party inflicts its violent hegemony.

  So there was a virulent threat to peace still lurking on the Potomac after the 77-year war ended. The great general and president, Dwight Eisenhower, had called it the “military-industrial complex” in his farewell address, but that memorable phrase had been abbreviated by his speechwriters, who deleted the word “congressional” in a gesture of comity to the legislative branch.

  So restore Ike’s deleted reference to the pork barrels and Sunday afternoon warriors of Capitol Hill and toss in the legions of beltway busybodies that constituted the civilian branches of the cold war armada (CIA, State, AID etc.) and the circle would have been complete. It constituted the most awesome machine of warfare and imperial hegemony since the Roman legions bestrode most of the civilized world.

  In a word, the real threat to peace circa 1990 was that Pax Americana would not go away quietly in the night.

  In fact, during the past 25 years Imperial Washington has lost all memory that peace was ever possible at the end of the cold war. Today it is as feckless, misguided and bloodthirsty as were Berlin, Paris, St. Petersburg, Vienna and London in August 1914.

  Back then a few months after the slaughter had been unleashed, soldiers along the western front broke into spontaneous truces of Christmas celebration, singing and even exchange of gifts. For a brief moment they wondered why they were juxtaposed in lethal combat along the jaws of hell.

  The truthful answer is that there was no good reason. The world had stumbled into war based on false narratives and the institutional imperatives of military mobilization plans, alliances and treaties arrayed into a doomsday machine and petty short-term diplomatic maneuvers and political calculus. Yet it took more than three-quarters of a century for all the consequential impacts and evils to be purged from the life of the planet.

  The peace that was lost last time has not been regained this time for the same reasons. Historians can readily name the culprits from 100 years ago, such as the German general staff’s plan for a lightening mobilization and strike on the western front called the Schlieffen Plan or Britain’s secret commitments to France to guard the North Sea while the latter covered the Mediterranean.

  Since these casus belli of 1914 were criminally trivial in light of all that metastisized thereafter, it might do well to name the institutions and false narratives that block the return of peace today. The fact is, these impediments are even more contemptible than the forces that crushed the Christmas truces one century ago.

  Imperial Washington – Global Menace

  There is no peace on earth today for reasons mainly rooted in Imperial Washington—— not Moscow, Beijing, Tehran, Damascus, Mosul or Raqqah. The former has become a global menace owing to what didn’t happen in 1991.

  What should have happened is that Bush the elder should have declared “mission accomplished” and slashed the Pentagon budget from $600 billion to $200 billion; demobilized the military-industrial complex by putting a moratorium on all new weapons development, procurement and export sales; dissolved NATO and dismantled the far-flung network of US military bases; slashed the US standing armed forces from 1.5 million to a few hundred thousand; and organized and led a world disarmement and peace campaign, as did his Republican predecessors during the 1920s.

  Unfortunately, George H.W. Bush was not a man of peace, vision or even mediocre intelligence. He was the malleable tool of the War Party, and it was he who single-handedly blew the peace when he plunged America into a petty arguement between the impetuous dictator of Iraq and the gluttonous Emir of Kuwait that was none of our business.

  By contrast, even though liberal historians have reviled Warren G. Harding as some kind of dumbkopf politician, he well understood that the Great War had been for naught, and that to insure it never happened again the nations of the world needed to rid themselves of their huge navies and standing armies.

  To that end, he achieved the largest global disarmament agreement ever during the Washington Naval conference of 1921, which halted the construction of new battleships for more than a decade.

  

  And while he was at it, President Harding also pardoned Eugene Debs. So doing, he gave witness to the truth that the intrepid socialist candidate for president and vehement anti-war protestor, who Wilson had thrown in prison for exercising his first amendment right to speak against US entry into a pointless European war, had been right all along.

  In short, Warren G. Harding knew the war was over, and the folly of Wilson’s 1917 plunge into Europe’s bloodbath should not be repeated at all hazards.

  Not George H.W. Bush. The man should never be forgiven for enabling the likes of Dick Cheney, Paul Wolfowitz, Robert Gates and their neocon pack of jackals to come to power—-even if he has denounced them in his bumbling old age.

  Even more to the point, by opting not for peace but for war and oil in the Persian Gulf in 1991 he opened the gates to an unnecessary confrontation with Islam and nurtured the rise of jihadist terrorism that would not haunt the world today save for forces unleashed by George Bush’s petulant quarrel with Saddam Hussein.

  We will momentarily get to the 45-year old error that holds the Persian Gulf is an American Lake and that the answer to high old prices and energy security is the Fifth Fleet. Actually, the answer to high oil prices everywhere and always is high oil prices—–a truth driven home in spades again this week when the Brent oil price plunged below $35 per barrel.

  But first it is well to remember that there was no plausible threat anywhere on the planet to the safety and security of the citizens of Springfield MA, Lincoln NE or Spokane WA when the cold war ended.

  The Warsaw Pact had dissolved into more than a dozen woebegone sovereign statelets; the Soviet Union was now unscrambled into 15 independent and far-flung Republics from Belarus to Tajikistan; and the Russian motherland would soon plunge into an economic depression that would leave it with a GDP about the size of the Philadelphia SMSA.

  Likewise, China’s GDP was even smaller and more primitive than Russia’s. Even as Mr. Deng was discovering the PBOC printing press that would enable it to become a great mercantilist exporter, an incipient threat to national security was never in the cards. After all, it was 4,000 Wal-Marts in America upon which the prosperity of the new red capitalism inextricably depended and upon which the rule of the communist oligarchs in Beijing was ultimately anchored.

  No Islamic Or Jihadi Terrorist Threat Circa 1990

  In 1990 there was no global Islamic threat or jihadi terrorist menace at all. What existed under those headings were sundry fragments and deposits of middle eastern religious, ethnic and tribal history that were of moment in their immediate region, but no threat to America whatsoever.

  The Shiite/Sunni divide had co-existed since 671AD, but its episodic eruptions into battles and wars over the centuries had rarely extended beyond the region, and certainly had no reason to fester into open conflict in 1990.

  Inside the artificial state of Iraq, which had been drawn on a map by  historically ignorant European diplomats in 1916, for instance, the Shiite and Sunni got along tolerably well. That’s because the nation was ruled by Saddam Hussein’s Baathist brand of secular Arab nationalism.

  The latter championed law and order, state driven economic development and politically apportioned distribution from the spoils of the extensive government controlled oil sector. To be sure, Baathist socialism didn’t bring much prosperity to the well-endowed lands of Mesopotamia, but Hussein did have a Christian foreign minister and no sympathy for religious extremism or violent pursuit of sectarian causes.

  As it happened, the bloody Shiite/Sunni strife that plagues Iraq today and functions as a hatchery for angry young jihadi terrorists in their thousands was unleashed only after Hussein had been driven from Kuwait and the CIA had instigated an armed uprising in the Shiite heartland around Basra. That revolt was brutally suppressed by Hussein’s republican guards, but it left an undertow of resentment and revenge boiling below the surface.

  Needless to say, the younger Bush and his cabal of neocon warmongers could not leave well enough alone. When they foolishly destroyed Saddam Hussein and his entire regime in the pursuit of nonexistent WMDs and ties with al-Qaeda, they literally opened the gates of hell, leaving Iraq as a lawless failed state where both recent and ancient religious and tribal animosities are given unlimited violent vent.

  Likewise, the Shiite theocracy ensconced in Tehran was an unfortunate albatross on the Persian people, but it was no threat to America’s safety and security. The very idea that Tehran is an expansionist power bent on exporting terrorism to the rest of the world is a giant fiction and tissue of lies invented by the Washington War Party and its Bibi Netanyahu branch in order to win political support for their confrontationist policies.

  Indeed, the three decade long demonization of Iran has served one over-arching purpose. Namely, it enabled both branches of the War Party to conjure up a fearsome enemy, thereby justifying aggressive policies that call for a constant state of war and military mobilization.

  When the cold-war officially ended in 1991, the Cheney/neocon cabal feared the kind of drastic demobilization of the US military-industrial complex that was warranted by the suddenly more pacific strategic environment. In response, they developed an anti-Iranian doctrine that was explicitly described as a way of keeping defense spending at high cold war levels.

  And the narrative they developed to this end is one of the more egregious Big Lies ever to come out of the beltway. It puts you in mind of the young boy who killed his parents, and then threw himself on the mercy of the courts on the grounds that he was an orphan!

  To wit, during the 1980s the neocons in the Reagan Administration issued their own fatwa again the Islamic Republic based on its rhetorical hostility to America. Yet that enmity was grounded in Washington’s 25-year support for the tyrannical and illegitimate regime of the Shah, and constituted a founding narrative of the Islamic Republic that was not much different than America’s revolutionary castigation of King George.

  That the Iranians had a case is beyond doubt. The open US archives now prove that the CIA overthrew Iran’s democratically elected government in 1953 and put the utterly unsuited and megalomaniacal Mohammad Reza Shah on the peacock throne to rule as a puppet in behalf of US security and oil interests.

  During the subsequent decades the Shah not only massively and baldly plundered the wealth of the Persian nation; with the help of the CIA and US military, he also created a brutal secret police force known as the Savak. The latter made the East German Stasi look civilized by comparison.

  All elements of Iranian society including universities, labor unions, businesses, civic organizations, peasant farmers and many more were subjected to intense surveillance by the Savak agents and paid informants. As one critic described it:

  Over the years, Savak became a law unto itself, having legal authority to arrest, detain, brutally interrogate and torture suspected people indefinitely. Savak operated its own prisons in Tehran, such as Qezel-Qalaeh and Evin facilities and many suspected places throughout the country as well. Many of those activities were carried out without any institutional checks.

  Ironically, among his many grandiose follies, the Shah embarked on a massive civilian nuclear power campaign in the 1970s, which envisioned literally paving the Iranian landscape with dozens of nuclear power plants.

  He would use Iran’s surging oil revenues after 1973 to buy all the equipment required from Western companies—– and also fuel cycle support services such as uranium enrichment——in order to provide his kingdom with cheap power for centuries.

  At the time of the Revolution, the first of these plants at Bushehr was nearly complete, but the whole grandiose project was put on hold amidst the turmoil of the new regime and the onset of Saddam Hussein’s war against Iran in September 1980. As a consequence, a $2 billion deposit languished at the French nuclear agency that had originally obtained it from the Shah to fund a ramp-up of its enrichment capacity to supply his planned battery of reactors.

  Indeed, in this very context the new Iranian regime proved quite dramatically that it was not hell bent on obtaining nuclear bombs or any other weapons of mass destruction. In the midst of Iraq’s unprovoked invasion of Iran in the early 1980s the Ayatollah Khomeini issued a fatwa against biological and chemical weapons.

  Yet at that very time, Saddam was dropping these horrific weapons on Iranian battle forces—-some of them barely armed teenage boys—- with the spotting help of CIA tracking satellites and the concurrence of Washington. So from the very beginning, the Iranian posture was wholly contrary to the War Party’s endless blizzard of false charges about its quest for nukes.

  However benighted and medieval its religious views, the theocracy which rules Iran does not consist of demented war mongers. In the heat of battle they were willing to sacrifice their own forces rather than violate their religious scruples to counter Saddam’s WMDs.

  Then in 1983 the new Iranian regime decided to complete the Bushehr power plant and some additional elements of the Shah’s grand plan. But when they attempted to reactivate the French enrichment services contract and buy necessary power plant equipment from the original German suppliers they were stopped cold by Washington. And when the tried to get their $2 billion deposit back, they were curtly denied that, too.

  To make a long story short, the entire subsequent history of off again/on again efforts by the Iranians to purchase dual use equipment and components on the international market, often from black market sources like Pakistan, was in response to Washington’s relentless efforts to block its legitimate rights as a signatory to the Nuclear Nonproliferation Treaty (NPT) to complete some parts of the Shah’s civilian nuclear project.

  Needless to say, it did not take much effort by the neocon “regime change” fanatics which inhabited the national security machinery, especially after the 2000 election, to spin every attempt by Iran to purchase even a lowly pump or pipe fitting as evidence of a secret campaign to get the bomb.

  The exaggerations, lies, distortions and fear-mongering which came out of this neocon campaign are truly disgusting. Yet they incepted way back in the early 1990s when George H.W. Bush actually did reach out to the newly elected government of Hashemi Rafsanjani to bury the hatchet after it had cooperated in obtaining the release of American prisoners being held in Lebanon in 1989.

  The latter was self-evidently a pragmatist who did not want conflict with the United States and the West; and after the devastation of the eight year war with Iraq was wholly focused on economic reconstruction and even free market reforms of Iran’s faltering economy.

  It is one of the great tragedies of history that the neocons managed to squelch even George Bush’s better instincts with respect to rapprochement with Tehran.

  So the prisoner release opening was short-lived—especially after the top post at the CIA was assumed in 1991 by Robert Gates. He was one of the very worst of the unreconstructed cold war apparatchiks who looked peace in the eye, and elected, instead, to pervert John Quincy Adams’ wise maxim by searching the globe for monsters to fabricate.

  In this case the motivation was especially loathsome. Gates had been Bill Casey’s right hand man during the latter’s rogue tenure at the CIA in the Reagan administration. Among the many untoward projects that Gates shepherded was the Iran-Contra affair that nearly destroyed his career when it blew-up, and for which he blamed the Iranian’s for its public disclosure.

  From his post as deputy national security director in 1989 and then as CIA head Gates pulled out all the stops to get even. Almost single-handedly he killed-off the White House goodwill from the prisoner release, and launched the blatant myth that Iran was both sponsoring terrorism and seeking to obtain nuclear weapons.

  Indeed, it was Gates who was the architect of the demonization of Iran that became a staple of War Party propaganda after the 1991. In time that morphed into the utterly false claim that Iran is an aggressive would be hegemon that is a fount of terrorism and is dedicated to the destruction of the state of Israel, among other treacherous purposes.

  That giant lie was almost single-handedly fashioned by the neocons and Bibi Netanyahu’s coterie of power-hungry henchman after the mid-1990s. Indeed, the false claim that Iran posses an “existential threat” to Israel is a product of the pure red meat domestic Israeli politics that have kept Bibi in power for much of the last two decades.

  But the truth is Iran has only a tiny fraction of Israel’s conventional military capability. And compared to the latter’s 200 odd nukes, Iran has never had a nuclear weaponization program after a small scale research program was ended in 2003.

  That is not my opinion. It’s been the sober assessment of the nation’s top 16 intelligence agencies in the official National Intelligence Estimates ever since 2007. And now in conjunction with a further study in conjunction with the nuclear accord that will straight-jacket even Iran’s civilian program and eliminate most of its enriched uranium stock piles and spinning capacity,  the IAEA has concluded the Iran had no secret program after 2003, neither.

  On the political and foreign policy front, Iran is no better or worse than any of the other major powers in the Middle East. In many ways it is far less of a threat to regional peace and stability than the military butchers who now run Egypt on $1.5 billion per year of US aid.

  And it is surely no worse than the corpulent tyrants who squander the massive oil resources of Saudi Arabia in pursuit of unspeakable opulence and decadence to the detriment of the 30 million citizens which are not part of the regime, and who one day may well reach the point of revolt.

  When it comes to the support of terrorism, the Saudis have funded more jihadists and terrorists throughout the region than Iran ever even imagined.

  Myth Of The Shiite Crescent

  In this context, the War Party’s bloviation about Iran’s leadership of the so-called Shiite Crescent is another component of Imperial Washington’s 25-year long roadblock to peace. Iran wasn’t a threat to American security in 1991, and it has never since then organized a hostile coalition of terrorists that require Washington’s intervention.

  Start with Iran’s long-standing support of Bashir Assad’s government in Syria. That alliance that goes back to his father’s era and is rooted in the historic confessional politics of the Islamic world.

  The Assad regime is Alawite, a branch of the Shiite, and despite the regime’s brutality, it has been a bulwark of protection for all of Syria’s minority sects, including Christians, against a majority-Sunni ethnic cleansing. The latter would surely occur if the Saudi supported rebels, led by the Nusra Front and ISIS, were ever to take power.

  Likewise, the fact that the Bagdhad government of the broken state of Iraq——that is, the artificial 1916 concoction of two stripped pants European diplomats (Messrs. Sykes and Picot of the British and French foreign offices, respectively)——–is now aligned with Iran is also a result of confessional politics and geo-economic propinquity.

  For all practical purposes, the Kurds of the northeast have declared their independence and the western Sunni lands of the upper Euphrates have been conquered by ISIS with American weapons dropped in place by the hapless $25 billion Iraqi army minted by Washington’s departing proconsuls.

  Accordingly, what is left of Iraq is a population that is overwhelmingly Shiite, and which nurses bitter resentments after two decades of violent conflict with the Sunni forces. Why in the world, therefore, wouldn’t they ally with their Shiite neighbor?

  Likewise, the claim that Iran is now trying to annex Yemen is pure claptrap. The ancient territory of Yemen has been racked by civil war off and on since the early 1970s.  And a major driving force of that conflict has been confessional differences between the Sunni south and the Shiite north.

  In more recent times, Washington’s blatant drone war inside Yemen against alleged terrorists and its domination and financing of Yemen’s governments eventually produced the same old outcome. That is, another failed state and an illegitimate government which fled at the 11th hour, leaving another vast cache of American arms and equipment behind.

  Accordingly, the Houthis forces now in control of substantial parts of the country are not some kind of advanced guard sent in by Tehran. They are indigenous partisans who share a confessional tie with Iran, but which have actually been armed by the US.

  And the real invaders in this destructive civil war are the Saudis, whose vicious bombing campaign against civilian populations controlled by the Houthis are outright war crimes if the word has any meaning at all.

  Finally, there is the fourth element of the purported Iranian axis—–the Hezbollah controlled Shiite communities of southern Lebanon and the Bekaa Valley.  Like everything else in the Middle East, Hezbollah is a product of historical European imperialism, Islamic confessional politics and the frequently misguided and counterproductive security policies of Israel.

  In the first place, Lebanon was not any more a real country than Iraq was when Sykes and Picot laid their straight-edged rulers on a map. The result was a stew of religious and ethnic divisions—-Maronite Catholics, Greek Orthodox, Copts, Druse, Sunnis, Shiites, Alawites, Kurds, Armenians, Jews and countless more—– that made the fashioning of a viable state virtually impossible.

  At length, an alliance of Christians and Sunnis gained control of the country, leaving the 40% Shiite population disenfranchised and economically disadvantaged, as well. But it was the inflow of Palestinian refugees in the 1960s and 1970s that eventually upset the balance of sectarian forces and triggered a civil war that essentially lasted from 1975 until the turn of the century.

  It also triggered a catastrophically wrong-headed Israeli invasion of southern Lebanon in 1982, and a subsequent repressive occupation of mostly Shiite territories for the next eighteen years. The alleged purpose of this invasion was to chase the PLO and Yassir Arafat out of the enclave in southern Lebanon that they had established after being driven out of Jordan in 1970.

  Eventually Israel succeeded in sending Arafat packing to north Africa, but in the process created a militant, Shiite-based resistance movement that did not even exist in 1982, and which in due course became the strongest single force in Lebanon’s fractured domestic political arrangements.

  After Israel withdrew in 2000, the then Christian President of the county made abundantly clear that Hezbollah had become a legitimate and respected force within the Lebanese polity, not merely some subversive agent of Tehran:

  “For us Lebanese, and I can tell you the majority of Lebanese, Hezbollah is a national resistance movement. If it wasn’t for them, we couldn’t have liberated our land. And because of that, we have big esteem for the Hezbollah movement.”^[

  So, yes, Hezbollah is an integral component of the so-called Shiite Crescent and its confessional and political alignment with Tehran is entirely plausible. But that arrangement—-however uncomfortable for Israel—–does not represent unprovoked Iranian aggression on Israel’s northern border.

  Instead, it’s actually the blowback from the stubborn refusal of Israeli governments—–especially the rightwing Likud governments of modern times—–to deal constructively with the Palestinian question.

  In lieu of a two-state solution in the territory of Palestine, therefore, Israeli policy has produced a chronic state of war with nearly half the Lebanese population represented by Hezbollah.

  The latter is surely no agency of peaceful governance and has committed its share of atrocities. But the point at hand is that given the last 35 years of history and Israeli policy, Hezbollah would exist as a menacing force on its northern border even if the theocracy didn’t exist and the Shah or his heir was still on the Peacock Throne.

  In short, there is no alliance of terrorism in the Shiite Crescent that threatens American security. That proposition is simply one of the Big Lies that was promulgated by the War Party after 1991; and which has been happily embraced by Imperial Washington since then in order to keep the military/industrial/security complex alive, and justify its self-appointed role as policeman of the world.

  Washington’s Erroneous View That The Persian Gulf Should Be An American Lake – The Root Of Sunni Jihaddism

  Likewise, the terrorist threat that has arisen from the Sunni side of the Islamic divide is largely of Washington’s own making; and it is being nurtured by  endless US meddling in the region’s politics and by the bombing and droning campaigns against Washington’s self-created enemies.

  At the root of Sunni based terrorism is the long-standing Washington error that America’s security and economic well-being depends upon keeping an armada in the Persian Gulf in order to protect the surrounding oilfields and the flow of tankers through the straits of Hormuz.

  That doctrine has been wrong from the day it was officially enunciated by one of America’s great economic ignoramuses, Henry Kissinger, at the time of the original oil crisis in 1973. The 42 years since then have proven in spades that its doesn’t matter who controls the oilfields, and that the only effective cure for high oil prices is the free market.

  Every tin pot dictatorship from Libya’s Muammar Gaddafi to Hugo Chavez in Venezuela to Saddam Hussein, to the bloody-minded chieftains of Nigeria, to the purportedly medieval Mullahs and fanatical Revolutionary Guards of Iran has produced oil—-and all they could because they desperately needed the revenue.

  For crying out loud, even the barbaric thugs of ISIS milk every possible drop of petroleum from the tiny, wheezing oilfields scattered around their backwater domain. So there is no economic case whatsoever for Imperial Washington’s massive military presence in the middle east, and most especially for its long-time alliance with the despicable regime of Saudi Arabia.

  The truth is, there is no such thing as an OPEC cartel——virtually every member produces all they can and cheats whenever possible. The only thing that resembles production control in the global oil market is the fact that the Saudi princes treat their oil reserves not much differently than Exxon.

  That is, they attempt to maximize the present value of their 270 billion barrels of reserves, but ultimately are no more clairvoyant at calibrating the best oil price to accomplish that than are the economists at Exxon or the IEA.

  The Saudis over-estimated the staying power of China’s temporarily surging call on global supply; and under-estimated how rapidly and extensively the $100 per barrel marker reached in early 2008 would trigger a flow of investment, technology and cheap debt into the US shale patch, the Canadian tar sands, the tired petroleum provinces of Russia, the deep offshore of Brazil etc. And that’s to say nothing of solar, wind and all the other government subsidized alternative source of BTUs.

  Way back when Jimmy Carter was telling us to turn down the thermostats and put on our cardigan sweaters, those of us on the free market side of the so-called energy shortage debate said the best cure for high oil prices is high prices. Now we know.

  So the Fifth Fleet and its overt and covert auxiliaries should never have been there—–going all the way back to the CIA’s coup against Iranian democracy in 1953.

  But having turned Iran into an enemy, Imperial Washington was just getting started when 1990 rolled around. Once again in the name of “oil security” it plunged the American war machine into the politics and religious fissures of the Persian Gulf; and did so on account of a local small potatoes conflict that had no bearing whatsoever on the safety and security of American citizens.

  As US ambassador Glaspie rightly told Saddam Hussein on the eve of his Kuwait invasion, America had no dog in that hunt.

  Kuwait wasn’t even a country; it was a bank account sitting on a swath of oilfields surrounding an ancient trading city that had been abandoned by Ibn Saud in the early 20th century.

  That’s because he didn’t know what oil was or that it was there; and, in any event, it had been made a separate protectorate by the British in 1913 for reasons that are lost in the fog of diplomatic history.

  Likewise, Iraq’s contentious dispute with Kuwait had been over its claim that the Emir of Kuwait was “slant drilling” across his border into Iraq’s Rumaila field. Yet it was a wholly elastic boundary of no significance whatsoever.

  In fact, the dispute over the Rumaila field started in 1960 when an Arab League declaration arbitrarily marked the Iraq–Kuwait border two miles north of the southernmost tip of the Rumaila field.

  And that newly defined boundary, in turn, had come only 44 years after a pair of English and French diplomats had carved up their winnings from the Ottoman Empire’s demise by laying a straight edged ruler on the map. So doing, they thereby confected the artificial country of Iraq from the historically independent and hostile Mesopotamian provinces of the Shiite in the south, the Sunni in the west and the Kurds in the north.

  In short, it did not matter who controlled the southern tip of the Rumaila field—–the brutal dictator of Baghdad or the opulent Emir of Kuwait. Not the price of oil, nor the peace of America nor the security of Europe nor the future of Asia depended upon it.

  The First Gulf War – A Catastrophic Error

  But once again Bush the Elder got persuaded to take the path of war. This time it was by Henry Kissinger’s  economically illiterate protégés at the national security council and his Texas oilman Secretary of State. They falsely claimed that the will-o-wisp of “oil security” was at stake, and that 500,000 American troops needed to be planted in the sands of Arabia.

  That was a catastrophic error, and not only because the presence of crusader boots on the purportedly sacred soil of Arabia offended the CIA-trained Mujahedeen of Afghanistan, who had become unemployed when the Soviet Union collapsed.

  The 1991 CNN glorified war games in the Gulf also further empowered another group of unemployed crusaders. Namely, the neocon national security fanatics who had mislead Ronald Reagan into a massive military build-up to thwart what they claimed to be an ascendant Soviet Union bent on nuclear war winning capabilities and global conquest.

  All things being equal, the sight of Boris Yeltsin, Vodka flask in hand, facing down the Red Army a few months later should have sent them into the permanent repudiation and obscurity they so richly deserved. But Dick Cheney and Paul Wolfowitz managed to extract from Washington’s pyric victory in Kuwait a whole new lease on life for Imperial Washington.

  Right then and there came the second erroneous predicate. To wit, that “regime change” among the assorted tyrannies of the middle east was in America’s national interest.

  More fatally, the neocons now insisted that the Gulf War proved it could be achieved through a sweeping interventionist menu of coalition diplomacy, security assistance, arms shipments, covert action and open military attack and occupation.

  What the neocon doctrine of regime change actually did, of course, was to foster the Frankenstein that utlimately became ISIS. In fact, the only real terrorists in the world which threaten normal civilian life in the West are the rogue offspring of Imperial Washington’s post-1990 machinations in the middle east.

  The CIA trained and armed Mujahedeen mutated into al-Qaeda not because Bin Laden suddenly had a religious epiphany that his Washington benefactors were actually the Great Satan owing to America’s freedom and liberty.

  His murderous crusade was inspired by the Wahhabi fundamentalism loose in Saudi Arabia. This benighted religious fanaticism became agitated to a fever pitch by Imperial Washington’s violent plunge into Persian Gulf political and religious quarrels, the stationing of troops in Saudi Arabia, and the decade long barrage of sanctions, embargoes, no fly zones, covert actions and open hostility against the Sunni regime in Bagdad after 1991.

  Yes, Bin Laden would have amputated Saddam’s secularist head if Washington hadn’t done it first, but that’s just the point. The attempt at regime change in March 2003 was one of the most foolish acts of state in American history.

  The younger Bush’s neocon advisers had no clue about the sectarian animosities and historical grievances that Hussein had bottled-up by parsing the oil loot and wielding the sword under the banner of Baathist nationalism. But Shock and Awe blew the lid and the de-baathification campaign unleashed the furies.

  Indeed, no sooner had George Bush pranced around on the deck of the Abraham Lincoln declaring “mission accomplished” than Abu Musab al-Zarqawi, a CIA recruit to the Afghan war a decade earlier and small-time specialist in hostage-taking and poisons, fled his no count redoubt in Kurdistan to emerge as a flamboyant agitator in the now disposed Sunni heartland.

  The founder of ISIS succeeded in Fallujah and Anbar province just like the long list of other terrorist leaders Washington claims to have exterminated. That is, Zarqawi gained his following and notoriety among the region’s population of deprived, brutalized and humiliated young men by dint of being more brutal than their occupiers.

  Indeed, even as Washington was crowing about the demise of Zarqawi, the remnants of the Baathist regime and the hundreds of thousands of demobilized Republican Guards were coalescing into al-Qaeda in Iraq, and their future leaders were being incubated in a monstrous nearby detention center called Camp Bucca that contained more than 26,000 prisoners.

  

  As one former US Army officer, Mitchell Gray, later described it,

  You never see hatred like you saw on the faces of these detainees,” Gray remembers of his 2008 tour. “When I say they hated us, I mean they looked like they would have killed us in a heartbeat if given the chance. I turned to the warrant officer I was with and I said, ‘If they could, they would rip our heads off and drink our blood.’ ”

   

  What Gray didn’t know — but might have expected — was that he was not merely looking at the United States’ former enemies, but its future ones as well. According to intelligence experts and Department of Defense records, the vast majority of the leadership of what is today known as ISIS, including its leader, Abu Bakr al-Baghdadi, did time at Camp Bucca.

   

  And not only did the US feed, clothe and house these jihadists, it also played a vital, if unwitting, role in facilitating their transformation into the most formidable terrorist force in modern history.

   

  Early in Bucca’s existence, the most extreme inmates were congregated in Compound 6. There were not enough Americans guards to safely enter the compound — and, in any event, the guards didn’t speak Arabic. So the detainees were left alone to preach to one another and share deadly vocational advice.

   

  …Bucca also housed Haji Bakr, a former colonel in Saddam Hussein’s air-defense force. Bakr was no religious zealot. He was just a guy who lost his job when the Coalition Provisional Authority disbanded the Iraqi military and instituted de-Baathification, a policy of banning Saddam’s past supporters from government work.

   

  According to documents recently obtained by German newspaper Der Spiegel, Bakr was the real mastermind behind ISIS’s organizational structure and also mapped out the strategies that fueled its early successes. Bakr, who died in fighting in 2014, was incarcerated at Bucca from 2006-’08, along with a dozen or more of ISIS’s top lieutenants.

  The point is, regime change and nation building can never be accomplished by the lethal violence of 21st century armed forces; and they were an especially preposterous assignment in the context of a land rent with 13 century-old religious fissures and animosities.

  In fact, the wobbly, synthetic state of Iraq was doomed the minute Cheney and his bloody gang decided to liberate it from the brutal, but serviceable and secular tyranny of Saddam’s Baathist regime. That’s because the process of elections and majority rule necessarily imposed by Washington was guaranteed to elect a government beholden to the Shiite majority.

  After decades of mistreatment and Saddam’s brutal suppression of their 1991 uprising, did the latter have revenge on their minds and in their communal DNA?  Did the Kurds have dreams of an independent Kurdistan that had been denied their 30 million strong tribe way back at Versailles and ever since?

  Yes, they did. So the $25 billion spent on training and equipping the putative armed forces of post-liberation Iraq was bound to end up in the hands of sectarian militias, not a national army.

  In fact, when the Shiite commanders fled Sunni-dominated Mosul in June 2014 they transformed the ISIS uprising against the government in Baghdad into a vicious fledgling state in one fell swoop. It wasn’t by beheadings and fiery jihadist sermons that it quickly enslaved dozens of towns and several million people in western Iraq and the Euphrates Valley of Syria.

  ISIS Is Washington’s Frankenstein

  Its instruments of terror and occupation were the best weapons that the American taxpayers could buy. That included 2,300 Humvees and tens of thousands of automatic weapons, as well as vast stores of ammunition, trucks, rockets, artillery pieces and even tanks and helicopters.

  And that wasn’t the half of it. The newly proclaimed Islamic State also filled the power vacuum in Syria created by its so-called civil war. But in truth that was another exercise in Washington inspired and financed regime change undertaken in connivance with Qatar and Saudi Arabia.

  The latter were surely not interested in expelling the tyranny next door; they are the living embodiment of it. Instead, the rebellion was about removing Iran’s Alawite/Shiite ally from power in Damascus and laying gas pipelines to Europe across the upper Euphrates Valley.

  In any event, ISIS soon had troves of additional American weapons. Some of them were supplied to Sunni radicals by way of Qatar and Saudi Arabia. More came up the so-called “ratline” from Gaddafi’s former arsenals in Benghazi through Turkey. And still more came through Jordan from the “moderate” opposition trained there by the CIA, which more often than not sold them or defected to the other side.

  So that the Islamic State was Washington’s Frankenstein monster became evident from the moment it rushed upon the scene 18 months ago. But even then the Washington war party could not resist adding fuel to the fire, whooping up another round of Islamophobia among the American public and forcing the Obama White House into a futile bombing campaign for the third time in a quarter century.

  But if bombing really worked, the Islamic State would be sand and gravel by now. Indeed, as shown by the map below, it is really not much more than that anyway.

  The dusty, broken, impoverished towns and villages along the margins of the Euphrates River and in the bombed out precincts of Anbar province do not attract thousands of wannabe jihadists from the failed states of the middle east and the alienated Muslim townships of Europe because the caliphate offers prosperity, salvation or any future at all.

  What recruits them is outrage at the bombs and drones being dropped on Sunni communities by the US air force; and by the cruise missiles launched from the bowels of the Mediterranean which rip apart homes, shops, offices and mosques containing as many innocent civilians as ISIS terrorists.

  

  The truth is, the Islamic State was destined for a short half-life anyway. It was contained by the Kurds in the north and east and by Turkey with NATO’s second largest army and air force in the northwest. And it was surrounded by the Shiite crescent in the populated, economically viable regions of lower Syria and Iraq.

  So absent Washington’s misbegotten campaign to unseat Assad in Damascus and demonize his confession-based Iranian ally, there would have been nowhere for the murderous fanatics who pitched a makeshift capital in Raqqa to go. They would have run out of money, recruits, momentum and public acquiesce in their horrific rule in due course.

  But with the US Air Force functioning as their recruiting arm and France’s anti-Assad foreign policy helping to foment a final spasm of anarchy in Syria, the gates of hell have been opened wide. What has been puked out is not an organized war on Western civilization as Hollande so hysterically proclaimed in response to the mayhem in Paris.

  It was just blowback carried out by that infinitesimally small salient of mentally deformed young men who can be persuaded to strap on a suicide belt.

  Needless to say, bombing wont stop them; it will just make more of them.

  Ironically, what can stop them is the Assad government and the ground forces of its Hezbollah and the Iranian Revolutionary Guard allies. Its time to let them settle an ancient quarrel that has never been any of America’s business anyway.

  But Imperial Washington is so caught up in its myths, lies and hegemonic stupidity that it can not see the obvious.

  And that is why a quarter century after the cold war ended peace still hasn’t been given a chance and the reason that horrific events like November’s barbarism in Paris still keep happening.

  Even the so-called “inspired” terrorists like the pair who attacked San Bernardino emerge episodically because the terror that the American military visits upon Muslim lands is actually what inspires them. After all, whatever the Koran has to say about purging the infidel, it inspired no attacks on American soil until Imperial Washington went into the regime change and military intervention business in the middle east.

  Another False Demon – Putin’s Russia

  At the end of the day there now exists a huge irony. The only force that can effectively contain and eventually eliminate the Islamic State is the so-called Shiite Crescent———–the alliance of Iran, Baghdad, Assad and Hezbollah. But since they are allied with Putin’s Russia, still another unnecessary barrier to peace on earth comes into play.

  The fact is, there is no basis whatsoever for Imperial Washington’s relentless campaign against Putin, and Washington-NATO’s blatant intervention in Ukraine.

  Contrary to the bombast, jingoism, and shrill moralizing flowing from Washington and the mainstream media, America has no interest in the current spat between Putin and the coup that unconstitutionally took over Kiev in February 2014.

  For several centuries the Crimea has been Russian; for even longer, the Ukraine has been a cauldron of ethnic and tribal conflict, rarely an organized, independent state, and always a meandering set of borders looking for a redrawn map.

  Like everything reviewed above, the source of the current calamity-howling about Russia is the Warfare State–that is, the existence of vast machinery of military, diplomatic and economic maneuver that is ever on the prowl for missions and mandates and that can mobilize a massive propaganda campaign on the slightest excitement.

  The post-1991 absurdity of bolstering NATO and extending it into eastern Europe, rather than liquidating it after attaining “mission accomplished”, is just another manifestation of its baleful impact. In truth, the expansion of NATO is one of the underlying causes of America’s needless tension with Russia and Putin’s paranoia about his borders and neighbors. Indeed, what juvenile minds actually determined that America needs a military alliance with Slovenia, Slovakia, Bulgaria and Romania, and now Montenegro!

  So the resounding clatter for action against Russia emanating from Washington and its house-trained media is not even a semi-rational response to the facts at hand; its just another destructive spasm of the nation’s Warfare State and its beltway machinery of diplomatic meddling, economic warfare and military intervention.

  Memo To Obama: It’s Their Red Line

  Not only does Washington’s relentless meddling in the current Russian- Ukrainian food fight have nothing to do with the safety and security of the American people, it also betrays woeful disregard for the elementary facts of that region’s turbulent and often bloody history.

  In fact, the allegedly “occupied” territory of Crimea was actually annexed by Catherine the Great in 1783, thereby satisfying the longstanding quest of the Russian Czars for a warm-water port. Over the ages Sevastopol then emerged as a great naval base at the strategic tip of the Crimean peninsula, where it became home to the mighty Black Sea Fleet of the Czars and then the commissars.

  For the next 171 years Crimea was an integral part of Russia—a span that exceeds the 166 years that have elapsed since California was annexed by a similar thrust of “Manifest Destiny” on this continent, thereby providing, incidentally, the United States Navy with its own warm-water port in San Diego.

  While no foreign forces subsequently invaded the California coasts, it was most definitely not Ukrainian and Polish rifles, artillery and blood which famously annihilated The Charge Of The Light Brigade at the Crimean city of Balaclava in 1854; they were Russians defending the homeland from Turks, Europeans and Brits.

  And the portrait of the Russian “hero” hanging in Putin’s office is that of Czar Nicholas I—whose brutal 30-year reign brought the Russian Empire to its historical zenith, and who was revered in Russian hagiography as the defender of Crimea, even as he lost the 1850s war to the Ottomans and Europeans.

  At the end of the day, it’s their Red Line. When the enfeebled Franklin Roosevelt made port in the Crimean city of Yalta in February 1945 he did at least know that he was in Soviet Russia.

  Maneuvering to cement his control of the Kremlin in the intrigue-ridden struggle for succession after Stalin’s death a few years later, Nikita Khrushchev allegedly spent 15 minutes reviewing his “gift” of Crimea to his subalterns in Kiev in honor of the decision by their ancestors 300 years earlier to accept the inevitable and become a vassal of Russia.

  Self-evidently, during the long decades of the Cold War, the West did nothing to liberate the “captive nation” of the Ukraine—with or without the Crimean appendage bestowed upon it in 1954. Nor did it draw any red lines in the mid-1990’s when a financially desperate Ukraine rented back Sevastopol and the strategic redoubts of the Crimea to an equally pauperized Russia.

  In short, in the era before we got our Pacific port in 1848 and in the 166-year interval since then, our national security has depended not one wit on the status of the Russian-speaking Crimea.

  That the local population has now chosen fealty to the Grand Thief in Moscow over the ruffians and rabble who have seized Kiev is their business, not ours.

  The real threat to peace is not Putin, but the screeching sanctimony and mindless meddling of Susan Rice and Samantha Power. Obama should have sent them back to geography class long  ago – and before they could draw anymore new Red Lines.

  The one in the Ukraine has been morphing for centuries among the quarreling tribes, peoples, potentates, Patriarchs and pretenders of a small region that is none of our damn business.

  The current Ukrainian policy farce emanating from Washington is not only a reminder that the military-industrial-beltway complex is still alive and well, but also demonstrates why the forces of crony capitalism and money politics which sustain it are so lamentable. The fact is, the modern Warfare State has been the incubator of American imperialism since the Cold War, and is now proving itself utterly invulnerable to fiscal containment, even in the face of a $19 trillion national debt.

  So 101 years after the Christmas truces along the Western Front there is still no peace on earth. And the long suffering American taxpayers, who foot the massive bills generated by the War Party’s demented and destructive policies, have no clue that Imperial Washington is the principal reason.

  

  

  

  

  

• Europe Enters New Year With Nearly $2 Trillion In Sub-Zero Interest Debt

  Earlier this month, Mario Draghi disappointed markets by failing to deliver an outsized depo rate cut and an expansion of monthly PSPP purchases. 

  It’s not that the ECB didn’t ease. They did. It’s just that they didn’t ease enough, because when every DM central banker has gone Keynesian crazy (or, “full Krugman” as it were), a 10 bps cut doesn’t “cut” it (so to speak), and a six month extension of QE had been priced in at least since September. 

  With EU inflation still stuck in Japan mode and with GDP bumping along at the “new normal” pace of what might as well be 0%, the market expects more from Draghi going forward. Need proof? Just look at yields. “As the European Central Bank wound down its asset purchases for the year, the amount of euro-region government bonds that yield less than zero was at about $1.68 trillion, indicating investors see the potential for further easing of monetary policy in 2016,” Bloomberg writes, adding that “a slump in oil prices is supporting economists’ view that the ECB is unlikely to veer from its accommodative policy stance as it struggles to achieve its inflation goal of just under 2 percent.”

  

  “So many sub-zero-yielding securities indicate that there is a belief that there is no real inflationary pressures evident yet, and the ECB will remain ready to do more if required,” Cantor’s Owen Callan says. 

  Perhaps. But remember that at this point, each incremental purchase of EU govies (especially bunds) brings the ECB closer to the endgame wherein there are simply no more core EGBs to buy at which point it’s either purchase more from the periphery or move into riskier assets and with political turmoil playing out in Spain and Portugal, it’s not entirely clear what’s riskier: sub-sovereigns or PIIG debt. For those who need a reminder of just how scarce purchase-eligible core debt is becoming, here’s a helpful graphic from Citi:

  

  Of course everytime the ECB eases it effectively boxes itself in. That is, Draghi is “chasing his own tail”, as we documented here. So what’s a “New Normal” central planner to do? Buy corporates? Buy stocks? Or simply drop the depo rate floor altogether thus guaranteeing the central bank will lose even more money on its multi-trillion sovereign debt book?

  

  

  

  

  

• In New Audio Clip, ISIS Leader Baghdadi Threatens Israel, Says Group Not Phased By Russian Airstrikes

  Although ISIS releases nearly 40 pieces of propaganda each and every day via the group’s sprawling network of production units located in at least a dozen countries, one person you don’t hear from very often is TIME magazine’s runner-up for “person of the year”, Bakr al-Baghdadi. 

  The ISIS chief – who was once held in a US jail in Iraq – is notoriously reclusive and hasn’t been seen in public since last year’s speech in Mosul in which he declared himself caliph. On Saturday, Baghdadi has released a new audio clip in which he assures the world that neither the US nor Russia has weakened the group. He also threatens attacks on Israel.

  #BreakingNews Purported audio recording by ISIS leader Baghdadi says group has not been weakened by U.S. or Russia strikes

  — Al Arabiya English (@AlArabiya_Eng) December 26, 2015

  From Haaretz:

  ISIS commander Abu Bakr al-Baghdadi published a voice recording Saturday in which he threatened that Islamic State militants would attack Israel.

   

  “With the help of Allah, We are getting closer to you every day,” al-Baghdadi told his Israeli listeners. “The Israelis will soon see us in Palestine. This is no longer a war of the crusaders against us. The entire world is fighting us right now.” 

   

  The ISIS leader continued, “The Israelis thought that we forgot Palestine and that they had distracted us from it. That is not the case. We have not forgotten Palestine for one moment.”

  Part of ISIS leader Baghdadi words on Jews (Israel) and Palestine in newly released audio statement. pic.twitter.com/Cnu9RMC27Q

  — Israel Breaking (@IsraelBreaking) December 26, 2015

  And from The Jerusalem Post: 

  The audio message said air strikes by Russia and by a US-led coalition had failed to weaken the group.

   

  “Be confident that God will grant victory to those who worship him, and hear the good news that our state is doing well. The more intense the war against it, the purer it becomes and the tougher it gets,” Baghdadi added.  

   

  The tape was posted on Saturday on Twitter accounts that usually publish Islamic State statements.

   

  In May, ISIS issued an audio recording that it said was by Baghdadi, calling on supporters around the world to join the fight in Syria and Iraq or to take up arms wherever they live.

   

  In the May recording, issued by the group’s al-Furqan media outlet and posted on several websites, a voice sounding like Baghdadi’s says: “There is no excuse for any Muslim not to migrate to the Islamic State …”

   

  Joining (its fight) is a duty on every Muslim. We are calling on you either join or carry weapons (to fight) wherever you are.”

   

  Reuters and The Jerusalem Post could not independently verify the authenticity of the audio of the May or the Saturday recordings.

   

  In the May message, Baghdadi tells the rulers of Saudi Arabia that “their end is near”, adding that Gulf rulers felt threatened by the growing popularity of his group among Sunni Muslims.

  A bit of humor:

  It’s nice to be remembered.
  https://t.co/Ko15fyCFU6

  — Daniel Gordis (@DanielGordis) December 26, 2015

  And so, as Baghdadi’s soldiers are set to lose control of Ramadi, a key city in Iraq, the ISIS leader appears keen on reassuring the caliphate that all is indeed well. As The Telegraph notes, “he also called on Saudi citizens – the biggest contributor to Isil ranks – to “rise up” against their government as he dimissed the kingdom’s newly formed Muslim coalition against the caliphate.” He needn’t worry, Riyadh’s “coalition” is farcical given the kingdom’s penchant for promoting the exact same ideology as that espoused by Baghdadi. 

  But with Russia systematically dismantling the group’s oil trafficking network, and with the Iraqis on the move first in Ramadi, and perhaps soon in Mosul, Baghdadi’s declarations may well be a sign that the end draws nigh for a pet project that, until recently, was nutured by the US and its regional allies in Riyadh, Ankara, and Doha. 

  

  

  

  

  

• 140 Year Old Stock Streak In Jeopardy

  Via Dana Lyons' Tumblr,

  The U.S. stock market has not been lower for any year ending in a “5″ since 1875…that streak is in jeopardy.

  Just a fun one today: A year ago, we posted a chart showing the returns of the S&P 500 (S&P Composite before 1950) for years ending in “5″. As it turns out, the index has been positive the last 13 times during such years. The last negative year was 1875. Well, that streak is in jeopardy. Through yesterday, December 23, the S&P 500 was up 0.25%.

   

  

   

  So with a week to go in 2015, the pressure is on for this 140 year old streak. For those curious, the number to watch is 2058.90, i.e., last year’s closing price on the S&P 500.

  What is the takeaway? Nothing.

  *  *  *

  More from Dana Lyons, JLFMI and My401kPro.

  

  

  

  

  

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• Caught On Tape: Russian Fighter Jets Destroy Huge ISIS Oil Convoy In Transit To Turkey

  One month ago, after a farcial year-long campaign to “destroy” ISIS, which achieved absolutely nothing but made the Islamic State grow bigger and stronger, culminating with the numerous terrorist attacks in the month of November, former CIA deputy director Michael Morell told Charlie Rose on PBS that the reason the US had never actually gone after the lifeblood of the ISIS regime, its oil supply chain, infrastructure and products, was because “we didn’t want to do environmental damage, and we didn’t want to destroy that infrastructure.”

  In other words, the threat of a CO₂ emissions spike from bombarding a convoy of ISIS oil tanker trucks far outweighs the millions of dollars in funds it would bring and fund the teaching of hundreds of new terrorists how to blow themselves up in the middle of Paris.

  As to not “wanting” to destroy that infrastructure, one wonders why: was it because a down payment had been made by the “president” of NATO-member Turkey?

  Luckily as the clip below shows, the Russian military, which has had dramatic success in taking out not only the front end of ISIS (such as today’s elimination of the top “rebel leader” Zahran Alloush), but the all too critical back “infrastructure” end, has no such qualms.

  So much success, in fact, that the “terrorists”, as the Russian Ministry of Defense bluntly calls them, have been forced to deploy new oil trafficking routes to escape the Russian airstrikes.

  #SYRIA Terrorists changing logistics scheme laying new crude oil trafficking routes to escape Rus strikes pic.twitter.com/VnsWVzCZIo

  — ?????????? ?????? (@mod_russia) December 25, 2015

  So far, however, this is not helping, and while ISIS continues to transit as much oil as it possibly can to Turkey where it is subsequently processed and sold to the rest of the world, Russia is making sure that as little of this oil survives and can be monetized, incidentally something the US military should have been doing from day one and paradoxically, something it has yet to do.

  Here is a clip released by the Russian Ministry of Defense demonstrating the most severe attack yet by Russian fighter jets on a massive ISIS oil tanker convoy.

   

  And just in case it is still unclear where these trucks are headed, here is another clip showing ISIS oil trucks crossing the Syrian-Turkish border.

  

  

  

  

  

• What If Jesus Had Been Born 2,000 Years Later In The American Police State?

  Submitted by John Whitehead via The Rutherford Institute,

  “Two thousand years later … the memory of the revolutionary zealot who walked across Galilee gathering an army of disciples with the goal of establishing the Kingdom of God on earth, the magnetic preacher who defied the authority of the Temple priesthood in Jerusalem, the radical Jewish nationalist who challenged the Roman occupation and lost, has been almost completely lost to history.” ? Reza Aslan, religious scholar

  The Christmas narrative of a baby born in a manger is a familiar one.

  The Roman Empire, a police state in its own right, had ordered that a census be conducted. Joseph and his pregnant wife Mary traveled to the little town of Bethlehem so that they could be counted. There being no room for the couple at any of the inns, they stayed in a stable, where Mary gave birth to a baby boy. That boy, Jesus, would grow up to undermine the political and religious establishment of his day and was eventually crucified as a warning to others not to challenge the powers-that-be.

  But what if Jesus, the revered preacher, teacher, radical and prophet, had been born 2,000 years later? How would Jesus’ life have been different had he be born and raised in the American police state?

  Consider the following if you will.

  Had Jesus been born in the year 2015…

  Rather than traveling to Bethlehem for a census, Jesus’ parents would have been mailed a 28-page American Community Survey, a mandatory government questionnaire documenting their habits, household inhabitants, work schedule, and even how many toilets were in their home, etc. The penalty for not responding to this invasive survey would have resulted in a fine of $5,000.

  Instead of being born in a manger, Jesus might have been born at home. Rather than wise men and shepherds bringing gifts, however, the baby’s parents might have been forced to ward off visits from state social workers intent on prosecuting them for the home birth. One couple in Washington had all three of their children removed after social services objected to the two youngest being birthed in an unassisted home delivery.

  Had Jesus been born in a hospital, his blood and DNA would have been taken and entered into a government biobank without his parents’ knowledge or consent. While most states require newborn screening, a growing number are indefinitely holding onto that genetic material long-term for research, analysis and purposes yet to be disclosed.

  Then again, had his parents been undocumented immigrants, they and the newborn baby might have been shuffled to a profit-driven, private detention center for illegals. There’s quite a lot of money to be made from imprisoning immigrants, especially when taxpayers are footing the bill.

  Once in school, Jesus would have been drilled in lessons of compliance and obedience to government authorities, all the while learning little about his own rights. And if he dared to challenge school officials, he might have found himself suspended under a school zero tolerance policy that punishes minor infractions (such as doodling or talking in class) as harshly as more serious offenses (such as bringing a weapon to class).

  According to scripture, Jesus, at the age of twelve, wandered the temple courts in Jerusalem alone and unsupervised. Today, had Jesus disappeared for a few hours let alone days, his parents would have been handcuffed, arrested and jailed for parental negligence. Parents across the country have been arrested for far less “offenses” such as allowing their children to walk to the park unaccompanied and play in their front yard alone.

  Rather than disappearing from the history books from his early teenaged years to adulthood, Jesus’ movements and personal data—including his biometrics—would have been documented, tracked, monitored and filed by governmental agencies and corporations such as Google and Microsoft. Incredibly, 95 percent of school districts share their student records with outside companies contracted to manage the data.

  If Jesus were to ever make contact with the likes of John the Baptist, he would have been flagged for surveillance because of his association with a prominent activist, peaceful or otherwise. Since 9/11, the FBI has actively carried out surveillance and intelligence-gathering operations on a broad range of activist groups, from animal rights groups to poverty relief and anti-war organizations.

  Rather than being permitted to live as an itinerant preacher, Jesus might have found himself threatened with arrest for daring to live off the grid or sleeping outside. In fact, the number of cities that have resorted to criminalizing homelessness by enacting bans on camping, sleeping in vehicles, loitering and begging in public has doubled in recent years.

  Had his travels taken him from community to community, Jesus might have been reported to government officials as “suspicious” under the Department of Homeland Security’s “See Something, Say Something” programs. Many states, including New York, are providing individuals with phone apps that allow them to take photos of suspicious activity and report them to their state Intelligence Center, where they are reviewed and forwarded to law-enforcement agencies.

  Perceived as a dissident and a potential threat to the government’s power, Jesus might have had government spies planted among his followers in order to monitor his activities, report on his movements, and entrap him into breaking the law.

  Jesus’ anti-government views would certainly have resulted in him being labeled a domestic extremist. Law enforcement agencies are being trained to recognize signs of anti-government extremism during interactions with potential extremists who share a “belief in the approaching collapse of government and the economy.”

  Assuming Jesus used the internet to spread his radical message of peace and love, he might have found his blog posts infiltrated by government spies attempting to undermine his integrity, discredit him or plant incriminating information online about him. At the very least, he would have had his website hacked and his email monitored.

  Had Jesus attempted to feed large crowds of people, he would have been threatened with arrest for violating various ordinances prohibiting the distribution of food without a permit. Florida officials arrested a 90-year-old man for feeding the homeless on a public beach.

  Had Jesus spoken publicly about his 40 days in the desert and his conversations with the devil, he might have been labeled mentally ill and detained in a psych ward against his will for a mandatory involuntary psychiatric hold with no access to family or friends. One Virginia man was arrested, strip searched, handcuffed to a table, diagnosed as having “mental health issues,” and locked up for five days in a mental health facility against his will apparently because of his slurred speech and unsteady gait.

  Without a doubt, had Jesus attempted to overturn tables in a Jewish temple and raged against the materialism of religious institutions, he would have been charged with a hate crime. Currently, 45 states and the federal government have hate crime laws on the books.

  Rather than having armed guards capture Jesus in a public place, government officials would have ordered that a SWAT team carry out a raid on Jesus and his followers, complete with flash-bang grenades and military equipment. There are upwards of 80,000 such SWAT team raids carried out every year, many on unsuspecting Americans who have no defense against such government invaders, even when such raids are done in error.

  Instead of being detained by Roman guards, Jesus might have been made to “disappear” into a secret government detention center where he would have been interrogated, tortured and subjected to all manner of abuses. Chicago police “disappeared” more than 7,000 people into a secret, off-the-books interrogation warehouse at Homan Square.

  Charged with treason and labeled a domestic terrorist, Jesus might have been sentenced to a life-term in a private prison where he would have been forced to provide slave labor for corporations or put to death by way of the electric chair or a lethal mixture of drugs.

  Either way, as I make clear in my book Battlefield America: The War on the American People, whether Jesus had been born in our modern age or his own, he still would have died at the hands of a police state.

  

  

  

  

  

• Pennsylvania, Illinois Usher In The New Year With Record Budget Impasses

  We’ve written quite a bit this year about the fiscal crises unfolding among America’s state and local governments. Illinois became something of a poster child for the problem when, in May, the state Supreme Court struck down a pension reform bid, triggering a Moody’s downgrade for Chicago.

  After that, the situation in Springfield worsened materially and before you knew it, the state was paying out lottery winnings in IOUs and missing hundreds of millions in pension payments. 

  The Illinois high court decision effectively set a precedent. “My reaction was, ‘Yeah, that’s going to play here,’ “ John D. McGinnis, a lawmaker in Pennsylvania, told The New York Times back in May. As the Times went on to note, Pennsylvania “has been diverting money from its pension system, setting the stage for a crisis as more and more public workers retire.”

  “The judiciary in Pennsylvania has been solidly of the belief that there are ‘implicit contracts,’ and you can’t deviate from them,” McGinnis said. “If lawmakers in Harrisburg were to unilaterally cut pensions now, they could be taken to court and be dealt a stinging rebuke, like their counterparts in Illinois.”

  Those comments underscore the extent to which Illinois is not alone in struggling to deal with fiscal mismanagement.

  Indeed, Pennsylvania just broke a record for longest budget impasse in state history. “The current impasse is dragging on as Democratic Governor Tom Wolf and the Republican-led legislature can’t agree on a spending plan for the year that began in July,” Bloomberg said earlier this week, adding that “the delay is threatening Pennsylvania’s credit rating and has investors demanding higher yields on its debt.”

  

  For his part, Wolf blames the evil Republicans. “A historic compromise budget that included the largest increase in education funding in history, reforms in public pensions, and a reduction in the deficit was within reach,” Wolf said on Wednesday, referencing the Senate’s move to shelve a complete spending bill in favor of kind of half-measure that included less funding for schools. “It is deeply disappointing that today the Senate has caved to those same House leaders and extreme interests to continue the failed status quo and harm our schools and children by denying them these critical additional funds.”

  Wolf is alluding to the fact that, in a replay of what we’ve seen in Chicago, the partisan stalemate is beginning to threaten the state’s schools. As we pointed out back in August, Pennsylvania schools started the year “minus $1 billion” in funds.

  

  “Tensions in Harrisburg have ratcheted up as warnings from nonprofits and schools that have gone without funding hit a new level,” WSJ wrote on Wednesday. “The head of the Philadelphia public school system, the nation’s eighth largest with 134,000 students, said this month that schools could begin to cancel classes on Jan. 29 if the budget impasse isn’t resolved.”

  The Senate defended their “unexpected” move to pass the bill which contains less education funding by contending that it was the quickest way to get the ball rolling. “We were being the grown-ups in the room,” Jennifer Kocher, a spokeswoman for Republican Senate Majority Leader Jake Corman, said. “We wanted to get funding out for the schools and this was the fastest way to get something to the governor’s desk.”

  Wolf says the Republicans just wanted to go home and sit by the Christmas tree: “It seems that the Republican legislature is intent on continuing the Harrisburg status quo and getting out of town to go on vacation.”

  Meanwhile, Illinois’ long-running impasse is creating a particularly perilous situation for the state’s notoriously underfunded pension system. “Only one other state, Illinois, has failed to pass a budget for the 2015-2016 fiscal year,” WSJ continues. “There, Republican Gov. Bruce Rauner is pushing for curbs to public-sector unions as a condition to raise taxes to meet a projected $5 billion budget shortfall.”

  Illinois pension debt totals some $111 billion of pension debt which breaks down to $8,000 per resident. Or, visually: 

  

  

  

  In October, Comptroller Leslie Geissler Munger announced that the state would “postpone” a $560 million retirement-fund payment next month, and could make the December contribution late. “The delay on the budget is definitely delaying anything being done about the pensions,” Dan Solender, head of municipals at Lord Abbett &amp; Co. in Jersey City, New Jersey, which manages $17 billion of local debt, including Illinois general-obligation bonds told The Chicago Tribune. “The longer you wait to try to catch up on funding, the worse the situation gets.” Here’s more: 

  It’s been seven months since the Illinois Supreme Court rejected the state’s solution. Justices threw out the 2013 restructuring that took six attempts over 16 months to pass, despite one-party rule at the time. The measure was projected to save $145 billion over 30 years by limiting cost-of-living adjustments and raising the retirement age.

  
  

  Illinois enters 2016 snarled in partisan bickering as Gov. Bruce Rauner, the state’s first Republican chief executive in 12 years, and the Democrat-controlled legislature can’t agree on annual appropriations, much less an overhaul of a retirement system that must withstand an inevitable legal challenge. The state constitution bans reducing worker retirement benefits.

  
  

  Illinois is set to pay about $7.5 billion to pensions this fiscal year, and another $7.8 billion in the year that starts July 1, according to the Civic Federation, citing preliminary estimates by the retirements systems.

  
  

  Even with the record budget impasse, about one of every $5 from the state’s general fund coffers is going toward pensions, according to a Civic Federation report that cites estimates from Illinois Senate Democrats published on Aug. 13. The state’s four plans are only 42 percent funded based on the market value of assets, according to the Commission on Government Forecasting and Accountability. That compares to 60 percent a decade earlier.

   

  The lack of a budget forced the state comptroller to delay a $560 million November payment to the state retirement system. Illinois’s unpaid bills totaled $7.6 billion as of Dec. 18, according to that office. The November retirement payment will be paid in the spring when the state has more revenue from income tax collections, according to the comptroller’s staff.

  And so, we see what happens with gross fiscal mismanagement meets petty partisan bickering. You’re reminded that all of this is complicated by the fact that public sector pension funds are allowed to use absurdly unrealistic return assumptions (i.e. discount rates) which means that the unfunded liabilities are probably orders of magnitude larger than what the official data shows. 

  Where Illinois and Pennsylvania go from here is an open question, but the sheer absurdity inherent in not having a budget for a fiscal year that started six months ago should be readily apparent to everyone and underscores how divisive American politics has become. Perhaps the good folks inside the Beltway need to start setting a better example because as anyone who follows politics is acutely aware, legislative gridlock is pervasive in Washington.

  

  

  

  

  

• Wall Street's Most Prominent Former Permabull Is Worried About Just One Number

  One upon a time, back in early 2012, David Rosenberg was a prominent bear and deflationist, while his nemesis, Wells Capital’s Jim Paulsen, was one of Wall Street’s biggest equity bulls. The confrontation between the two culminated with a January 2012 article explaining “What (If Anything) The Bulls Are Seeing.“

  Since then, Rsoenberg infamously flip-flopped to bullish (predicting incorrectly that wages would rise and TSY prices would tumble), while Jim Paulsen, almost exactly a year ago, threw in the permabull towel and warned on January 10 of 2015 that “stocks are massively overvalued.”

  Paulsen laid out his skepticism in the following 8 bullet points:

  • First, the valuations of U.S. stocks are much higher today than widely perceived or as suggested by the valuation of the popular S&P 500 Index. Moreover, today’s valuation extreme is not limited only to a subset of stock market sectors but rather is very widespread whereby nearly all P/E multiple percentiles are at or close to post-war records. Finally, the current valuation extreme is not the result of poor performance from a single valuation metric. U.S. stocks are broadly and richly priced compared to earnings, cash flows, and book values.
  • Second, because valuation dispersion is relatively low today, there are not many areas to hide from overvaluation. In 1973 or 2000, investors could reduce extraordinary valuation risk by simply diversifying away from the Nifty Fifty or new era tech stocks. Today, because values are both high and tight, lessening valuation risk may not be possible except by allocating away from U.S. stocks.
  • Third, this valuation extreme has only recently materialized. Charts 2, 3, and 4 show that until 2014, although median stock valuations were relatively high, they were not at the acute or record highs they are at today. Indeed, the current excessive valuation profile is a product of this recovery cycle. The median U.S. stock began this bull market below 12 times earnings in 2009. In the last five years, however, the median P/E multiple has risen by about two-thirds to slightly more than 20 times earnings. It is important for investors to fully appreciate just how much this bull market has already elevated the valuation landscape.
  • Fourth, is the current widespread valuation extreme more dangerous than a concentrated extreme simply because concentrated extremes tend to be more obvious and eye-catching? When the Nifty Fifty or dot-com stocks exploded to outlandish P/E multiples, most investors realized the stock market was getting a bit frothy. Today, even though a larger portion of the overall stock market is aggressively priced, it has not garnered nearly as much attention. A concentrated valuation extreme tends to loudly announce itself whereas a broad-based valuation extreme seems more stealth and, therefore, perhaps more dangerous.
  • Fifth, how important have record low bond yields and a zero short-term interest rate throughout this recovery been in producing the contemporary broad-based stock market valuation extreme? And, how will this highly valued stock market react should U.S. interest rates soon finally start to rise? Many believe since interest rates are so low today, they could rise for some time before negatively impacting the stock market. However, what if today’s widespread extraordinary valuations actually make the stock market much more sensitive to interest rates?
  • Sixth, historically when the valuation of the median NYSE stock has been as high as it is today (e.g., from Chart 2 consider 1962, 1969, 1998, 2000, 2005, and 2007), the overall stock market has usually either suffered an outright bear market (i.e., in 1962, 1969, 2000-2001, and 2007-2008) or a correction (i.e., in 1998). Only in 2005, from a similar median stock valuation, did the overall stock market avoid a correction or bear market until 2008. At a minimum, this historic record suggests investors should proceed with greater caution.
  • Seventh, the current valuation profile of the U.S. stock market argues in favor of S&P-like indexation. When the stock market is characterized by a concentrated valuation extreme (like during the early 1970s Nifty Fifty or the late 1990s dotcom eras), investors are best served by avoiding indexation. Often, however, during such stock market manias, investors become frustrated by being unable to match the strong advance in the S&P 500 Index and ultimately are enticed to simply index. For example, during the late 1990s, just as valuation risk became acute among the S&P 500 stocks, more and more investors piled into S&P 500 Index funds. Today, by contrast, some exposure to indexation seems reasonable. The S&P 500 Index may possess less valuation risk than does the median U.S. stock. While the median P/E in Chart 2 is at a post-war high, the S&P 500 market-cap weighted P/E multiple is still far from an extreme.
  • Eighth, overweighting international stocks may be an approach to diversify away from the widespread valuation extreme evident in the U.S. stock market. Perhaps international stock markets also are highly valued today. However, since most have significantly underperformed the U.S. stock market in recent years, international markets are far less extended on a valuation basis.

  To his credit, Paulson was right in 2012 (even if for all the wrong centrally-planned reasons), and he was right again this past January: as of this moment the S&P is lower then where it was when Paulsen decided to no longer be an unconditional permabull.

  However, if valuations were stretched at the beginning of 2015, they are literally off the charts now that both revenues and earnings have posted annual declines, suggesting the median market multiple is now even more stretched than it was a year ago.

  So now that the 1 year anniversary of Paulsen’s cautious – and accurate – forecast is almost upon us, is the Wells strategist back to bullish mode, or is he even more cautious?

  The answer, according to this latest letter, depends on just one number: 5%, the so-called “full employment” threshold. Paulsen says that “not only have stock returns proved much less robust once the unemployment rate has reached 5%, but sector leadership has also undergone a fairly radical change.”

  In the world of fiction, the most famous threshold may be that of 88 miles per hour. In the non-fictional world of economics and finance, however, an even more important threshold is that of 5% unemployment. At that moment everything changes.

  Jim Paulsen explains.

  During most of the post-war era, the economy was considered to be near full employment once the unemployment rate declined to between 4% to 5%. Reaching full employment marks an important shift in the economic cycle. Once slack in the economy is no longer excessive, further economic growth begins to pressure resource prices and other business costs, inflation risk increases, interest rates typically rise, and policy offi cials begin to lessen or reverse accommodation.

   

  Chart 1 illustrates the U.S. unemployment rate. Since 1948, the unemployment rate has been at or below 5% (i.e., at full employment) only about one-third of the time. Most of the sub-5% labor markets were either prior to the 1970s or since the mid-1990s. Many compare the contemporary era of low inflation and near-zero interest rates with the 1950s and as this Chart illustrates, a sub-5% unemployment rate during the balance of this recovery seems likely to be yet another similarity.

   

  

   

  Since the unemployment rate recently neared 5%, wage inflation has shown signs of quickening providing the underpinnings last week for the first Fed funds rate hike in this recovery. The contemporary recovery has seemingly reached full employment and if history is any guide, stock investors should be prepared for some key changes during the rest of this bull market.

   

  Full employment changes the stock market

   

  Exhibit 1 illustrates the performance of the overall U.S. stock market and its individual sectors during the post-war era when the unemployment rate was above 5% compared to when full employment was reached. The data for this comparison and the sector indexes (the defi nitions of the sectors are shown in Exhibit 2) are from the extensive Kenneth R. French data library. It has market capitalization weighted indexes which include all U.S. stocks on the NYSE, AMEX, and NASDAQ since 1948.

   

  The charts in Exhibit 1 are based on average annualized total returns derived from all monthly data since 1948 comparing returns when the unemployment rate was above 5% to returns when the unemployment rate was 5% or less. Chart 1 shows that nearly every stock sector (except energy stocks) posts significantly lower returns once full employment is reached compared to when the unemployment rate is above 5%. Indeed, the annualized return of the overall stock market is 50% lower once full employment is reached and many sectors (e.g., Chems, Shops, Durable, Other, and NoDur) produce returns which are only about one-third of what they are when the unemployment rate is above 5%.

   

  Chart 2 illustrates that full employment brings new challenges for the stock market. Continued economic growth typically produces cost-push pressures eroding profit margins and infl ation and interest rates usually begin to rise. Although full employment does not necessarily end a bull market, as Chart 2 shows, it does tend to signifi cantly lower future stock returns.

   

  

   

  Charts 3 and 4 illustrate that full employment also typically brings a leadership change in the stock market. Chart 4 ranks the annualized sector returns in the post-war era when the economy was at less than full employment while Chart 3 shows the ranked sector returns once full employment is reached. Several points are noteworthy. First, before the economy reaches full employment, returns across the stock market are much higher compared to when the economy is at full employment. Overall, the annualized U.S. stock market total return averaged about 15% when the economy was at less than full employment compared to only about 7% once full employment is reached.

   

  

   

  Second, the dispersion of sector returns within the stock market widens considerably once the economy reaches full employment. Before full employment, the stock market sector return diff erential is only 4.27% (i.e., from Chart 4 the difference in annualized returns between the best performing sector NoDur and the worst sector Utils is 4.27%). However, the sector return differential widens considerably to 9.31% once the economy operates at full employment. When the unemployment rate is above 5%, the most important investment theme is to be overweight the stock market. Individual sector or stock picking is less important (because sector/individual stock return dispersion is low) compared to the overall asset allocation decision. However, once at full employment, sector or stock picking prowess becomes much more important. Return dispersion tends to widen improving the potential to add signifi cant alpha from sector/individual stock selections.

   

  

   

  Finally, the stock market has usually experienced a significant leadership shift once the economy reaches full employment. Chart 4 shows when the economy is at less than full employment it has been led mostly by consumer sectors (e.g., NoDur, Shops, Durbl, and Hlth). Conversely, at full employment, the stock market has been led more by industrial sectors (e.g., Enrgy, BusEq, and Manuf). While the leadership change is not perfect (e.g., historically, Hlth does well in both environments), Nondur and Durbl are among the best performing at less than full employment and the worst performing at full employment. Likewise, while Energy is among the worst performing at less than full employment it is the best performer once full employment is reached.

  Paulsen’s conclusion: “Historically, reaching full employment has proved highly significant for stock investors. In the post-war era, once a 5% unemployment rate is reached, both the character and the performance of the U.S. stock market have been altered. While reaching full employment does not necessarily suggest an imminent end to the current bull market, it does suggest investors should anticipate significantly smaller future returns. Moreover, it has often led to much wider return dispersions favoring stock pickers over asset allocators, and finally, it has typically produced a major leadership change away from consumer toward industrial sectors.”

  Will he be right? The only way to be sure is if Rosenberg issues another lenghty missive dismissing everything said above.

  

  

  

  

  

• The Christmas Spirit Of Staring Into Screens Together

  Relatives Gather From Across The Country To Stare Into Screens Together

  Turning on the television while unpacking tablets, iPhones, and laptops from their suitcases, members of the McPherson family communed from across the nation this holiday season for several straight days of staring into electronic screens while in the same room together, sources confirmed Friday.

  “Nothing puts me in the Christmas spirit more than sitting down on the couch with my parents and siblings, turning on the TV, and then proceeding to either look at the screen or gaze down into my glowing tablet display for hours on end,” 28-year-old Andrew McPherson told reporters, adding that he always felt most connected to his relatives when they were both silently gazing into glowing screens of some kind.

  

  “It’s just great to get home for a while and spend some quality time not speaking a single word to my relatives, whether that’s by sipping hot cocoa with my sister while we both check our emails, or by gathering the whole clan for a nice holiday meal where everyone is fixedly looking down at the text messages on their phones—’tis the season, you know?”

  McPherson noted he was sad, however, that Grandpa Sam would not be there to stare into screens with them this year.

  Source: The Onion

  

  

  

  

  

• Read The Letter That Turned Folk Icon Pete Seeger Into An FBI Target

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  All government, in its essence, is a conspiracy against the superior man: its one permanent object is to oppress him and cripple him… The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is very apt to spread discontent among those who are.

   

  The notion that a radical is one who hates his country is naïve and usually idiotic. He is, more likely, one who likes his country more than the rest of us, and is thus more disturbed than the rest of us when he sees it debauched. He is not a bad citizen turning to crime; he is a good citizen driven to despair.

   

  – H.L. Mencken

  At 23-years old, Pete Seeger was an Army Private anxiously awaiting the opportunity to be deployed to fight fascism in the midst of World War II, when he became outraged by injustice in his own backyard. As such, he wrote the following letter to the California chapter of the American Legion:

  Dear Sirs –

   

  I felt shocked, outraged, and disgusted to read that the California American Legion voted to 1) deport all Japanese after the war, citizen or not, 2) Bar all Japanese descendants from citizenship!!

   

  We, who may have to give our lives in this great struggle—we’re fighting precisely to free the world of such Hitlerism, such narrow jingoism.

   

  If you deport Japanese, why not Germans, Italians, Rumanians, Hungarians, and Bulgarians?

   

  If you bar from citizenship descendants of Japanese, why not descendants of English? After all, we once fought with them too.

   

  America is great and strong as she is because we have so far been a haven to all oppressed.

   

  I felt sick at heart to read of this matter.

   

  Yours truly,

   

  Pvt. Peter Seeger

  I am writing also to the Los Angeles Times.

  For this thoughtful expression of his First Amendment rights, Pete Seeger ended up on an FBI watch-list; a place he would remain for the next thirty years. Following a Freedom of Information Act request, we now have access to his shocking 1,800 page file (well most of it, with the exception of 90 pages which are apparently still too embarrassing for public consumption).

  Mother Jones reports:

  From the 1940s through the early 1970s, the US government spied on singer-songwriter Pete Seeger because of his political views and associations. According to documents in Seeger’s extensive FBI file—which runs to nearly 1,800 pages (with 90 pages withheld) and was obtained by Mother Jones under the Freedom of Information Act—the bureau’s initial interest in Seeger was triggered in 1943 after Seeger, as an Army private, wrote a letter protesting a proposal to deport all Japanese American citizens and residents when World War II ended.

   

  Seeger, a champion of folk music and progressive causes—and the writer, performer, or promoter of now-classic songs, including as “If I Had a Hammer,” “Where Have All the Flowers Gone?,” Turn! Turn! Turn!,” “Kisses Sweeter Than Wine,” “Goodnight, Irene,” and “This Land Is Your Land”—was a member of the Communist Party for several years in the 1940s, as he subsequently acknowledged. (He later said he should have left earlier.) His FBI file shows that Seeger, who died in early 2014, was for decades hounded by the FBI, which kept trying to tie him to the Communist Party, and the first investigation in the file illustrates the absurd excesses of the paranoid security establishment of that era.

  “Absurd excesses.” Kind of reminds me of another era.

  In July 1942, Seeger was drafted into the Army. (“I was almost glad when I heard from my draft board,” he later wrote in a diary.) He was assigned to be trained as an aviation mechanic at Keesler Field in Mississippi. While in the Army, he kept up with the news, and in the fall of 1942, Seeger, who was then 23 years old, wrote a letter of protest to the California chapter of the American Legion.

   

  How did the American Legion respond? It forwarded Seeger’s note to the FBI in San Francisco. And somehow this matter was brought to the attention of the Military Intelligence Service of the War Department. Within weeks, military intelligence was investigating Seeger—and soon updating the FBI on its effort. The official “reason for investigation,” as numerous military reports forwarded to the FBI noted, was that “Subject wrote letter protesting and criticizing the California American Legion’s resolution advocating deportation of all Japanese, citizens or not, after the war, and barring all Japanese descendants from citizenship.”

   

  Seeger had become a target merely because he had objected to mass deportations. The secret investigation coincided with the completion of Seeger’s training as an aviation mechanic. He expected to be deployed to active duty. But while he was under investigation, those orders never came. He watched the rest of his training class be sent to airfields, but he stayed put. At first, he wasn’t sure why. He was frustrated.

   

  The report concluded that Seeger was “an idealist whose devotion to radical ideologies is such as to make his loyalty to the United States under all circumstances questionable.” Seeger, this memo claimed, was “potentially subversive.” The document was sent to J. Edgar Hoover, the director of the FBI.

   

  Another military intelligence report concluded that Seeger’s “Communistic sypmpathies.…and his numerous Communist and otherwise undesirable friends” rendered him “unfit for a position of trust or reliability.” A third report said Seeger is “intensely loyal at this time. He is eager to join the battle actively against Fascism, and is applying himself to improve his military and technical knowledge to be of greatest service.” But it added that if the Communist Party line shifted against the war, Seeger could be susceptible to “potential subversion.” This report also focused on his love for Toshi Ohta: “While this relationship appears on a high plane, this Officer believes it to be unorthodox and one which might lead to divided loyalty in the event this country’s treatment of the Japanese were not in accord with the views of himself or the woman he expects to marry.” It went on to point out that “as an entertainer, his songs have been colored subtly toward idealistic classlessness.” And this memo concluded, “Despite [Seeger’s] intelligence and desire to apply himself to the destruction of the enemy, this officer believes that enemy to be Fascism and not necessarily any enemy of the United States.” That is, Seeger was more loyal to an abstraction than his country. The recommendation: that he remain under surveillance as a “potentially subversive” person.

   

  After the war, Seeger remained an FBI target. It was a time of communist hunting. Confidential informants had fingered Seeger as a party member or sympathizer, and throughout the 1950s the FBI generated hundreds of reports on Seeger. The bureau closely tracked his musical performances and his appearances at political events. It monitored his associations with groups and persons suspected of being linked to or controlled by the Communist Party. FBI agents called his booking agency and pretended to be people who wanted to arrange a Seeger performance in order to collect information on his travels within the United States and overseas. The burgeoning folk music world overlapped with the progressive movement (which the bureau saw as riddled with and dominated by commies) and Seeger was at the nexus.

   

  In 1955, Seeger was called before the House Committee on Un-American Activities. Asked if he was a communist, Seeger defiantly replied, “I am not going to answer any questions as to my associations, my philosophical or religious beliefs or my political beliefs or how I voted in any election or any of these private affairs. I think these are very improper questions for any American to be asked.” He did not plead the Fifth Amendment. He took a stand, telling the committee, “I would be very glad to tell you my life, if you want to hear of it.” He added, “If you want to question me about any songs…I will be glad to tell what songs I have ever sung, because singing is my business.” Seeger told the committee, “I have sung for Americans of every political persuasion…I have sung in hobo jungles, and I have sung for the Rockefellers.”

   

  The congressmen running the commie-hunting committee were not pleased. In 1957, Seeger was cited for contempt of Congress for not answering the questions about his political associations. Four years later, after much legal wrangling, he was found guilty after a three-day trial. Seeger was sentenced to a year in prison. He remained free on bail, and a year later, the conviction was overturned when a federal appeals court determined the original indictment had been defective. After that, the Justice Department dropped the case.

  So the legal system set him free, yet the intelligence establishment did the following.

  Seeger’s FBI files indicate the FBI actively monitored the contempt case against Seeger. Its agents stayed in contact with the prosecutors handling the case, as the bureau kept gathering information on Seeger’s connections to progressive organizations—civil liberties and civil rights  outfits, peace groups, pro-labor entities, and the like—that it deemed subversive. It closely watched his use of his passport.

   

  After the contempt case concluded, the FBI remained on the Seeger beat. When the folk singer traveled abroad, according to a 1963 FBI note from Hoover to the State Department, the bureau  notified the CIA and asked for any information it might obtain on Seeger overseas. At one point, when Seeger played a series of concerts in Hawaii in 1963, the FBI collected information on the shows, noting that an audience member from an “avowedly anti-Communist organization” had reported to the bureau that Seeger had sung a song that was “low keyed propaganda to the effect that America is a land of conformity” and also played a song from Japan about nuclear bombs.

   

  FBI surveillance of Seeger continued into the early 1970s. A 1971 FBI report listing evidence of his “CP Sympathy” noted that Seeger had entertained at a benefit concert for three soldiers who had refused to serve in Vietnam because they believed the war there was illegal, immoral, and unjust. Also, it pointed out that he had raised money at a Los Angeles concert for a group called Southern Californians to Abolish the House Committee for Un-American Activities. A 1972 FBI memo reported that Seeger “has manifested a revolutionary ideology.” The message: He still needed watching.

  Of course, none of this should be the least bit surprising to anyone who has followed the FBI throughout its history, including modern day witch-hunts, such as the targeting of late internet prodigy Aaron Swartz.

  Importantly, the FBI isn’t always on the wrong side of history by accident, it is a reflection of the fact that the organization is little more than an enforcement arm of the status quo, as opposed to a protector of the people.

  Here are just a few examples I’ve covered in the past:

  The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack

  FBI Moves to Broaden Hacking Authority – Google Says it Poses “Monumental Constitutional Concern”

  FBI Documents Show Plot to Kill Occupy Leaders If “Deemed Necessary” – Yet Details Are Kept From the Public…Why?

  The Full Letter Written by the FBI to Martin Luther King Has Been Revealed

  

   

  

  

  

  

  

• Russia Kills Top Rebel Leader Zahran Alloush In Airstrike Near Damascus

  A suspected Russian airstrike east of Damascus has killed Jaysh al Islam chief Zahran Alloush, Retuers reports.

  According to the London-based Syrian Observatory of Human Rights (so, according to Rami Abdulrahman’s on the ground sources), five other commanders were also killed when Moscow’s warplanes targeted one of the group’s meetings in Eastern Ghouta, the site of the infamous chemical attack of 2013 that nearly resulted in the launch of a US air campaign against the Assad government.

  

  Unconfirmed reports that Alloush’s deputy and spokesperson were also killed in the #RuAF air raid in East Ghouta

  — Hassan Ridha (@sayed_ridha) December 25, 2015

  This, allegedly, is footage of the strike:

  Alloush, the son of Saudi-based Salafist cleric Abdallah Alloush, commands an army of thousands and as Reuters notes, “has been effectively running the administration of Eastern Ghouta.” He was suspected in the 2013 kidnapping of Razan Zaitouneh, an award-winning Syrian human-rights activist, charges he denies. Alloush’s soldiers have fought ISIS in Ghouta and Qalamoun among other places. 

  Earlier this month, he granted an interview to The Daily Beast. Here are some excerpts which should give you some idea of where Jaysh al Islam stands vis-a-vis the hodgepodge of rebels, militants, and extremists fighting for control of the country:

  TDB: In one of your prior interviews, you said that you do not have any differences with Jabhat al Nusra, the al Qaeda franchise in Syria. You said that your Sharia adviser does not disagree with the Sharia adviser of al Nusra. Does that mean that you have no ideological differences with al Qaeda?

   

  ZA: Back then, I was referring to Abu Maria al-Qahtani, one of [al Nusra’s] Sharia advisers. We saw that Qahtani was showing a moderate face and we wanted to encourage those efforts. Now al Nusra has different Sharia advisers, and ours have many disagreements with them, ideologically and intellectually.

   

  TDB: How is your relationship with Ahrar al-Sham, the powerful Salafist rebel group in Syria? Why were you excluded from its new coalition against Assad called the Army of Conquest?

   

  ZA: Jaysh al-Islam stands alongside Ahrar al-Sham and all revolutionary forces that fight Assad and refuses ISIS’s takfiri mentality. You should ask them this question. We have heard that one component of the army which has ties with ISIS is the one that lobbied against us.

   

  TDB: Do you apply Sharia law in the areas you control? What are your views on democracy and the future of Syria?

   

  ZA: Jaysh al-Islam does not intervene in the judiciary body in our areas. We have representatives in the judiciary councils. The judiciary councils include many sheikhs and jurists who represent the diversity of our community. We believe in the rule of institutions.

   

  When I criticized democracy, I was referring to the manipulation of people through lies covered by attractive colors. The democracy of Assad, the pluralism of the Baath, and the Islamism of ISIS are a few examples. The Western double standards are also applied to democracy. While democracy is used to serve people’s interests in the West, democracy is manipulated in our countries to bring villains to rule as agents for outside powers.  We believe that the future of Syria after Assad should be governed by a technocratic body which has the skills and the qualifications. We do not believe that Syria should be ruled by sectarian or partisan rule, but by a technocratic body that represent the diversity of the Syrian people. We do not see ourselves as Islamic. We are Muslims.

   

  TDB: Unlike many areas of Syria, ISIS was not able to recruit or control any area in Ghouta. Why is that?

   

  ZA: Although most of the people in our area are conservative, they aren’t radical. We have many Muslim scholars who belong to civic and moderate schools of religion. People of Ghouta are fortified from radicalization due to these facts. The West intervened after ISIS took control of Mosul in Iraq. We fought ISIS early on when we discovered their deviation from Islam and the danger they pose to our revolution and people. The West knows well that Jaysh al-Islam and other revolutionary forces are not terrorist, but the wish to reproduce the regime may affect its designation policy.

  According to Joshua Landis, Oklahoma University’s Director for the Center of Mid-East Studies, Alloush’s ideology calls for the eradication of Shiites and Alawites:

  This is an anti-Shiite tirade and “bring-back-the-Umayyad-Empire” propaganda piece. It shows how sectarian Alloush is. He refers to Shiites, and reduces the Nusayris into this grouping, as “Majous”, or crypto-Iranians. “Majous” is the old term for pre-Islamic Persians or Zoroastrians. Arab Christians use the term in Christmas carols about the Magi, or “three kings from the Orient” (or east) who come to pay homage to Jesus—Magi are Persians or Easterners. Here it is an Islamic term of abuse meant to suggest that Alawites and Iranians not only have the wrong religion but also the wrong ethnicity—they are not Arabs, but crypto-Iranians. The term Majous is used in many rebel videos to refer to the Assad regime—”al-nizam al-majousi”—or simply to refer to Shiites (or Alawites) generally. It demonstrates how demonized the Alawites are in the propaganda of the new Islamic Front.

   

  Zahran calls for cleansing Damascus of all Shiites and Nusayris. (“Nusayris” is the old term that referred to the Alawites prior to the adoption of “Alawite.” It is considered a term of abuse by Alawites. 

  The “tirade” to which Landis refers can be found in the following video:

  #Reminder; In 2013 ‘Moderate’ rebel leader Zahran Alloush threatened a #sectarian genocide against #Shia muslims pic.twitter.com/IV4QY4GNPI

  — Mojtaba Ali (@MojAliMasood) December 25, 2015

  On a lighter note, Alloush is also known for a viral video which appears to depict him preaching in full military garb with a Hello Kitty notepad lying on the desk in front of him:

  

  Syrian state media has confirmed his death of and says several other group members were also killed in the strike.According to al-Arabiya TV, ten rockets hit the compound. 

  Jaysh al Islam was invited to attend a Saudi-brokered opposition summit in Riyadh earlier this month, where rebel leaders were set to discuss a common position from which they could seek to bring about a change of government in Damascus.

  In short, Moscow has just eliminated a powerful and exceptionally influential figure who, although he has fought ISIS and apparently now has ideological differences with al-Nusra, was violently anti-Shiite and anti-Alawite. In other words: this is a major blow for the opposition and an important symbolic and strategic victory for Assad. We close with one last exchange from the Daily Beast interview excerpted above:

  TDB: Is the Russian air force targeting Jaysh al-Islam? And will you cooperate with Russia if it restricts its targets to ISIS?

   

  ZA: Russia bombed Jaysh al-Islam positions for a time, and then stopped.

  

  

  

  

  

• The Number Of Young Adults Living With Their Parents Has Never Been Higher (But It Could Be Worse)

  Back in 2012, the bullish thesis for US housing (the one everyone was hoping for, instead of the fake housing “recovery” driven by the parking of dirty foreign oligarch money in NYC triplexes aka the new Swiss bank account, the private equity distressed rental property bid, and bank subsidies courtesy of the delay in the foreclosure pipeline) was that all those millions of young Americans aged 18-34 would finally move out of their parents’ houses and start households of their own.

  We mocked the idea for one simple reason: those very Millennials, who as everyone now knows can’t find any well paying jobs and have zero job security and on whose back the housing recovery was supposed to take place, couldn’t afford rent let along to buy a house, and as such would be stuck living in their parents’ basements well into their 30’s, if not 40’s, and why not forever.

  Three years after 2012, Goldman has finally admitted that all the talk about a major exodus of your Americans from parental houses and into the harsh crony capitalist world, was nothing but hot air.

  As the chart below shows, the share of 18-34-year-olds living with their parents has never been higher:

  

  The Share of 18-34 Year Olds Living with Parents is 4 pp Higher than Historical Averages

  This is how Goldman’s economist team, which three years ago was among the biggest proponents of the now completely debunked “outward migration” thesis, tries to unveil this all too unpleasant finding:

  The share of young people living with their parents increased 4 percentage points (or 3 million individuals) from 2006 to 2012 and has not declined recently despite a much better job market.

  Funny how they snuck that part about a “much better job market.” Dear crack Goldman economic team: here is where your “much better job market” comes from.

  

   

  And since the ivory towers of your 200 West headquarters do not allow you to visit the world of the mere mortals, let us clue you in on a big secret: one can’t buy – or rent – anything on minimum wage, the same wages which the “booming” sectors of the US job market are getting. In fact, it is precisely due to the abysmal jobs market for young people (those 55 and over have nothing to worry about) which, together with millions of young Americans raking in tens of thousands of dollars in unrepayable college loans, is precisely what is forcing so many young men and women to pay rent to their mom and dad.

  Ok, but this is Goldman, surely it won’t simply admit it was wrong and move on? Of course not. It will instead create the biggest straw man we have ever seen. To wit:

  The share of young adults living with their parents has risen about 4 percentage points (or 3 million individuals) since house prices peaked in 2006. The share of “children in the basement” has not come down recently despite significant improvements seen in the job market (Exhibit 1). The higher youth at home rate has depressed household formation and housing demand. In today’s note we take an international perspective on the drivers and outlook for young adults living with their parents.

  In other words, yes – it’s bad… But if one looks at Europe, hey – it’s actually great! No really:

  We use Eurostat and US Census data to compare the rates of children living with parents in the United States and Western Europe. Exhibit 2 shows that there are large differences across countries in the share of young adults living with their parents. For instance, fewer than 20% of Finnish young adults live with their parents while more than 55% of their Italian counterparts do. The US share of youth living with parents is still relatively low in the international context. Among the 19 developed economies, only young adults from Finland, France, the United Kingdom or the Netherlands are less likely to live with their parents than young adults in the United States.

  

  The US Share of Youth Living with Parents is Relatively Low
  from a Global Perspective: Goldman Sachs

  In other words, when it comes to the US, it has never been worse, but don’t despair – at leas the US is not Italy where 60% of young adults spend every night with their parents. Yes, this is what now passes as Goldman economic analysis.

  But maybe, just maybe, if one ignores the structural and cyclical factors inherent to every other culture – something which makes any comparative analysis absolutely idiotic – the fact that the US rate is soaring has something to do with the abysmal and quite full of slack US labor market.

  Not at all, claims Goldman, which was wrong about everything so far, but is confident it will get this right.

  Consistent with our earlier work, a decomposition analysis suggests that underemployment alone cannot account for the increase in the rising living with parents share post-crisis. For example, Exhibit 5 shows that about ¾ of the rise in the share of 25-34 year olds living with parents can be explained by the higher stay at home rate among the underemployed. How much of the difference between pre- and post-crisis is cyclical vs. structural is difficult to say. In the past, we have found compelling evidence for cyclical factors. However, if cultural factors play an important role—as suggested by the international evidence—cyclical upturns could turn into structural shifts if living with parents becomes more socially acceptable over time.

  

  The Rise in the Share of Underemployed Living with Parents
  Explains ¾ of the Aggregate Rise in the Share Living with Parents

  In other words, please ignore the fundamental error in our hypothesis because soon it will be cool to live with your parents. “Just look at Italy.” This, again, is what passes for “analysis.”

  Finally, considering that the exodus of young Americans from the safe (and rent-free) cocoon of a parental basement and into the harsh reality of the US housing market is one of Goldman’s top catalysts for a bullish bet on US housing, does the Goldman economic team retract said outlook on this admission that it was just a little confused when making predictions which have now been exposed as a gaping error of judgment? Absolutely not:

  If most of the young adults currently living with their parents do not move out anytime soon, does it threaten our optimistic outlook for homebuilding? Not really. As we explained before, population growth alone is likely to contribute about 1 million households per year over the next few years. Population aging may add another 100k households per year as older individuals are more likely to live independently than younger individuals. Therefore, our baseline forecast of 1.1-1.2 million household formations—which should lead housing starts to 1.4-1.5 million assuming 300k annual demolitions—does not depend on many young adults moving out of their parents’ homes.

  So Goldman was wrong about about the whole “young people exiting basements” theory, but is confident this is not an issue because population growth – i.e., more young people ending up in their parents’ basements – and of course tens of thousands of Syrian refugees to add to household growth, will fix the first error by adding even more errors to it.  Sheer analytical brilliance.

  And we wondered where China got the just as brilliant idea to fix its housing market by forcefully uprooting 100 million farmers and transplanting them into China’s ghost cities, a plan which is brilliant… until one realizes that those 100 million farmers will promptly start a revolution once they find no jobs waiting for them in their brand new centrally-planned experiment habitat. Maybe they hired a Goldman consultant on retainer.

  At least there is no risk of US Millennials starting anything ever, let alone a revolution: America’s biggest generation is far too busy looking at its iSomething.

  

  

  

  

  

• These Are The Top 20 Companies By Market Cap Over The Past Decade

  There are many observations to be made about the dramatic shifts shown in the chart below which demonstrates the top 20 companies by market cap over the past decade, but what, to us, stands out the most are two things:

  1. after a decade of being either the world’s biggest or second largest market capitalized company, Exxon has tumbled to 5th spot, something it did not do even during the peak of the financial crisis; and
  2. after five years of being in the top spot, it is time for someone to finally dethrone the world’s most popular smartphone maker.

  

  

  

  

  

• Islam & The West – "Moving Towards A Head-On Collision"

  Submitted by Erico Matias Tavares via Sinclair & Co.,

  Kevin Hulbert is the Founder and President of XK Group, LLC. Prior to that, Mr. Hulbert held a variety of high-level jobs in the Central Intelligence Agency (CIA), becoming an expert on counterterrorism, counter proliferation, non-traditional operations, and covert action. He finished his career as Senior Advisor for Counterterrorism at the Federal Bureau of Investigation (FBI). As an accomplished senior leader in the Directorate of Operations at the CIA, he served around the world and worked with many foreign liaison partners, leading some of the most complex counterterrorism operations abroad. He holds an MBA degree from Georgetown University.

  E. Tavares: Kevin, thank you for being with us today. It is difficult to discuss terrorism these days without talking about Islam, or better put, how it is being used for certain political purposes. This has become a hot topic in the West, even featuring in US immigration and presidential debates.

  We recently watched a video clip from 1958 of Gamal Abdel Nasser, then President of Egypt, laughing with a large audience at the idea of forcing women to wear the hijab. In the decades that followed, this has become common practice in many Middle Eastern countries as stricter Muslim leaders rose to power. The once secular societies of Afghanistan and Iran have become just a footnote of history. In fact the more extreme versions of Islam now constitute its mainstream orthodox ideology.

  We in the West believe that the march towards secularism and freedom is inevitable, and yet for the most part the Muslim world is going the other way. What do you make of this?

  K. Hulbert: I think you are right, the march towards secularism and freedom is not inevitable. In fact, it’s problematic because we have a situation where every year the West becomes more secular, open, tolerant and liberal while many parts of the Muslim world, as you say, are going the other way. So it would seem that we might be moving towards a head-on collision of some sort.

  As to what I make of it, in most Muslim countries the majority of people are tolerant. They want to live in a more inclusive society and have a more liberal religious doctrine. The problem is that Islam seems to have been hijacked by a vocal minority of people who are prepared to use violence to advance their very intolerant and conservative version of Islam.

  ET: It appears that the spread of that version of Islam across the Middle East has two similar Islamist ideologies at the core: the Muslim Brotherhood out of Egypt and Wahhabism out of Saudi Arabia. They propose an Islamic version of society which in a sense is remarkably similar to fascism, regulating every aspect of people’s lives.

  Over the last decade our Western leaders have given space for that movement to expand as a consequence of taking out the most prominent secular leaders who had been fighting against it in the Arab world. The US State Department even endorsed the Muslim Brotherhood when it rose to power in Egypt after the Arab Spring. The West’s close business and political ties with Saudi Arabia are well documented (even if some prominent Western politicians have recently started to question the Saudis’ support of terrorism in public).

  Are we inadvertently helping to spread the most radical versions of Islam through our foreign interventions and policies? Do our leaders really understand what they are dealing with here?

  KH: That’s the million dollar question. There’s a lot of shared credit for bad policies that created bad outcomes both in the Western world and in the Muslim world. And yes, Saudi Arabia is more responsible than anyone for the spread of Wahhabism over the last couple of decades. As you know, that doctrine is considered to be the most conservative form of Islam. While the majority of their followers want to live peacefully with their families, you have a minority that don’t necessarily believe in these things.

  And so we have a conundrum in that while every conservative, Salafist, or Wahhabist is not a terrorist – and the vast majority aren’t –  But, on the other hand, we have had a lot of terrorist acts committed by guys who are self-proclaimed Muslims who invoke religion to justify their actions. This presents us with some challenges, I think, in the West.

  ET: Why then do we seem so keen to repeat the same mistakes in Syria? After seeing what happened in Iraq and Libya, it should be abundantly clear that the resulting power vacuum will likely be filled by radical Islamists, unless we are willing to put boots on the ground in large numbers. Instead, could we not use the war in Syria as an opportunity to shift policy towards a more constructive and sustainable strategy and dialogue across the Region?

  KH: You raise a very good point because our policies seem to have taken out more secular regimes in places like Iraq and Libya, and then these places morphed into very intolerant, conservative regimes where the rule of law and a lot of other things went by the wayside.

  One thing that many people don’t understand is that the conflict in Syria started as a very simple civil war. Many people were not content with the government of Bashar al Assad and the Alawites and emboldened by things they saw in the Arab Spring, rebelled against them, with the hope that they perhaps could change their own destiny. The Alawites after all only make up 10-15% of Syria’s population and yet they have ruled that country for decades.

  But now that situation has deteriorated into about five different wars:  You have the civil war that I just talked about, then you have the broader Shi’ite versus Sunni conflict, now you have Hezbollah drawn into the conflict via Iran, in the north you have the Kurds fighting the Islamic State and on top of all that you have Saudi Arabia which is very concerned about the expanding reach of Iran and so this has turned into a huge proxy war between Saudi-backed Sunni forces against Iranian-backed forces.  In short, it’s a mess and there are not any easy solutions. 

  ET: We know people who died on 9/11. The headquarters of our employer at the time were obliterated. The US government put the blame on Al Qaeda and spent hundreds of billions of dollars chasing them out of Afghanistan and Iraq, with the loss of many brave soldiers and countless civilians.

  So we were shocked to hear General Petraeus advocating this past summer that the US should be arming Al Qaeda to fight the Islamic State. As a former senior CIA operative, how did you react to that? Does this reveal a lack of strategic options on the ground in Syria? Or have we completely lost focus and objectivity in the war on terror?

  KH: That’s a good, but complicated question. I am not intimately familiar with General Petraeus’ comments and the context in which they were made so I really don’t feel comfortable commenting on them.

  But, I think his comments do possibly reflect a real lack of good options forcing us to choose between a bunch of less than perfect options.  It also reflects the fact that the US has a big reluctance to again deploy any sort of a “boots on the ground” type of approach to these conflicts, where you have a really slippery type of enemy, radical Muslim extremism, and no clear idea of what might constitute success. We definitely do not want to be in the business of nation building again.

  So, I think we are looking at different types of options and General Petraeus surfaced that one. He’s certainly no apologist for Al Qaeda and in fact there aren’t many people in the US who have done more than him in the fight against terrorists and extremism. He spent years of his life in harm’s way doing important work all over the Middle East.

  Again, I don’t know the context when he made that statement, but there’s that old saying that the enemy of my enemy is my friend.  

  ET: As a result of this radicalization, minorities across the Middle East are being persecuted, even annihilated in some regions. The president of the Europarliament recently stated that Christians are now the most persecuted group in the world. That is a stunning revelation. We are also seeing a new wave of anti-Semitism raging across Europe, largely as a result of Muslim immigration. What do you make of all of this?

  KH: This goes back to what we discussed earlier, the spread of Salafism, Wahhabism, the Muslim Brotherhood and so forth. This has led to a loss of tolerance all across the Muslim world. But again this is a perversion of Islam because the vast majority of Muslims believe in tolerance and history is full of examples of Muslim, Christian, and Jewish communities living together in peace.

  Islam has never condoned the killing of non-Muslims simply because they are not Muslim. Unfortunately you have some radicals that have perverted some verses of the Quran to justify their actions, but that is not right.

  I think everybody has to do a better job in confronting this sort of thing. Muslim countries in particular probably need to do a better job in promoting inclusiveness and tolerance, because this isn’t a concept that lands well when it’s an ideal thrust upon them by the West or the US. They also need to do a better job internally because the level of sectarian violence within some countries has nothing to do with the West. When you look at the Sunni on Shia violence, as well as Sunni on Christian violence, it is staggering.  So, yes, it’s a big issue.

  ET: You talked about the Middle East by we are dealing with that radicalization in the West. How can we counter this? France has finally decided to close radical mosques – up to 160, a shocking number – but in the digital age there is an abundance of internet and TV alternatives to promote a radical message. What will happen in the decades ahead to the West, moderate Muslims and lovers of freedom if we fail here?

  KH: You are right, this is a complicated issue because we in the West believe in freedom of religion and freedom of speech– but we don’t believe in terrorism and someone’s right to incite violence. We will have to confront these issues.

  Like I said, everybody is entitled to worship as they see fit. Most thinking people believe in freedom of religion. But, if a mosque, or madrassa or a website encourages a rejection of these ideals and is contrary to our laws and our constitutions then the West will have to stand up and defend themselves. And that’s a tricky balance because while we believe in free speech, that doesn’t mean you have the right to promote terrorism. Individual countries will have to draw that line as they see fit.

  ET: Speaking of individual countries, the San Bernadino shooters seem to have been radicalized in the US or at least despite living seemingly normal American lives. Are you aware of any radical mosques being shut down by the US government in order to stop the promotion of their ideology? It seems to us that the government is very reluctant even to use the word “radical Islam”…

  KH: I have not heard of any discussion of closing any mosques in the US. But, there are some efforts underway to address radicalization on line. For example, there was language introduced by Senator Feinstein in the 2016 Intelligence Authorization Act that would have required social media companies to report “any terrorist related activity on their sites”. That shockingly passed by an 8-0 vote – and I say “shockingly” because you don’t find many bipartisan things happening in the US Congress, so very little passes by a unanimous vote. But, then the proposed legislation got derailed when it came to a vote in the broader Congress because some social media companies and others spoke up to note that the language was very vague and the line was unclear as to what might constitute free speech and what might constitute terrorist activity. The sheer volume of social media postings also made people unsure of how to implement the proposed legislation and so, for now, the proposed legislation was withdrawn. 

  There is the recognition that we have a serious issue with radicalization on the internet and we need to do something to address it, but there is great debate on how to do it.  In the future, we are going to have to do something to confront this radicalization head-on. We cannot afford to cede this social media space to the Islamic State. 

  ET: Let’s go back to the Middle East. With Russia getting deeply involved in the Syrian conflict, on top of the skirmishes already taking place in the Ukraine, can this signal the start not of a new Cold War but of a full blown World War III? In the nuclear age great powers cannot face each other directly, but terrorism and proxy conflicts could be with us for many years. It is hard to see how anyone can emerge victorious here, especially as innocent civilians become the primary targets. Do you think we are at the start of a global conflict?

  KH: I don’t think that Syria will approach anything on the scale of a world war, even by proxy as you mentioned. That said, it is a conflict that will be with us for many years and it is probably going to get bigger. You may even see expanding theaters of conflict – whether that’s in Western Europe, the US, or parts of the Middle East. So it’s yes and no; it’s likely to become a bigger conflict, but not really something I’d characterize as on the scale of a world war.

  Interestingly, right after 9/11, former Director of the CIA James Wolsey compared the fight against Al Qaeda to World War IV. He referred to the Cold War as World War III and suggested that the next one would be fought against three enemies: Iran, the fascists of Iraq and Syria and Islamic elements like Al Qaeda. I thought that his characterization was pretty solid in describing that conflict, although I differ on it being called a world war.

  The short answer is that there will be a long twilight struggle and you can call it what you want, but it probably doesn’t rise to the level of engagement of World War II, for example.

  ET: So a more prolonged but less intensive conflict…

  KH: Exactly. There’s no silver bullet to this. You will not be able to eliminate terrorism by putting boots on the ground in Syria, or pacifying Afghanistan, or fixing Pakistan, or anything like that. It’s complicated.

  ET: Last question. You worked for the CIA for many years. What would have happened if you had used your personal email to, say, share sensitive information…?

  KH: Well, we had certain structures so that nobody could use personal emails to correspond with others in the Agency. So, that would have been impossible…

  ET: … But if that had been found out, would you still have a job?

  KH: Probably not…

  ET: Thanks again for being with us today and sharing your valuable insights. All the best and Happy Holidays!

  KH: Thank you, it was a pleasure.

  

  

  

  

  

• France Changes Constitution To Protect "Emergency" Police Powers From Court Challenges

  Back on September 11, Zero Hedge accurately predicted not only the terrorist events which unfolded in Paris on November 13, but also the resulting aftermath with uncanny accuracy.

  We said that “as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions thrown in for good effect” and we added that “since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.”

  It was provided exactly two months later. But it was the “fine print” in out forecast that was most troubling:

  … the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.

   

  … Certainly expect a version of Europe’s Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.

  All of this is coming true.

  First, just a few days after the November 13 terrorist attack The European Commission announced it had adopted a package of measures to strengthen control of firearms across the European Union and meant simply to make it “difficult to acquire firearms.”

  Second, as part of the sweeping “emergency powers” implemented by France in the aftermath of the Paris mass shootings, civil liberties were promptly trampled, giving the local authorities a carte blanche to arrest anyone with or without cause: as we said “it is sufficient is for someone, somewhere in the chain of command to suggest any one individual is a potential threat, and they will be promptly removed from society for an indefinite period of time. As such, French “civil rights” have completed a full cricle and are now back to the infamous “Law of Suspects” drafted originally by Maximilien Robespierre during the French Revolution.”

  Then, a few days later, Europe which clearly wasn’t letting this crisis go to waste, and certainly wasn’t wasting time, decided to quickly seize state border sovereignty by forcing EU members to submit to a Brussels-controlled standing border force, one which would act even if a government objects. As the FT said, “the move would arguably represent the biggest transfer of sovereignty since the creation of the single currency.”

  And now, in the latest incursion of personal liberty and privacy, the Socialist government of President François Hollande has proposed to amend the French constitution to allow authorities to strip some natural-born citizens of their nationality if they are convicted of terrorism, the WSJ reports.

  And the punchline is that just as expected, Europe’s Patriot Act has finally taken shape: according to a proposed amendment, the French state-of-emergency police powers, such as to conduct warrantless searches and order house arrests, will be unconditionally shieleded from court challenges.

  In other words, a handful of government bureaucrats will soon be above any and all legal “checks and balances“, and will be provided  absolute power to decide the fate of virtually any French citizen without due or any process. This is precisely what took place for decades in the Soviet Union, and why the west was so proud to provide its own citizens with those core civil rights which the soviets never enjoyed. And now it is the turn of the “democratic” western powers to unleash their own mini USSR on their citizens. You know, in the name of “preventing terrorism.”

  Some in France are appaled by this blatant trampling of the most basic of human rights:

  “Stripping citizenship from people born French—who have belonged to the national community since their birth—raises a substantial problem on a fundamental principle: the right of soil,” Justice Minister Christiane Taubira told a radio station in Algeria.

   

  On Wednesday, the government said its proposal to strip convicted terrorists of their French nationality would apply only to people with dual citizenship. Still, many French Muslims are also citizens of Algeria, Morocco and other North African countries.

   

  “We are creating two categories of citizens in our constitution,” said Patrick Weil, a prominent French historian and political scientist, warning the new amendment threatened “social cohesion.”

  No worries there: just look at the US which is nearly 15 years ahead of France – after adoping the Patriot Act, there has been no problems with “social cohesion” under Obama. Of course, one should probably exclude the now daily mass shootings, the record gun ownership, and the unprecedented polarization of society along race, gender, wealth, and ideology for that statement to be even remotely true.

  The WSJ adds that the changes, which parliament is expected to approve next year, are a measure of how the French state is adapting to the threat posed by Islamic State and other extremist groups. With a solid dose of sarcasm it also adds that the French state was founded on the ideals of liberty, equality and fraternity.

  The time has come to quickly and quietly sweep all those ideals under the rug.

  

  

  

  

  

• Pets Suck But Jewelry Rocks – The Best & Worst Gifts (And Gift-Givers) Of Christmas

  "Anyone who has studied microeconomics knows… that an income transfer, as opposed to a gift in-kind, gets you to a higher level of utility," but as WSJ reports, putting theory under the tree is another matter. After years of studying the economics of gift-giving, economists have found that some gifts are valued more highly than others, and that some gift-givers seem to be better than others…

   

  

  Pets appear to be the worst gifts. Travel, the best. The recipients of jewelry and computers seem pretty happy, too.

  They also analyzed the best and worst gift-givers.

  

  In fact, as The Wall Street Journal reports, economists’ arguments against presents have deep roots. Some evoke Adam Smith, who espoused rational self-interest, or Milton Friedman, who praised the efficiency of spending money on oneself.

  A 1993 paper, “The Deadweight Loss of Christmas,” gave the notion its first real academic ballast. The author, Joel Waldfogel, then at Yale University, calculated yuletide waste by asking 86 students to estimate the cost of presents they received. Average answer: $438.

   

  He asked how much they would have been willing to pay for the same gifts. Average answer: $313. Recipients valued gifts at 71.5 cents on the dollar, a significant economic inefficiency.

   

  Gifts, Mr. Waldfogel wrote, “leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash.”

  Since then, economists have enriched the Grinch school of economics.

  A 2009 Journal of Socio-Economics paper measured gifts across the holiday catalog, from books (which recipients valued at 74% of the amount spent) to footwear (92%) and kitchen gadgets (77%).

   

  “We find no evidence of significant welfare gains in any gift category,” the paper concluded, calling gifts a “considerable market failure.”

  Finally, some scholars have examined which relatives give the worst gifts, economically speaking.

  Two economists in 2012 surveyed German students on gifts from relatives and on perceived value.

   

  “The efficiency loss of Christmas presents,” they concluded, “is highest for gifts from grandparents.”

  *  *  *
  Bah Bloody Humbug!!

  

  

  

  

  

• Rand Paul's Festivus Airing Of Grievances Against Government Waste

  U.S. Senator Rand Paul today released a special ‘Festivus: Airing of Grievances for 2015’ edition of ‘The Waste Report,’ which is an ongoing project cataloguing egregious examples of waste within the U.S. government.

  The ‘Festivus: Airing of Grievances for 2015’ edition highlights over 30 examples of wasteful spending, misplaced priorities, and bad management in the federal government that have cost the taxpayer more than one billion dollars.

  

   

  Of the 31 examples amassed from the past year, a few high-points of the ‘The Waste Report’ include:

  • an $850,000 foreign made-for-TV cricket league in Afghanistan,
  • a $150,000 federal government agency yoga classes,
  • a $450,000 climate change video game,
  • a $250,000 trip for Pakistani children to attend Space Camp and Dollywood in the U.S., and
  • a $104 million subsidization for millionaires to live in public housing.

  Full Grievance Report below…

  Festivus Final

  

  

  

  

  

• Chinese State Firms' Debt Hits New All Time High, As Profits Tumble

  Overnight China’s finance ministry reported the latest data on state-owned firms profitability. At a cumulative CNY 2.04 trillion (or $316 billion) for the January-November period, this was another nearly double digit decline, or -9.5% from the year ago period, following a -9.8% drop for the 10 month period the month before.

  State-backed financial companies, which in China is redundant as all financial companies are state-backed, were responsible for roughly a third of the cumulative profit decline: excluding financial firms, combined revenues of state-owned firms fell 6.1% in the first 11 months from a year earlier to 40.7 trillion yuan, the ministry said.

  According to Reuters, companies in transportation, chemical and power sectors reported a rise in profit in the January-November period, while firms in oil, petrochemicals and building materials – or a vast majority of them – saw a drop in earnings. Firms in steel, coal and non-ferrous metal sectors continued to suffer losses.

  “The downward pressure on economic operations remains relatively big, although there are signs of warming up in some indicators,” the ministry said.

  This optimism is, however, entirely baseless and we are confident that Chinese corporate profitability is set to go from bad to even worse. The reason for that is that at current commodity prices and production, virtually all of China’s steel industry is loss-making, while over half of commodity companies with debt do not have the funds to make even one coupon payment.

  

  While the logical response to plunging profits would be for the government to enforce a strict discipline for excess capacity reduction, Beijing has been unwilling to do this, afraid of the outcome from the resulting surge in corporate defaults.

  As Credit Suisse notes, “although we have seen more default announcements since (including three SOEs) [the March 2014 first ever corporate default of Chaorisolar], both the number and magnitude of Chinese defaults are lower than one would expect (only seven this year) given the size of the corporate sector, Chinese debt market and scale of uneconomic production, particularly in basic material industries. Of 17 bond defaults since then, only four involved SOEs. In fact we only find three unresolved defaults (Tianwei, Yingli and Sinosteel), and of these only one (Tianwei) resulted in a closure of capacity.”

  CS’ conclusion is that China, like Japan back during its peak bubble days, is operating a policy of employment maximisation at the expense of profit maximisation, and therefore appears unwilling to shut down excess capacity. This assures a continued decline in profits.

  Meanwhile, as SOE profits continue to deteriorate at the expense of maximizing jobs and employment (recall the biggest threat facing China is a working class insurrection, or simply said, “lower and middle-class revolution”) debt at these same SOEs just hit a new record high: according to the same FinMin numbers, total SOE debt rose by CNY393 billion to CNY78.3 trillion, or over $12 trillion – well above 100% of total Chinese GDP.

  

  While hardly as dramatic as the unprecedented CNY5.9 trillion surge in September (duly noted in “Did Something Just Snap In China: Total SOE Debt Rises By $1 Trillion In One Month“), the trend of declining profits (and cash flows) coupled with debt rising to new record highs month after month, assures a head-on collision with financial reality which will leave many debtor and creditor casualties, both metaphorically and literally.

  The question, just like the main question involving the US stock market, is how much longer can this unsustainable divergence continue?

  

  

  

  

  

• "America's Equity Markets Are Broken" Yale CIO Admits "Rigged Markets" Hurt Individuals

  Authored by David Swensen (Yale CIO) and Jonathan Macey, Op-Ed via NYTimes.com,

  America's equity markets are broken. Individuals and institutions make transactions in rigged markets favoring short-term players. The root cause of the problem is that stocks trade on numerous venues, including 11 traditional exchanges and dozens of so-called dark pools that allow buyers and sellers to work out of the public eye. This market fragmentation allows high-frequency traders and exchanges to profit at the expense of long-term investors.

  Individual investors, trading through brokers like Charles Schwab, E-Trade and TD Ameritrade, suffer first as the brokers profit by hundreds of millions of dollars from selling their retail orders to high-frequency traders and again as those traders take advantage of the orders they bought.

  Market depth, critically important to investors who trade large blocks of securities, also suffers in the world of high-frequency traders. Startling evidence for the lack of robustness in today’s market comes from a 2013 Securities and Exchange Commission report that found order cancellation rates as high as 95 to 97 percent, a result of high-frequency traders’ playing their cat and mouse game. Market depth is an illusion that fades in the face of real buying and selling.

  Securities markets work best as a central clearinghouse where all buyers and sellers of stocks come together. Not so long ago, when the New York Stock Exchange and the Nasdaq operated as virtual monopolies, American equity markets were the envy of the world. Until 2000, Nasdaq was wholly owned by a nonprofit corporation; the New York Stock Exchange was nonprofit until 2006. To ensure that they would operate in the public interest, they were treated much like public utilities.

  The unfairness of trading markets became a subject of intense focus with the publication in 2014 of Michael Lewis’s book “Flash Boys: A Wall Street Revolt,” which describes the way these markets are rigged in favor of high-frequency traders. Fortunately, Mr. Lewis provides a hopeful ending, predicting that the book’s hero, a trader named Brad Katsuyama, would save the day by forming his own exchange to serve real investors.

  Mr. Lewis was right. Mr. Katsuyama’s company, IEX (in which Yale has a small indirect investment), has filed an application to become a national securities exchange. Exchanges are the key to price discovery — the determination of the true price of an asset — because the National Market System requires brokers to route trades to the exchange displaying the best price. Right now, brokers and their larger exchange competitors can ignore IEX and other regulated alternative trading platforms, even if they display the best prices.

  Its exchange competitors, which include the New York Stock Exchange, Nasdaq and BATS, cater to the interests of high-frequency traders, which typically provide more than 50 percent of all trading volume. In addition to trading fees, exchanges charge fees for high-speed proprietary data feeds that provide privileged access to market data.

  Exchanges advance the interests of traders by sponsoring esoteric order types, which for hard-to-understand reasons receive the approval of the S.E.C. An example is the New York Stock Exchange Day Intermarket Sweep Add Liquidity Only Order. Regular investors have no idea such an order type exists or what it means. Yet order types like these are essential to the dirty work of the high-frequency trader.

  High-frequency traders pay to locate their computer servers inside of exchanges’ order execution centers, where they get early access to trade information that they use to jump in front of — front run — other clients. These co-located computers detect orders to buy and sell on one exchange and then rapidly send cancellations and orders to other venues where their servers are also co-located. Does this sound like a fair system?

  IEX’s plan is to forgo the high profits earned by the major exchanges from selling speed advantages on the theory that they can make money more ethically by attracting long-term investors.

  Its strategy is simple. IEX will not allow traders to reap the benefits of speed, instead slowing down all participants by 350 microseconds. This prevents the front-running facilitated by exchanges, which has led to vigorous and vitriolic opposition from groups that profit from the current arrangement.

  An unholy alliance of exchanges (including the New York Stock Exchange, Nasdaq and BATS) and high-frequency traders like Citadel have petitioned the S.E.C. to reject IEX’s current application. In essence, the petitioners argue that it is consistent with commission rules for an exchange to sell certain customers an advantage over others, but IEX should not be allowed to remove these advantages.

  The New York Stock Exchange, Nasdaq and BATS seek to block IEX from competing, when they collectively own 10 of the 11 national stock exchanges. By creating (and receiving S.E.C. approval for) so many exchanges, the current infrastructure fragments the market without providing the benefits of real competition.

  Maybe IEX’s business model will work and maybe it won’t, but the S.E.C. should act in the public interest. Approval of IEX’s application will not fix America’s equity markets; it will make them less broken. The commission should not succumb to the special interests of competitors and their fellow travelers. It should approve IEX’s application and provide a real alternative for long-term investors.

  

  

  

  

  

• Ho Ho Hobama

  Happy Holidays…

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• Oil Bankruptcies Hit Highest Level Since Crisis And There's "More To Come", Fed Warns

  “Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now. 

  As Citi and others have noted – a year or so after we discussed the issue at length – uneconomic producers in the US are almost entirely dependent on capital markets for their continued survival. “The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow,” Citi wrote in September. Here’s a look at what the bank means:

  

  Of course this all worked out fine in an environment characterized by relatively high crude prices and ultra accommodative monetary policy. The cost of capital was low and yield-starved investors were forgiving, allowing the US oil patch to keeping drilling and pumping long after it should have been bankrupt. Now, the proverbial chickens have come home to roost. In the wake of the Fed hike, HY is rolling over and as UBS noted over the summer, “the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis; sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries.” As Bruce Richards, chief executive officer of Marathon Asset Management told Bloomberg last week, “the price of a barrel of oil could fall below $30 due to a “glut of supply,” and as many as a third of energy companies will default over the next three years.” 

  “This is the the worst non-recessionary year we’ve ever had for high yield,” Richards said. New York-based Marathon has added to short positions on energy bonds, he said.

  This week’s gains notwithstanding, and a likely misguided assumption about the impact the lifting of America’s crude export ban will have on WTI aside, the fundamentals here are a nightmare. Iraq is pumping at record levels, Iranian supply is set to ramp up starting next month, once sanctions are lifted, and OPEC is completely disjointed. Furthermore, producers are bumping up against the limits of how many jobs they can cut and how much capex can be slashed (ultimately, you have to retain enough human capital and capacity to remain operational). The takeaway: the bankruptcies are coming. 

  As the Dallas Fed notes in its latest quarterly energy outlook, bankruptcies in the space are now at their highest levels since the crisis and things look bleak going forward. Below, find excerpts from the report.

  *  *  *

  From The Dallas Fed

  West Texas Intermediate (WTI) crude oil prices have fallen around 23 percent so far in the fourth quarter. Expectations have shifted toward a weaker price outlook because sanctions against Iran are likely to be lifted in early 2016, the Organization of the Petroleum Exporting Countries (OPEC) has scrapped any pretense of a production ceiling, and U.S. production declines have slowed. Supply Glut Drives Oil Prices to 10-Year Lows The imbalance in global supply and demand has led oil prices to slump to levels last seen over 10 years ago. World petroleum production will exceed consumption by an average of 1.7 million barrels per day (mb/d) in 2015, according to December estimates by the Energy Information Administration (EIA). This excess supply is higher than during the Asian financial crisis and the Great Recession. OPEC supply has bloated markets with nearly 1 mb/d more this year than what the EIA initially predicted in November 2014. In 2016, global supply is expected to exceed demand by 0.6 mb/d on average (Chart 1). 

  

  At OPEC’s December meeting, the impending lifting of sanctions against Iran contributed to increasingly vocal dissonance within the cartel. The meeting ended in disarray, and oil ministers abandoned any pretense of a production ceiling for the first time in decades. A strong divide appeared to develop between Saudi Arabia and its Gulf allies on one hand and Iran and remaining OPEC members on the other. These divisions are driven by three underlying causes. First, there is strong disagreement on how to accommodate Iranian oil supply once sanctions are lifted as Saudi Arabia, Iraq and others seek to maintain market share. Second, heightened tensions in the Syrian conflict have deepened regional rivalries. Third, low oil prices affect member countries differently because of their different fiscal positions.1 These underlying causes will make any agreement on reinstating production ceilings or other coordinated action by OPEC unlikely in 2016. 

  Oil and gas sector bankruptcies have reached quarterly levels last seen in the Great Recession. Lower oil prices have taken a significant financial toll on U.S. oil and gas producers, in part because many face higher costs of production than their international counterparts do. At least nine U.S. oil and gas companies, accounting for more than $2 billion in debt, have filed for bankruptcy so far in the fourth quarter. If bankruptcies continue at this rate, more may follow in 2016. Upstream firms have also adjusted to low oil prices by slashing capital expenditures; spending is down 51 percent from fourth quarter 2014 to third quarter 2015 (Chart 5).

  

  *  *  * 

  As Goldman put it earlier this month, “…we reiterate our concern that ‘financial stress’ may prove too little too late to prevent the market from having to clear through “operational stress” with prices near cash costs to force production cuts, likely around $20/bbl.”

  

  

  

  

  

• 'Dear Santa' – An Activist Hedge Fund Manager Addresses St. Nick's "One Long Party"

  To: St Nicholas Enterprises

  From: Counting House Capital

  Dear Santa Claus,

  I am an activist investor in your company who has been infuriated for many years by your wilfully eccentric approach to capital allocation, pricing, brand strategy and supply chain management. Some of your devotees have urged me not to criticise your strategy in the season of goodwill, to which I reply: “Bah, humbug!”

  I have always regarded your recourse to fourth century philanthropy and wasteful use of working capital as characteristic of an entrenched founder whose energy has been devoted to delighting underage customers at great expense while ignoring all management discipline. You have displayed little interest in covering your cost of capital, let alone exceeding it.

  Life at St Nicholas is one long party. Free food for your elves, who receive generous compensation to make bespoke, non-standardised products. Presents offered to anyone who writes you a begging letter and has been “good” according to some vague metric. Jingle bells, rides in one-horse open sleighs, eggnog cocktails: Oh, what fun you have with my money.

  Your entire enterprise exists to supply presents one day a year, yet everyone is on the payroll for 365 days. You will not even extend your franchise to Black Friday, which is a blatant missed opportunity. Meanwhile, you insist on delivering down chimneys, ignoring the fact that only one segment of your target demographic lives in a house. What is wrong with doors?

  In short, St Nicholas is one of the least innovative companies I have ever encountered. It is as fat and happy as its chief executive, sticking religiously to an ageing business formula that exposes it to being disrupted. I know of several technology start-ups that are raising capital to create applications on which children could bid for presents that would be made by contract artisans and delivered by unicorns.
  Given your lack of research and development, I have consistently argued that any surplus capital should be returned to shareholders as one-off tax-efficient distribution close to the year end — on December 25, for example. You have ignored my requests, choosing to brighten up children’s lives at random, rather than rewarding investors whose interests are aligned.

  Since you are too busy to engage in constructive dialogue, I held discussions this year with other hedge funds. We devised a plan for a merger of your business with related companies, followed by a series of spin-offs and initial public offerings to create more focused corporations. The structure was approved by several investment banks and law firms that are paid by the deal.

  By combining St Nicholas, Walmart, Macy’s, WPP and Federal Express, and then splitting them up, we would create a set of vertical businesses in the gift making, fulfilment, merchandising and events spaces. They could license the Father Christmas brand and be incorporated in Lapland for tax purposes.

  Recently, however, I was visited at home by three ghostly analysts, bearing fundamental research into your business. They warned me that, although I base my investment model on dividends flowing into my counting house over three to five years, the intrinsic value of St Nicholas can only be grasped on a panoramic view of the past, present and yet-to-come.

  Santa, I have listened to many conference calls and seen many presentations, but none has struck me with the force of these insights. It is not an exaggeration to say that I have undergone a complete conversion in my view of St Nicholas. Warren Buffett advises investors to seek exceptional managers and I now see that few achieve your longevity.

  You embodied the new economy before the idea had been conceived. St Nicholas is a global business, receiving signals from far corners of the earth and delivering packets over an integrated network. It works at super-high speed, faster than broadband in South Korea, and knows no boundaries. The internet is antique by comparison.

  Your lack of interest in profitability struck the traditionalist in me as foolish but I have come to understand the virtues of reinvesting revenues over several centuries in order to dominate your market and entrench your monopoly.

  Jeff Bezos, your closest logistics competitor, has copied your tactics but, although Amazon crushes small shops, department stores and big box retailers, it cannot topple you.

  This has helped you to build the biggest social network in the world, putting Facebook to shame. Everyone includes your messages in cards and parents pretend the gifts they buy for their children come from you — you outsource many deliveries at zero cost. By combining a jolly presence with sophisticated viral marketing, you have expanded your reach everywhere.

  Since these revelations, there has been a spring in my step. Coca-Cola once used your image in advertising, prompting rumours that it had invented Father Christmas, but it has nothing to teach you about branding and consumer appeal. My investment in St Nicholas has even greater potential than Mr Buffett’s stake in Coke, and I intend to hold it in my portfolio indefinitely.

  It used to be cold, bleak, biting weather outside, but now it feels quite warm for the time of year.

  Merry Christmas to one and all,

  Ebenezer Scrooge

  *  *  *

  Originally posted at The FT

  

  

  

  

  

• "Unstoppable" California Gas Leak Now Being Called Worst Catastrophe Since BP Spill

  Since initially reporting on California's Alison Canyon gas leak, more details have emerged on the scale (and potential for no solution) of the problem as the infamous Erin Brockovich writes, "the enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping," as according to the California Air Resources Board, methane – a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide – has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now.

  New infrared footage exposes the massive leak..

   

  Infographic of leak (and potential solution)

  

   

  As TheAntiMedia.org's Claire Bernish details, methane gas continues spewing, unchecked, into the air over southern California from a fractured well to an underground storage site — at such an alarming rate that low-flying planes have necessarily been diverted by the FAA, lest internal combustion engines meet highly volatile gas and, well, blow the entire area to hell.  

  This is, indeed, the biggest environmental catastrophe since the BP Deepwater Horizon oil rig exploded in the Gulf of Mexico in 2010; and for now, there is no way to stop it.

  This methane disaster is worse than can be sufficiently described in words, because while it’s estimated well over 100,000 pounds of methane spew into the atmosphere every hour, the leak can’t be halted, at least until spring. Even then, that stoppage depends entirely on the efficacy of a proposed fix — which remains a dubiously open question.

  According to the California Air Resources Board, methane — a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide — has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. So far, the total leaked gas measures somewhere around 100,000 tons — adding “approximately one-quarter to the regular statewide methane emissions” during that same time frame.

  “The relative magnitude of emissions from the leak compared to other sources of methane in the State underscores the urgency of stopping the gas leak. This comes on top of any problems caused by odor and any potential impacts from exposure,” states the initial report on the Aliso leak by air quality officials.

  “The enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping. As the pressure from the weight on top of the pipe causes the gas to diffuse, it only continues to dissipate across a wider and wider area,” explained Erin Brockovich, who spent time in nearby Porter Ranch investigating the leak.

  Officials and experts are concerned, and they can’t recall another leak of this magnitude in decades — if ever. “I asked this question of our staff of 30 years,” said Steve Bohlen, who recently left his position as state supervisor of oil and gas. “This is unique in the last three or four decades. This is an unusual event, period.”

  Though methane, itself, has no odor, the addition of odorants methyl mercaptan and tetrahydrothiophene — a safety measure to alert people by smell to the presence of natural gas — has made the enormous methane seepage impossible to ignore. Thousands of households have evacuated the area, despite little help, much less information, from the gas company about when they might be able to return. As reported by the Los Angeles Times, SoCalGas spokesperson Michael Mizrahi claimed the company had paid to relocate and house 2,092 households — but that effort is severely lacking, says Los Angeles City Attorney Mike Feuer.

  Yesterday, the city attorney’s office sought a restraining order to mandate SoCalGas relocate residents in the affected area within 48 hours of their request; and it is also seeking a “special master” to oversee the entire relocation operation, which is currently being handled by the gas company. Not only does the present relocation lack speed and coordination, but a housing crunch has resulted in surrounding areas — in some cases landlords, who prefer year-long leases to shorter terms, have driven rent as high as $8,500 per month. Hotels are operating at capacity, and in “some of those hotel rooms there are not enough beds for the people who are being moved,” explained chief deputy to the city attorney, James P. Clark.

  “It’s time Porter Ranch residents had direct and complete answers about all facets of this leak,” Clark continued, “including what caused it, how to stop it, and what will be done to assure it never happens again. They should receive better, quicker, and completely adequate relocation assistance.”

  On Thursday, Los Angeles Unified School District board members voted unanimously to close two Porter Ranch schools and relocate their 1,900 students and staff to different locations for the foreseeable future. A local emergency has been declared by the Los Angeles County Board of Supervisors.

  Multiple lawsuits have now been initiated against SoCalGas and/or its parent company, Sempra Energy. A Los Angeles firm representing three of the families, who filed their suit Friday, described in a statement that the well has been “leaking noxious odors, hazardous gases, chemicals, pollutants, and contaminants due to a massive well failure and blowout. However, SoCalGas failed to inform residents of neighboring communities of the disastrous gas leak in a timely manner, putting the health and well-being of thousands of families in jeopardy.” Those suits allege “negligence, strict liability of ultra-hazardous activity, private nuisance, inverse condemnation, and trespass.”

  A class-action lawsuit has also been filed on behalf of the Save Porter Ranch group; and City Attorney Mike Feuer filed a civil suit earlier this month due to the leak’s continued threat to residents’ health and damage to the environment, alleging failure by SoCalGas to prevent the leak and further exacerbation of “the effects of that failure by allowing the acute odor and health problems faced by the community to persist for more than one month, to say nothing about the indefinite time it will persist into the future,” state the court documents. “No community should have to endure what the residents of Porter Ranch have suffered from the gas company’s continued failure to stop that leak,” Feuer stated.

  SoCalGas insists there will be no long-term health effects resulting from the persistent leak; but as Brockovich pointed out, “no one really knows the potential long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas.” In an email to the Los Angeles Daily News, SoCalGas stated they were “providing air filters for people’s homes” and “have established a claims process for those who feel they may have suffered harm or injury. And our top priority remains stopping this leak as quickly and safely as possible.

  “While the odor added to the leaking gas can cause symptoms for some, the gas is not toxic and county health officials have said the leak does not pose a long-term health risk.”

  But what’s making this massive leak so difficult to stop pertains to the storage ‘container,’ itself. “We have the largest natural gas storage system in the world,” boasts Chris McGill, vice president of the American Gas Association. In the United States, old underground oil fields are often put to use as storage vessels for natural gas — because, hey, that geology worked just fine to hold oil for millions of years, so why not natural gas?

  In fact, there are some 300 such depleted subterranean oil fields being employed this way around the United States. Aliso Canyon, a natural gas storage site since the 1970s, has one of the largest capacities: 86 billion cubic feet. During the summer, gas earmarked for winter heating is pumped into these underground cavities by SoCalGas — and the process is reversed with the turn of the seasons. However, this year, workers encountered what quickly became evident was anything but a typical hiccup. As Wired reported:

  “On October 23, workers noticed the leak at a 40-year-old well in Aliso Canyon. Small leaks are routine, says Bohlen, and SoCalGas did what it routinely does: put fluid down the well to stop the leak and tinker with the well head. It didn’t work. The company tried it five more times, and the gas kept leaking. At this point, it was clear the leak was far from routine, and the problem was deeper underground.”

  Beginning December 4th, SoCalGas crews began drilling a relief well to intercept the fissured pipe. Cement will then be poured into both to seal the wells permanently. Of course, for this to work, crews must locate that original pipe, which is a mere seven inches in diameter, thousands of feet underground — without accidentally creating any sparks, whatsoever. Work near the leak site, therefore, has been prohibited after nightfall, when lighting equipment could potentially cause such a spark; though drilling for the relief well is situated far enough away to continue nonstop.

  Flaring, or setting a deliberate fire to burn off excess gas, simply isn’t an option. The mammoth scope of this leak means a flare would ultimately complicate matters even further.

  “There is no stone being left unturned to get this well closed,” Bohlen stated. “It’s our top priority.”

  In the meantime, it will be months without any possibility of halting this disaster-in-motion. Sickened, uprooted, and furious residents can rest assured, though, because even as methane spews nonstop into the air, SoCalGas did have this consolation:

  “We are deeply sorry for the frustration.”

  

  

  

  

  

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• US National Insecurity: The Art Of Blaming Russia (For Everything)

  Submitted by Daniel Spaulding via 21stCenturyWine.com,

  In American politics the nation of Russia, especially as personified in its leader Vladimir Putin, becomes all things to all men.

  To American leftists, Russia is a neo-fascist, violently nationalist country that ruthlessly suppressed minority groups, especially homosexuals. To the American Right, Putin is the second coming of Stalin who is working to subvert good old-fashioned American values around the world.

  In line with the latter narrative, a certain Christian Gomez recently published an article on The New American website, the flagship of the John Birch Society, supposedly revealing that the Russian government is the real power behind the ISIS terrorist group, as well as being behind the recent terrorist attacks in Paris. The source of this “revelation” is a single, alleged and unidentified ‘defector’ from the FSB, Russia’s security service, who spilled these supposed secrets on Ukrainian television, a mouthpiece for the Washington-backed Kiev coup-junta that never misses an opportunity to slander all things Russian.

  Such charges are absurd on their face; there is absolutely no evidence to hint, much less demonstrate, that Russian intelligence had any involvement in the formation of ISIS. Why Russia would want to support a terrorist entity that seeks to destabilize and overthrow its close and reliable ally, Bashar Assad of Syria, is never explained or analyzed by either the faux defector or his American champions at the John Birch Society.

  Indeed, even mainstream Western media sources no longer make serious attempts to hide the fact that America’s regional allies, and not Russia, are to be identified as the sources of ISIS development and support. Countries like Saudi Arabia, Turkey, and even Israel have all played a significant role in funding, arming, and enabling ISIS, Jahbat al-Nusra, and other similar jihadist factions in Iraq and Syria.

  
  Turkey has an awfully peculiar way of “fighting” ISIS (Image: RT)

  America itself is certainly in a far better position to be plastered with the charge of supporting ISIS. According to Washington’s own Defense Intelligence Agency, the American government knew from the beginning of its support for the “Arab Spring” in Syria that the violent insurgency against Bashar Assad was composed primarily of unsavory, vicious Islamist factions, including the Muslim Brotherhood and Al-Qaeda sympathizers, and even predicted these factions, if empowered, would seek to create a Salafist “principality.”

  Meanwhile, Russian president Vladimir Putin has been stalwart in his support for Bashar Assad, recently going as far to providing air cover to the Syrian military as it seeks to reclaim the country from ISIS and other terrorist brigades. An undertaking that has earned Putin even more irrational hatred from the Western media and political establishment, which cheers on jihadists as they pillage and plunder their way through Syria.

  So where did this preposterous charge against Russia originate? The faux defector that would smear Russia with responsibility for ISIS is obviously a pawn of Langley’s Ukrainian satraps, but his absurd conspiracy theory still finds fans in the West, especially among so-called American conservatives and ‘patriots’, since it fits in with a much older narrative, one stretching back to the Cold War.

  During the height of the Cold War, figures like W. Cleon Skousen, a former FBI agent and an associate of the John Birch Society, and the opportunistic Soviet KGB defector Anatoly Golitsyn propagated the narrative that the Soviet Union was not merely a geopolitical rival of the United States, but was fantastically successful in its quest to undermine American democracy and replace it with a communist society. Golitsyn and Cleon Skousen’s nephew, Joel Skousen, have gone as far as to claim the collapse of the Soviet Union was a clever ruse designed to lull America and the West into a false sense of security so that the “communist agenda” might continue, with no one the wiser.

  Coincidentally, this non-falsifiable conspiracy theory plays well to more fringe elements of the American “patriot” movement and many Christian dispensationalists, who see Russia as the Biblical ‘Gog and Magog’ set to devour their idol, the State of Israel. It also provides a convenient scapegoat for American conservatives who are unable or unwilling to see the real culprits behind the social chaos in their country – and that their country is the prime source of both geopolitical and cultural subversion abroad.

  Communist influence on American society and culture during the era of the Cold War shouldn’t be wholly discounted. In fact, the neo-Marxist Frankfurt School certainly left its mark, though often exaggerated, on the deconstruction of traditional institutions in the West. But often overlooked by anti-communist conspiracy theorists is the reality that cultural Bolsheviks like Herbert Marcuse and Theodor Adorno didn’t receive their marching orders from Moscow, a power which they disdained, but rather were assets of Western elites and their intelligence apparatus, particularly the U.S. Office of Strategic Services (OSS), the forerunner of the CIA. Nor did Bolshevism in the first part of the 20th century spawn indigenously from Russian soil, like Athena from the head of Zeus. Rather, the dictatorship of the proletariat was helped along in its ascendancy by oligarchs in New York and London.

  
  PROPAGANDA’S ROLE REVERSAL: “It’s only feigned reverence, obviously Neo-Soviet propaganda.”

  Furthermore, its impossible to find any evidence that Russia exerts any significant social, economic, or political influence on America, or is working toward turning America into the “socialist workers’ paradise”. On the contrary, whatever minor outreach that Russians have extended to America has actually been toward Christian conservatives wishing to preserve the traditional family and other social values.

  While neoconservatives and their useful idiots among the American “patriots” cynically dismiss President Putin as a Soviet retrograde and Tom Clancy villain, the Kremlin implements communist policies neither at home, nor abroad. On the other hand, Russian Orthodoxy has returned slowly but surely as a central part of Russian life, and Russian patriotism has no need for Marxist rhetoric about workers’ revolutions or the dictatorship of the proletariat.

  Instead of tired, CIA-fueled Cold War narratives and covers for liberal imperialism, perhaps sincere conservatives and ‘patriots’ in America should look to the Soviet dissident, Russian patriot, and devout Christian, Alexander Solzhenitsyn, a man far wiser than any ‘FSB defector’. Solzhenitsyn saw a positive, stabilizing role in Putin’s leadership as Russian culture and identity revived, and it was Solzhenitsyn who also saw that the “Euro-Atlantic alliance” was the engine of the “decline of Christian civilization.” Meanwhile, the West sinks further into its simulacrum Babylon, and its spiritually blind “defenders” will blame anyone but themselves.

  

  

  

  

  

• Exclusive: "And It's Gone… It's All Gone" – The One Gold Scandal That Goes To The Very Top

  Long before Turkey was flagrantly arming and funding the CIA-created “terrorist organization” known as ISIS, there was another, far more elaborate way in which Turkey was flaunting international sanctions against an ostracized state – in this case Iran – which involved an epic gold smuggling triangle of Hollywood-thriller proportions, all made possible thanks to the United Arab Emirate city of Dubai.

  Best known known for its luxury shopping, ultramodern architecture including the world’s tallest building, a lively nightlife scene, and a facade of openness and decorum, what Dubai is less known for is its unprecedented seedy underbelly of corruption and untouched criminality among the handful of billionaire oligarchs, princes, sheiks and sultans, who quietly dominate the local (and global) power and financial structure.

  But first, a little history.

  It may seem like a distant memory now, but just a few short years ago, instead of a close ally of Barack Obama, Iran was a pariah state subject to international financial sanctions due to its nuclear program development, one which Israel had repeatedly (and famously) threatened would attack preemptively to prevent Iran from obtaining a nuclear weapon.

  Iran, of course, had no choice but to find ways to keep its economy going, and in order to circumvent these sanctions, it resorted to the oldest form of trade known to man: gold.

  This, in itself, is not surprising. What is surprising is how and with whom Iran collaborated to breach the international embargo in order to obtain this valuable and much needed gold, which it could then barter with other countries – notably those along the Pacific Rim – in exchange for any and all needed products and services.

  A Reuters article from October 23, 2012 explained, in broad terms, just how Iran’s intricate smuggling operation worked.

  To see one of Iran’s financial lifelines at work, pay a visit to Istanbul’s Ataturk International Airport and find a gate for a flight to Dubai. Couriers carrying millions of dollars worth of gold bullion in their luggage have been flying from Istanbul to Dubai, where the gold is shipped on to Iran, according to industry sources with knowledge of the business.

   

  The sums involved are enormous. Official Turkish trade data suggests nearly $2 billion worth of gold was sent to Dubai on behalf of Iranian buyers in August. The shipments help Tehran manage its finances in the face of Western financial sanctions.

   

  The sanctions, imposed over Iran’s disputed nuclear program, have largely frozen it out of the global banking system, making it hard for it to conduct international money transfers. By using physical gold, Iran can continue to move its wealth across borders.

   

  “Every currency in the world has an identity, but gold means value without identity. The value is absolute wherever you go,” said a trader in Dubai with knowledge of the gold trade between Turkey and Iran.

   

  The identity of the ultimate destination of the gold in Iran is not known. But the scale of the operation through Dubai and its sudden growth suggest the Iranian government plays a role.

   

  The Dubai trader and other sources familiar with the business spoke to Reuters on condition of anonymity, because of the political and commercial sensitivity of the matter.

   

  Iran sells oil and gas to Turkey, with payments made to state Iranian institutions. U.S. and European banking sanctions ban payments in U.S. dollars or euros so Iran gets paid in Turkish lira. Lira are of limited value for buying goods on international markets but ideal for a gold buying spree in Turkey.

  So three years ago, Turkey was purchasing Iran oil and paying in gold. Now it is purchasing ISIS oil and paying in dollars, for the simple reason that there is no banking embargo against the Islamic State like there was against Iran in 2012. One almost wonders why the international community was far stricter with Iran than it is with ISIS now.

  Anyway, continuing on, we present: the Dubai connection.

  In March [of 2012] as the banking sanctions began to bite, Tehran sharply increased its purchases of gold bullion from Turkey, according to the Turkish government’s trade data. Direct gold exports to Iran from Turkey, long a major consumer and stockpiler of gold, hit $1.8 billion in July – equivalent to over a fifth of Turkey’s entire trade deficit in that month.

   

  In August, however, a sudden plunge in Turkey’s direct gold exports to Iran coincided with a leap in its sales of the precious metal to the UAE.

   

  Turkey exported a total $2.3 billion worth of gold in August, of which $2.1 billion was gold bullion. Just over $1.9 billion, about 36 metric tons, was sent to the UAE, latest available data from Turkey’s Statistics Office shows. In July Turkey exported only $7 million of gold to the UAE. At the same time Turkey’s direct gold exports to Iran, which had been fluctuating between $1.2 billion and about $1.8 billion each month since April, slumped to just $180 million in August.

   

  The Dubai-based trader said that from August, direct shipments to Iran were largely replaced by indirect ones through Dubai, apparently because Tehran wanted to avoid publicity.

   

  “The trade from Turkey directly to Iran has stopped because there was just too much publicity around it,” said the trader.

  However, instead of suddenly having a craving for Turkish gold, Dubai was merely a middleman which would then resell Turkey’s gold to Iran, in exchange for a very generous commission.

  Dealers, jewelers and analysts in Dubai said they had not noticed any large, sudden increase of supply in the local gold market during August. They said that suggested the increased shipments to the UAE were sent straight on to Iran.

   

  It is not clear how the gold is moved from Dubai to Iran, but there is substantial trade between the two economies, much of it conducted by wooden dhows and other ships crossing the Gulf, a distance of only about 150 kilometers (100 miles) at its narrowest point.

  And as everyone knows, what better way to “lose” gold at a moment’s notice than to be involved in an “unfortunate shipping accident”…

  A trader in Turkey said Tehran had shifted to indirect imports because the direct shipments were widely reported in Turkish and international media earlier this year. “Now on paper it looks like the gold is going to Dubai, not to Iran,” he said.

   

  Iranian gold buyers may want to conceal their Turkish gold deliveries for fear of attracting attention from the United States, which is pressing countries around the world to shrink their economic ties with Iran.

   

  The buyers may also want to make their purchases less vulnerable to any possible interference by Turkey’s government. Turkey’s close relationship with Iran has begun to sour as the two states find themselves on opposite sides of the civil war in Syria, with Turkey advocating the departure of President Bashar al-Assad and Iran remaining Assad’s staunchest regional ally.

  Fear not: if the Erdogan family was guaranteed, say 5% of the total transaction price, it would gladly close its eyes, even if it meant the Ayatollah singing lullabies and war chants to Assad in his bedroom.

  But why gold?

  Simple: while Iran’s banks had been locked out of SWIFT international money transfer system (until mid-2015 when Obama’s historic nuclear deal with Iran was announced and let Iran back into the global financial community), and commerce was virtually impossible in fiat currency terms, the UN sanctions did not prohibit most forms of trade. As a result there was no suggestion that the gold trade involving Dubai was violating international sanctions. In fact, the west tacitly encouraged, and Turkey latched on to this great source of trade arbitrage, and unbridled corruption with both hands. Reuters continued:

  Turkish trade data confirms the gold is being transported to Dubai by air. According to the data, $1.45 billion of Turkey’s total gold exports in August [2012] were shipped through the customs office at Ataturk airport’s passenger lounge. Almost all of the rest, $800 million, were shipped from Istanbul’s smaller Sabiha Gokcen airport.  Turkey’s total exports of all goods to the UAE totaled $2.2 billion in August. Of that amount, $1.19 billion were registered at the Ataturk passenger lounge, while $776 million were registered at Sabiha Gokcen.

  It was a golden free for all: “a customs broker who does business at Ataturk said couriers were boarding Turkish Airlines and Emirates flights to Dubai at the airport, carrying the metal in their hand luggage to avoid the risk of it getting lost or stolen.”

  The maximum amount of gold bullion which a passenger is allowed to take is 50 kilograms (110 pounds), he said. This suggests that during the month of August, as many as several hundred courier trips may have taken gold to Dubai on Iran’s behalf.

   

  “It is all legal, they declare it, they give their tax number and it is all registered so there is nothing illegal about this,” the broker said.

  The Reuters article cut off at the most important part: who were the people organizing the trade? “The trade data shows almost $1.4 billion worth of Turkey’s August exports to the UAE came from a company or companies with a tax number registered in the coastal city of Izmir, Turkey’s third biggest. Customs officials at Ataturk declined a Reuters request to provide documents identifying the exporters, saying the information was confidential. The identity of the companies handling the business could not be confirmed. Traders said that because of the risk of attracting unwelcome attention from U.S. authorities, only a few companies were likely to be willing to get involved.”

  Almost a year later, we found out just why the local authorities were so very cautious about identifying the people on the Turkish side behind this “perfectly legal trade”- it involved everyone from an Iranian billionaire, Riza Sarraf, to Turkey’s then economy minister, Zafer Caglayan, all the way to the very top, you guessed it, current president and then prime minister, Recep Tayyip Erdogan. A Bloomberg follow up piece from the summer of 2013 laid out all the key actors on the Turkish side:

  As the minister in charge of Turkey’s $800 billion economy in 2013, Zafer Caglayan was facing a series of numbers that didn’t bode well for coming elections. Inflation was up, growth was slowing and the lira was weakening.

   

  One key measure of financial health was particularly worrisome: the country was importing far more goods, services and capital than it was sending abroad. By October, when he was interviewed by a local CNBC affiliate, Caglayan described the gap as unsustainable and said the government would take steps to improve it.

   

  What he didn’t mention was a clandestine export-boosting operation started up more than a year before that was helping to solve the trade imbalance.

   

  At the time of the television appearance, it was still underway. Three weeks before, Caglayan had been secretly taped by national-police investigators telling his collaborators to find a way to increase exports by at least $1 billion a month. His orders came from the top in a two-hour meeting with Prime Minister Recep Tayyip Erdogan, he told an associate.

   

  The operation featured an Iranian-born businessman who liked fast horses, faster cars and the fastest planes. His unique skill: Getting gold into sanctions-encircled Iran. Enough gold that for a time he became the government’s key instrument in improving Turkey’s irksome economic imbalance.

   

  How a team that included Turkey’s economy minister sought to manage the current account deficit, as the gap is called, by juicing exports to Iran is laid out in a 300-page document prepared by Turkish investigators in 2013. Caglayan and his collaborators also came away with tens of millions of dollars in bribes, according to the document, which has been cited in parliament by opposition lawmakers.

  Caglayan resigned on Dec. 25 as economy minister after the investigation became public, is immune from prosecution as a member of parliament. Erdogan, whose bribes from this operations were in the hundreds of millions of dollars, did everything in his power as then-prime minister to kill the probe and decried the inquiry as an “attempted coup”, a card he has pulled every single time some political probe gets too close to his unprecedented financial crimes, which have a recurring pattern: sell goods and services to an organization isolated by the international community, and pocket tens or hundreds of millions in “commissions” and bribes in the process.

  Since then Erdogan has made Turkey his personal despotic fiefdom, and after serving as prime minister from 2003 to 2014, he was “elected” president in which role he serves to this day. There is not a soul in Turkey who poses any political threat to Erdogan, whose vast plundered financial fortune assures that the army would be on his side even in a military coup scenario.

  In any case, the spice, or rather gold, flowed. As Bloomberg confirmed in 2013, “the covert efforts that Caglayan and his associates undertook eventually swelled to a multi-billion dollar enterprise that reached from Ghana to China, according to the investigation. Tons of gold flowed from Turkey to Iran, much of it via Dubai. That freed up Iranian money trapped in Turkish banks, in turn boosting Turkish exports.

  When the gold trade was foiled by tightening American sanctions starting in July 2013, Sarraf and his collaborators kept exporting. They sent thousands of tons of overpriced — and sometimes fictitious — food onto ships steaming between Dubai and Iran, according to the document.”

  It was not just Erdogan and Caglayan who made a killing: “Smoothing out the complications of this shadowy and complex trade were bribes to Turkish government ministers: multimillion-dollar diamonds, and millions of dollars stuffed into suit bags, chocolate boxes and even shoe boxes, the investigation document says.”

  Meanwhile, the amounts of gold shipped from Turkey to Iran via Dubai were simply staggering:

  In an interview with television channel A Haber, Sarraf estimated he had facilitated the transfer of about $12 billion in gold — about 200 tons — to Iran. That represented “about 15 percent-15.5 percent of the current account deficit that I closed by myself,” he said. He didn’t say what period he was referencing.

   

  “There’s a serious benefit to the Turkish economy with profit that’s gone into state coffers,” he told the interviewer.

  Ultimately, this unprecedented in its vast scale and scope gold smuggling operation, which stretched as far as China, Moscow and Azerbaijan, faded: in July 2013 the U.S. added precious metals to the list of items that couldn’t be sold to Iran as part of an effort to curtail that country’s nuclear enrichment program.

  At that moment that Iran gold smuggling party for Turkey was over, and it was time to find a new foreign “trade” partner. A year later one emerged in the form of ISIS as has been documented here previously…

  * * *

  All of this has been publicly known so far. What follows is being reported for the first time.

  While in 2012 and 2013 the world’s attention was focused on Iran and Turkey, with both Reuters and Bloomberg scrambling to find the involved parties, nobody paid any attention to the key middle-man responsible for billions in smuggled gold, Dubai. And while the main Turkish actors and beneficiaries of this gold smuggling have been extensively documented, nothing at all has been written about any of the Dubai intermediaries who also made hundreds of millions, if not more, simply for facilitating the move of gold from point A to point B.

  Which is strange, because for anyone doing even a little cursory digging, the answer was there in broad daylight all along.

  Presenting Mohammed Abu-Alhaj: the key Dubai “connection” in the Turkey-Iran gold smuggling triangle.

  

   

  Who is Abu-Alhaj? A brief biography from his public profile:

  Mohammad has many years of vast experience in the finance and financial technology industry. He began his career establishing an e-commerce business in the United States followed by another e-commerce of a different trade. He then moved on to Dubai in the early 2000s to establish a brokerage firm. Following its success he was a major shareholder in its subsidiaries across the MENA region.

   

  Meanwhile he has set-up, directed and operated many entities in the online trading of financial products, and now gold and precious metals. Mohammad is very resourceful and possesses many highly qualified skills; he has developed innovative platforms for online trading, effective management and leading skills and he is thorough in analyzing problems and finding creative solutions.

   

  Mohammad’s latest accomplishment is the set-up of the Gold AE DMCC and its subsidiaries across the region, Switzerland and Africa, one of the first online trading entities for deliverable gold and silver, and Islamic dinars and dirhams in the United Arab Emirates.

   

  Presently, Mohammad is the Founder, Chairman and Managing Director of Gold AE. He is also the deputy Chairman and a board member of Abu Alhaj Holdings, registered in the Dubai International Financial Centre.

  What made Abu-Alhaj unique was his early fascination and interest in Turkey and its role in “physical deliverable gold” trading. A fascination which paid off in droves. Follow excerpts from article from Turkish newspaper Dunya…

  

  … ironically written on October 23, 2012, the same day as Reuters first exposed Turkey’s role in this epic gold smuggling triangle.

  Dubai businessmen connects Gulf investors with Turkey

   

  Mohammed Abu-Alhaj, vice chairman and chief executive officer of his Dubai-based family-owned Abu-Alhaj Holding, first visited Turkey as a tourist in 2004, and explored the economic possibilities of the country.

   

  “I saw stability had started to take hold in the nation. Turkey was a highly productive country. I was certain it would become among the top emerging markets for years to come,” the 40-year old businessmen reminisced in an interview in Istanbul on Saturday.

   

  Soon he acquired a Turkish brokerage house, Ikrisat Yatirim, through the Savings Deposits Insurance Fund (TMSF), a state banking receivership fund, for S15 million, and became one of the first Arab Investors in Turkey.

   

  In 2009, he sold the brokerage house to Dubai Holding. He then established in Istanbul’s Atasehir financial district the company Altin 24.com, an on-line gold trading company. Altin 24 serves as the Istanbul office of his regional gold commerce company Gold.AE. He also founded a store in Istanbul’s Covered Bazaar, the main gold and jewelry market of Turkey. Altin 24 provides full services in gold bullion and certificates trading for Turkish clients.

   

  Although he employs only nine persons in Turkey, his Altin 24 has already carried out $700 million in gold trading in the country.

   

  Istanbul and Dubai are the world’s two biggest centers for gold trade.

   

  Acting as bridge

   

  “I started to believe I could be a bridge between the Arab world, especially the six nation Gulf Cooperation Countries (GCC), and the Turkish market,” he said. “I resolved to help remove the obstacles preventing GCC oompanies from investing in the country.”

   

  He has been successful so far.

   

  Although once shy of secular Turkey, Arab investment has been pouring into Turkey since Prime Minister Recep Tayyip Erdogan’s moderately Islamist Justice and Development Party came to power a decade ago.

   

  * * *

   

  Mr. Abu-Alhaj’s father found Abu-Alhaj holding as a logistics company and then went into industry. The group, which he still runs with his five sons, now has investments in technical textiles, pharmaceuticals, agribusiness, real estate development, investment banking and tourism in seven nations: Dubai, Jordan, Kuwait, Saudi Arabia, Switzerland, Yemen and Turkey.

   

  A graduate of computer science and information technologies from Concordia University in Montreal, Quebec, Canada, he worked on Wall Street during the dot.com bubble that led to the collapse of hundreds of technology upstarts. He returned to his homeland to run the family business.

   

  Mr. Abu-Allhaj believes that the decision of Turkey’s Central Bank to allow depositors and banks to hold gold accounts has helped the country distance itself from the economic crises gripping the world.

   

  “Gold accounts will save the country from the crisis in international markets that will happen for sure” he asserted.

  He may be right about that, but it is everything else that has raised a red flag. Incidentally, those curious can read much more about Abu-Alhaj’s push into Turkey’s gold market in the Press section of his Gold.AE website.

  But just who is Gold Arab Emirate, or Gold AE, based out of Dubai? We ask because we – like most of our readers – had never heard of this company before. Perhaps the company’s biggest claim to fame was the first gold ATM it introduced in the Emirates back in 2010, to much media fanfare.

  

   

  Ok, so they make gold ATMs. What else? For the answer we go straight to the company’s website.

  Gold AE, Like Your Gold Bank

   

  Gold Arab Emirate, Gold AE is the first corporate entity in Middle East incorporated in Dubai – UAE, for E-Commerce of Gold & Silver bullion being its core commercial activity. Gold AE is conducting its operations under the commercial license # DMCC 30821, issued by Dubai Multi Commodities Centre (DMCC). DMCC is a Dubai Government’s initiative to monitor and facilitate the trading in precious metals.

   

  In addition to its presence in Dubai, it has branches in Abu Dhabi (UAE), Jordan, Turkey, Switzerland and affiliations in Qatar, Saudi Arabia and Egypt.

   

  Gold AE is led by an experienced team of seasoned bullion professionals which gives it a competitive advantage over contemporary firms in the market and gaining a remarkable reputation as an emerging market participant in the gold markets of the gulf. We are proud to provide investor friendly schemes in bullion investments through our highly valuable trading platform apart from providing international brands in bullion products on our E-shop at comparatively low cost.

   

  Gold AE is a subsidiary of M/s Gold Holding Ltd, a Dubai International Financial Centre (DIFC) based company. M/s Gold Holding Ltd. owns various trading entities involved in online bullion trading of physical gold and silver, gold mining and refining industries as well as entities serving the financial institutions for gold logistics. The Holding company professionally supports its subsidiaries with financing, operational business management and controlling activities. This includes market sectors such as gold industry, information technology, as well as financial investments.

  Notable is the website’s description of its executive management, which presents Abu-Alhaj as Chairman and Managing Director. Keep that in mind because it will be important shortly.

  

   

  But even more important, is the company’s description of itself as a subsidiary of Gold Holding Ltd. Who is Gold Holdings? Again, we go to the source:

  Gold Holding Limited is an investment holding company headquartered in Dubai and registered under the laws and regulations of the Dubai International Financial Centre. Gold Holding is a thriving group that is constantly seeking new companies to join its growing portfolio of precious metal and mining companies. It does however have stringent ethical values that mean its procurement methods are always of the highest moral standards and it is highly selective in where it chooses to operate.

  Basically, if Gold AE is the Turkey-focused trading front, Gold Holding is the mothership which deals with all major activities behind the scenes. This becomes immediately obvious when looking at the main shareholders and management team of the Holding company.

  Main Shareholders:

   

  – SBK Business Holding www.sbkholding.com
  – Sheik Sultan BIn Khalifa bin sultan Al-nahyan (Chairman)
  – Sheik Malek Hmood Alsabah (Vice Chairman)
  – Abu-alhaj Holding
  – Aruntani Sac

  Management:

   

  – Chairman: Sheik Sultan bin khalifah Al nahyan
  – Vice Chairman: Sheik Malek Hmood Alsabah
  – Managing Director: Mo Nico Consari
  – CEO: Andre Gauthier
  – CFO: Fahad Ayoob

  Please bear with us a few more minutes as we close all these semingly unconnected loops of ownership, because while most other names presented so far are largely meaningless, one name above stands out, that of Sheikh Sultan Bin Khalifa Bin Zayed Al Nahyan.

  Sultan is the advisor to the President of UAE, the eldest son of Khalifa Bin, President of the United Arab Emirates, Supreme Commander of the UAE Armed Forces, and Ruler of Abu Dhabi.

  Sultan was promoted to the rank of lieutenant colonel staff pilot in 1999 and then to the rank of colonel staff in February, 2000. He is the advisor to the president of the UAE, Khalifa bin Zayed, and the board chairman of the SBK Holding. He is among the board members of the Executive Council of Abu Dhabi. He was appointed the board member of the Abu Dhabi Investment Authority for three years in April 2013.
  

  
  

  Basically, Sultan is the second in command in the United Arab Emirates.
  

  As for SBK Holding, it is the Holding Company of Sultan Bin Khalifa. “With its headquarters in the United Arab Emirates, SBK Holding has a range of companies that serve a broad cross-section of industries not only in the Gulf region but also globally.”

  A quick glance at the company’s website shows that it is involved in virtually everything, and among the things it is involved in, is a vast gold trading empire courtesy of the Gold Holding company.

  * * *

  To recap the story so far:

  • Mohammed Abu-Alhaj is the owner of Gold.AE, a gold trading operation, whose primary role has been facilitating gold trade in Turkey (and ostensibly, since it is the primary Dubai gold company involved in Turkey, was the dominant player in Turkey’s smuggling of gold to Iran).
  • Gold.AE is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi’s second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al nahyan

  All of this brings us to today, and the following letter which the suddenly very unfortunate clients of Gold.AE aka “Your Gold Bank“, just received.

  Dear Client

   

  A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC (“the Company”). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.

   

  Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.

   

  Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.

   

  In order to try and secure/recover monies that had been taken out of the accounts of the company, Mr. Gauthier in his capacity as manager has filed various cases as against the recipients of the funds from the Company (Dubai Police ( Bur Dubai Police Station), Case No: 24378). The minority shareholders are doing everything within their powers to support him in his efforts to recover these monies that were withdrawn from Gold AE in questionable circumstances.

   

  DMCC has alleged that some of these activities undertaken by the previous management are in breach of DMCC’s rules and as such they have taken the decision to terminate the license of the Company. We are working closely with DMCC to find a solution and in the meanwhile, we request that you bear with us. In the meanwhile, as a statutory consequence of the license being terminated, the trading platform of the Company has to shut down as of the date of termination of the license which is 24th November 2015.

   

  We trust the forgoing is of assistance.

   

  Sincerely,

   

  On behalf of GOLD AE MANAGEMENT

  To loosely paraphrase South Park “aaaannd it’s gone. The gold is all gone.“

  For all those who just received the letter, and had funds at Gold.AE, our condolences, because if there is any confusion, what it says is that after a cursory inquiry into the operations of the “former” management team, the one led by Abu-Alhaj, not only did the “management team” vaporize with all the funds held in the trading group, but they “seemed to be unavailable”, meaning the management team itself vaporized. It also means that any funds you may have had there are gone for ever.

  Furthermore, since the letter explicitly highlights the “minority shareholders”, one wonders: was Sheik Sultan bin khalifah Al nahyan, the second most important person in Abu Dhabi, and a majority shareholder, involved in this unprecedented raiding of a company that was instrumental in the Turkey-to-Iran gold smuggling campaign?

  And if he wasn’t directly involved, just how much about this company’s gold-smuggling operations did he know?

  But perhaps the money is not completely vaporized. Perhaps it is simply sitting in the following Swiss bank as per the letter:

  

   

  Then again, we doubt that any money parked by the fraudulent management team of Gold AE will ever be uncovered, if only in the public realm: after all, the tentacles of this particular scandal stretch very far, so far that anyone who dares to talk will not live to say much more.

  How far?

  Let’s summarize once again: a gold-smuggling scandal that took place under the nose of the US and the international community for years, one which allowed Iran to skirt international sanctions using gold as a barter tool to keep its economy going and involved China and Russia among many other nations, and one which saw the participation of not only the economic and prime ministers of Turkey (and current president) but also countless corrupt Turkish politicians and the richest person in Iran, but also the second most powerful person in Dubai, the largest holding company in the Arab Emirates and the largest gold holding company in the Gulf state.

  A scandal which resulted in untold riches for everyone involved, and has also resulted in the Dubai management team disappearing with what may well be billions in stolen funds.

  And, naturally, there is a token “anonymous” Swiss bank to boot, which is likely the resting place of said stolen billions.

  All of this it is real, it happened, and is not the screenplay of the next James Bond movie.

  And – the punchline – it all revolves around one of the simplest products known to man: gold.

  

  

  

  

  

• The Fed Has Created A "Monster" And Just Made A "Dangerous Mistake," Stephen Roach Warns

  Stephen Roach is worried that the Fed has set the world up for another financial market meltdown. 

  Lower for longer rates and the proliferation of unconventional monetary policy have created “a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world,” Roach told Bloomberg TV in an interview conducted a little over a week ago. 

  To be sure, Roach’s sentiments have become par for the proverbial course. That is, it may have taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely that central banks are setting the world up for a crisis that will make 2008 look like a walk in the park, but most of the “very serious” people are now getting concerned. Take BofAML for instance, who, in a note we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:

  

  Perhaps Jeremy Grantham put it best: “..in the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006.”

  Indeed. It’s with that in mind that we bring you the following excerpts from a new piece by Roach in which the former Morgan Stanley chief economist and Yale fellow recounts the evolution of the Fed and how the FOMC ultimately became “beholden to the monster it had created”.

  *  *  *

  From “The Perils of Fed Gradualism” as posted at Project Syndicate

  By now, it’s an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization.

  A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake. The Fed is borrowing a page from the script of its last normalization campaign – the incremental rate hikes of 2004-2006 that followed the extraordinary accommodation of 2001-2003. Just as that earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008-2009, there is mounting risk of yet another accident on what promises to be an even longer road to normalization.

  The problem arises because the Fed, like other major central banks, has now become a creature of financial markets rather than a steward of the real economy. This transformation has been under way since the late 1980s, when monetary discipline broke the back of inflation and the Fed was faced with new challenges.

  The challenges of the post-inflation era came to a head during Alan Greenspan’s 18-and-a-half-year tenure as Fed Chair. The stock-market crash of October 19, 1987 – occurring only 69 days after Greenspan had been sworn in – provided a hint of what was to come. In response to a one-day 23% plunge in US equity prices, the Fed moved aggressively to support the brokerage system and purchase government securities.

  In retrospect, this was the template for what became known as the “Greenspan put” – massive Fed liquidity injections aimed at stemming financial-market disruptions in the aftermath of a crisis. As the markets were battered repeatedly in the years to follow – from the savings-and-loan crisis (late 1980s) and the Gulf War (1990-1991) to the Asian Financial Crisis (1997-1998) and terrorist attacks (September 11, 2001) – the Greenspan put became an essential element of the Fed’s market-driven tactics.

  The Fed had, in effect, become beholden to the monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based underpinnings of the US economy.

  Largely for that reason, and fearful of “Japan Syndrome” in the aftermath of the collapse of the US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it was precisely during this period of gradual normalization and prolonged accommodation that unbridled risk-taking sowed the seeds of the Great Crisis that was soon to come.

  Today’s Fed inherits the deeply entrenched moral hazard of the Asset Economy. The longer the Fed remains trapped in this mindset, the tougher its dilemma becomes – and the greater the systemic risks in financial markets and the asset-dependent US economy.

  Full post here

  *  *  *

  Roach goes on to say that we’re already seeing the beginnings of what may very well turn out to be a dramatic unwind as high yield rolls over and the emerging world struggles to cope with a soaring dollar (remember, even though EM has largely avoided “original sin” i.e. borrowing in dollars, at the sovereign level, corporates are another story). 

  As an aside, those interested in a comprehensive account of what Roach covers in the article cited above are encouraged to reach David Stockman’s “The Great Deformation.”

  

  

  

  

  

• Why 'The Regime' Hates Gold

  Submitted by Doug Casey via InternationalMan.com,

  A meme is now circulating that gold is the investment equivalent of a pet rock, and that the smart investor should sell gold, and buy stocks. That’s a ridiculous notion. In fact, if you believe in buying low and selling high, this is the time to buy gold, and sell stocks.

  It pays to remain as objective as you can be when analyzing any investment. People have a tendency to fall in love with an asset class, usually because it’s treated them so well. We saw that happen most recently with Internet stocks in the late ’90s and with houses up to 2007. Investment bubbles are driven primarily by emotion, although there’s always some rationale for the emotion to latch on to. Perversely, when it comes to investing, reason is recruited mainly to provide cover for passion and preconception.

  In the same way, people tend to hate certain investments unreasonably, usually at the bottom of a bear market, after they’ve lost a lot of money; even thinking about the asset means reliving the pain and loss. Love-and-hate cycles occur for all investment classes.

  But there’s only one investment I can think of that many people either love or hate reflexively, almost without regard to market performance: gold. And, to a lesser degree, silver. It’s strange that these two metals provoke such powerful psychological reactions – especially among people who dislike them. Nobody has an instinctive hatred of iron, copper, aluminum, or cobalt. The reason, of course, is that the main use of gold has always been as money. And people have strong feelings about money. Let’s spend a moment looking at how gold’s fundamentals fit in with the psychology of the current market.

  What Gold Is – and Why It’s Hated

  Let me first disclose that I’ve always been favorably inclined toward gold, simply because I think money is a good thing. Not everyone feels that way, however. Some, with a Platonic view, think that money and commercial activity in general are degrading and beneath the “better” sort of people – although they’re a little hazy about how mankind rose above the level of living hand-to-mouth, grubbing for roots and berries. Some think it’s “the root of all evil,” a view that reflects a certain attitude toward the material world in general. Some better-informed people (who have actually read Paul of Tarsus) think it’s just the love of money that’s the root of all evil. Some others see the utility of money, but think it should be controlled somehow – as if only the proper authorities know how to manage the dangerous substance.

  From an economic viewpoint, however, money is just a medium of exchange and a store of value. Efforts to turn it into a political football invariably are signs of a hidden agenda, or perhaps a psychological aberration.

  But, that said, money does have a moral as well as an economic significance. And it’s important to get that out in the open and have it understood. My view is that money is a high moral good. It represents all the good things you hope to have, do, and provide in the future. In a manner of speaking, it’s distilled life. That’s why it’s important to have a sound money, one that isn’t subject to political manipulation.

  Over the centuries, many things have been used as money, prominently including cows, salt, and seashells. Aristotle thought about this in the 4th century BCE and arrived at the five characteristics of a good money:

  • It should be durable (which is why, say, wheat isn’t a good money – it rots).

  • It should be divisible (which is why artwork isn’t a good money – you can’t cut up the Mona Lisa for change).

  • It should be convenient (which is why lead isn’t a good money – it just takes too much to be of value).

  • It should be consistent (which is one reason why land can’t be money – each piece is different).

  • And it should have value in itself (which is why paper money leads to trouble).

  Of the 92 naturally occurring elements, gold has proved the best money (silver is second). It’s not magic or superstition any more than it is for iron to be best for building bridges and aluminum for building airplanes.

  Of course, we do use paper as money today, but only because it recently served as a receipt for actual money. Paper money (currency) historically has a half-life that depends on a number of factors. But it rarely lasts longer than the government that issues it. Gold is the best money because it doesn’t need to be “faith based” or rely on a government.

  There’s much more that can be said on this topic, and it’s important to grasp the essentials in order to understand the controversy about whether now is a good time to buy. But this isn’t the place for an extended explanation.

  Keep these things in mind, though, as you listen to the current blather from talking heads about where gold is going. Most of them are just journalists, reporters that are parroting what they heard someone else say. And the “someone else” is usually a political apologist who works for a government. Or a hack economist who works for a bank, the IMF, or a similar institution with an interest in the status quo of the last few generations. You should treat almost everything you hear about finance or economics in the popular media as no more than entertainment.

  So, let’s take some recent statements, assertions, and opinions that have been promulgated in the media and analyze them. Many impress me as completely uninformed, even stupid. But since they’re floating around in the infosphere, I suppose they need to be addressed.

  Misinformation and Disinformation

  Let’s examine some memes floating around.

  “Gold is expensive.”

  This objection is worth considering – for any asset. In fact, it’s critical. We can determine the price of almost anything; that’s easy. The hard part is figuring out its value. From the founding of the U.S. until 1933, the dollar was defined as 1/20th of an ounce of gold. From 1933 to 1971, it was redefined as 1/35th of an ounce. After the 1971 dollar devaluation, the official price of the metal was raised to $42.22 – but that official number is meaningless, since nobody buys or sells the metal at that price. More importantly, people have gotten into the habit of giving the price of gold in dollars, rather than the value of the dollar in gold. But that’s another subject.

  Here’s the crux of the argument. Before the creation of the Federal Reserve in 1913, a $20 bill was just a receipt for the deposit of one ounce of gold with the Treasury. The U.S. official money supply equated more or less with the amount of gold. Now, however, dollars are being created by the trillion, and nobody really knows how many more of them are going to be shazammed into existence.

  It’s hard to determine the value of anything when the inch marks on your yardstick keep drifting closer and closer together.

  “The smart money is long gone from gold.”

  This is an interesting assertion that I find is based on nothing at all. Who really is the “smart money”? How do you really know that? And how do you know exactly what they own (except for, usually, many months after the fact) or what they plan on buying or selling? The fact is that very few billionaires (John Paulson perhaps being the best known of them) have declared a major position in the metal. Gold is only a tiny proportion of the financial world’s assets, both absolutely or relative to where it has been in the past:

  

  “Gold is risky.”

  Risk is largely a function of price. And, as a general rule, the higher the price, the higher the risk, simply because supply is likely to go up and demand down – leading to a lower price. So, yes, gold is riskier at $1,100 than it was at $700 or at $200. But even when it was at $35, there was a well-known financial commentator named Eliot Janeway (I always thought he was a fool and a blowhard) who was crowing that if the U.S. government didn’t support it at $35, it would fall to $8.

  In any event, risk is relative. Stocks are very risky today. Bonds are ultrarisky. Real estate, at least in many major cities, is in a near mania. And the dollar, although it’s cyclically popular, is on its way to reaching its intrinsic value. In fact, stock, bonds, property, and the dollar are all in bubble territory.

  Yes, gold is risky now. But it is actually much less risky than most alternatives.

  “Gold pays no interest.”

  This is kind of true. But only in the sense that a $100 bill pays no interest. You can get interest from anything that functions as money if it is lent out. Interest is the time premium of money. You will not get interest from either your $100 or your gold unless you lend them to someone. But both the dollars and the gold will earn interest if you lend them out. The problem is that once you make a loan (even to a bank, in the form of a savings account), you may not even get your principal back, much less the interest. And, of course, many banks around the world now pay negative interest for loaning them money – an absurd inversion of reality.

  “Gold pays no dividends.”

  Of course it doesn’t. It also doesn’t yield chocolate syrup. It’s a ridiculous objection, because only corporations pay dividends. It’s like expecting your Toyota in the driveway to pay a dividend, when only the corporation in Japan can do so. But if you want dividends related to gold, you can buy a successful gold mining stock.

  “Gold costs you insurance and storage.”

  This is arguably true. But it’s really a sophistic misdirection to which many people uncritically nod in agreement. You may very well want to insure and professionally store your gold. Just as you might your jewelry, your artwork, and most valuable things you own. It’s even true of the share certificates for stocks you may own. It’s true of the assets in your mutual fund (where you pay for custody, plus a management fee).

  You can avoid the cost of insurance and storage by burying gold in a safe place – something that’s not a practical option with most other valuable assets. But maybe you really don’t want to store and insure your gold, because the government may prove a greater threat than any common thief. And if you pay storage and insurance, they’ll definitely know how much you have and where it is.

  “Gold has no real use.”

  This assertion stems from a lack of knowledge of basic chemistry as well as economics. Yes, of course people have always liked gold for jewelry, and that’s a genuine use. It’s also good for dentistry and micro-circuitry. Owners of paper money, however, have found the stuff to be absolutely worthless hundreds of times in scores of countries.

  In point of fact, gold is useful because it is the most malleable, the most ductile, and the most corrosion resistant of all metals. That means we’re finding new uses for it literally every day. It’s also the second-most conductive of heat and electricity, and the second-most reflective (after silver). Gold is a hi-tech metal for these reasons. It can do things no other substance can and is part of the reason your computer works so well.

  But all these reasons are strictly secondary, because gold’s main use has always been (and I’ll wager will be again) as money. Money is its highest and best use, and it’s an extremely important one.

  “The U.S. can, or will, sell its gold to pay its debt, depressing the market.”

  I find this assertion completely unrealistic. The U.S. government reports that it owns 265 million ounces of gold. Let’s say that’s worth about $300 billion right now. I’m afraid that’s chicken feed in today’s world. It’s only half of this year’s federal deficit alone. It’s only half of one year’s trade deficit. It represents perhaps only 2% of the dollars outside the U.S. The U.S. government may be the largest holder of gold in the world, but it owns less than 5% of the approximately 6 billion ounces above ground.

  From the ’60s until about 2000, most Western governments were selling gold from their treasuries, working on the belief it was a “barbarous relic.” Since then, governments in the advancing world – China, India, Russia, and many other ex-socialist states – have been buying massive quantities.

  Why? Because their main monetary asset is U.S. dollars, and they have come to realize those dollars are the unbacked liability of a bankrupt government. They’re becoming hot potatoes, Old Maid cards. But the dollars can be replaced with what? Sovereign wealth funds are using them to buy resources and industries, but those things aren’t money. And in the hands of bureaucrats, they’re guaranteed to be mismanaged. I expect a great deal of gold buying from governments around the world over the next few years. And it will be at much higher dollar prices.

  “High gold prices will bring on huge new production, which will depress its price.”

  This assertion shows a complete misunderstanding of the nature of the gold market. Gold production is now about 90 million ounces per year and is trending down. That’s partly because, at high prices, miners tend to mine lower-grade ore. And partly because the world has been extensively explored, and most large, high-grade, easily exploited resources have already been put into production. And partly because most production is now unprofitable. Miners aren’t putting any new mines into production.

  But new production is trivial relative to the 6 billion ounces now above ground, which only increases by about 1.3% annually. Gold isn’t consumed like wheat or even copper; its supply keeps slowly rising, like wealth in general. What really controls gold’s price is the desire of people to hold it, or hold other things – new production is a trivial influence.

  That’s not to say things can’t change. The asteroids have lots of heavy metals, including gold; space exploration will make them available. Gigantic amounts of gold are dissolved in seawater and will perhaps someday be economically recoverable with biotech. It’s now possible to transmute metals, fulfilling the alchemists’ dream; perhaps someday this will be economic for gold. And nanotech may soon allow ultralow-grade deposits of gold (and every other element) to be recovered profitably. But these things need not concern us as practical matters for years to come.

  “You should have only a small amount of gold, for insurance.”

  This argument is made by those who think gold is only going to be useful if civilization breaks down, when it could be an asset of last resort. In the meantime, they say, do something productive with your money…

  This is poor speculative theory. The intelligent investor allocates his funds where it’s likely they’ll provide the best return, consistent with the risk, liquidity, and volatility profile he wants to maintain. There are times when you should be greatly overweight in a single asset class – sometimes stocks, sometimes bonds, sometimes real estate, sometimes what-have-you. From 1971 to 1980 and 2001 to 2011, it was wise to be hugely overweight gold. From 1981 to 2000 and 2011 to the present, it was wise to only keep an insurance position. Right now, you again want an overweight position. The idea of keeping a constant, but insignificant, percentage in gold impresses me as poorly thought out.

  “Interest rates are near zero; gold will fall as they rise.”

  In principle, as interest rates rise, people tend to prefer holding currency deposits. So they tend to sell other assets, including gold, to own interest-earning cash. But there are other factors at work. What if the nominal interest rate is 20%, but the rate of currency depreciation is 40%? Then the real interest rate is minus 20%. This is more or less what happened in the late ’70s, when both nominal rates and gold went up together. Right now governments all over the world are suppressing rates even while they’re greatly increasing the amount of money outstanding; this will eventually (read: soon) result in both much higher rates and a much higher general price level. At some point, high real rates will be a factor in ending the gold bull market, but that time is many months or years in the future.

  “Gold sentiment is dead.”

  That’s quite true. Gold sentiment is not just quite subdued among the public; most of them barely know the metal even exists.

  You’ll know sentiment is at a high when major brokerage firms are hyping newly minted gold products, and Slime Magazine (if it still exists) has a cover showing a golden bull tearing apart the New York Stock Exchange. We’re a long way from that point. When it arrives, I hope to sell my gold and buy the NYSE.

  “Mining stocks are risky.”

  This is absolutely true. In general, mining is a horrible business. It requires gigantic fixed capital expense to build a mine, but only after numerous, expensive, and unpredictable permitting issues are handled. Then, the operation is immovable and subject to every political risk imaginable, not infrequently including nationalization. Add in continual and formidable technical issues of every description, compounded by unpredictable fluctuations in the price of the end product. Mining is a horrible business, and you’ll never find Graham-Dodd investors buying mining stocks.

  All these problems (and many more that aren’t germane to this brief article), however, make mining stocks excellent speculative vehicles from time to time. Like right now.

  “Mineral exploration stocks are very, very risky.”

  This is very, very true. There are thousands of little public companies, and some are just a couple steps up from a prospector wandering around with a mule. Others are fairly sophisticated, hi-tech operations. Exploration companies are often classed with mining companies, but they are actually very different animals. They aren’t so much running a business as engaging in a very expensive and long-odds treasure hunt.

  That’s the bad news. The good news is that they are not only risky but extraordinarily volatile. The most you can lose is 100%, but the market cyclically goes up 10 to 1, with some stocks moving 1,000 to 1. That kind of volatility can be your best friend. Speculating in these issues, however, requires both expertise and a good sense of market timing. But they’re likely to be at the epicenter of the gold bubble when it arrives – even though few actually have any gold, except in their names.

  “Warren Buffett is a huge gold bear.”

  This is true, but irrelevant – entirely apart from suffering from the logical fallacy called “argument from authority.” Nonetheless, when the world’s most successful investor speaks, it’s worth listening. Here’s what Buffett said about gold in an interview with Ben Stein, another goldphobe:

  You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all – not some, all – of the farmland in the United States. Plus, you could buy 10 ExxonMobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

  I’ve long considered Buffett an idiot savant – a genius at buying stocks but at nothing else. His statement is accurate, but completely meaningless. The same could be said of the U.S. dollar money supply – or even of the world inventory of steel and copper. These things represent potential, but are not businesses or productive assets in themselves. Buffett is certainly not stupid, but he’s a shameless and intellectually dishonest sophist, despite his disarming and avuncular demeanor. And although a great investor, he’s neither an economist nor someone who believes in free markets.

  “Gold is a religious statement.”

  Actually, since most religions have an otherworldly orientation, they’re at least subtly (and often stridently) anti-gold. But it is true that some promoters of gold seem to have an Elmer Gantry-like style. That, however, can be said of True Believers in anything, whether or not the belief itself has merit. In point of fact, I think it’s more true to say goldphobes suffer from a kind of religious hysteria, fervently believing in collectivism in general and the state in particular, with no regard to counterarguments. Someone who understands why gold is money and why it is currently a good speculative vehicle is hardly making a religious statement. More likely, he’s taking a scientific approach to economics and thinking for himself.

  So Where Are We?

  So, these are some of the more egregious arguments against gold that are being brought forward today. Most of them are propounded by knaves, fools, or the uninformed.

  My own view should be clear from the responses I’ve given above. But let me clarify it a bit further. Historically – actually just up until the decades after World War I, when world governments started issuing paper currency with no relation to gold – the metal was cash, and it was used as money everywhere, on a daily basis. I believe that will again be the case in the fairly near future.

  The question is: At what price will that occur, relative to other things? It’s not just a question of picking a dollar price, because the relative value of many things – houses, food, commodities, labor – has been distorted by a very long period of currency inflation, increased taxation, and very burdensome regulation that started at the beginning of the last depression. Especially with the fantastic leaps in technology now being made and breathtaking advances that will soon occur, it’s hard to be sure exactly how values will realign after the Greater Depression ends. And we can’t know the exact manner in which it will end. Especially when you factor in the rise of China and India.

  A guess? I’ll say the equivalent of about $5,000 an ounce of today’s dollars. And I feel pretty good about that number, considering how shaky the world financial situation is, and that we are – I believe – about to enter another gold bull market. Classic bull markets have three stages. We’re still in the “Stealth” stage – when few people even remember gold exists, and those who do mock the idea of owning it. Next, we’ll enter the “Wall of Worry” stage, when people notice it and the bulls and bears battle back and forth. At some point, we’ll enter the “Mania” stage – when everybody, including governments, is buying gold, out of greed and fear. But also out of prudence.

  The policies of Bernanke, Yellen, and Obama – and also of almost every other central bank and government in the world – are not just wrong. These people are, perversely, doing just the opposite of what should be done to cure the problems that have built up over decades. One consequence of their actions will be to ignite numerous other bubbles in various markets and countries. I expect the biggest bubble will be in gold, and the wildest one in mining and exploration stocks.

  When will I sell out of gold and gold stocks? Of course, they don’t ring a bell at either the top or the bottom of the market. But I expect to be a seller when there really is a bubble, a mania, in all things gold related. There’s a good chance that will coincide to some degree with a real bottom in conventional stocks. I don’t know what level that might be on the DJIA, but I think its average dividend yield might then be in the 6% to 8% area.

  The bottom line is that gold and its friends are again cheap, and they have a long way – in both time and price – to run. Until they’re done, I suggest you be right and sit tight.

  

  

  

  

  

• Manhattan Luxury-Home Prices Drop For 8th Straight Month Amid "Glut In Overpriced Apartments"

  The poor are getting poorer but the rich, it appears, are no longer getting richer. With apartment vacancies at 9-month highs, Bloomberg reports that Manhattan's luxury-home market is rapidly losing its luster. Prices have been dropping every month since February, when they reached their highest point on record, and, as one analyst notes, "the downward trend in that decline hasn’t abated, and we haven’t seen it wavering in any way."

  As we detailed previously,

  The vacancy rate in November was 2.87 percent, up from 2.31 percent a year earlier and the highest since August 2006, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Landlords eager to fill empty units lured tenants with the most concessions since 2011.

   

  

   

  The rise in vacancies suggests tenants are reaching the upper limits of what they’re able to pay after more than four years of almost continuous rent growth, according to Jonathan Miller, president of Miller Samuel. In November, the median monthly apartment rent climbed 3.9 percent from a year earlier to $3,361. Leasing costs have jumped more than 18 percent since the end of the recession in June 2009.

   

  “We’re reaching the point where things can’t go up as much,” Miller said in an interview. “The economics don’t make much sense anymore.”

   

  …

   

  “The conditions that are driving rents higher haven’t changed,” Miller said. “What’s changed is the acceptance of it, the affordability of it.”

   

  The luxury-apartment market, the top 10 percent of all rentals by price, was the only category with a decline in prices. The median rent in November fell 1.4 percent to $8,537.

   

  “Complaining about high rents in Manhattan is nothing new, but now it’s becoming more visceral to tenants,” said Miller, who’s been tracking the apartment market since 1991.

   

  “We’re hitting the point where affordability is really becoming a much bigger issue than it has been in the past.”

  And now luxury home prices are falling…

  

  As Bloomberg details,

  Prices for luxury homes are moving in the opposite direction from the broader Manhattan market, where values are still rising and discounts are few. New York’s high-end inventory has ballooned in recent years as developers focused on building large and lavish units in an appeal to wealthy investors, who now appear to be more hesitant to buy. Listings for more moderately priced homes, meanwhile, haven’t been replenished because the high cost of land makes building in that range unprofitable, and owners are reluctant to sell because they can’t afford to trade up.

   

  The result is a pool of listings that’s light on the properties that more people want to buy, Lightfeldt said. In the third quarter, the supply of homes for sale in the top fifth of the the market rose more than in any other segment, jumping 8.9 percent to 4,055 units, according to StreetEasy. For the other four levels combined, listings declined more than 3 percent.

   

  The Federal Reserve, in its December Beige Book of regional economic conditions, noted the same bifurcation in the New York market, citing a “supply glut” of high-end homes and slackening buyer demand for them. The top price tier was also the only one in which sellers as a group didn’t get their full asking price in the third quarter, StreetEasy data show.

   

  “Every asset has a threshold in pricing and once you push past it, you’re going to see the buyers resist,” said Donna Olshan, president of Olshan Realty Inc. and author of a weekly newsletter on the New York luxury market.

   

  Olshan, who defines luxury as units listed for at least $4 million, described having had four good sales weeks out of the past four months, with prospective buyers choosing to pause rather than submit to ever higher prices.

   

  “We have a lot of overpriced apartments on the market and that’s the reason for a slowdown,” said Olshan, who said she believes the market has plateaued rather than peaked.

   

  “Tremendous overpricing means that marketing periods are longer, and the people who are overpriced are going to have to correct.”

  The luxury market “has been over-served and the demand seems to be fully satiated,” said Lightfeldt of StreetEasy.

  The firm’s price index is based on a representative sampling of resales in a given month, which are compared to their previous sales prices.

   

  Demand for the most-expensive homes has also been dimmed by the weakening of the euro against the U.S. dollar, gyrations in the Chinese stock market and a losing year for hedge funds, Olshan said.

   

  “You take all of those factors and you sprinkle them onto a real estate market that was overpriced to begin with, and you’re going to feel it,” she said.

  *  *  *

  So what market's property bubble explodes next?

  

  

  

  

  

  

  

• Ukraine's Looming "19 Fukushimas" Scenario

  Submitted by Dmitry Orlov via ClubOrlov.com, (author of The Five Stages Of Collapse)

  With all the action in Syria, the Ukraine is no longer a subject for discussion in the West. In Russia, where the Ukraine is still a major problem looming on the horizon, and where some 1.5 million Ukrainian refugees are settling in, with no intentions of going back to what's left of the Ukraine, it is still actively discussed. But for the US, and for the EU, it is now yet another major foreign policy embarrassment, and the less said about it the better.

  In the meantime, the Ukraine is in full-blown collapse – all five glorious stages of it – setting the stage for a Ukrainian Nightmare Before Christmas, or shortly after.

  Phase 1. Financially, the Ukrainian government is in sovereign default as of a couple of days ago. The IMF was forced to break its own rules in order to keep it on life support even though it is clearly a deadbeat. In the process, the IMF stiffed Russia, which happens to be one of its major shareholders; what gives?

   

  Phase 2. Industry and commerce are approaching a standstill and the country is rapidly deindustrializing. Formerly, most of the trade was with Russia; this is now over. The Ukraine does not make anything that the EU might want, except maybe prostitutes. Recently, the Ukraine has been selling off its dirt. This is illegal, but, given what's been happening there, the term “illegal” has become the stuff of comedy.

   

  Phase 3. Politically, the Ukrainian government is a total farce. Much of it has been turned over to fly-by-night foreigners, such as the former Georgian president Saakashvili, who is a wanted criminal in his own country, which has recently stripped him of his citizenship. The parliament is stocked with criminals who bought their seat to gain immunity from prosecution, and who spend their time brawling with each other. Prime Minister Yatsenyuk was recently hauled off the podium by his crotch; how dignified is that? He seemed unfazed. Where are his testicles? Perhaps Victoria Nuland over at the US State Dept. is keeping them in a jar. This sort of action may be fun to watch on Youtube, but the reality is quite sad: those who “run” the Ukraine (if the term still applies) are only interested in one thing: stealing whatever is left.

   

  Phase 4. Ukrainian society (if the term still applies) has been split into a number of warring factions. This was, to some extent, inevitable. What happens if you take bits of Poland, Hungary, Romania and Russia, and stick them together willy-nilly? Well, results may vary; but if you also spend $5 billion US (as the Americans did) turning the Ukrainians against Russia (and, since they are mostly Russian, against themselves), then you get a complete disaster.

   

  Phase 5. Cultural collapse is quite advanced. The Ukraine once had the same world-class educational system as Russia, but since independence they switched to teaching in Ukrainian (a made-up language) using nonexistent textbooks. The kids have been taught a bogus history hallucinated by rabid Ukrainian nationalists. They've been told that Russia is backward and keeping them back, and that they deserve to be happy in the EU. (Just like the Greeks? Yeah…) But now the population has been reduced to levels of poverty not commonly seen outside of Africa, and young people are fleeing, or turning to gangsterism and prostitution, to merely survive. This doesn't make for a happy cultural narrative. What does it mean to be “a Ukrainian” now? Expletives deleted. Sorry I asked.

  Now, here's what it all really means. With so much going wrong, the Ukraine has been unable to secure enough natural gas or coal supplies to provide a supply cushion in case of a cold snap this winter. A few weeks of frosty weather will deplete the supply, and then pipes will freeze, rendering much of the urban areas unlivable from then on (because, recall, there is no longer any money, or any industry to speak of, to repair the damage). That seems bad enough, but we aren't quite there yet.

  You see, the Ukraine produces over half of its electricity using nuclear power plants. 19 nuclear reactors are in operation, with 2 more supposedly under construction. And this is in a country whose economy is in free-fall and is set to approach that of Mali or Burundi! The nuclear fuel for these reactors was being supplied by Russia. An effort to replace the Russian supplier with Westinghouse failed because of quality issues leading to an accident. What is a bankrupt Ukraine, which just stiffed Russia on billions of sovereign debt, going to do when the time comes to refuel those 19 reactors? Good question!

  But an even better question is, Will they even make it that far? You see, it has become known that these nuclear installations have been skimping on preventive maintenance, due to lack of funds. Now, you are probably already aware of this, but let me spell it out just in case: a nuclear reactor is not one of those things that you run until it breaks, and then call a mechanic once it does. It's not a “if it ain't broke, I can't fix it” sort of scenario. It's more of a “you missed a tune-up so I ain't going near it” scenario. And the way to keep it from breaking is to replace all the bits that are listed on the replacement schedule no later than the dates indicated on that schedule. It's either that or the thing goes “Ka-boom!” and everyone's hair falls out.

  How close is Ukraine to a major nuclear accident? Well, it turns out, very close: just recently one was narrowly avoided when some Ukro-Nazis blew up electric transmission lines supplying Crimea, triggering a blackout that lasted many days. The Russians scrambled and ran a transmission line from the Russian mainland, so now Crimea is lit up again. But while that was happening, the Southern Ukrainian, with its 4 energy blocks, lost its connection to the grid, and it was only the very swift, expert actions taken by the staff there that averted a nuclear accident.

  I hope that you know this already, but, just in case, let me spell it out again. One of the worst things that can happen to a nuclear reactor is loss of electricity supply. Yes, nuclear power stations make electricity—some of the time—but they must be supplied with electricity all the time to avoid a meltdown. This is what happened at Fukushima Daiichi, which dusted the ground with radionuclides as far as Tokyo and is still leaking radioactive juice into the Pacific.

  And so the nightmare scenario for the Ukraine is a simple one. Temperature drops below freezing and stays there for a couple of weeks. Coal and natural gas supplies run down; thermal power plants shut down; the electric grid fails; circulator pumps at the 19 nuclear reactors (which, by the way, probably haven't been overhauled as recently as they should have been) stop pumping; meltdown!

  And so, if you want to say a prayer for the Ukraine this holiday season, don't bother because it's well and truly fucked. But do say a prayer for global warming. If this winter stays very, very warm, then the “19 Fukushimas” scenario just may be averted. This is not impossible: we've been seeing one freakishly warm winter after another, and each passing month is setting new records. The future is looking hot—as in very warm. Let us pray that it doesn't also turn out to be hot—as in radioactive.

  

  

  

  

  

• Two-Thirds Of Young Democrats Eager To Accept Refugees From Fictional City In Aladdin Movie

  Earlier in the week, many scoffed at the stereotype-confirming 30% of Republicans than supported the bombing of Agrabah – the fictional city from the Disney movie Aladdin. Now, according to WPAResearch, a new poll shows a stunning 66% of young Democrats are especially eager to take in the imaginary refugees.

  As WPAResearch reports,

  Public Policy Polling, which is known for adding questions in surveys to exploit Republicans who are less informed, recently found that 30% of Republican voters would support bombing Agrabah, a fictional country in the Disney film Aladdin.

   

  On December 20, 2015, WPA Research fielded a national survey of 1,132 registered voters that found 44% of Democrats would support taking refugees from that same Agrabah.

   

  Would you support or oppose allowing refugees from Agrabah to be re-settled in the United States?

   

  

   

  PPP may have proven that some Republicans will support bombing a fictional country, but fully 44% of Democrats will allow refugees from anywhere into the country, whether they are potential ISIS supporters from Syria or potential cartoon characters on a magic carpet ride.

   

  Additionally, 'Young' Democrats aged 18-34, a key constituency of President Obama, are especially eager to take in imaginary refugees.

   

  

   

  So, nearly two-thirds of these voters support accepting refugees from Agrabah. This seems particularly suprising given this generation grew up watching Disney films such as Aladdin.

  *  *  *

  As Mike Krieger concluded recently,

  And you wonder why things are the way they are. These are the people who will choose the Presidential nominees for each corrupt political party.

  

  

  

  

  

• 58 Facts About The U.S. Economy From 2015 That Are Almost Too Crazy To Believe

  Submitted by Michael Snyder via The Economic Collapse blog,

  The world didn’t completely fall apart in 2015, but it is undeniable that an immense amount of damage was done to the U.S. economy.

  This year the middle class continued to deteriorate, more Americans than ever found themselves living in poverty, and the debt bubble that we are living in expanded to absolutely ridiculous proportions.  Toward the end of the year, a new global financial crisis erupted, and it threatens to completely spiral out of control as we enter 2016. 

  Over the past six months, I have been repeatedly stressing to my readers that so many of the exact same patterns that immediately preceded the financial crisis of 2008 are happening once again, and trillions of dollars of stock market wealth has already been wiped out globally.  Some of the largest economies on the entire planet such as Brazil and Canada have already plunged into deep recessions, and just about every leading indicator that you can think of is screaming that the U.S. is heading into one.

  So don’t be fooled by all the happy talk coming from Barack Obama and the mainstream media.  When you look at the cold, hard numbers, they tell a completely different story.  The following are 58 facts about the U.S. economy from 2015 that are almost too crazy to believe…

  #1 These days, most Americans are living paycheck to paycheck.  At this point 62 percent of all Americans have less than 1,000 dollars in their savings accounts, and 21 percent of all Americans do not have a savings account at all.

  #2 The lack of saving is especially dramatic when you look at Americans under the age of 55.  Incredibly, fewer than 10 percent of all Millennials and only about 16 percent of those that belong to Generation X have 10,000 dollars or more saved up.

  #3 It has been estimated that 43 percent of all American households spend more money than they make each month.

  #4 For the first time ever, middle class Americans now make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.

  #5 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.

  #6 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percent between 2001 and 2013.

  #7 In 1970, the middle class took home approximately 62 percent of all income. Today, that number has plummeted to just 43 percent.

  #8 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.

  #9 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

  #10 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.

  #11 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”.

  #12 Since hitting a peak of 69.2 percent in 2004, the rate of homeownership in the United States has been steadily declining every single year.

  #13 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.

  #14 Traditionally, entrepreneurship has been one of the primary 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.

  #15 For each of the past six years, more businesses have closed in the United States than have opened.  Prior to 2008, this had never happened before in all of U.S. history.

  #16 If you can believe it, the 20 wealthiest people in this country now have more money than the poorest 152 million Americans combined.

  #17 The top 0.1 percent of all American families have about as much wealth as the bottom 90 percent of all American families combined.

  #18 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.

  #19 The number of Americans that are living in concentrated areas of high poverty has doubled since the year 2000.

  #20 An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.

  #21 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.

  #22 In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.

  #23 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.

  #24 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.

  #25 The number of homeless children in the U.S. has increased by 60 percent over the past six years.

  #26 According to Poverty USA, 1.6 million American children slept in a homeless shelter or some other form of emergency housing last year.

  #27 Police in New York City have identified 80 separate homeless encampments in the city, and the homeless crisis there has gotten so bad that it is being described as an “epidemic”.

  #28 If you can believe it, more than half of all students in our public schools are poor enough to qualify for school lunch subsidies.

  #29 According to a Census Bureau report that was released a while back, 65 percent of all children in the U.S. are living in a home that receives some form of aid from the federal government.

  #30 According to a report that was published by UNICEF, almost one-third of all children in this country “live in households with an income below 60 percent of the national median income”.

  #31 When it comes to child poverty, the United States ranks 36th out of the 41 “wealthy nations” that UNICEF looked at.

  #32 An astounding 45 percent of all African-American children in the United States live in areas of “concentrated poverty”.

  #33 40.9 percent of all children in the United States that are being raised by a single parent are living in poverty.

  #34 There are 7.9 million working age Americans that are “officially unemployed” right now and another 94.4 million working age Americans that are considered to be “not in the labor force”.  When you add those two numbers together, you get a grand total of 102.3 million working age Americans that do not have a job right now.

  #35 According to a recent Pew survey, approximately 70 percent of all Americans believe that “debt is a necessity in their lives”.

  #36 53 percent of all Americans do not even have a minimum three-day supply of nonperishable food and water at home.

  #37 According to John Williams of shadowstats.com, if the U.S. government was actually using honest numbers the unemployment rate in this nation would be 22.9 percent.

  #38 Back in 1950, more than 80 percent of all men in the United States had jobs.  Today, only about 65 percent of all men in the United States have jobs.

  #39 The labor force participation rate for men has plunged to the lowest level ever recorded.

  #40 Wholesale sales in the U.S. have fallen to the lowest level since the last recession.

  #41 The inventory to sales ratio has risen to the highest level since the last recession.  This means that there is a whole lot of unsold inventory that is just sitting around out there and not selling.

  #42 The ISM manufacturing index has fallen for five months in a row.

  #43 Orders for “core” durable goods have fallen for ten months in a row.

  #44 Since March, the amount of stuff being shipped by truck, rail and air inside the United States has been falling every single month on a year over year basis.

  #45 Wal-Mart is projecting that its earnings may fall by as much as 12 percent during the next fiscal year.

  #46 The Business Roundtable’s forecast for business investment in 2016 has dropped to the lowest level that we have seen since the last recession.

  #47 Corporate debt defaults have risen to the highest level that we have seen since the last recession.  This is a huge problem because corporate debt in the U.S. has approximately doubled since just before the last financial crisis.

  #48 Holiday sales have gone negative for the first time since the last recession.

  #49 The velocity of money in the United States has dropped to the lowest level ever recorded.  Not even during the depths of the last recession was it ever this low.

  #50 Barack Obama promised that his program would result in a decline in health insurance premiums by as much as $2,500 per family, but in reality average family premiums have increased by a total of $4,865 since 2008.

  #51 Today, the average U.S. household that has at least one credit card has approximately $15,950 in credit card debt.

  #52 The number of auto loans that exceed 72 months has hit at an all-time high of 29.5 percent.

  #53 According to Dr. Housing Bubble, there have been “nearly 8 million homes lost to foreclosure since the homeownership rate peaked in 2004″.

  #54 One very disturbing study found that approximately 41 percent of all working age Americans either currently have medical bill problems or are paying off medical debt.  And collection agencies seek to collect unpaid medical bills from about 30 million of us each and every year.

  #55 The total amount of student loan debt in the United States has risen to a whopping 1.2 trillion dollars.  If you can believe it, that total has more than doubled over the past decade.

  #56 Right now, there are approximately 40 million Americans that are paying off student loan debt.  For many of them, they will keep making payments on this debt until they are senior citizens.

  #57 When you do the math, the federal government is stealing more than 100 million dollars from future generations of Americans every single hour of every single day.

  #58 An astounding 8.16 trillion dollars has already been added to the U.S. national debt while Barack Obama has been in the White House.  That means that it is already guaranteed that we will add an average of more than a trillion dollars a year to the debt during his presidency, and we still have more than a year left to go.

  What we have seen so far is just the very small tip of a very large iceberg.  About six months ago, I stated that “our problems will only be just beginning as we enter 2016″, and I stand by that prediction.

  We are in the midst of a long-term economic collapse that is beginning to accelerate once again.  Our economic infrastructure has been gutted, our middle class is being destroyed, Wall Street has been transformed into the biggest casino in the history of the planet, and our reckless politicians have piled up the biggest mountain of debt the world has ever seen.

  Anyone that believes that everything is “perfectly fine” and that we are going to come out of this “stronger than ever” is just being delusional.  This generation was handed the keys to the finest economic machine of all time, and we wrecked it.  Decades of incredibly foolish decisions have culminated in a crisis that is now reaching a crescendo, and this nation is in for a shaking unlike anything that it has ever seen before.

  So enjoy the rest of 2015 while you still can.

  2016 is almost here, and it is going to be quite a year…

  

  

  

  

  

• Declassified Top Secret Documents Show US Planned To Nuke Moscow, Berlin, Beijing

  Back in September, we noted that the US was set to send 20 new nuclear bombs to Germany each of which has four times the destructive power of the explosive dropped on Hiroshima.

  “[These] new attack options against Russia” constitute “a conscious provocation of [Germany’s] Russian neighbors,” one member of Angela Merkel’s Christian Democrats warned. Sergei Lavrov’s de facto number-two, Maria Zakharova said the move represented an “infringement of Articles 1 and 2 of the Treaty on Non-Proliferation of Nuclear Weapons.” 

  Just days after the news crossed the wires, Interfax reported that in response, Moscow was set to deploy Iskander ballistic missiles to its enclave of Kaliningrad if the US indeed moved to upgrade its nuclear weapons in Germany.

  

  The tension underscores the fact that even before Russia officially entered the fray in Syria, relations between NATO and Moscow had deteriorated markedly to post-Cold War lows on the back of mutual distrust tied to Crimea and Ukraine. 

  Against that rather ominous backdrop, we bring you the Strategic Air Command’s Atomic Weapons Requirements Study for 1959, produced in June 1956 and published Tuesday for the first time by the National Security Archive. 

  As Dr. William Burr, the senior analyst who directs the Archive’s nuclear history documentation project writes, the document “provides the most comprehensive and detailed list of nuclear targets and target systems that has ever been declassified.”

  He continues: “The SAC study includes chilling details. According to its authors,  their target priorities and nuclear bombing tactics would expose nearby civilians and ‘friendly forces and people’ to high levels of deadly radioactive fallout. Moreover, the authors developed a plan for the ‘systematic destruction’ of Soviet bloc urban-industrial targets that specifically and explicitly targeted “population” in all cities, including Beijing, Moscow, Leningrad, East Berlin, and Warsaw.”  

  The National Security Archive, which is based at The George Washington University, says it obtained the 800-page study, through the Mandatory Declassification Review process. 

  Below, find excerpts from Burr’s summary.

  *  *  *

  SAC Nuclear Planning for 1959

  SAC’s top priority for destruction was Soviet “air power” because of the apparent immediate threat that Soviet bombers posed to the continental United States and to U.S. forces in Europe and East Asia.  The report’s detailed introduction explained that the priority given to Air Power (BRAVO) targets dictated the surface bursting of high-yield thermonuclear weapons to destroy priority targets, including airbases in Eastern Europe.  That tactic would produce large amounts of radioactive fallout compared to bursting weapons in the air.  According to the study, “the requirement to win the Air Battle is paramount to all other considerations.”

  The “greatly compressed time factor”—the danger of a speedy Soviet attack and counterattack– encouraged targeters to require the surface bursting of high-yield nuclear weapons. According to SAC, bursting the weapon in the air would “result in decrease of blast effect.” Detonating the weapon on or close to the ground would maximize blast effects, destroy the target, and disperse irradiated particles which would be picked up by winds and descend far and near.

  SAC’s top priority for destruction, the Soviet bloc’s air power, was a complex target system.  Before the Soviet Union  acquired the atomic bomb and significant capability to deliver nuclear weapons at long distances,  SAC’s priority had been the destruction of the Soviet urban-industrial complex, but during the mid-1950s the “greatly compressed time factor” produced a reversal.[3]   In the SAC Atomic Weapons Requirements Study for 1959, SAC broadly defined the “Air Power” target: air and missile bases for strategic  and tactical forces, defensive and offensive, but also government and military control centers that would direct the air battle and nuclear weapons storage sites, air industry, atomic industry, and petroleum-oil-lubricants (POL) storage areas.

  Given the expansive definition of Air Power, this suggested that targets in major cities such as Moscow and Leningrad could be subjected to H-bomb attack because both were rich in air power targets. 

  If fighting continued once the air power battle was over, the second phase of the war was to be the “systematic destruction” of Soviet bloc war-making potential. The “final blows” in the bombing campaign would strike “basic industries”—those industries and economic activities which most contributed to war-making capability.

  Moscow, the number one urban target, had around 180 installations slated for destruction; some were in the air power category, but many involved a variety of industrial activities, including factories producing machine tools, cutting tools, oil extraction equipment, and a most vital medicine: penicillin.  Other targets involved significant infrastructural functions: locks and dams, electric power grids, railroad yards, and repair plants for railroad equipment.

  What is particularly striking in the SAC study is the role of population targeting.  Moscow and its suburbs, like the Leningrad area, included distinct “population” targets (category 275), not further specified.  So did all the other cities recorded in the two sets of target lists. In other words, people as such, not specific industrial activities, were to be destroyed.

  East Germany was the site of major Soviet airbases and East Berlin itself was a target for “systematic destruction.”  A sampling of the SAC airfields list finds more than a few Soviet-operated installations among the top 200, with some not very far from Berlin. Among them were Briesen (number 140), Gross Dolln (Templin) (number 70), Oranienberg (number 95), Welzow (number 96), Werneuchen (Verneuchen) (number 82). 

  East Berlin had a priority ranking of 61 in the list of urban-industrial slated for “systematic destruction.”  The SAC study identified 91 DGZs in East Berlin and its suburbs: a wide range of industries and infrastructural activities including electric power, railroad yards, liquid fuel storage, machine tools, and radio and television stations.

  Whether China was fighting on the Soviet side or not in a war, SAC treated it as part of the Soviet bloc and listed Chinese airfields and cities in the target lists, including Beijing. Of the list of targets scheduled for “systematic destruction,” Beijing [Peiping in Wade-Giles transliteration] was in the top 20 (number 13) with 23 DGZs.

  *  *  *

  So while Berlin may now be set to receive 20 nuclear bombs from Washington, the city was also set to be on the “receiving” end of several nukes five decades ago. Needless to say, the “fallout” for West Berlin would have been disastrous, a fact which was greeted with “shock and awe” (pun fully intended) in Germany this week. Here are some representative tweets:

  Und als Kollateralschaden wäre Westberlin mal eben verglüht: Hunderte Ziele von US-Atombomben in der DDR https://t.co/QXXShVtwmW via @welt

  — Oliver Michalsky (@omichalsky) December 23, 2015

  USA wollten im Ernstfall 91 Ziele in Ost-Berlin treffen Damals glaubten wir noch an Freundschaft?
  https://t.co/s8BE7Q0dg2 via @SPIEGELONLINE

  — Franz W.Winterberg (@franzwi3) December 23, 2015

  Here’s Spiegel (translated):

  Disastrous consequences for West Berlin

   

  The documents show that the end of the fifties the quick elimination of the Soviet Air Force was the most important war aims of the United States. The 1100 Air Force bases in the Eastern bloc should be turned off before the Soviet bombers could take off at all.

   

  Among the main destinations of the 200 US nuclear bombers were numerous military installations in East Germany:

  • The front bomber base the Soviet Air Force in Briesen, south of Berlin
  • The largest Soviet military airfield in the GDR in Great Dölln, north of Berlin
  • The Soviet military airfield in Welzow, south of Berlin
  • The base of the 16th Soviet Air Army in Werneuchen, east of Berlin
  • The Soviet military airfield in Oranienburg, on the outskirts of Berlin

  In case of war, these military installations had been bombed with thermonuclear weapons. Large areas in the environment would have been exposed to radioactive radiation.

   

  Remains unclear whether the US Army had calculated the consequences of the nuclear attacks on West Berlin. William Burr doubts: “The atomic bombing of East Berlin and its suburbs have caused among other nuclear-generated firestorms. This would have had disastrous consequences for West Berlin..”

  What the documents seem to show, in a nutshell, is that the US was willing to wipe Moscow, Berlin, and Beijing off the face of the earth despite the fact that West Berlin was an ally and regardless of whether Beijing was actually involved in the fight.

  Mass civilian casualties were part and parcel of the plan, as was the complete destruction of German and Russian industrial capacity. If this is any indication of what a nuclear standoff between the US and Russia would resemble today, we hope, for humanity’s sake, that cooler heads will prevail in what is likely to be a yearslong period of heightened tensions.

  *  *  *

  SAC Docs

  

  

  

  

  

• Bernie Sanders: We Need A "Full And Independent Audit" Of The Federal Reserve

  Submitted by Barry Donegan via TruthInMedia.com,

  2016 Democratic presidential candidate and U.S. Senator from Vermont Bernie Sanders wrote an op-ed for The New York Times on Wednesday calling for the Federal Reserve to be audited independently by the Government Accountability Office on an annual basis.

  Meanwhile, Senate Majority Leader Mitch McConnell (R-Ky.) has scheduled a historic Jan. 12 vote on a bill, colloquially referred to as “Audit the Fed,” which was introduced by Sen. Rand Paul (R-Ky.). The bill would authorize the GAO to perform full audits of the Federal Reserve System.

  “To rein in Wall Street, we should begin by reforming the Federal Reserve, which oversees financial institutions and which uses monetary policy to maintain price stability and full employment. Unfortunately, an institution that was created to serve all Americans has been hijacked by the very bankers it regulates,” wrote Sen. Sanders.

  He added, “What went wrong at the Fed? The chief executives of some of the largest banks in America are allowed to serve on its boards. During the Wall Street crisis of 2007, Jamie Dimon, the chief executive and chairman of JPMorgan Chase, served on the New York Fed’s board of directors while his bank received more than $390 billion in financial assistance from the Fed. Next year, four of the 12 presidents at the regional Federal Reserve Banks will be former executives from one firm: Goldman Sachs.”

  Sanders called for the Glass-Steagall Act to be reinstated, a Depression-era banking regulation that created a wall of separation between consumer and investment banks prior to its repeal by former President Bill Clinton. He also suggested that the Fed should be prevented from providing incentives to encourage banks to sit on cash reserves.

  “As a condition of receiving financial assistance from the Fed,” said Sanders, “large banks must commit to increasing lending to creditworthy small businesses and consumers, reducing credit card interest rates and fees, and providing help to underwater and struggling homeowners.”

  Sanders argued that the Federal Reserve suffers from a lack of transparency. “In 2010, I inserted an amendment in Dodd-Frank to audit the emergency lending by the Fed during the financial crisis. We need to go further and require the Government Accountability Office to conduct a full and independent audit of the Fed each and every year,” he said.

  Audit the Fed legislation first became a hot political topic as a result of the sudden, meteoric 2008 rise to popularity of libertarian icon and former Congressman Ron Paul (R-Texas), who made the push for Fed transparency a central focus of his entire political career.

  The Dodd-Frank amendment that Sen. Sanders is referring to that provided for a limited audit of the Federal Reserve drew strong criticism from Congressman Paul back in 2010, as Paul felt that Sanders had hijacked his momentum for a full audit and replaced it with a more limited, watered-down version. Congressman Paul’s full Audit the Fed legislation had already passed the House prior to Sanders’ push for a tamer audit in the Senate.

   

  In the above-embedded video from 2010, an irate Ron Paul can be seen saying,

  “I had expected Bernie Sanders to offer S. 604 which is the same as H.R. 1207, which is Audit the Fed bill, and at the last minute he switched it and watered it down and, really, it adds nothing. It’s a possibility that it even makes the current conditions worse… We need to get as many messages as possible to any senator you can think of — especially to Bernie Sanders’ office — that we don’t want this version. We want a true audit of the Fed. We need to know what the Open Market Committee does and we need to know what they’re doing overseas with the agreements with central banks and financial institutions and other governments.”

  

  

  

  

  

• Switzerland To Vote On Ending Fractional Reserve Banking

  One year ago (and just two months before the shocking announcement the Swiss Franc’s peg to the Euro would end, dramatically revaluing the currency, and leading to massive FX losses around the globe and for the Swiss National Bank) the Swiss held a referendum whether to demand that their central bank should convert 20% of its reserves into gold, up from 7% currently. After the early polls showed the Yes vote taking a surprising lead, the Diebold machines kicked in and the result was a sweeping victory for the No vote, without a single canton voting for sound money.

  

   

  Ironically, this unexpected nonchallance about the Swiss central bank’s balance sheet by one of Europe’s more responsible nations took place just before the same bank announced CHF30 billions in losses on its long EUR positions following the revaluation of the CHF. It also took place when not just Germany, but the Netherlands and Austria announced they would repatriate a major portion of their gold in a move which, all spin aside, signals rising concerns about the existing monetary system.

  We wonder if the Swiss have changed their mind about just how prudent it is to have their central bank operate as one of the world’s largest – and worst – after its CHF 30 billion loss in Q1 FX traders, and hedge funds with $94 billion in stock holdings, since then.

  We may soon have the answer, because in what is shaping up to be another historic referendum on the treatment of money, earlier today the Swiss Federal Government confirmed that it had received enough signatures and would hold a referendum as part of the so-called “Vollgeld”, or Full Money Initiative, also known as the Campaign for Monetary Reform, which seeks to ban commercial banks from creating money, and which calls for the central bank to be given sole power to create the money in the financial system.

  In other words, an initiative to ban fractional reserve banking, and revert to a 100% reserve.

  As Finanzen.ch reports, after 111,763 signatures urging a referendum were submitted, of which 110,955 valid, the Federal Chancellery announced on Thursday that the popular vote would take place. Under Switzerland’s direct democracy, a referendum can be held if a motion gains 100,000 signatures within 18 months of launching.

  “Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks,” said the campaign group.

  Ever since the SNB was established in 1891, it has had exclusive power to mint coins and issue Swiss banknotes. However, as with every other fractional reserve banking system, over 90% of the money in circulation in Switzerland, as in every other country, now exists in the form “electronic” cash created by private banks, rather than the central bank.

  It is this threat of uncontrolled money creation and the risks to systemic stability that the Vollgeld campaign is seeking to stem.

  “Due to the emergence of electronic payment transactions, banks have regained the opportunity to create their own money,” said the Swiss Sovereign Money campaign. “The decision taken by the people in 1891 has fallen into oblivion.”

  So with the referendum now docketed, will this vote too be mysteriously “lost” in the final minutes of voting? According to the Telegraph, unlike the gold vote – which was seen as a precursor to re-introducing the Gold Standard in Switzerland – economists have been more supportive of the idea of “sovereign money” as a way to stabilize the economy and prevent excess credit growth.

  A date for the Swiss referendum has not been set.

  If the vote passes, and if Swiss banks are barred from creating deposits (by way of loans), it would shake to the core the entire modern financial system, which these days is exclusively reliant on runaway fractionalization of sound money, as more and more layers are added to the top of the Exter’s Pyramid, as the only possible “growth” left in a world that has never seen so much debt, is to find new and creative ways to borrow from the future, with banks getting all the benefits and stuffing taxpayers when the inevitable collapse happens.

  

   

  Below is a pdf provided by the Vollgeld Initiative, responding to popular criticisms against its “100% reserve” crusade.

  

  

  

  

  

• During the Next Crisis, Central Banking Itself Will Fail

  For six years, the world has operated under a complete delusion that Central Banks somehow fixed the 2008 Crisis.

   

  All of the arguments claiming this defied common sense. A 5^th grader would tell you that you cannot solve a debt problem by issuing more debt. If the below chart was a problem BEFORE 2008… there is no way that things are better now. After all, we’ve just added another $10 trillion in debt to the US system.

   

  Similarly, anyone with a functioning brain could tell you that a bunch of academics with no real-world experience, none of whom have ever started a business or created a single job can’t “save” the economy.

   

  However, there is an AWFUL lot of money at stake in believing these lies. So the media and the banks and the politicians were happy to promote them. Indeed, one could very easily argue that nearly all of the wealth and power held by those at the top of the economy stem from this fiction.

   

  So it’s little surprise that no one would admit the facts: that the Fed and other Central Banks not only don’t have a clue how to fix the problem, but that they actually have almost no incentive to do so.

   

  So here are the facts:

   

  1)   The REAL problem for the financial system is the bond bubble. In 2008 when the crisis hit it was $80 trillion. It has since grown to over $100 trillion.

   

  2)The derivatives market that uses this bond bubble as collateral is over $555 trillion in size.

   

  3)Many of the large multinational corporations, sovereign governments, and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.

   

  4)   Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.

   

  5)   The Central Banks are now all leveraged at levels greater than or equal to where Lehman Brothers was when it imploded. The Fed is leveraged at 78 to 1. The ECB is leveraged at over 26 to 1. Lehman Brothers was leveraged at 30 to 1.

   

  6)   The Central Banks have no idea how to exit their strategies. Fed minutes released from 2009 show Janet Yellen was worried about how to exit when the Fed’s balance sheet was $1.3 trillion (back in 2009). Today it’s over $4.5 trillion.

   

  We are heading for a crisis that will be exponentially worse than 2008. The global Central Banks have literally bet the financial system that their theories will work.  They haven’t. All they’ve done is set the stage for an even worse crisis in which entire countries will go bankrupt.

   

  The situation is clear: the 2008 Crisis was the warm up. The next Crisis will be THE REAL Crisis. The Crisis in which Central Banking itself will fail.

   

  Smart investors are preparing now.

   

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

   

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

   

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

   

  To pick up yours, swing by:

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

   

  Best Regards

   

  Graham Summers

  Chief Market Strategist

  Phoenix Capital Research

   

   

   

   

   

   

   

   

   

  

  

  

  

• How Turkey's Erdogan "Risks The Destruction Of The Country"

  As those who frequent these pages are no doubt aware, Turkish President Recep Tayyip Erdogan has lost his mind.

  

  To the extent Washington’s favorite autocrat had any sanity left going into the summer, he lost it completely in the wake of June elections that saw AKP lose its absolute majority in Parliament. That meant Erdogan would have a more difficult time rewriting the political rule book on the way to consolidating his power in an executive presidency. 

  Adding insult to injury, the election showed increased voter support for the pro-Kurdish HDP which Erdogan equates with the PKK, Ankara’s terrorist boogeyman. 

  All in all, Erdogan decided the outcome needed to be undone. After intentionally undermining the coalition building process, Erdogan – gun to his head – had to call for new elections. Conveniently, Ankara decided it needed to reignite the conflict with the PKK, a move which immediately plunged the country into violence, affording Erdogan an opportunity to play the “this is why Turkey needs a strongman” card on the way to securing a “better” ballot box result in early November. 

  Next, he shot down a Russian fighter jet and invaded Iraq. 

  

  All of this comes as Turkey’s role in financing the ISIS terror machine has been laid bare for the world to see. Ankara was long suspected of facilitating the flow of foreign fighters into Syria and the country’s role in funding and arming the various Sunni militants battling the SAA is well known. But allegations that Erdogan’s family may be leveraging the network Barzani and the Iraqi Kurds use to pipe Kurdish crude to Ceyhan (in defiance, mind you, of SOMO) on the way to helping ISIS smuggle stolen oil are new, and have made the world reconsider how we should view Turkey.

  At this point, it’s not clear what will happen next, but what we do know is that the US has rolled back requests that Turkey step up strikes in Syria and the Russians are fully prepared to shoot down Turkish F-16s that venture into Syrian airspace. Meanwhile, Erdogan still has troops in Iraq, much to Baghdad’s chagrin. 

  Here with a take on why Erdogan is dangerous is Burak Bekdil, an Ankara-based, Turkish columnist for the Hurriyet Daily 

  *  *  *

  Excerpted from “Turkey’s Dangerous Ambitions” via The Gatestone Institute

  It is the same old Middle East story: The Shiite accuse Sunnis of passionately following sectarian policies; Sunnis accuse the Shiite of passionately following sectarian polices; and they are both right. Except that Turkey’s pro-Sunni sectarian policies are taking an increasingly perilous turn as they push Turkey into new confrontations, adding newcomers to an already big list of hostile countries.

  Take President Recep Tayyip Erdogan’s recent remarks on the centuries-old Shiite-Sunni conflict: they amusingly looked more like a confession than an accusation: “Today we are faced with an absolute sectarianism. Who is doing it? Who are they? Iran and Iraq,” Erdogan said.

  This is the same Erdogan who once said, “The mosques are our barracks, the domes our helmets, the minarets our bayonets and the faithful our soldiers….” Is that not sectarian?

  So, with a straight face, the President of one sectarian country (Sunni Turkey) is accusing another country (Shiite Iran and Shiite-dominated Iraq) of being sectarian.

  Erdogan went on: “What about the Sunnis? There are Sunni Arabs, Sunni Turkmen and Sunni Kurds [in Iraq and Syria]. What will happen to their security? They want to feel safe.”

  Never realizing that its ambitions to spread Sunni Islam over large swaths of the Middle East, especially Syria and Iraq, were bigger than its ability to do so, Turkey now finds itself confronting a formidable bloc of pro-Shiite countries: Russia, Iran, Syria, Iraq, and (not to mention the much smaller Lebanon).

  Even before the crisis with Russia that began on November 24 — over Turkey’s shooting down a Russian SU-24 along the Turkish-Syrian border — has shown any sign of de-escalation, another Turkish move had sparked a major dispute with neighboring Iraq.

  Through its efforts to oust Syria’s non-Sunni president, Bashar al-Assad, and build a Muslim Brotherhood-type of Sunni Islamist regime in Damascus, Turkey has become everyone’s foe over its eastern and southern borders — in addition to having to wait anxiously for the next Russian move to hit it — not knowing where the blow will come from.

  As Professor Norman Stone, a prominent expert on Turkish politics, explained in a recent article: “Erdogan’s adventurism has been quite successful so far, but it amounts to an extraordinary departure for Turkish foreign policy, and maybe even risks the destruction of the country. How on earth could this happen? The background is an inferiority complex, and megalomania.” 

  

  

  

  

  

• Coming To America? Somalia, Brunei Ban Christmas To Avoid Damage To Muslim Faith

  The governments of both Somalia and Brunei have prohibited public festivities celebrating Christmas saying that they could damage the Muslim faith. Of course, as we saw yesterday, this kind of suppressive, micro-aggression is already here in America (at Cornell University) but while Mistletoe and crosses are banned here, Brunei's Sultan Hassanal Bolkiah has banned "hats or clothes that resemble Santa Claus," fearing they could "provoke al-Shabab to carry out attacks."

   

  As Al Jazeera reports, Somalia has issued a ban on Christmas celebrations in the Muslim-majority country after the Southeast Asian sultanate of Brunei announced a similar prohibition earlier this month with the threat of five years in jail.

   Sheikh Mohamed Khayrow, director general of Somalia's religious affairs ministry, said on Tuesday that Christmas and New Year celebrations threatened the country's Muslim faith.

   

  "There should be no activity at all," he told reporters, adding security forces had been ordered to break up any such festivities.

   

  "All events related to Christmas and New Year celebrations are contrary to Islamic culture, which could damage the faith of the Muslim community."

   

  Sheikh Nur Barud Gurhan, of the Supreme Religious Council of Somalia, also warned against celebrations, saying they could provoke al-Shabab "to carry out attacks".

   

  Last year, the armed group launched a Christmas Day attack on the African Union's heavily fortified headquarters in the capital Mogadishu, killing three AU soldiers and a civilian.

   

  Somalia, which issued a similar ban in 2013, follows the Islamic calendar that does not recognise January 1 as the beginning of the year.

   

  There are almost no Christians left living in the country, although a bombed-out Italian-built Catholic cathedral remains a city landmark Mogadishu.

   

  Foreign diplomats, aid workers, and soldiers living in the AU compound are permitted to mark the day privately.

  Similarly, Brunei's Sultan Hassanal Bolkiah has also banned public celebrations of Christmas.

  Religious leaders in the oil-rich sultanate warned the ban on Christmas would be strictly enforced, with violators facing up to five years in jail.

   

  "Using religious symbols like crosses, lighting candles, putting up Christmas trees, singing religious songs, sending Christmas greetings … are against Islamic faith," imams said in sermons published in the local press.

   

  The government warned last year that Muslims would be committing an offence if they so much as wore "hats or clothes that resemble Santa Claus".

   

  Christians represent about nine percent of Brunei's 430,000 population.

   

  Businesses have been warned to take decorations down and authorities have stepped up spot checks across the capital. Hotels popular among Western tourists that once boasted dazzling lights and giant Christmas trees are now barren of festive decor.

  *  *  *

  No, this is not from The Onion.

  We presume therefore that any of this would be unacceptable?

  

  Just checking.

  

  

  

  

  

• Dozens Killed In Huge Nigeria Gas Plant Explosion

  A massive explosion has occurred at an industrial gas plant (owned by Inter Corp Oil) in the southeastern Nigeria town of Nnewi. Local media reports the blast occurred while a truck was discharging its contents, and the ensuing fireball has left over 100 people burned to death.

   

  Explosion at chicason gas plant Nnewi pic.twitter.com/O3a9IjlzFE

  — Mcdonald ezenwa (@makavelli49) December 24, 2015

   

  Nigeria's Vanguard reports,

  Tragedy occurred, Thursday in the industrial town of Nnewi, Anambra state when an industrial Gas plant suddenly exploded and with over 100 persons burnt to death.

   

   

  

   

  The explosion rocked the Inter Corp Oil limited(LPG Gas Plant), an subsidiary of Chikason Group.

   

  According to an eye-witness, the fire incident which started at about 11am, was caused by an explosion when a truck  was discharging its contents.

   

  The source hinted that all the customers who went to the gas plant to get a refill were allegedly burnt to death while some of the victims who were in the neighborhood and passers-by also got caught in the inferno.

   

  At the scene of the incident, the charred bodies of the victims and other  severely burnt persons  were taken to Nnamdi Azikwe University Teaching Hospital, NAUTH, Nnewi.

   

  It was gathered that the  inferno did not allow rescue workers into the factory where hundreds were allegedly trapped.

  *  *  *

  

  

   

  The horrific scene…

  

   

  Is this what happens when a 'poor' nation loses enough of its oil revenues that safety standards (and the costs associated with them) get abused?

  

  

  

  

  

• Faltering Faith, Losing Hope, & Rising Charity – 15 Striking Findings From 2015

  Every year, Pew Research Center looks back at the most memorable facts that illustrate important trends shaping our world. From faltering faith in government to the decline of Christians in America and from increased racial tensions to the shrinking American middle-class, here are some of our most striking findings of 2015.

  Authored by George Gao via Pew Research,

  1. Just 19% of Americans say they can trust the federal government always or most of the time. That’s among the lowest levels in over 50 years. The long-term erosion of public trust is mirrored by a steep decline in the belief that the government is run for the benefit of all Americans.

  

   

  2. The American middle class is shrinking. After more than four decades of serving as the nation’s economic majority, the U.S. middle class is now matched in size by those in the economic tiers above and below it. A separate analysis also finds that globally, the middle class is more promise than reality. (See where you fit in the U.S. and worldwide with our interactive calculators.)

   

   

  3. For the first time since the 1940s, more immigrants from Mexico are leaving the U.S. than coming into the country. The shift is due to several reasons, including slow economic recovery after the Great Recession that may have made the U.S. less attractive, as well as stricter enforcement of U.S. immigration laws, particularly at the border.

  

   

  4. There’s a substantial rise in the share of Americans who say the country needs to continue making changes to give blacks equal rights with whites. In July 2015, six-in-ten (59%) Americans said changes are needed, up from 46% in March 2014. These findings come in a year where racial tensions were high in much of the country, from protests over police shootings to student strikes at universities. Our poll also shows that a racial divide in public opinion persists: Blacks are much more likely than whites to say changes are needed.

  

   

  5. Millennials surpassed Baby Boomers in sheer numbers to become the largest U.S. generation. There are an estimated 75.3 Millennials (ages 18 to 34) compared with 74.9 million Baby Boomers. This racially diverse, economically stressed and politically liberal group is also taking over American jobs: Millennial workers this year grew to outnumber Gen X workers, making them the largest share of the U.S. labor force.

  

   

  6. For news about politics and government, social media may be for the Millennial generation what local TV is for the Baby Boomer generation. Six-in-ten (61%) online Millennials say they get political news on Facebook in a given week, a much larger percentage than any other source for news. That’s a stark contrast to internet-using Baby Boomers, for whom local TV tops the list. These trends also reflect a major shift taking place in the news world, as social networking sites increasingly become an integral part of Americans’ news experience.

  

   

  7. For American teens, it’s not just a Facebook and Instagram world. While these two social media sites are the most popular, a majority (71%) of teens say they use more than one of the seven social networking sites we asked about. Much of this frenzy is facilitated by mobile devices: Nearly three-quarters of U.S. teens have access to a smartphone.

  

   

  8. People in countries with significant Muslim populations express overwhelmingly negative views of ISIS, according to our spring survey in 11 countries. Recent attacks in Paris, Beirut and Baghdad linked to the Islamic State in Iraq and Syria (ISIS) have once again brought terrorism and Islamic extremism to the forefront of international relations. Majorities in most of the 11 countries express unfavorable views of ISIS, but the exception is Pakistan, where a majority offer no opinion.

  

   

  9. Islam will grow faster than any other major religion in the world over the next four decades, according to our religious projections. The number of Muslims will grow more than twice as fast as the overall world population between 2010 and 2050, and, in the second half of this century, will likely surpass Christians as the world’s largest religious group. Driving these changes are simple demographics: Muslims have more children than members of other religions, and they’re also relatively younger.

  

   

  10. Christians are declining as a share of the U.S. population, while the number of U.S. adults who do not identify with any organized religion is growing. While the U.S. remains home to more Christians than any other country, the percentage of Americans identifying as Christian dropped from 78% in 2007 to 71% in 2014. By contrast, religious “nones,” driven in large part by Millennials, have surged seven percentage points in that time span to make up 23% of U.S. adults last year.

  

  11. Nearly 59 million immigrants have arrived in the U.S. in the past fifty years, after the passage of a landmark 1965 bill that rewrote U.S. immigration policy. Today, a near-record 14% of the country’s population is foreign-born compared with just 5% in 1965, and that share is expected to rise to 18% by 2065. New settlers today also look very different from the predominately European immigrants of the 19^th and 20^th centuries: Among immigrants who have arrived since 1965, half (51%) are from Latin America and one-quarter are from Asia.

  

   

  12. Multiracial Americans account for 6.9% of adults, and they are growing at a rate three times as fast as the population as a whole. For much of the nation’s history, America has discussed race in the singular form. But with the rise of interracial couples, combined with a more accepting society, the language of race is changing. More than half of multiracial Americans are proud of their background and feel more open to other cultures. But a majority (55%) also say they have been subjected to slurs or jokes because of their racial background.

  

   

  13. Scientists and the American public are often far apart when it comes to views about science-related issues. Members of the science community, for example, are much more likely to say genetically modified foods and foods grown with pesticides are safe to eat, and that climate change is mostly due to human activity, according to our recent survey of U.S.-based members of the American Association for the Advancement of Science.

  

   

  14. A global median of 54% consider climate change a very serious problem, according to our survey of 40 nations. But there are regional differences on views of climate change, with people from Latin America and Africa expressing more concern than others. Before delegates from 195 nations approved a landmark climate accord in Paris this year to limit carbon emissions, our spring survey found a median of 78% supporting such a deal.

  

   

  15. Reporters for niche outlets now fill more seats in the Senate press gallery than do journalists who work for daily newspapers. The face of the Washington press corps has changed markedly in recent years, transformed by this increase in the number of journalists working for “niche” publications and digital startups.

  

  *  *  *

  So faltering Faith in government, losing Hope in the American Dream, and the need for more Charity to manage retirees and refugees.

  

  

  

  

  

• Best "Santa Rally" In 4 Years Ends With Lump Of Coal

  Happy Holidays…

   

  This is the best 'week before Christmas' since 2011… Did we pull forward all that hope-strewn Santa Rally meme?

  

   

  Best week for stocks since the first week of October… A Total melt-up off Friday's OPEX lows

  

   

  On the day an overnight dip was bought… and then puked into the early close

  

   

  Seems like everyone and their pet reindeer was hedged…

  

   

  And credit started to weaken notably…

  

   

  And Bonds diverging…

  

   

  Notably, Energy broke a 3-day winning streak despite higher oil prices

  

   

  Post-FOMC, stock gave back most of their post-Fed gains…

  

   

  And even stocks decoupled from oil's exuberance…

  

   

  Treasury yields did not play along with equity exuberance today but ended the week up 4-5bps (curve flat)

  

   

  The USDollar Index slipped lower again today to end the shortened week down 0.8%… worst week in 3 weeks and worst 4 weeks sicne August black monday crash

  

   

  Commodities were all higher on the week (as the dollar slid)…

  

   

  WTI Crude was up over 5% on the week – its best week since the end-of-August "Andy Hall Ramp' Melt up.

  And what inspired this ripfest… surgingh oil and gasoline prices – "unequivocally good" for Americans – oh wait!

  

   

  Charts: Bloomberg

  

  

  

  

• Has The Great Carry Unwind Arrived: Yen Surges After Warning USDJPY 100 Coming

  For all the talk that the BOJ would unleash more stimulus, buy REITs, more ETFs (both existent or non-existent), or outright stocks, today the USDJPY did something it has not done in 7 weeks: the world’s preferred carry trade currency just slumped to the lowest level since early November. If it wasn’t for  the recent bounce in crude, and if the traditional USDJPY-ES correlation pair had not broken down as a result, the S&P would be well below 2000 at this moment.

  One reason for this is the epic confusion delivered by the BOJ one week ago, when instead of delivering its traditional “forceful” intervention, Kuroda & Co., disappointed the market by presenting half-measures which sent the USDJPY briefly spiking only to see it plunge shortly thereafter.

  

   

  But another, perhaps more troubling catalyst, was the call overnight by JPM’s Tohru Sasaki, Tokyo-based head of Japan markets research, who as Bloomberg reports, warned that the USDJPY will gain 110 next year from about 121 now, the most bullish among around 60 forecasts compiled by Bloomberg. Worse, he sees the equilibrium exchange rate at “below 100.”

  Sasaki believes that the time to be contrarian has arrived: “What investors like to hear is that the yen is weak and stocks are up — but if everyone’s constantly betting that way, at some point they’re going to get burned,” Sasaki, who worked at the Bank of Japan for more than a decade before joining JPMorgan in 2003, said in a Dec. 18 interview. “It’s possible that equity prices keep going up forever, because everyone is working to maximize their returns. But in the forex market, it will never happen — there’s an up and down.”

  If correct, this is a big problem for the BOJ, for Japan, Inc., for Abenomics and certainly for the Nikkei, which has soared in recent years only because of the Yen’s devaluation, as Japan – unlike Europe – has actually reaped the profitable benefits of export-stimulating currency debasement. Recall

  This is how Albert Edwards explained this a month ago:

  Japanese corporate profits since 2013 have boomed like never before. Abe hopes and prays this will spill over and spark a positive wage/price spiral. Yet, in the absence of further Japanese QE, the yen has been paddling sideways against the dollar in a ¥125-118 range since last November – and the yoy decline will soon drop away to zero. In fact, that is already the case on the BoE trade-weighted yen measure – see chart below.

  

  Sasaki’s view is quite contrarian and clashes with the consensus among analysts for the yen to slide to 125 per dollar next year, which would complete a five-year decline of 38 percent. The problem, as the recent ECB fiasco showed, is that if everyone expects the same thing, just the opposite happens.

  What is more troubling for the crowd, is that Sasaki has a history of being spot on:

  The yen has also become “significantly” undervalued after the BOJ’s trade-weighted index slid to an eight-year low in June, according to Sasaki. A Bloomberg gauge of consumer purchasing power parity shows the yen is 39 percent undervalued compared to the dollar, the most among major currencies.

   

  It’s not the first time JPMorgan has gone against the grain. Sasaki’s contrarian call for the currency to rally in the first half of 2014 proved prescient. In the second half of the same year, he escalated his forecast for yen weakness following a surprise BOJ easing, predicting 120 per dollar for Sept. 30 of this year. It closed that day at 119.88.

  Think Goldman or Gartman, just the opposite.

  More disturbing is the BOJer’s prediction that the Bank of Japan can no longer drive Yen weakness:

  Many bears are counting on BOJ Governor Haruhiko Kuroda to drive weakness, after two rounds of stimulus since April 2013 helped push the currency to a 13-year low of 125.86 per dollar in June. Analysts are almost evenly split on the chances of an expansion of the quantitative and qualitative easing program. JPMorgan sees additional QQE late in 2016 having no lasting impact on the yen.

  Incidentally this is precisely what we warned in early September when we presented an IMF report in which the monetary fund confirmed what we had been saying for years, namely that central banks are now monetization constrained, something which explains the BOJ’s recent backtracking.

  The result of all this skepticism, is that what until recently was the world’s most profitable trade – long USDJPY – is rapidly losing steam: “Yen declines are slowing, with this year’s 1 percent loss just a fraction of the at-least 11 percent tumbles each year from 2012. Hedge funds are also closing bets on depreciation, slashing so-called net shorts by the most since August in the week to Dec. 15, Commodity Futures Trading Commission data show.”

  Sasaki’s near term recommendation is for at least 5 big figures of USJPY downside. :

  Sasaki expects an unwinding of bearish positions among domestic investors too, driving the yen to 115 by March 31 next year. They include the 8.5 trillion yen in bets against the yen, 10 trillion yen in overseas holdings of investment trusts and the 50 trillion yen in retained earnings at Japanese corporations that could see increased hedging, JPMorgan estimates.

  Sasaki adds, that “different from past episodes of the yen carry trade, this time the major sellers of the yen are Japanese,” he said, referring to a strategy where investors borrow yen cheaply to invest in higher-yielding nations. “Japanese will need to unwind those positions eventually. The yen is no longer the ideal funding currency.”

  It he is correct, not only will the Nikkei plunge, but the weakness will quickly spill over the US, where Yellen herself will have no choice but to launch even more QE, in the process weakening the dollar and potentially leading to even more Yen weakness in a feedback loop.

  But the main reason why we are virtually certain the right trade here is to be short the USDJPY (and thus long the Yen), is the following blurb from Goldman’s FX crucifier, Robin Brooks from this past Saturday:

  … the BoJ’s 2% target is a long way away, however further progress towards this goal should lead to a decline in real rates – as the nominal curve is anchored by QE – and a decline in both JPY spot and forwards (Exhibit 4). We think the BoJ is closer to easing further to attempt to achieve a successful reflation than it is to giving up altogether, and so we continue to expect $/JPY higher. We recommend being long $/JPY as part of our 2016 top trade recommendation (along with short EUR/$) and forecast $/JPY at 130 in 12 months.

  Three days later, the USDJPY is 100 pips lower.

  To summarize, in finance, there are many unknowns, but one thing is absolutely certain: anyone who listens to Goldman’s advice to clients, ends up looking like this.

  

  

  

  

  

  

• "Unstoppable" California Gas Leak Now Being Called Worst Catastrophe Since BP Spill

  Since initially reporting on California's Alison Canyon gas leak, more details have emerged on the scale (and potential for no solution) of the problem as the infamous Erin Brockovich writes, "the enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping," as according to the California Air Resources Board, methane – a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide – has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now.

  New infrared footage exposes the massive leak..

   

  Infographic of leak (and potential solution)

  

   

  As TheAntiMedia.org's Claire Bernish details, methane gas continues spewing, unchecked, into the air over southern California from a fractured well to an underground storage site — at such an alarming rate that low-flying planes have necessarily been diverted by the FAA, lest internal combustion engines meet highly volatile gas and, well, blow the entire area to hell.  

  This is, indeed, the biggest environmental catastrophe since the BP Deepwater Horizon oil rig exploded in the Gulf of Mexico in 2010; and for now, there is no way to stop it.

  This methane disaster is worse than can be sufficiently described in words, because while it’s estimated well over 100,000 pounds of methane spew into the atmosphere every hour, the leak can’t be halted, at least until spring. Even then, that stoppage depends entirely on the efficacy of a proposed fix — which remains a dubiously open question.

  According to the California Air Resources Board, methane — a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide — has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. So far, the total leaked gas measures somewhere around 100,000 tons — adding “approximately one-quarter to the regular statewide methane emissions” during that same time frame.

  “The relative magnitude of emissions from the leak compared to other sources of methane in the State underscores the urgency of stopping the gas leak. This comes on top of any problems caused by odor and any potential impacts from exposure,” states the initial report on the Aliso leak by air quality officials.

  “The enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping. As the pressure from the weight on top of the pipe causes the gas to diffuse, it only continues to dissipate across a wider and wider area,” explained Erin Brockovich, who spent time in nearby Porter Ranch investigating the leak.

  Officials and experts are concerned, and they can’t recall another leak of this magnitude in decades — if ever. “I asked this question of our staff of 30 years,” said Steve Bohlen, who recently left his position as state supervisor of oil and gas. “This is unique in the last three or four decades. This is an unusual event, period.”

  Though methane, itself, has no odor, the addition of odorants methyl mercaptan and tetrahydrothiophene — a safety measure to alert people by smell to the presence of natural gas — has made the enormous methane seepage impossible to ignore. Thousands of households have evacuated the area, despite little help, much less information, from the gas company about when they might be able to return. As reported by the Los Angeles Times, SoCalGas spokesperson Michael Mizrahi claimed the company had paid to relocate and house 2,092 households — but that effort is severely lacking, says Los Angeles City Attorney Mike Feuer.

  Yesterday, the city attorney’s office sought a restraining order to mandate SoCalGas relocate residents in the affected area within 48 hours of their request; and it is also seeking a “special master” to oversee the entire relocation operation, which is currently being handled by the gas company. Not only does the present relocation lack speed and coordination, but a housing crunch has resulted in surrounding areas — in some cases landlords, who prefer year-long leases to shorter terms, have driven rent as high as $8,500 per month. Hotels are operating at capacity, and in “some of those hotel rooms there are not enough beds for the people who are being moved,” explained chief deputy to the city attorney, James P. Clark.

  “It’s time Porter Ranch residents had direct and complete answers about all facets of this leak,” Clark continued, “including what caused it, how to stop it, and what will be done to assure it never happens again. They should receive better, quicker, and completely adequate relocation assistance.”

  On Thursday, Los Angeles Unified School District board members voted unanimously to close two Porter Ranch schools and relocate their 1,900 students and staff to different locations for the foreseeable future. A local emergency has been declared by the Los Angeles County Board of Supervisors.

  Multiple lawsuits have now been initiated against SoCalGas and/or its parent company, Sempra Energy. A Los Angeles firm representing three of the families, who filed their suit Friday, described in a statement that the well has been “leaking noxious odors, hazardous gases, chemicals, pollutants, and contaminants due to a massive well failure and blowout. However, SoCalGas failed to inform residents of neighboring communities of the disastrous gas leak in a timely manner, putting the health and well-being of thousands of families in jeopardy.” Those suits allege “negligence, strict liability of ultra-hazardous activity, private nuisance, inverse condemnation, and trespass.”

  A class-action lawsuit has also been filed on behalf of the Save Porter Ranch group; and City Attorney Mike Feuer filed a civil suit earlier this month due to the leak’s continued threat to residents’ health and damage to the environment, alleging failure by SoCalGas to prevent the leak and further exacerbation of “the effects of that failure by allowing the acute odor and health problems faced by the community to persist for more than one month, to say nothing about the indefinite time it will persist into the future,” state the court documents. “No community should have to endure what the residents of Porter Ranch have suffered from the gas company’s continued failure to stop that leak,” Feuer stated.

  SoCalGas insists there will be no long-term health effects resulting from the persistent leak; but as Brockovich pointed out, “no one really knows the potential long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas.” In an email to the Los Angeles Daily News, SoCalGas stated they were “providing air filters for people’s homes” and “have established a claims process for those who feel they may have suffered harm or injury. And our top priority remains stopping this leak as quickly and safely as possible.

  “While the odor added to the leaking gas can cause symptoms for some, the gas is not toxic and county health officials have said the leak does not pose a long-term health risk.”

  But what’s making this massive leak so difficult to stop pertains to the storage ‘container,’ itself. “We have the largest natural gas storage system in the world,” boasts Chris McGill, vice president of the American Gas Association. In the United States, old underground oil fields are often put to use as storage vessels for natural gas — because, hey, that geology worked just fine to hold oil for millions of years, so why not natural gas?

  In fact, there are some 300 such depleted subterranean oil fields being employed this way around the United States. Aliso Canyon, a natural gas storage site since the 1970s, has one of the largest capacities: 86 billion cubic feet. During the summer, gas earmarked for winter heating is pumped into these underground cavities by SoCalGas — and the process is reversed with the turn of the seasons. However, this year, workers encountered what quickly became evident was anything but a typical hiccup. As Wired reported:

  “On October 23, workers noticed the leak at a 40-year-old well in Aliso Canyon. Small leaks are routine, says Bohlen, and SoCalGas did what it routinely does: put fluid down the well to stop the leak and tinker with the well head. It didn’t work. The company tried it five more times, and the gas kept leaking. At this point, it was clear the leak was far from routine, and the problem was deeper underground.”

  Beginning December 4th, SoCalGas crews began drilling a relief well to intercept the fissured pipe. Cement will then be poured into both to seal the wells permanently. Of course, for this to work, crews must locate that original pipe, which is a mere seven inches in diameter, thousands of feet underground — without accidentally creating any sparks, whatsoever. Work near the leak site, therefore, has been prohibited after nightfall, when lighting equipment could potentially cause such a spark; though drilling for the relief well is situated far enough away to continue nonstop.

  Flaring, or setting a deliberate fire to burn off excess gas, simply isn’t an option. The mammoth scope of this leak means a flare would ultimately complicate matters even further.

  “There is no stone being left unturned to get this well closed,” Bohlen stated. “It’s our top priority.”

  In the meantime, it will be months without any possibility of halting this disaster-in-motion. Sickened, uprooted, and furious residents can rest assured, though, because even as methane spews nonstop into the air, SoCalGas did have this consolation:

  “We are deeply sorry for the frustration.”